Australian miners hit hard by China’s Evergrande collapse


The plunging price of iron ore, blamed in part on China’s growing problems, is starting to hit Australian miners hard.

Two Australian miners have suspended operations on the back of plunging iron ore prices.

Iron ore recovered slightly yesterday, up 3 per cent to US$118.25 ($AU162.93) per tonne.

However, Australia’s most valuable export has seen its price haemorrhage more than 60 per cent from a record high in May when it hit close to $US240 ($AU330.69) a tonne.

The Ridges mine in East Kimberley was placed into “care and maintenance” this week.

It’s estimated that 200 jobs will be lost and the region will lose $3.5 million a month in revenue for local businesses, the ABC reports.

Indus Mining told Australian Mining that the project had been deemed economically unviable due to both the recent fall in prices along with continued high shipping costs.

Meanwhile, Mount Gibson Iron has started a staged suspension of its Shine iron ore project.

Mount Gibson said in a statement: “Given recent adverse movements in iron ore prices, product discounting and shipping freight rates, the company will implement a staged suspension of operations at the Shine mine site”.

Mt Gibson Iron also requested a trading halt on the ASX, citing “recent iron ore volatility”.

GWR Group has also suspended mining operations at its C4 Iron Ore Mine.

The price plunge is blamed on a drop in demand from China, the world’s most voracious importer of iron ore.

China this year moved to lower its steel production. Beijing has targeted the industry as part of its bid to reduce carbon emissions.

Beijing has also been accused of using iron ore as a “weapon” in the acrimonious trade dispute with Australia, which has led to hefty tariffs on Australian barley and wine exports. Australia’s timber, lobster and coal industries have also been targeted.

But the bigger problem is the state of the Chinese economy.

China’s second largest property developer Evergrande Group is on the brink of collapse.

Yesterday it failed to pay $180 million interest debt and it recently agreed to sell off its stake in the local Shengjing Bank for nearly 10 billion yuan ($AU2.1 billion).

The company is weighed down by $US300 billion ($AU413 billion) in debt and there are fears its collapse could further damage the iron ore trade.

There are also concerns Evergrande’s debt problems could spread through China’s financial system and reverberate globally.

Evergrande has missed two bond interest payments in the past two weeks.

China’s property market — driven ever higher by massive stimulus from Beijing, has been financed by borrowed money.

In an attempt to rein in the bubble, Beijing introduced the “three red lines” guidance in 2020.

This requires developers to submit detailed reports of their financing situation for evaluation by regulators led by People’s Bank of China, according to UBS.

The “three red lines” require that the developers:

1. Have a liability-to-asset ratio (excluding advance receipts) of less than 70 per cent;

2. Have net gearing ratio of less than 100 per cent; and

3. Have cash-to-short-term debt ratio of more than 1x.

Those new rules have been blamed for bringing Evergrande to the brink and housing sales have slumped.

Homin Lee, a strategist at Lombard Odier, described the Evergrande crisis as a “controlled demolition” — or managed collapse.

It’s unclear whether Beijing will step in to bail out the beleaguered company.

Read related topics:China

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