http://www.copyright link/business/...omotes-niche-iron-ore-product-20150316-1m022r
"Iron ore miner Grange Resources says it is being wrongly "lumped in" with struggling junior producers and is making a "good margin" amid strong demand for its pellet product.
As the iron ore price continued to languish at around $US58 a tonne on Monday, the Tasmanian miner sought to rectify views it was under pressure at current prices by releasing updated cost and price information to the market.
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Savage River mine was last month named by Wood Mackenzie analyst Andrew Hodge as one of three Australian mines at risk of closure if prices remained around $US60 a tonne, as the sector's junior producers fall under increasing price pressure. On March 10 UBS said Grange's cash break even cost was estimated to be $US62 a tonne.
Grange general manager of operations Ben Maynard said Savage River was profitable and making "a good margin" at today's price. The mine's high grade iron ore pellet product was often misunderstood by the market and potential customers, he said.
"Magnetite as an iron ore and the pelletisation that occurs is not well understood and we have been lumped in with these other haematite lump and fines producers so we want to separate ourselves and show we are in a different market space," Mr Maynard said.
While the iron ore price has fallen 63 per cent since January 2014, the price received by Grange for its pellets has fallen just 37 per cent, with the miner receiving an average price of $105.4 a tonne in the first two months of the 2015 calendar year.
"At current prices we are still seeing strong demand for pellets so we are differentiated from that current pricing mechanism," he said. "With the premium that we are getting, yes we are sustainable."
Mr Maynard said Savage River's high quality, low impurity niche product was "extremely sought after" in China, with demand expected to increase further if environmental concerns push the government to address pollution levels.
"There are moves within the government in China to increase the restrictions with respect to environmental emissions so we think that will continue to play out over the next year or so," he said. "The view our board is taking is that demand will increase on the back of that and this is an important space to be in."
UBS analyst Glyn Lawcock said Grange sells a superior quality product to its peers in Western Australia and could benefit if the premium paid for pellets increases.
"Atlas Iron, BC Iron and even Fortescue are selling around a 57 per cent fines product which means it has to be agglomerated through a sinter plant before it can be fed into the blast furnace and if there is pressure on those to not be used for environmental reasons then clearly there is a risk that puts more pressure on people trying to sell fines and gives more upside for those selling an agglomerated product, whether that be lump or pellets."
C1, or operating costs, at Savage River averaged $86.5 a tonne in 2014. The company said on Monday that for the year to date, operating costs had been reduced to $68 a tonne.
Mr Maynard said costs had been lowered through maintenance initiatives, a small number of redundancies and an improvement in the capacity of the project's mill which has been performing above its designed capacity.
However, both Mr Maynard and Mr Lawcock acknowledged that this lower cost level was unlikely to be sustained throughout the year.
"Obviously the first few months of the year don't make the entire year and it will fluctuate a bit as we do maintenance work... so I don't expect it will stay at those low rates but the principals we are taking forward to reduce costs and run as lean as we can are important ones and we will continue to trace that activity through the year," Mr Maynard said.
Mr Maynard was unable to provide full year cost guidance but said the company hopes to beat the C1 cost of $86.50 recorded in 2014."
The miner wants to secure a second long term sales contract for as much as 1.2 million tonnes a year and is currently arranging sales agency agreements with three companies to facilitate this.
