Burwill Plans to Triple Iron Ore Production From Shandong Mine
December 5th, 2009 | File Under : Companies - Iron Ore - Mining Exploration
Burwill Holdings Ltd., a Hong Kong- listed steel trader, plans to triple the production capacity of a Chinese iron ore mine it agreed to buy last month on expectations prices will rise at least 15 percent next year.
The company may boost the iron ore concentrate capacity of the mine in Shandong province to 3 million metric tons a year by 2012, from an expected 1 million tons next year, Chairman Chan Shing said Dec. 1 in a phone interview.
China, the world’s biggest buyer of the steelmaking ingredient, is seeking to raise domestic production to reduce imports from Vale SA, BHP Billiton Ltd. and Rio Tinto Group, which account for three quarters of global trade. Cash iron ore prices to China have surged 35 percent this year.
“Imported iron ore prices may rise at least 15 percent next year on expectations of a weaker dollar and higher freight costs,” Chan said. “Domestic production will benefit in this environment.”
Burwill rose 1 percent to 49.5 Hong Kong cents at 10:02 a.m. local time. The stock has more than tripled this year, compared with the 56 percent gain in the benchmark Hang Seng index.
Steel demand in China, the largest consumer, may rise 12 percent next year and push iron ore prices higher by 15 percent to 20 percent, China International Capital Corp. said Nov. 17.
Bargaining Power
“The Chinese have little bargaining power for the raw material that has been monopolized by the suppliers,” Chan said.
Burwill agreed last month to pay HK$500 million ($65 million) in cash and new shares for a 51 percent stake in mining company Tai Xin Holdings Ltd. The plan, subject to approval by shareholders, may be completed by the end of the year.
The steel trader will also have an option to increase its stake to at least 70 percent for HK$259 million, according to a Nov. 10 regulatory filing.
Taixin owns an iron mine in Laiyang city of the eastern Chinese province of Shandong. The open-pit mine has about a 20 percent iron content level, Chan said. The average cost of producing 1 ton of ore is 350 yuan to 400 yuan ($59), matching its domestic peers, he said.
The mine supplies local steelmakers including Jinan Iron & Steel Co., part of China’s sixth-biggest producer, Qingdao Iron & Steel Co. and other mills in Shandong, Chan said.
Rising Prices
Cash prices for 63.5 percent ore imported by China gained 1.4 percent to $107 a ton in the week of Nov. 27, reaching the highest since Aug. 14 because of Chinese demand and a supply disruption from India.
Chinese iron ore, which is typically in underground mines and has 10 percent to 30 percent content level, needs to be processed into concentrates before use. Ore imported from Australian mines operated by BHP Billiton and Rio Tinto has content exceeding 60 percent.
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