Norway port set to boom with iron ore shipped to China
Three yellow construction cranes tower over heavy machinery and clusters of workers as they bustle in the Norwegian Arctic drizzle to get a new iron ore terminal ready by the beginning of next year, Bloomberg reports.
The port of Narvik, where the waters around a ship at the existing loading quay are tainted red by iron ore dust, is preparing for an economic boom. Iron ore from neighboring Sweden via Narvik is forecast by the port to surge fivefold by 2025, much of it bound for China. That is bringing wealth to a city lacking the oil riches most of Norway enjoys.
Narvik is banking on Northland Resources SA (NAUR) which, like Sweden’s LKAB, is ramping up production at its Swedish iron ore mines. Northland plans to start extraction in Kaunisvaara in the fourth quarter and make its first shipments from Narvik early next year. The stock could more than double in value in the coming 12 months, according to the average share price estimate of five analysts surveyed by Bloomberg.
“Narvik is the optimal port solution for us,” said Northland Resources Chief Executive Officer Karl-Axel Waplan in a phone interview, noting the port’s proximity to Northland’s Swedish mines and its capacity to take the biggest vessels, which isn’t the case for Sweden’s Baltic ports. “Demand for iron ore will rise.” Even if Chinese annual growth falls to 7 percent, he said, Northland forecasts prices averaging 15 percent higher than today’s level over the next 15 to 20 years.
The ice-free Narvik port, almost a two-hour flight north from Oslo, is 250 kilometers (155 miles) from Northland’s mine in Kaunisvaara, Sweden. Volumes may rise to 33 million metric tons by 2015 and to as much as 100 million tons by 2025, Rune Arnoey, head of the Port of Narvik, said in an interview. In comparison, northwestern Europe’s fourth-largest port, Amsterdam, handled 93 million tons of cargo in 2011.
Job Creation
The forecast surge in exports would give a boost to a city that hasn’t directly benefited from Norway’s oil wealth. Arnoey said rising volumes could create as many as 2,000 jobs in Narvik, a city of 18,500 people hurt when Renewable Energy Corp. (REC) closed its solar-cell plant last year, costing almost 200 jobs.
State-owned LKAB is building a new quay in Narvik and expanding the railway between Narvik and Sweden. It also will move parts of the city of Kiruna, including some 3,000 apartments, to a new location over the coming 20 years to have access to more ore. Total cost to LKAB: at least $3.3 billion.
Northland Resources’ new terminal will accommodate rising iron ore exports from the company’s mines in Kaunisvaara and Hannukainen in Finland. Waplan forecasts production in Kaunisvaara of 4 million tons in 2015 and 4.5 million tons in 2016 or 2017, with a long-term goal of 5 million tons. While the current price for iron ore is about $104 a ton, he sees it averaging $120 a ton over the next 15 to 20 years.
Rising Prices
“The ore is of an extremely good quality, so there will always be demand for it,” Waplan said. “We think ore prices will stay high for the simple reason that production costs are rising in so many countries.”
Northland Resources has slumped 46 percent in the past 12 months to 4.2 kroner on the Oslo bourse, compared with a 35 percent advance in the OBX benchmark index in the same period. Of 13 analysts covering the stock, 10 recommend investors buy the shares while three have hold recommendations. None of the analysts advise their clients to sell the stock.
“The project will be very profitable in the long term, but in the phase they’re in now, investors are more concerned that the project will meet the timeline, which might have held the shares down,” Kenneth Sivertsen, an analyst at Arctic Securities in Oslo, which has a buy recommendation on the stock, said in a telephone interview on Sept. 17.
Transportation Plan
While Swedish authorities recently pledged 3.5 billion kronor for rail and road improvements, Arnoey at the Port of Narvik is concerned public spending won’t keep up with growth. A national transportation plan pending government approval calls for 1.5 billion Norwegian kroner ($260 million) of investments for the period from 2014 to 2023.
Thor Braekkan, head of Norway’s stretch of the iron-ore railway, called that “completely insufficient.” Waplan of Northland Resources also called for more rail investment by Norway, saying private rail users could pay a fee for use to recoup the expenditures.
The increase in Swedish iron ore volumes transiting Narvik is good news for Sweden, where mining accounts for 15 percent of the nation’s 200 billion kronor ($30.3 billion) of gross exports and 40 percent of its 70 billion kronor of net exports, according to LKAB.