It may take days to get a clear picture of the position of many of the Australian junior iron ore companies operating in Western Australia, South Australia and the Northern Territory.
Market comments yesterday and today indicate that while the iron ore majors BHP Billiton and Rio Tinto operating in WA's Pilbara may have to undertake cost cutting they will still be able to operate soundly. They are not suffering from the high material costs of boom times two years ago, nor are they suffering shortages of skilled and professional people.
The new major operator Fortescue Metals Group (ASX:FMG) may have the same pruning actions to worry about, but it now has major Chinese investors and all the contracts are orders for China. Perhaps the one peptic ulcer issue for Fortescue investors is the outcome of a court case brought on by Australia's corporate regulators against Fortescue's high profile chief executive Andrew Twiggy Forrest.
The pain of iron ore miners having to agree to substantial cuts in new iron ore contracts has already impacted on the Western Australian Government which today estimated lower iron ore prices could cut its royalty intake by as much as $A200 million ($US157 M) per annum
The big issue is where do the juniors stand and, until the full impact of negotiations with Chinese mills is known, this is just a hot potato for the stock market.
The fact that some juniors share prices have eased rather than dived indicates a view that these companies - many now having major Chinese investors - will have less pain than others. Those sitting further back are companies with substantial reserves but no iron ore contracts or incomplete negotiations on utilising transport and shipping infrastructure.
One company to comment today was Western Plains Resources Ltd (ASX:WPG) which noted that Rio Tinto's Hamersley Iron Pty Ltd has settled benchmark iron ore prices with a key Japanese steel mill for the year starting April 1 this year of US1.12 per metric tonne unit for lump and US97c/mtu for finds. This represents a reduction of 44.5% for lump and 32.9% for fines from last year and are generally consistent with the price assumptions that have been built into Western Plains financial models for its Peculiar Knob direct shipping ore (DSO) project since earlier this year.
It is not yet clear whether these prices will be accepted by the Chinese steel mills. If WPG's Peculiar Knob project was in production now, and exporting through Port Bonython (in South Australia) with port user charges in line with charges at other comparable Australian bulk commodity export ports, cash operating margins under current conditions would be between $A25/tonne and $A30/t ($US20-24/t), on an FOB basis., said the company's executive chairman Bob Duffin.
WPG's base case business plan envisages production and sales from Peculiar Knob and the Buzzard DSO deposits ramping up to 4.5 million tonnes per annum, for a project life of about 10 years based on known resources.
Peculiar Knob is virtually fully permitted and almost shovel ready for development, he added.
Western Plains believes the 2009 benchmark price settlement should send a positive signal to the South Australian Government, owner of the relevant land at Port Bonython, and to the Spencer Gulf PortLink consortium -- the government's preferred tenderer for development of the proposed bulk commodities export facility there.
The company said the development of Port Bonython forms a vital plank in the SA government's strategy to transform the State economy from a manufacturing base to one more reliant on resource exports.
Late today Fortescue announced settlement of one of its current issues - a shipping dispute with Classic Maritime over three suspended contracts of afreightment. As a result Classic will discontinue arbitration action which was to begin in London next month.
Fortescue still has five other shipping contracts under dispute which it is trying to resolve.