Mount Gibson (ASX: MGX) (OTCPK: MGTRF) shares are up 8%. MGX shares rose on the release of the quarterly report - which showed that shipping Australian iron ore off to China is a still a great business to be in. Something we all pretty much know of course, as the iron ore price is published daily so it's easy enough to track the likely performance. Mining costs might change gradually but only by percentage points, so it's not that difficult to adjust the last set of results for today's selling prices.
As they say at Mount Gibson: “Cashflow of $89 million for the June quarter reflecting ore sales revenues of $186 million Free on Board (FOB, after shipping freight) at an average realised price of US$103 per dry metric tonne (dmt) FOB, cash costs of $77 million (equivalent to $62 per wmt shipped), processing plant repairs and equipment purchases of $9 million, royalties of $18 million, other revenues (including insurance receipts) of $7 million, Mid-West cashflows of $2 million and net corporate and exploration costs of $2 million.”
Well, that's great. But it is possible to worry here. Possibly, we should worry here, and this extends to the other Australian iron ore shippers too. Sure, some goes elsewhere, but the big market and price setting market is China. Which could be a worry.
Mount Gibson share price from ASX
The worry is that state of the Chinese economy. More specifically, the property sector. Because that's where a lot of this iron ore goes - into building out China as a developed nation for the first time. If that property growth stops then so is some significant portion of iron ore demand going to vanish as well.
At which point we get the China Evergrande news: “Chinese property developer Evergrande has posted losses of $81bn over a two-year period, revealing for the first time the financial fallout of a 2021 default that sparked an ongoing crisis in the country's property sector.
The group, which is in the midst of a lengthy restructuring process after it failed to make bond payments almost two years ago, reported losses of Rmb476bn ($66bn) and Rmb106bn for 2021 and 2022 respectively. Revenues halved in 2021 to Rmb250bn, compared with Rmb507bn a year earlier.” Yes, that's historic data, we know, have known for a long time, that Evergrande is in trouble.
But what happens next? Does China put that property market into recession? If so then the iron ore price is going to fall.
The other way of putting this is as at the top. Shipping Oz iron ore to China is a lovely business right now. But how long is it going to remain so?
