Century Global Commodities is set to enjoy the upside of a potential iron ore super-cycle

Century Global Commodities Corporation (TSE:CNT) controls some of the largest iron ore resources in Canada and has wind in its sails. The price of iron ore has climbed 80% over the past 12 months and is now in a sustainable recovery. In the first few months of this year the price averaged close to US$170 a tonne. The price improvement augurs well for Century which has interests in five Canadian iron deposits located in Quebec and Newfoundland and Labrador. The company’s flagship, Joyce Lake, is a Direct Shipping open pit project and is moving ahead rapidly to capture the strong market. Proactive sat down with Century Global Commodities founder CEO and Chairman Sandy Chim to discover how the company is advancing its projects to capture the upside of what appears to be a new iron ore price super-cycle.    The mining industry veteran has an extensive track record of raising capital in Australia, UK, Hong Kong, and Canada. A chartered accountant, Chim has already secured two key strategic partners — Baowu Steel Group and Minmetals — Global Fortune 500 companies who have provided both financial and technical support to Century. How big are Century’s iron ore resources across five projects in Canada? Century controls among the largest iron ore resources in Canada, totaling some 20 billion tonnes in Quebec and Newfoundland and Labrador. This total includes the Joyce Lake DSO Iron Ore Project, Hayot Lake, Full Moon, Black-Bird and the Duncan Lake project. Joyce Lake already has a bankable feasibility study completed, while Full Moon and Duncan Lake both have completed preliminary economic assessments. These three advanced projects alone have a combined after tax Net Present Value of over $5 billion calculated using iron ore prices that are well below trading prices we see today. With countries like China stimulating their economy and boosting steel production we have seen a rally in iron ore price, a key ingredient for making steel. Where do you see iron ore prices climbing? How does this impact your company? The recent iron ore price rally is not specifically driven by economic stimulus in China. This stimulus has been considerably less than previous ones, especially when compared to the one following the international financial crises. The current stimulus has only had a minor impact on the iron ore market which was already in recovery before the impact of COVID-19. The iron ore market’s recovery is due to a strong incremental demand from ongoing urbanization in China together with an oligopolistic seaborne iron ore supply constraint which has seen no new production for several years and there are currently no commitments for major expansions or new mines. It is reasonable to expect that iron ore price in the near future will test the peak of the last super-cycle which was in the order of US$200/t. The iron ore price today is driven by the growing demand for steel in China and the lack of expansion of the oligopolistic Big 4 producers that supply the majority of the seaborne market. Towards the end of the last super-cycle, the Big 4 producers doubled their production following a US$100 billion capital expenditure. Until we see financial commitments for new projects by the Big 4 the current robust prices will continue, maintained in part by the oligopolistic nature of the supply. The robust price outlook is now being recognized for re-rating the sector.  Fitch Ratings has recently revised its long-term price to US$125/t, compared to their prior forecast of $120/t in 2021, $100/t in 2022, $85/t in 2023, and $75/t long-term. The Fitch new forecast is aligned with what they see as commodity prices, in general, benefiting from returning demand, slow supply response and low inventories.  The robust and sustainable price outlook opens a huge window of opportunity for Century to quickly bring Joyce to production while sequentially over time also developing its other high-volume projects to realize a combined Net Present Value of some $5 billion for its top three projects. Is the iron market a lot tighter in terms of flat supply and steady demand growth? Are we on the cusp of a new seller’s market price cycle? Absolutely! This has been developing for several years now and follows the Big 4 producers completing production expansions in the 2015-2019 period. Their total output has been flat since 2019 at around one billion tonnes annually. Meanwhile, demand from China for seaborne iron ore supply continues to grow steadily. The lack of commitment by the Big 4 to new projects or expansions and the ongoing China demand growth, in my opinion, not only generates a seller’s market but also ushers in a new iron ore super-cycle. Walk us through the company’s flagship Joyce Lake project, how close are you to production and contrary to most companies why is this project a low capital intensity project? Joyce’s iron ore is high-grade at about 62%Fe and it does not require site processing, which is why it is called Direct Shipping Iron Ore. The project requires open pit mining, crushing and screening, just like a quarry, so there are no tailings generated. As such, equipment required for mining and crushing is simple and because a large processing plant is not required, capital intensity is reduced to US$11/t, which is a fraction of the current selling price of US$160-170/t. Again, because it is simple compared to traditional iron ore projects that require large processing plants Joyce will only take one and half years, after a production decision, to reach full production. Significantly, Joyce has already completed a feasibility study and an environmental impact study has also been prepared. To advance project permitting only updating of various studies is necessary, which has already started. The speed that Joyce can deliver ore puts Century in a favorable position to catch this robust and sustainable price upcycle. Additionally, if warranted, we can take also take advantage of the iron ore futures market which enables contracts of up to 4 years, providing us the ability to lock in a substantial portion of our production. Joyce can operate at 2.5 million product tonnes per annum and we intend to take full advantage of that capability to maximize exposure to the price upcycle. The robust price forecast and rapidly advancing Joyce to production is important for us to maximize return. Once you hit production do you expect to have very attractive margins? Is this the best cycle timing for projects such as Joyce Lake to catch the high cycle? Yes, because we can go from decision to full production in one and a half years, we have an excellent opportunity to catch the upcycle and to generate extraordinary high margins. What are the growth catalysts for Century in the near-term? The immediate growth catalysts for Century include a possible spinout of Joyce, updating and optimizing the Joyce feasibility study, updating environmental studies, and advancing permitting, financing and so forth. Why is Century a compelling story with the Joyce Lake project approaching a production decision? The Joyce feasibility study demonstrates that at a projected price of US$142.50/t, the post-tax Net Present Value, over a 5-7 year mine life, is greater than C$500 million. Joyce achieves this value through a low capital intensity of US$11/tonne, a US$47/t FOB cost at the Sept-Iles port and ocean freight of approximately US$15/t. Cost delivered China is in the order of US$70-80/t compared to the current selling price in the range of US$160-170/tonne. Joyce is a quick to production project and as such has the opportunity to realize the high selling prices available in the market today and which are projected to be sustained for some time. Would you agree that the company’s market cap of $27.6 million belies its huge potential? Yes, especially when considering our net asset value of C$25 million (after $100 million impairment about a year ago) together with working capital of $17 million. Joyce alone has greater than C$500 million post-tax Net Present Value, at US$142.5/t iron ore selling price, presenting great upside for investors. Additionally, our combined three most advanced iron ore projects have in the order of $5 billion after-tax Net Present Value. Contact the author Uttara Choudhury at uttara@proactiveinvestors.com Follow her on Twitter: @UttaraProactive