2012 Annual Report (2 April 2013) - Grange Resources

2012 ANNUAL REPORT
5
PAGE
Magnetite to Iron
Smelting magnetite to iron involves
agglomeration or ‘clumping together’ of
the magnetite concentrate, and thermal
treatment to produce iron ore pellets.
The pellets can be used directly in a blast
furnace or at direct reduction iron-making
plants.
Magnetite concentrate has internal
thermal energy meaning less energy is
required, compared to haematite, in the
pelletising process which in turn results in
less carbon dioxide emissions. The blast
furnace chemically reduces iron oxide
into liquid iron called ‘hot metal’. The iron
ore and reducing agents (coke, coal and
limestone) are combined. Pre-heated air
is blown at the bottom of the combination
for up to eight hours. The final product is
a liquid which is drained, and eventually
refined to produce steel.
Magnetite Business
Mining magnetite ore is a high volume business. It is capital intensive and requires
significant downstream processing infrastructure including a beneficiation plant, a pellet
plant and port facilities. As can be seen from the following graphic, magnetite products
command a value premium above haematite ore products such as fines and lump. This
premium is derived on two fronts, through additional iron content, and a quality premium.
The growth in Chinese demand, and its understanding of the use of magnetite-based
iron ore products has seen a significant change in the value accrued to both magnetite
concentrate and pellets, and the methodology used for determining that value.
Until April 2010, iron ore prices were traditionally decided in closed-door negotiations
between the small handful of “key” miners and steel makers which dominated both spot
and contract markets. Traditionally, the first agreement on price reached between these
two groups set a benchmark price that was followed by the rest of the industry for a
12 month period.
This benchmark system broke down in 2010 with pricing moving to short term indexbased
mechanisms. Given that most other commodities already have a mature marketbased
pricing system, it was natural for iron ore to follow suit. This has seen magnetite
product pricing change so that it is now based on the transparent market based index
prices, with premiums being paid for increased iron ore content and pellet manufacture.
Magnetite – The premium iron ore
Higher
Iron Ore Pellet
~65-69% iron
QUALITY
Direct Shipping
Lump ~63% iron
Magnetite
Concentrate
~67% iron
Direct Shipping
Fines ~58% iron
PRICE
Higher