Beleaguered Siberia iron ore miner gets boost from Brazil mine shutdowns

IRC, a small Siberia iron-ore miner already benefiting from President Xi Jinping’s Belt and Road Initiative, has got another boost: a recent surge in ore prices as a result of mine shutdowns halfway across the world in Brazil.

The company has been loss-making, debt-laden and afflicted with construction delays. But thanks to project-financing support from the Chinese and Russian governments, IRC has finally seen light near the end of the tunnel after nearly a decade of project development.

Last Wednesday, it repaid a US$169 million project loan provided by state-backed Industrial and Commercial Bank of China. That was possible due to a credit facility of US$240 million provided by Russia’s state-owned Gazprombank, which carries more favourable repayment terms than the Chinese loan.

International iron ore prices have risen as much as 22 per cent after Brazilian mining giant Vale suffered a deadly dam failure that forced it to shut mines and cut supply amounting to around 6 per cent of the global seaborne market. The current price of US$85 a tonne is 12 per cent higher than before the disaster.

IRC wasn’t fully using its mainstay mine Kimkanskoye & Sutarskoye (K&S). Only 70 per cent of its capacity utilisation of 3.2 million tonnes a year was tapped last year.

IRC is hoping to raise it further this year despite winter sub-zero temperatures periodically freezing its end products and hampering delivery.

Having secured the credit line, IRC has set its sight on expanding the 3.2 million tonnes capacity to 4.5 million tonnes. That will require some US$50 million of investment, said its new chairman, Peter Hambro, one of the original initiators of the project.

“We want to start the expansion as soon as possible as it will make a big difference to improving our profitability,” he told the South China Morning Post, declining to give a time frame. “I am a great believer that we don’t want to run before we can walk.”

IRC had US$8 million of cash at the end of last year. Its finance expense amounted to US$10.4 million in last year’s first half.

Weak rouble and strong dollar are godsends for this Siberian iron ore miner selling to China

Still, Hambro is optimistic IRC’s production will prove competitive in China’s iron-ore market dominated by giant suppliers in Australia and Brazil. It will be helped by the construction of a cross-national bridge that the Chinese and Russian governments are sponsoring to promote economic ties.

“Our volume is small, but the big advantage for us is that we don’t have to ship it 19,000 miles from Brazil,” he said.

“Once the cross-border bridge is built, we are just 240 kilometres from the Chinese border. Our ore’s high iron content is also increasingly sought after by Chinese steel mills that are under pressure from the government to adopt more efficient and less polluting production methods,” he continued.

Scheduled to start commercial operation in the third quarter this year, it will cut the rail transport distance from 1,400 kilometres currently to as short as 420 kilometres and save IRC up to US$5 a tonne in logistics cost. IRC’s cash production cost – which excludes fixed costs like asset depreciation – was US$51.7 a tonne in last year’s first half.

China is the world’s largest crude steel maker. Its annual output of 928 million tonnes last year was more than quadruple that of second-ranked Japan and third-positioned India combined.

Some 90 per cent of the Chinese steel industry’s 1.2 billion tonnes of iron ore used last year had to be imported, due to low ore content of domestic mines.

IRC said in a stock exchange filing late on Thursday that its underlying operating profit has risen 42 per cent to US$28 million last year.

It was the first company to list under special rules that allowed mining firms without a profit track record go public in Hong Kong. It debuted in late 2010 on the mainboard.

Its shares closed Friday at 12.8 HK cents, double that before Brazil’s dam disaster, but still a fraction of the initial public offering price of HK$1.8.