< BACK ...to it as well,” O'Keeffe says, “because we were still sitting on the wall, when everyone else was crashing around us.”
One brokerage that did notice the Bloom Lake deal go through was Pareto Securities in London, which put out a one-liner, when the agreement was announced. “This truly looks like a counter-cyclical investment,” Pareto said.
Rhys Bradley, a former analyst at Pareto, who is now a finance director, spotted the deal because of O'Keeffe, a fellow Aussie. “Out of everyone in the mining industry, I think he is the most strategic,” Bradley says.
“The natural human heuristic is to take two data points, draw a straight line and keep on going, so when prices go down people assume they'll keep on going down forever,” says Noel Dunn, the former head of mining investment at insurance group Liberty Mutual, which has previously sunk capital into Canadian iron ore. “Every time prices go down some bright spark in an investment bank writes a research piece saying, they'll be giving iron ore away, nobody will want to take it.”
Dunn has maintained throughout the downturn that Canadian iron ore is viable. “If you're a stock investor and you have a three-month time horizon, then it's probably not a great idea. But if you're Michael O'Keeffe, he's really saying to you, valuations are very low, it's a pretty good time to roll all of these things into a box.”
“Iron ore, whether it's worth $50 or $100, isn't very valuable per tonne, so it's really a logistics business. You dig it up, stick it through a crusher and stick it on a train. If you're 1,000km up the jungle in Africa with no railway line, but you have the world's greatest iron ore deposit, that is not worth very much. If your iron ore is right next to a railway line, if it's already built, and you can buy it
cheap enough, for sure, that's a great investment.”
Another analyst who noticed the Bloom Lake deal was Garrett Nelson at BB&T, a US-based bank. “This buyer got a tremendous deal,” Nelson said at the time. “Iron ore prices won't be at these depressed levels forever. Given the quality of the ore at that mine, we think that asset will have value... they probably bought it for less than liquidation value.”
Liquidation is not an option for O'Keeffe. Instead, he wants to learn how to operate the mine's crusher, he says, so he can wallop the first rock, when Bloom Lake is switched back on. Premiums for Canadian iron ore are meanwhile sitting at $10 to $12 per tonne, meaning Bloom Lake's tonnage would fetch over $90 per tonne, if it hit the market tomorrow.
Analysts and bankers who remember Bloom Lake's steep quarterly losses and multi-billion dollar write-downs remain doubtful about O'Keeffe's plans to turn the operation around. Cash costs at Bloom Lake were as high as $92 per tonne in 2014, pushing the mine and its former owner deep into the red.
But O'Keeffe refuses to budge from the idea that by dropping the mine's expansion plans and rejigging production, Bloom Lake can make money at fifty dollars per tonne. At that level, he thinks the company can compete with any other tonnage, at any point in the cycle.
With prices rising, O'Keeffe also believes the opportunity for buying-up mines for cents on the dollar has passed. Asset sales by Glencore, Anglo American and Vale have all been pulled in recent weeks, or are going through at pricey levels. If the window has shut, is O'Keeffe happy with what Champion bought? “Don't ask stupid questions. Very happy.”
“Heat wave,” he adds, leaving the office. “It's nine degrees.”