Despite the fall in global iron ore prices, Grange Resources continues to trade strongly, enjoying robust demand and profit margins. This is due to strong demand for the high-grade iron ore pellets produced at the company's operations in Tasmania.
In January and February Grange received an average price of Aus$105.40 a tonne for the high-grade iron ore pellets produced at its Savage River mine and pellet plant at Port Latta. All-in cash costs during this period were about Aus$68/tonne.
The company says the market for high-grade pellets has remained firm in the face of falling iron ore prices. At the start of 2014, Grange was receiving Aus$168/tonne for its pellets and the benchmark price for 62% Fe iron ore was about Aus$155/tonne at that time. The benchmark 62% Fe fines price has since fallen by about 63% to below Aus$58/tonne while the price being received by Grange for its pellets has fallen by 37% to about Aus$105/tonne. During this time, Grange’s all-in cash costs have been reduced to Aus$68/tonne.
Grange says the Savage River project is continuing to perform strongly. Production is being sustained at an annual rate of above 2.5 million tonnes.
The company has been in discussions to secure a second long-term sales contract as part of its strategy to provide greater certainty regarding its offtake.
Late last year, Grange undertook an extensive review of its marketing strategy to ensure contracted product sales were aligned with its increased production profile. As a result, two significant actions were put in place:
• Grange is securing Sales Agency agreements with three companies to sell up to 1.2 million tonnes of product. The sales agents will arrange to sell Grange's product to third parties, acting as agents between Grange and the purchaser with no agency fee. This arrangement opens up the potential for global customers to be introduced to Grange by the sales agencies, after which Grange can deal directly with the customers. Grange believes this will help ensure that its off take is guaranteed to match production.
• During 2015 Grange will embark on a technical marketing campaign targeting existing and potential customers as part of a plan to develop a mutual understanding of the company’s product and its customers’ needs.
Grange believes that the outlook for the pellet market is strong. It also believes that there is significant scope for further innovation and increased productivity. The company’s confidence in the strength of the pellet market is in part underpinned by the increasing environmental restrictions being placed in China.