Mining and Heavy Industries

Junior miner Cliffs threatened by growing ore discount

First Roy Hill iron ore ship the MV Anangel Explorer being loaded at Port Hedland. Photo: Roy Hill

United States miner Cleveland-Cliffs says its Australian division may struggle to survive if the discount applied to lower-grade iron ore does not diminish.

The discount – which comes into play with ores below the market grade of 62% iron – is most relevant to major exporter Fortescue Metals Group, and has widened from roughly 15% to around 27% this year.

And Cliffs – whose 11 million tonnes of annual iron ore is mostly 58% iron – says if FMG continues to accept such a substantial discount, it could have a serious impact on its business.

“[Cliffs’ Australian iron ore division] is still alive but it is not something that we’ll count on,” company president Lourenco Gonclaves reportedly told analysts.

“I have a competitor over there that is 13 times our size in Australia giving their stuff away … so that is the problem we have there, they will dictate the fate of what’s going on with the [discount], or how fast we are going to pull the plug.”

Cliffs is forecasting 11 million tonnes of iron ore mined, and 10.5 million tonnes of sales, during the 2017 calendar year, per its October 20 quarterly report.

Both figures are down by 500,000 tonnes, “driven by operational decisions reflecting current market conditions and quality ore availability”.

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