Plunging iron ore prices have dealt their first blow in Australia, sending fledgling miner Western Desert Resources Ltd into administration after it failed to negotiate a deal with its bankers.
Western Desert, which started mining at its Roper Bar mine in the Northern Territory last December, said on Monday it was suspending its shares and appointing an administrator after Macquarie Bank rejected its funding proposals.
"The recent substantial fall in the iron ore price to a five year historical low, which shows no sign of abating in the short term, when coupled with a strong Australian dollar, has substantially contributed to this outcome," the company said in a statement.
Iron ore, which is priced in U.S. dollars, has slumped 38 percent this year to a five-year low of $83.60. Australian miners have felt the impact even more as the Australian dollar has risen 5 percent against the U.S. dollar in that time.
While the price drop is hurting all Australian iron ore miners, others haven't been hit as hard as Western Desert, which was also facing start-up problems relating to ore grades and shipping, analysts said.
"Western Desert is in a unique situation as it was in start-up mode during a time of extreme iron ore softness," said Andrew Shearer, a resources analyst at PAC Partners, which works with broker Phillip Capital.
Other miners have been hurt by the price slump, with shares in world no.4 producer Fortescue's down a third this year. Smaller miners like Atlas Iron Ltd, BC Iron and Gindalbie Metals Ltd have lost more than half their value.
"At current prices they can survive. But from here on, if prices go lower, it progressively gets tougher," said Mike Harrowell, director of resources at broker BBY.
Australia is expected to account for just over half of all iron ore traded globally in 2014, according to the government's official forecaster.
The weak iron ore prices have raised uncertainty around a bid by BC Iron for Iron Ore Holdings, with one of the conditions on the deal tied to iron ore prices not falling below A$90 a tonne for 20 consecutive days.
That price was breached last Friday, however, unless BC Iron extends the offer deadline beyond September 30, the window for the price to hold lower than A$90 for 20 consecutive days has already closed.
"If the iron ore price is below A$90/t CIF China for 20 consecutive days, BCI would have the option to withdraw the bid for IOH. They don't necessarily pull out, but may seek to re-price the merger. They have possibilities," Harrowell said.
BC Iron and its advisers declined to comment on what the company may do, given the sharp drop in iron ore prices.
Source: Reuters
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