Australia miner sees 4-year bull run for iron ore

SYDNEY Wed Oct 3, 2007 8:56am BST

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SYDNEY Oct 3 (Reuters) - Australian iron ore prospector Centrex Metals Ltd (CXM.AX), backed by Chinese steel mills, on Wednesday said the upward trend in ore prices was set to continue for another four years.

"The supply imbalance will not be rectified until around 2011," Centrex Managing Director Gerard Anderson said.

Anderson's prediction doubles the timeframe set out by another Australian prospector, Fortescue Metals Group Ltd (FMG.AX) Chief Executive Andrew Forrest, who recently said the up trend had only a further two years to run.

Iron ore prices have risen for five straight years, helped by strong demand from expanding steel mills in China, sparking a battery of new mining entrants in Australia, including Fortescue and Centrex.

Broker UBS is forecasting a 25 percent rise iron ore prices for the shipping year starting April 1, 2008.

Anderson, a former executive in BHP Billiton Ltd/Plc's (BHP.AX)BLT.L> iron ore division, a major supplier, also said he expects his former employer to push for freight differential compensation from iron ore customers in Asia.

The move, which could mean Chinese steelmakers pay more for Australia ore, comes more than three decades after BHP and others started digging ore to supply Japanese mills.

Due to higher freight rates, landed iron ore costs from Brazil, home to the world's largest iron ore miner CVRD VLE5.A(RIO.N), are substantially higher than Australian landed costs.

"They (miners) have been taking the rough end of the pineapple for 30 years and that's now changing," Anderson said, referring to the annual price negotiations with Japanese mills and CVRD, BHP and Rio Tinto Ltd/Plc (RIO.AX)(RIO.L) that only recently included Chinese mills.

BHP first raised the idea of freight compensation in 2005, but dropped the idea at the insistence of Chinese mills.

However, BHP marketing director Tom Schutte told an analysts briefing that securing freight compensation was still on the company's agenda.

"We haven't stopped discussing it since 2005," Schutte said.

China's Baotou Iron and Steel (Group) Co Ltd (600010.SS) has agreed to provide up to A$40 million ($38 million) to help fund pre-development studies on an Australian iron ore mine Centrex wants to develop.

Baotou already holds 10.13 percent of Centrex and has agreed to buy five million tonnes of ore over five years from Centrex.

Another Chinese steelmaker, Shenyang Orient Iron & Steel, holds a 7.03 percent interest in Centrex.

With its rich ores and direct shipping routes to Asia's fast growing economies, and in particular China, Australian iron ore mines are attracting attention among Chinese steel mills hungry for raw feed, Anderson said.

Last month, China's Anshan Iron & Steel Group Corp (0347.HK) (Ansteel) agreed to help underwrite two new iron ore mines in Australia, in exchange for a 12.78 percent interest in Gindalbie Metals Ltd (GBG.AX). ($1=A$1.13)