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(ASX: GRR) | GRANGE RESOURCES LIMITED

Apr 21, 2024

Sentiment: Sideways

Type of Trade: Aggressive

Industry: Iron Ore

Sector: Materials

Report based on CY2023 Financial Report

Grange Resources Limited is a prominent player in the Australian iron ore mining industry, with a strong portfolio of mining assets and a track record of consistent production. The company has plans to expand its operations and increase its market share, but as with all investments, potential investors should carefully consider the risks associated with the company’s operations and market conditions.

Grange Resources Limited (Grange Resources) owns and operates one of Australia’s largest integrated iron ore mining and pellet production businesses, located in the northwest region of Tasmania.

Grange will produce high-quality, steel-making raw materials economically and effectively. Our operations will be efficient, flexible, and stakeholder-focused.

In CY2023, the company has continued to face challenges,.These challenges may have been influenced by various factors, such as market conditions, operational inefficiencies, cost pressures, or other external factors impacting the company’s performance. If you are looking to invest long term in Grange Resources, you need to make sure the company is addressing these challenges and implementing strategies to improve production efficiency and cost management. This will be crucial for Grange Resources to enhance its operational performance and financial results in the future.

The positive aspect is that the company has been implementing strategies to improve production, efficiency and address operational challenges. Some of the key initiatives and strategies the company is undertaking as per CY23 financial report include:

  1. Optimising Mine Operations: Grange is focusing on optimising the integration and transition of the Life of Mine Plan from open cut to underground mining at its Savage River and Port Latta operations in Tasmania. This includes producing high-grade ore, maintaining access to ore through mine development, and enhancing critical process infrastructure.
  2. Investing in Technology: The company has made strategic investments in the North Pit Underground development, with a focus on transitioning from open pit to underground mining. This includes the integration of new technologies such as electric mining equipment and material handling systems underground to improve operational efficiency and reduce carbon emissions.
  3. Enhancing Process Efficiency: Grange Resources has undertaken initiatives such as installing a High Efficiency Mixer at the Port Latta Pellet Plant to improve binder addition and pellet quality. Additionally, the optimisation of the Intermediate Air System to reduce emissions from coal combustion demonstrates the company’s commitment to enhancing process efficiency.
  4. Safety and Risk Management: The company is maintaining a focus on lead indicators, hazard identification, and risk management to ensure a safe working environment for its employees. Initiatives such as the introduction of fatigue management systems like the Hexagon HxGN MineProtect Operator Alertness System (OAS) and Collision Avoidance System (CAS) for mining fleets aim to enhance safety and reduce operational risks

Extending Mining Life beyond 2037

Grange Resources’ focus for 2024 revolves around extending the life of the Savage River mine and enhancing production capacity through strategic projects, primarily the development of the underground mine at North Pit. This initiative is central to their long-term plan for sustaining and growing operations. The focus on extending mine life and maximising capacity underscores Grange Resources’ commitment to long-term growth and operational excellence. The underground mine’s capacity and high-quality output are poised to support these objectives, offering a sustainable and profitable path forward.

The underground mine at Savage River is a significant aspect of this focus, with projections to deliver 64 million tonnes of ore and produce 28 million tonnes of concentrate with an iron grade exceeding 66% over a 15-year period. This development is crucial in extending the life of the Savage River operation beyond 2037, providing a clear path for future production and revenue.

The company’s strategy to optimise its life-of-mine plan involves not only the integration of the underground mine with existing open-cut operations but also ongoing efforts to improve efficiency, safety, and sustainability. By embracing innovation and enhancing capacity, Grange Resources aims to maintain a steady output while reducing operational risks.

Savage River

The Savage River magnetite iron ore mine, 100km southwest of the city of Burnie, produces some of the highest iron-concentrated magnetite in the country with minimal impurities.

(Improved Ore Reserves) The Ore Reserves for the Savage River mine as of December 2023 are as follows:

  • Proved Reserves: 34.7 million tonnes at a grade of 45.7% DTR
  • Probable Reserves: 74.5 million tonnes at a grade of 44.1% DTR
  • Total Reserves: 109.2 million tonnes at a grade of 44.6% DTR

These Ore Reserves are reported above specific cut-off grades for Opencut and Underground mining operations. The inclusion of underground Ore Reserves has contributed to an increase in the total Ore Reserves, with a shift towards more underground mining planned for the future

Port Latta

70kms northwest of Burnie is Grange Resources’ wholly owned pellet plant and port facility at Port Latta – producing over 2.2 million tonnes of premium quality iron ore products annually.

Southdown

Grange Resources Limited is also developing the Southdown magnetite project in Western Australia. The Company is evaluating strategic options for this project, which includes considering opportunities for growth and leveraging new markets to address changes in the climate. Grange is well positioned to further develop existing assets and explore additional growth opportunities in new areas 

Located 90 km east-northeast of Albany, Western Australia, the Southdown Magnetite Project centers on extracting high-quality magnetite, a valuable iron ore, from a 12 km deposit. The current study covers 6 km, containing over 1.2 billion tonnes of mineral resources, including 388 million tonnes of ore reserves.

Key Details:

  • Mining Process: Involves mining, crushing, grinding, screening, and magnetically separating magnetite to produce a premium concentrate.
  • Export: Aiming to annually export approximately 5 million tonnes of magnetite concentrate to international markets, the project has an initial mine life of 28 years.

Magnetite:

  • A high-quality iron ore used in steel production, magnetite offers superior quality and efficiency compared to hematite.
  • Advantages:
    • Higher Quality: More productive and efficient than hematite.
    • Lower Environmental Impact: Requires less energy during processing, leading to lower carbon emissions in steel production and improved environmental outcomes.

The Southdown Magnetite Project aims to extracts and exports high-quality magnetite, prioritising efficiency and environmental sustainability in the steel production process.

Key Financial Points as per Full Year Result for CY23

The company reports as per the calendar year (CY)

✅ Total iron ore product sales of 2.65 million tonnes for the year, compared to 2.57 million tonnes for the prior year.

✅ During CY23, Grange sold a total of 2.59 million tonnes of iron ore products, which was slightly higher than the previous year’s sales of 2.56 million tonnes. According to the last 3 quarters, it appears that FY24 will be better than FY23.

✅ Improved realised price (FOB Port Latta) of $212.83 per tonne for the year compared to $203.18 for the prior year.

✅ Grange’s positive cash flow operating activities for the full years were $267.1 million vs $196.9 million in FY23, increased compared to prior year mainly due to higher quantities sold and higher prices achieved.

🚩 NPAT (net profit after tax) in FY24 of A$150m, lower than in FY22.

🚩 Note that Cash liquidity by the end of FY23 was A$283 million vs $298.6 million in the year before.

Latest Update as per September quarter FY23

Operational performance – increase in production.

✅ Potential of increased the life of the mine beyond 2037 in Savage River.

Average received prices for pellets increased slightly to A$212.83 in CY23 compared to US$137.82/t (A$210.03/t) in the previous year.

🚩 Production Challenges – The company experienced a decrease in pellet production, with 2.34 million tonnes produced in the year compared to 2.52 million tonnes in the prior year.

🚩 Increase in Cash Operating Costs: There was an increase in the unit C1 cash operating costs per tonne, rising to 136.65compared to 120.64 in the prior year 5, 15.

🚩 Profit Decline: Grange Resources reported a decrease in profit after tax to $150.1 million for the year, down from $171.7 million in the prior year 

Technical Analysis

Grange Resources Limited (ASX: GRR) has experienced a significant decline of 35% over the past 52 weeks, primarily attributed to factors like downgraded production and operational challenges. This downturn has led to underperformance compared to industry peers, and investor concerns over the company’s ability to declare a final dividend for FY23 have intensified.

Positive Indicators

  • Bullish Divergence on RSI: Despite the overall downward trend, a bullish divergence has formed on the Relative Strength Index (RSI), indicating that while the stock price has been falling, momentum is gaining strength. This could signal a potential reversal.
  • Increased Volume Since November: An increase in trading volume has been observed since November. Higher volume often precedes significant price movements, suggesting that investor interest in the stock is growing, which could point to a trend reversal.
  • Technically Discounted Price: GRR is trading at a technically discounted price, in both the short and long term. This could attract value investors seeking opportunities, especially considering the stock’s historical performance.
  • Strong Hypothetical Support Level at 39-42c: The stock may find support within this range, which could lead to a rebound. This level could be crucial for predicting the stock’s short-term direction.
  • Stock Trading Sideways Since September 2023: Despite the bearish trend, the stock has traded relatively flat since September, indicating potential stability.
  • Consistent Demand for Iron Ore: The demand for iron ore remains strong, and prices are steady. If inflation continues to rise, especially if the Chinese government introduces new economic stimulus in 2024, demand for iron ore could increase further.

Overall Outlook

Although Grange Resources has faced significant challenges due to external factors, the technical indicators suggest there may be opportunities for traders and investors. The bullish divergence on RSI over the last five months, increased trading volume, and a potential support level between 39-42 cents indicate that GRR could be poised for a rebound. These factors, combined with steady demand for iron ore, make GRR a stock worth watching.

Dividend History

Grange Resources has a history of paying dividends, with a notable yield of over 10%. Consistent dividend payments are generally seen as a sign of financial stability and management’s confidence in the company’s future earnings. Recently, the company paid a dividend of 2 cents per share, reinforcing this trend.

Overall, while GRR has experienced a significant decline, these technical indicators and historical trends suggest that it may be an attractive option for speculative investors looking for a potential rebound. The dividend yield also contributes to its appeal for income-focused investors.

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