Shares to Buy Northern Iron (NFE)


Northern Iron ASX NFENorthern Iron (NFE) is an Australian iron ore company which was formed to acquire the Sydvaranger Iron Project in northern Norway. NFE has redeveloped Sydvaranger to commence production of magnetite iron concentrate for supply into the European market.

This strategy aims to provide investors in NFE with direct exposure to iron ore prices within the next two years.

Iron ore prices are skyrocketing of late, and it is believed that spot prices may surge through US$200 per tonne, returning to pre-GFC record levels.

Established operations

The Sydvaranger Iron Project (Norway) operated from 1910 to 1997, then was reopened in October 2009 with first shipment in November 2009.

Sydvaranger encompasses three magnetite deposits with JORC compliant resources and a further 20 prospects with known iron mineralisation, several of which have been mined previously.

NFE’s development plan for Sydvaranger is based on utilising the existing infrastructure on site in order to commence production of a magnetite concentrate product as quickly as possible for the lowest capital cost.

Current plans for the re-furbished mine are for the mining of 7 million tonnes per annum (Mtpa) of ore to produce approximately 2.9Mtpa of concentrate over a 19 year mine life.

Recent results

For the recent December quarter (4Q10), NFE noted a strong improvement in concentrate quality to meet target specifications owing to full commissioning of concentrate screens in mid-November.

Northern Iron clocked a significant improvement in milling performance for the quarter to a record 969kt, up 26% on the previous quarter.

The quarter also included an increase in concentrate production by 8% on the previous quarter to 375kt.

Due to improved maintenance performance, NFE expects to achieve its FY11 production target of 2,300kt – despite recently reduced concentrate volume as a result of optimisation work on the filtering system to achieve quality specifications.

Recovery in December and January has been as expected and thus NFE stands by its FY11 production target.

NFE noted a 20-30% average sales price increase over the December quarter is expected to be achieved in 1Q11 due to the improved product quality and strength of the iron ore market.

Iron ore

Today it was confirmed that a key iron ore price index (Platts’ 62% iron ore index) edged up to a record US$187.25 a tonne.

The index is used in conjunction with others, based on spot transactions in China by global miners including BHP Billiton and Rio Tinto.

Over the next 18 months, continued demand from emerging economies such as China and India is expected to drive growth in consumption of energy and minerals commodities.

NFE’s exposure to iron ore is lucrative. Restocking by Chinese steelmakers and tight supplies have driven a surge in spot prices to near US$200 per tonne, boosting price indexes by 10% so far this year.

If iron ore does reach US$200 per tonne, it would bring prices up to the all-time record levels of March 2008, during the commodities boom that occurred before the global economic downturn hit iron and steel markets.

Outlook

NFE is an emerging iron ore miner, explorer and producer, whose flagship Sydvaranger Iron Project will help contribute towards the company’s FY11 production target of 2,300kt.

Iron ore prices are skyrocketing of late, and it is believed that spot prices may surge through US$200 per tonne, returning to pre-GFC record levels.

NFE noted a 20-30% average sales price increase over the December quarter is expected to be achieved in 1Q11 due to the improved product quality and strength of the iron ore market.

Northern Iron has been one of the hot stocks in recent months due to the brightening outlook for iron ore.  Its stock has surged from around $1.50 in late November to just under $2.00, making it one of top performing small caps in the Australian share market recently.

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