State One Stockbroking - Discussing Energy Risks for Magnetite Iron Ore
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070716_stateone_stockbroking.pdf (294 KB)Our analysis of the would-be magnetite iron ore producers has identified that energy costs are a significant proportion of their total cash costs of production.
Aurox Resources (AXO), with only 34% of cash costs attributable to energy and transportation, and also the lowest-cost producer, is least at risk of energy cost increases impacting severely on profitability.
In a market where the sentiment in iron ore is to buy long-life mines, Aurox has a middling 103Mt of ore which does not compare favourably in sheer magnitude against its peers which have up to 2.5 billion tonne resources.
However, a combination of low market capitalization, high profit margins, high metallurgical recoveries and very low capital costs relative to its peers, places Aurox Resources firmly in the lead for best potential magnetite iron ore project.
Aurox also has diversified revenue opportunities from Balla Balla, with commercial grades of ilmenite in the ore likely to be recovered, and potential to produce ferrovanadium products. Balla Balla has been independently assessed as the best vanadium deposit in Australia.
There is no apparent reason to buy a mine with a life of 150years over another with a life of 30 years if the smaller mine will be more likely to return greater profit margins, has lower risks attached, and has greater upside in the ore processing stream.
We don’t believe that energy costs will significantly reduce in the long term, and Aurox Resources’ low energy cost exposure is a prime advantage.