Investment in Bahia - scale of region's iron deposits revealed

Date added: 21st November, 2008 at 13:36 (view all articles from November, 2008)

Categories: Natural Resources

Steel company ArcelorMittal Brasil has won a major contract to explore iron ore reserves in the state of Bahia, North East Brazil, BNAmericas has reported.

According to a Steel Guru-sourced article on Your Metal News, the company outbid 23 other companies to obtain the exploration rights, which could be worth millions of pounds every year.

Geologist Jose Carlos Cunha was quoted by BNAmericas as saying there is an estimated 1.5 billion metric tonnes of iron ore between three mining sites, Pilao Arcado, Casanova and Remanso in the north of the state.

This, he claimed, could lead to the extraction of up to 20 million tonnes of iron ore each year, with the potential to double this level of production to 40 million per annum in the long-term.

At the current contract price of approximately $92 (£61.26) per US short ton, as estimated by Bloomberg, there could be as much as $152 billion worth of iron ore in the region in total.

ArceloreMittal Brasil did not reveal how much money it had to spend on the successful bid, but stated that it will have to pay a levy of five per cent once extraction begins.

Natural resources investors may be aware that iron is a major industry in Brazil and is one of its key export goods.

Indeed Vale, which is the country's second largest company according to the latest Forbes Global 2000 list, exports more iron ore than any other corporation in the world and revenue from the material makes a sizable contribution to its overall market value of $171.39 billion.

Contract iron ore prices have increased steadily over the last six years, although they are expected to fall in 2009 due to the global economic downturn.

Analyst JPMorgan was quoted by Bloomberg as saying: "Global steel demand has dropped abruptly in the last two months, driving a deluge of production cuts.

"This, coupled with high inventories in China and falling freight rates, has led spot prices to drop 14 to 24 per cent below contract prices, which we believe should set the tone for lower prices in 2009."

It is thought by the organisation that prices will fall by approximately 30 per cent, which could enable investors to get involved in the industry at a cheaper price than earlier in 2008.

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