Australian miner eyes second bonanza with Canadian iron ore bet

Century Iron And Steel Industrial

31/05/2016 05:01

By Susan Taylor 
    MONTREAL, May 31 (Reuters) - An Australian mining veteran 
who made investors billions with a shrewd bet on coal in 
Mozambique is aiming for another big score with Canadian iron 
ore, even as a global gush of new supply threatens to depress 
already slumping prices. 
    Champion Iron  CIA.AX   CIA.TO  Chief Executive Michael 
O'Keeffe is laying the groundwork to restart Bloom Lake mine in 
northern Quebec's metals-rich Labrador Trough. 
    Champion bought Bloom Lake last year for only C$10.5 million 
 ($8.04 million) after Cliffs Natural Resources  CLF.N , which 
paid $4.9 billion for it in 2011, put the unprofitable mine into 
creditor protection.  
    Champion will have its work cut out. The spot iron ore price 
 .IO62-CNO=MB  is sputtering at $51 a tonne, down from an 
all-time high of about $190 in 2011, as an already oversupplied 
market absorbs ore from new mega-mines. 
    Best known for turning Riversdale Mining from a coal 
explorer in Mozambique with a market cap of A$7 million ($5 
million) into a producer that Rio Tinto  RIO.AX  acquired for 
nearly A$4 billion in 2011, O'Keeffe says he's "measured and 
controlled" - anything but a gambler. 
    "I pride myself on being able to pick the bottom," he said 
in an interview with Reuters. 
    Rio, however, wrote off its investment in Riversdale a few 
years later and fired its CEO over the failed venture. 
    O'Keeffe, who moved his family to Montreal, doesn't see the 
market recovering quickly. That gives Champion the time to 
develop mine and processing plans, he said, that will reduce 
costs and boost annual production to 7.5 million tonnes from 6 
million tonnes.     
    Pilot studies have already shown new processing equipment 
could help boost recovery rates to 80 percent from about 70 
percent when the mine last operated, he added. 
    The timing and pace of any restart will likely be decided at 
year-end, he said, a call that boils down to costs. 
     
    NOT TIME FOR NEW MINES 
    There are few companies anywhere making concrete plans to 
start producing iron ore. 
    "Now is not the time to start new mines. Now is the time to 
work what is already up harder," said Nev Power, chief executive 
of Fortescue Metals  FMG.AX , the world's No. 4 producer. 
    The "Big Three" - Rio, BHP Billiton  BHP.AX   BLT.L  and 
Vale  VALE5.SA  - have been slashing costs to squeeze out 
higher-cost rivals. 
    Separately, Australia's 55-million-tonne Roy Hill mine, 
combined with Vale's development of a 90-million-tonne 
expansion, S11D, in Brazil, may add more than 10 percent to the 
global sea-borne iron ore supply, said Clarksons Platou 
Securities analyst Jeremy Sussman.  
    "In order to balance the market, we'll need to see high-cost 
production come offline. And that's going to be painful," he 
said.  
    Iron ore from the remote Labrador Trough gets a premium for 
its high 66 percent concentration, versus the 62 percent 
standard, but is disadvantaged by its distance from the Chinese 
market. 
    Australia's government forecasts a price of $55 per tonne 
next year, so "what we have to then ensure, is that our costs of 
delivering to China are below $55," O'Keeffe said. 
    That's far from Bloom Lake's 2014 cash production cost of 
$81 and the largest miners' current cost of about $30 a tonne. 
    "They're going to have their hands full," said Clarksons' 
Sussman, noting that Bloom Lake was in the top quartile for 
costs. 
    O'Keeffe said company spending has been cut "significantly" 
and the mine is now free from costly rail and port access 
agreements. It could also benefit from planned government 
investments in that infrastructure. 
    Sandy Chim, the chief executive of neighboring miner Century 
Iron  9958.TW , said O'Keeffe is "brave" to bet on an uncertain 
market. 
    "It is courageous to put it forward," Chim said. "I like to 
see people take the first move in a particular area that we're 
in. It would be good to have somebody being a catalyst." 
    ($1 = 1.3066 Canadian dollars) 
    ($1 = 1.3922 Australian dollars) 
 
 (With additional reporting by Jim Regan in Sydney; Editing by 
Paul Simao) 
 ((susan.taylor1@thomsonreuters.com; +1 416 941 8083; Reuters 
Messaging: susan.taylor1.thomsonreuters.com@reuters.net)) 
 
Keywords: CHAMPION IRON CANADA/