Small, high-cost iron ore miners face year of reckoning

martes 11 de marzo de 2014 17:00 GYT

By Manolo Serapio Jr and James Regan

SINGAPORE/SYDNEY, March 12 (Reuters) - Small iron ore miners from Australia to Canada and China face a potential shakeout, as a steep fall in prices makes it harder to raise funds for planned growth and boosts the prospect of a round of mine closures.

Iron ore prices .IO62-CN=SI posted their biggest one-day fall in four-and-a-half years on Monday to below $105 a tonne - from a peak of nearly $200 in February 2011 - amid forecasts that supply could outstrip demand by more than 90 million tonnes this year, the biggest global surplus since at least 2006.

Top miners such as Brazil's Vale and BHP Billiton and Rio Tinto in Australia, which dig up iron ore for as low as $20 a tonne, can easily weather a downturn.

But the price fall spells hard times for smaller producers, where production costs can run as high as $100 a tonne, owing to lower ore grades and fewer economies of scale.

"It's going to be very tough for everybody, but for high-cost miners, some are going to face life and death problems," said Greg Pan Guocheng, chief executive of China Hanking Holdings Ltd, a privately owned mainland miner.

"Price decreases will certainly lead a lot of small miners in China to either diversify or close down depending on how bad the price performs."

Hanking, which has five mines in China's northeast, uses modern technology and digs relatively richer-grade ores, which means its cash costs run at around 400 yuan ($65) a tonne, below those of many of its rivals, although Pan said falling prices would "certainly impact" profit margins.

A slump in iron ore to a three-year low of $86.70 in September 2012 shut more than a third of China's thousand-plus small-scale producers, although many later reopened when prices rebounded.   Continuación...