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Tuesday, March 09, 2010 3:48:47 PM

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Iron Ore Could Prove Attractive to Investors.
March 9, 2010, 1:43 PM GMT
Iron ore titans BHP Billiton and Rio Tinto are pressing steelmakers for a 70% to 80% increase in iron-ore contracts this year, and investors can expect the higher prices to deliver bounties to more than just the big miners.

Small exploration companies hoping to develop deposits in Africa and Scandinavia may reap even bigger benefits.

Australian iron-ore hopeful Bellzone — with its 2.4 billion metric ton resource in Guinea — appears to have divined this with its announcement Monday that it plans to raise $100 million with an AIM listing.

At a time when the global economy is shuffling forward and forecasting commodity prices is difficult, an 80% increase in revenues is bound to draw investors to an unfamiliar commodity, even if it comes with high sovereign risk and uncertain economics. Australian investors have been faster than their London brethren to latch on to the iron ore story; about 35 Australian miners are trying to develop iron-ore mines compared to less than a handful in London, according to Ambrian Capital.

That gap is bound to narrow quickly. With some analysts predicting prices may rise another 40% in 2011 — and stay above that price in the future — high cost, low grade iron-ore projects in Africa, Scandinavia and Brazil look potentially profitable.

London Mining preceded Bellzone with its listing last November. Other iron-ore hopefuls are likely to quickly follow Bellzone in the months before and after the big iron-ore miners and steelmakers settle prices in a month and a half’s time, as expected.

There have long been rumors that Brazilian iron-ore miner Ferrous Resources is planning a London listing. A recent report said it was planning to raise £3.2 billion and that it has appointed JP Morgan Cazenove and Deutsche Bank.

Ambrian says it’s hoping to bring several iron-ore listed companies to London for a dual-listing this year.

For investors, the biggest upside for these stocks may be here and now. Iron ore prices are high and none of the miners has yet to finish feasibility studies, signed offtake agreements or begun building a mine: the messy realities when a miner can easily disappoint investors because costs overrun, timelines aren’t met and the quality of the asset fails to meet expectations -– and shares get bogged down.


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