FN Arena News reported that he combination of a rock slide in July and rapid falls in iron ore prices meant the September quarter would be a challenging period for iron ore producer Grange Resources, especially in terms of operating costs and margins.

This is how things played out, as Macquarie notes Grange recorded a negative operating margin for the quarter as costs increased post the rock slide given the need to mine more overburden for less ore and the processing of lower grade materials.

Macquarie said that unit costs rose 37% in QoQ terms to UAS 130 per tonne, this was a little above the realized price of USD 128 per tonne, which fell by 14% in QoQ terms. Given realized prices for Grange lag by about one quarter, further weakness in prices is expected in the three months to the end of December.

The ground failure in the September quarter has forced a new mine plan for Grange, one Macquarie expects will see 2013 output of 2.1 million tonnes in 2013 and 2.3 million tonnes in 2014. This compares to Grange's expectations of around 2.2 million tonnes next year and an average of 2.4 million tonnes per year over the life of the mine.

The new mine plan should generate lower costs, as BA Merrill Lynch notes cost guidance for the December quarter is USD 105 per tonne. This should be enough in the broker's view to return Grange to a cash positive position.

Source - FN Arena News

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