This is from The Daily Reckoning in its newsletter yesterday:
The West Australian reports that Mt. Gibson Iron ore (ASX:MGX) is entertaining an offer from China's Shougang Concord and China's APAC Resources which would see those firms raise their equity stakes in MGX to 40.5% AND secure discounted ore for the life of the mine. Now that is a deal you could only make from a position of strength.
Are these Chinese firms white knights or red dragons? Does it really make a difference? We're back to the same question of who benefits the most from the long-term demand for the ore. The Chinese steel producers have the chance of a lifetime to secure off-take from Australian mines at bottom-of-the-barrel prices. But what does it mean for current or future shareholders in the juniors?
Here's what Al says, "In short, the steel sector will huddle together for warmth over the next six months. We're going to see demand for steel and steel-making ingredients move down slowly. Then the recovery will come from developing countries later in 2009."
"But right now, the balance of power has definitely shifted. You'll see more of these iron-steel project equity agreements in late 2008 and early 2009. It's a way for both parties to get some security. It's a way to wring some risk out of the contracts. And it's yet another step towards where we see the iron industry inevitably heading: Chinese firms owning a lot more of Australia's iron mines."
"Shareholders in the juniors will be in for volatility. It still isn't clear in the long run who will control the Pilbara. But right now Australian iron ore shares are factoring in a global depression. The buyers are completely ignoring the growth in the developing world that'll come in the next decade. Better yet, our favourite iron play is still sitting on the sidelines - making cash every quarter regardless of who owns the mines."
Are these Chinese firms white knights or red dragons? Does it really make a difference? We're back to the same question of who benefits the most from the long-term demand for the ore. The Chinese steel producers have the chance of a lifetime to secure off-take from Australian mines at bottom-of-the-barrel prices. But what does it mean for current or future shareholders in the juniors?
Here's what Al says, "In short, the steel sector will huddle together for warmth over the next six months. We're going to see demand for steel and steel-making ingredients move down slowly. Then the recovery will come from developing countries later in 2009."
"But right now, the balance of power has definitely shifted. You'll see more of these iron-steel project equity agreements in late 2008 and early 2009. It's a way for both parties to get some security. It's a way to wring some risk out of the contracts. And it's yet another step towards where we see the iron industry inevitably heading: Chinese firms owning a lot more of Australia's iron mines."
"Shareholders in the juniors will be in for volatility. It still isn't clear in the long run who will control the Pilbara. But right now Australian iron ore shares are factoring in a global depression. The buyers are completely ignoring the growth in the developing world that'll come in the next decade. Better yet, our favourite iron play is still sitting on the sidelines - making cash every quarter regardless of who owns the mines."
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