Phosphate plays weathering the financial storm - Part One by Australian Journal of Mining — last modified May 13, 2009 03:04 AM — filed under: Operational Mining, Mining & Resources
(l-r) Joseph Gutnick, Legend International Holdings; Dr U.S. Awasthi, IFFCO; and Atul Chaturvedi, secretary to the Govt of India, department of fertilisers
By Jennifer Perry
With prices jumping from $US45 tonne in 2005 to $US450 tonne in 2008, last year was a good one for phosphate. Spurred on by food demand growth in developing economies and the subsequent need for phosphate fertilisers, strong demand for phosphate rock saw many companies in Australia dust off old plans for phosphate mines and greenfields explorers tout potential discoveries. This year, things have changed; like most commodities, the global economic downturn has impacted the phosphate industry. Prices have softened, demand weakened and project finance is more difficult to come by. Still, there are number of phosphate projects in Australia that continue to move forward, albeit at a slower rate compared to last year, and there are many in the industry that remain positive about the commodity’s future. With a step-down in aggregate demand in 2008/09 of nearly 10 per cent, according to Andy Jung of British Sulphur Consultants, a division of CRU, the benchmark Moroccan product has declined from peak spot market pricing of more than $US400 per tonne in mid-2008, down to around $US200-250 tonne at the start of 2009, and around $US150 tonne during March 2009. “Our expectation is that by the second half of the year, the price will be around $US120-150 tonne,” Jung said. While the deterioration of prices has certainly made life much more difficult for Australian phosphate projects, Jung said it is the smaller projects or those with only marginal quality reserves that have been primarily impacted. “Most of the junior mining companies are not advancing their projects any longer or are doing so very slowly,” Jung said, “But that would have happened to most of them anyway due to the marginal nature of their projects.” “The more serious new entrants understood that prices would eventually be likely to fall below $US100 tonne, and they knew that they had to build their financial models around that. “The two most well-known projects, Minemakers and Legend International Holdings continue to advance their projects, albeit somewhat slower and with slightly different business models,” Jung said. Jung believes that Legend is probably in the best position because of its relationship with IFFCO – an international buyer of phosphate rock and India’s largest fertiliser seller. Legend secured a long-term association with IFFCO to supply five million tonnes of rock phosphate per year from its Lady Annie and D-Tree projects. “We are one of the few new projects that are being developed instead of being closed in the Mt Isa region,” Legend’s chief executive officer Joseph Gutnick said. “I hope that by the time we start producing the market will pick up,” Gutnick said, “Though IFFCO are committed to take all our rock and we have all types of contractual agreements with them that if prices are low we are pretty secure in our sales to them and at the levels of $US200 we are still profitable so we are moving our project ahead as quickly as we can.” The company intends to start shipping rock at the end of 2009.
MET Price at posting:
12.7¢ Sentiment: Buy Disclosure: Held
