Bullish Sign? - Bounced off 200 EMA, page-2170

Sabine

The first point to understand about iron ore mining is that the demand for the end product, steel, is inelastic. This implies that as the high grade ore is depleted, lower grade ores will become economical to mine, and the cost of beneficiation absorbed. Consequently, because Australia has huge deposits of magnetite, and DSO haematite is being extracted at increasing tonnages, in fifty years time, magnetite will be the dominant source of iron ore. It will probably happen earlier, but not in the next decade.

The next thing I postulate is that benefication all ore will increase. “Beneficiation” here has the nuance of an on-mine or in-country process, as opposed to removing undesirable material at the steel mills. China now takes a tough stance on any air or water pollution, so the demand for high quality ore will grow. Building and servicing beneficiation infrastructures is a growing market for mining service providers.

For now, the focus is on DSO (direct ship ore), so anything that allows ore above 60% Fe, and with less contaminants in it, to be shipped would interest miners. Blending ores from a number of mines is one of the ways, and this requires railway lines and conveyor belts to be built that bring in the ore from new mines that are planned to contribute to the supply of a blended product. The trunk lines may have to be improved to allow for increased volume and train automation. This could mean increasing the single-track lines to dual-track lines, and dual-tracks to triple tracks. The weight of a loaded train determines how long it takes to bring the train to a halt, so there is a time gap between loaded trains of something like 30 minutes, which would be less for returning unloaded trains, and hence two lanes could be used in one direction, and only one lane for the return. Optimising railway operations could be good business for NWH.

As desirable ore is extracted from the easy-to-access sources, less-than-easy sources have to be considered – for example, under-water-table mines. This is another area for mining service providers. Building dams is old hat for NWH, but there are other things that under-water-table mining occasions. RIO uses the water to grow hay for the near-local cattle industry, and that means pipes and other irrigation equipment – see http://www.abc.net.au/news/rural/2013-04-22/the-hamersley-agricultural-project-gallery/4631862. Irrigation and water treatment is something that could benefit MND more than NWH. As an aside, I am not surprised that Gina and Twiggy have been buying cattle farms in the North.

In summary, NWH should do well as it transitions from an earth-moving company into a much smarter services company. MND has been a master at cutting its teeth on new services in its core market (remote mines in WA), then taking the technology into new markets. That is how, for example, MND got into water treatment and other water-related services that now do well in the Eastern States and in New Zealand.