CuFe Ltd (ASX:CUF) has completed an operational ramp-up at its JWD Iron Ore Project in Western Australia, with the project now operating at its intended capacity.
Mining operations are now focused on a low strip, smaller pit shell to maximise cash flow while maintaining the optionality to cut back to a larger pit when the iron ore market dictates.
To effectively manage financial performance and minimise the impact of price volatility, CuFe is taking proactive steps to hedge forward production.
Presently, the company has hedged 170,000 dry metric tonnes (DMT) with a range of maturities until September 2023, accounting for about 35% of the anticipated sales over that time.
Moving forward, CuFe plans to increase its hedge coverage to encompass some 70% of its six-month production profile, as it identifies advantageous pricing levels.
Operating at full capacity
CuFe executive director Mark Hancock said: “It’s pleasing to see JWD back operating at full capacity.
“I would like to acknowledge the Cufe team and our key contracting partners for their assistance in achieving this.
“While global markets are uncertain at present the iron ore market has been showing encouraging signs, with steel demand improving and iron ore inventory levels at Chinese mills very low on a days-of-use basis.
“Given this backdrop we have been building a hedge book, aiming to protect downside exposure at levels above our breakeven cost and maximise our exposure to upside participation if the market continues to improve.”
Hedging summary
The hedges consist of 30,000DMT of swaps at an average price of US$127 on the basis of 62% iron and 140,000 zero cost collars, with weighted average floor and ceiling prices of US$116 and US$135 respectively on the basis of 62% iron.
Around 85% of the intended sales are of lump product that achieves an additional premium which at this stage remains unhedged.
With the Hedge book replenished, CuFe will receive price protection for about 35% of production till September 202.
Securing 100% interest at JWD
CuFe holds a 60% interest in the JWD Project via its subsidiary Wiluna Fe Pty Ltd as the operator of the joint venture and has entered into an agreement with joint venture partner Golden Valley Group to acquire the remaining 40%.
The transaction involves the issue of 150 million CuFe shares and the refund of historical cash contributions.
Preparation for a meeting to approve the acquisition of the remaining 40% at JWD is underway, with the release of a notice of meeting and an independent expert’s report on the fairness and reasonableness of the proposed transaction to come.