Atlas Iron Ltd. has done a deal to start exporting manganese within a month by doing what it does best — utilizing supply chain logistics and port infrastructure — to further diversify its portfolio to protect against China's demands for higher-grade iron ore. However, hopes remain that the summer could see some relief on that latter front.
The Perth-based miner announced an arrangement on March 12 whereby privately-owned Horseshoe Manganese Pty Ltd will mine and crush 100,000 tonnes of manganese on a campaign basis, which Atlas will then purchase once it reaches northern Pilbara via road trains over four months.
Atlas will load the manganese into a dedicated hold of vessels chartered for iron ore as part of split shipments from its Utah Point facilities, without impacting current production of iron ore or lithium, the other commodity the miner is exporting as part of its diversification strategy.
Managing director Cliff Lawrenson said that while the initial volumes were "modest," the arrangement highlighted Atlas' ability work cooperatively with other miners and to leverage its existing infrastructure — a point not missed by Patersons head of research Simon Tonkin.
Tonkin told S&P Global Market Intelligence that while the amount of ore in the deal was not likely to make a material difference to the miner's bottom line, Tonkin said "lots of little deals will have more of an impact," and that the announcement was partly about "showing that it can do these types of deals, so it's likely that we'll see more of them in the future."
"This manganese opportunity compliments the strong additional cash flow we will soon be generating from our new lithium operations, again without material capital investment thanks to our existing logistics infrastructure. As part of our product diversification strategy, we will continue to look for opportunities which allow us to utilize our existing skills base and infrastructure," Lawrenson said, hinting that Tonkin's prediction could well come true.
The deal came barely a month after Atlas announced a deal to export direct shipping ore sourced from the Pilgangoora lithium project, owned by Pilbara Minerals Ltd. to Sinosteel Australia Pty Ltd., in another leg of Atlas' diversification strategy as the continued pricing discount for its lower-grade iron ore product remains a concerns for analysts.
Atlas has taken measures to improve the quality of its product to lift the price received with trial shipments underway, after its cash/reserve position reduced by A$9 million, and Patersons said in a client note in January that further developments here could potentially improve the outlook for the miner's iron ore product.
However, Hartleys head of research Trent Barnett told S&P Global Market Intelligence that pollution in the winter time is when respiratory problems occur, with the heavy fogs, so the hope was that things could turn around in the summer, where it would presumably have a less of a direct impact.
Yet the intensity of the Chinese regime's environmental drive remains a concern.
Barnett said he wasn't sure whether low-grade ore would "bounce back" over the summer, though "it seems like a reasonable argument" that it could.
"On one argument is that in old China if you had a big steel mill you’d just go crazy over summer processing a full year of low-grade ore before the restrictions came back in, but then under the new style of China, you just wouldn't do that if you're told not to," he said.
"It's just changing season now, and we wouldn't be surprised to see the discount coming back so low-grade ore could be profitable."
