mineral resources limited considers production shutdown at its iron ore mines 902252014

The diversified mining services company could soon become the latest casualty of the slump in iron ore prices

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By :  ,  Financial Analyst

Mineral Resources Limited (ASX:MIN), a leading Australian diversified mining services, contracting and commodity production company, may be soon forced to put its iron ore mines into care and maintenance, according to Managing Director Chris Ellison.

Depending on the price of iron ore, the company may have to suspend production in the Yilgarn region of Western Australia, where it owns and operates the Carina iron ore mine, reports the Sydney Morning Herald. The company is already in the process of shutting down its Phil’s Creek and Spinifex Ridge mines this quarter. It also operates an Iron Valley mine owned by BC Iron.

"If it gets to a point where it is below our cash costs we would turn off," Mr Ellison said to the Herald. "That is not too far away from where we are now.”

Iron ore prices have nearly halved this year to the region of US$70.20 per tonne, the lowest price in more than five years, due to abundant supplies from the larger iron ore miners and slower demand from China. The fall in prices has already led to mine closures among many small and mid-tier Australian companies running with higher costs compared to the biggest mining conglomerates, which enjoy huge advantages of scale.

Mineral Resources is better positioned to weather the difficult conditions because its mining services and equipment business enables it to suspend or resume production quickly at a much lower cost.

Nevertheless, the low ore prices could already be hurting the company. According to analysts’ estimates the company’s operational costs, including sustenance capital expenditure, may be in the region of US$70 to US$75 a tonne for Carina and US$75 to US$79 for Iron Valley, while it receives about US$66 per tonne.

"At the moment we are cash positive on all of our sites but at some sites we are balance sheet positive and on others we are balance sheet negative,” Chairman Peter Wade responded when asked whether the company was profitable at the iron ore price of US$70 per tonne.

Shares in Mineral Resources closed yesterday on the ASX at AU$7.47, up 1.36 per cent.

Find up to date information on the ASX at City Index.

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