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magnetite : back in favour

  1. 1,104 Posts.
    Looks like the sceptics of Magnetite are doing a 360 turn and GBG looks to be prime position:

    Dryblower on the flipside of the iron ore price hike

    Monday, 25 February 2008

    OUTRAGE is not a word heard too often in mining countries like Australia when it comes to the price of iron ore. It is a word heard in countries with big steelmaking and manufacturing industries, where the outrage reaching Dryblower’s ears over the latest 65% hike in iron ore prices looks like changing the mining industry in two most unexpected ways.

    The first change is likely to be the death of the prospective BHP Billiton and Rio Tinto merger – as it is currently proposed.

    The second is the return of magnetite projects as serious investment proposals rather than the pie-in-the-sky ideas that they were in the days before the latest price hike.

    Making bold predictions about the future is not something Dryblower does often, but in this case it’s actually rather easy because of something that great economist Lord Keynes said many years ago.

    “When I receive new data, I adjust. What do you do?” was the famous challenge Keynes issued when accused of changing his mind over an economic question.

    At the time, mind-changing was considered a weakness, and still is by many people.

    But all that Keynes did was point out the futility of sticking to a rigid position when the fundamental values, or beliefs, which supported that position had changed.

    In the case of iron ore a price increase of 65% is such a fundamental change, and while most investors like it there is a powerful lobby which hates it.

    In Europe over the weekend the strength of the opposition started to grow with a group known as the European Confederation of Iron and Steel Industries (Eurofer) blasting the price rise and calling on European anti-monopoly regulators to use it as a stick to beat down the proposed BHP Billiton and Rio Tinto merger.

    “Imagine the pricing power which these suppliers will have when trade is dominated by just two companies,” said Gordon Moffat, director of Eurofer.

    Dryblower confesses that he’s never heard of Mr Moffat before. But he has heard of the European iron and steel lobby, and has been around long enough to know that it lies at the very heart of Europe.

    It was back in 1951 that six countries came together to form the European Coal and Steel Community. A few years later this grouping became known as the European Economic Community, and finally the European Union itself.

    Look at that trail of history and you will understand how powerful the steel lobby is in Europe. In many ways the modern EU owes its creation to the steel lobby, and when it speaks Europe listens.

    If Europe does decide to oppose a merged BHP Billiton and Rio Tinto, which is looking more likely every day, then major changes will be required for the deal to go through, and one of those is the separation of the iron ore divisions into independent companies – defeating the very purpose of the deal.

    Death of a mega-merger is one possible unexpected outcome of the iron ore price hike. The other is the return of the magnetite projects because the higher price has dramatically improved their financial stature, and made it even more likely that they will receive the firm backing of steel mills desperate to encourage alternative sources of supply.

    Picking winners from the magnetite mob remains the tricky bit because there are so many of them, and not all will get off the ground.

    But, there is little doubt that what Lord Keynes said early last century remains as true today as it did then.

    New data has been received, the equation has changed, and Dryblower is adapting. What are you doing?
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