Iron ore prices CITIC Pacific earnings and valuation worries

The steel industry under a Aihong, the windfall once considered iron ore price is no longer crazy. Once remarkable CITIC Pacific magnetite project in Western Australia, the repeated postponement of their increased costs. September 6th, Goldman Sachs believes that iron ore prices continued to fall increase its put into difficulty, do not rule out the CITIC Pacific refused to put into production because of cost issues, when 250 billion asset impairment for fear of the iron ore business.

Western Australian iron ore project is wholly-owned by CITIC Pacific held in the Pilbara region of Western Australia, has about 20 million tonnes of magnetite resources. Completed, it will have six production lines, with an annual output of 24 million tons of magnetite concentrate and iron ore will CITIC Pacific Special Steel as well as the rest of the continent steel enterprises.

August 29, CITIC Pacific said in the semi-annual report, will not be able to promise the end of August, the first production line operational goals, try the hours of operation postponed from August to November.

MCC is responsible for part of the main beneficiation process is put into the main reason for lagging, "said CITIC Pacific chairman Chang Zhenming, MCC is an experienced contractor, but the face of such a large and complex projects in Australia, the difficulty and workload are much higher than expected. CITIC Pacific said the target primary task in the second half and the focus continues to be making the Sino Iron project into production as quickly as possible. The difficulty of exploitation, CITIC Pacific said iron ore project that has been postponed, but also makes the capital expenditure is also increasing, the Daily News revealed that the first half of the iron ore mining capital expenditure of 9.058 billion yuan, an increase of 50% from the beginning of the period.

"CITIC Pacific magnetite project in Western Australia, the advantages of transport closer, only 100 km from the port, but the disadvantage is that its products magnetite structure is too dense, lower tastes restore them more demanding, so for steel The plant prefers hematite. "one researcher told reporters familiar with the Australian iron ore. "Originally, the Australian iron ore facing overcapacity, magnetite is relatively new breed, the market will have no idea on how to? For Chinese manufacturers, they are willing to CITIC Pacific magnetite? Unless the price is relatively cheap." The researcher told reporters.

In fact, CITIC Pacific magnetite is not cheap, analysts introduced to reporters Tinto, BHP Billiton and force the cost per ton of iron ore to the Chinese port only 37-38 U.S. dollars, mining costs per ton of about $ 30 . CITIC Pacific Mining costs at around $ 120 per ton, to the port price should be higher than $ 120 per ton. The above Australia iron ore researcher, told reporters that CITIC Pacific magnetite projects, mining and marketing costs are higher than normal hematite, with the exception of transport dominant overall profit margins are relatively small. "Unless the price of iron ore rose to 150 U.S. dollars / ton, otherwise those iron ore mining project impossible value."

According to the monitoring of statistics, as of September 7, Rizhao Port 58 Indian powder for 82 U.S. dollars / ton, down $ 6 late last week; 62 Indian meal for 101 U.S. dollars / ton, late last week, down $ 8 / t; 62 Australia $ 115 / ton block late last week fell $ 3 / t.

Grade 58 Indian powder $ 82 / t, and certainly to fall below $ 80, the futures price has tumbled nearly $ 10 higher than the spot. "An analyst said. CITIC Pacific said that in the semi-annual report Risk Warning iron ore market price depends primarily on the amount of international supply and demand, if there is excess supply, also the negative impact. Iron ore bottom line, the key is to look at the user Chinese steel mills, but to see orders and profit margins of Chinese steel mills, China Steel City in a recession, can not find any signs of recovery. "How to predict short, China is a decline in channel Steel City, not to the ore brought elements of support for any rebound or pull up. "the analyst said.

September 6th, Goldman Sachs said in a report, iron ore prices from the beginning of the year of $ 138 per ton fell to $ 87, iron ore prices will become of CITIC Pacific earnings and valuation worries.

Goldman Sachs estimates that the iron ore unit cash costs for the next two years, and the total cost will be 78-79 U.S. dollars per tonne and 115-127 U.S. dollars, iron ore prices further adjustments, and fell below the cash costs of the CITIC Pacific discontinued company or will the project, the project will not be able to generate returns. If this happens, Goldman Sachs, the carrying value of its iron ore business will be reduced by 25 billion yuan.

September 7, CITIC Pacific to close at HK $ 9.2, up 1.21%.

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