Londoin Mining developing trends

Developing trends in the exploration and production of iron ore

Annual iron ore demand is expected to grow strongly over the next 10 years, with CRU Strategies projecting an increase of 540Mt between 2009 and 2019 to a total of 2,169Mt. Importantly a significant driver for the global iron ore market is the demand from the seaborne market.

China has grown its domestic iron ore supply strongly over the past few years, with a compound annual growth rate of approximately 20% between 2002 and 2008. However, Chinese domestic production has peaked and started to fall, with CRU Strategies believing that the fall in spot prices has accelerated that process. The falling production is expected to cause China to become increasingly reliant on seaborne sources of supply. Chinese supply may be brought on stream to meet rising local demand, but this capacity will have to compete economically with alternative seaborne sources. The recent examples of Chinese steel companies looking to invest in overseas iron ore projects is an indication that there is little expectation of significant new ‘lower cost’ supply from within China.

By 2013, the world will need an additional 270Mt of seaborne capacity compared with 2008 according to CRU Strategies1, with this rising to 480Mt by 2019. The Directors believe that the existing expansion plans of the major established mining companies in Australia and Brazil, which largely consist of low cost production, are not likely to be sufficient to meet anticipated demand in the seaborne market over the next decade. Although the estimated supply, taking all potential expansions and new projects into account, would be far in excess of anticipated demand, financing risk is a significant risk in delivering these projects and as such delivery of these projects is not assured.

The Directors believe that the projects most likely to be built to meet supply are typically likely to be projects in Australia, West Africa and India. These projects will be required if the world production of iron ore is to be sufficient to meet demand over the next 10 years; however these are not in general low cost projects. The long-run price of iron ore must be high enough to induce these projects to come on stream.

London Mining believes its ability to quickly appraise projects and fast-track development to production will allow it to become a profitable developer of iron ore capacity for the steel industry.