Iron ore veteran expects further price rise ahead

Iron ore veteran expects further price rise ahead

Western Australia’s iron ore boom is set to roll on, with fresh predictions that prices will rise again next year as yet another international steel producer joins the rush for WA iron ore assets ahead of a State visit by officials from one of Russia’s biggest iron and steel groups.

Addressing shareholders of African iron ore hopeful Sundance Resources yesterday, Perth iron ore veteran and chairman George Jones predicted iron ore prices would rise another 8-10 per cent in 2008 ”” their sixth consecutive rise since 2002 ”” as producers struggled to keep up with continued demand growth in China, India and Europe and production costs continued to rise.

At the same time, the desperation of international steelmakers to secure new independent sources of supply was underlined when Perth junior Polaris Metals revealed Malaysian steel producer Lion Group would pay just over $4 million for a 10 per cent stake in the company to fasttrack exploration at its iron ore projects in the Pilbara and Yilgarn regions.

News of the investment, pitched at 40¢ a share, sent Polaris shares rocketing as high as 37¢ before they closed 16.5 per cent higher at 32.5¢.

Lion’s move comes as Mid-West miner Mount Gibson Iron prepares to host representatives of Russian iron and steel billionaire Alisher Usmanov, who is now Mt Gibson’s biggest shareholder with 18 per cent, later this month.

Mr Usmanov may have also been the buyer of 18.46 million Mt Gibson shares crossed at 87¢ yesterday, which sources said were probably offloaded by a China-backed shareholder in Hong Kong.

Polaris and Mt Gibson are just the latest in a long line of WA iron ore developers to attract international backing, including Grange Resources, Fortescue Metals Group, Gindalbie Metals, Murchison Metals, Midwest Corporation, Golden West Resources and Cape Lambert Iron.

The bold price prediction by Mr Jones, who also chairs Gindalbie Metals, flies in the face of forecasts by several big investment banks that prices will turn down sharply from 2008 onwards due to a rise in Chinese domestic production, slower Chinese economic growth and the development of new international sources of supply.

But Mr Jones told Sundance shareholders that China’s eagerness to agree to a 9.5 per cent rise in iron ore prices for 2007 last month was a clear sign that neither demand nor prices were likely to slow down soon ”” a point backed by forecasts that Chinese demand will underpin an estimated rise in seaborne iron ore trade to 900 million tonnes in 2010 from 610 million tonnes in 2005.

”The important underlying message is that China’s impact on the metals and mining industry does not represent a cyclical peak, but rather a fundamental structural change with significant implications for global markets,” he said. ”I expect iron ore prices to again increase in 2008, I believe this time it will be around the 8-10 per cent range, on the strength of the continuing and growing demand for high-quality iron ore from China and other Asian and European markets.”

Speaking after Sundance shareholders approved the final leg of a $30 million capital raising to fund exploration and development studies at its $US2.5 billion ($3.18 billion) Mbalam iron ore venture in Cameroon, Mr Jones said prices would have to keep rising just to keep pace with higher costs.

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