CuFe Ltd (ASX:CUF) has made strong operational progress via its subsidiary Wiluna Fe Pty Ltd at the JWD Iron Ore Project in Western Australia.
Importantly, the company is focusing on the sale of high-grade lump products with lump premiums increasing from an average of 5.8 cents per dry metric tonne unit (dmtu) in September to 20.3 cents per dmtu in December.
Moving forward, CuFe has restarted mining activities at JWD with the first ore ex-pit delivered to the plant on January 7, 2022.
“Solid position”
Commenting on the progress, CuFe executive chairman Tony Sage said: “It’s encouraging to see the rebound in iron ore price, assisted by a reduction in sea freight rates.
“We’ve focused on cost and cashflow management over the last quarter while prices have been weaker and start this quarter in a solid position with the mine fully operational and poised to benefit from the stronger prices expected in coming months.
“We have taken advantage of the improved market conditions and entered some further hedges which help to manage our price risk exposure while maintaining upside participation.
“We will set further positions as the market allows.”
Positive for economics
Iron ore prices have continued to firm in recent months, with 62% index prices rising from a low of US$87 to current levels in the high US$120s.
Notably, increased headline iron ore price and the lump premium are positive for JWD’s economics.
Also, sea freight rates have decreased in recent months, with the vessel class used for JWD products from the Geraldton Port reducing by approximately 30% from the highs.
Whilst the current rates remain elevated relative to historical averages, this recent reduction in the cost of sea freight has the effect of further increasing the realised price to the company, in addition to the improvement in the headline price.
Recommenced mining
CuFe has recommenced mining activities at JWD following a hiatus to allow processing and haulage to run down mined ore stock on hand.
Consequently, this stock drawdown reduced the company’s working capital requirements while the iron ore price was softer in the December quarter.
Processing and haulage operations have operated continuously other than a short break over the Christmas period.
Moving forward, historical stock positions are now cleared out with operations having now commenced crushing and screening and haulage of newly mined material.
Further hedges
CuFe has commenced setting hedge positions for the March quarter, with the following positions entered to date:
- February 22; zero cost collar - 62% index basis US$110 - 139 25kt dmt;
- March 22; zero cost collar - 62% index basis US$110 - 139 25kt dmt; and
- March 22; swap - 62% index basis US$128 – 25kt dmt
Notably, these positions provide a floor price that covers costs and offers upside participation.
The hedge positions for the December quarter have all either matured or been traded with a total realised gain of US$5.8 million recorded by Wiluna.
Some positions were closed out before maturity to either remove overlap with a fixed price sale, assist in working capital management, or take advantage of pricing points available at the time.
Offtake financing facility
As previously advised, the company established a US$7.5 million prepayment finance facility for the JWD JV to assist in working capital management through its ramp-up phase.
Subsequently, US$5 million of this facility has been repaid, with the remaining balance to be repaid from the next two shipments.
The agreement has been restructured to allow further drawdowns of up to US$3 million against stock held at the port, to assist the company in the management of working capital as required as operator of the JWD JV.
Sales update
The next shipment will load in late January for delivery to a new customer in Southeast Asia.
Notably, the shipment will be a part cargo comprising JWD product and GWR Group (ASX:GWR) Ltd’s C4 product.
Furthermore, material for the shipment is already stored in the shed at the Geraldton Port and building of the next shipment has commenced.