As iron prices plunge, mining company hatches plan to sell eggs

Canadian corporation adds Australian food business amid global ore surplus

The iron-ore business is so lousy that one Canadian mining company is shelving its biggest project and starting a new venture: selling Australian eggs to China.

The abrupt shift at Century Iron Mines Corp. was prompted by a global iron-ore surplus that sent prices plunging 68 per cent in four years. Chief executive officer Sandy Chim doesn’t expect a recovery until 2018, so he’s taken a cue from Australian mining billionaires Gina Rinehart and Andrew Forrest, who are expanding into food production as demand rises across Asia.

“Australia is going from mining to dining,” said Chim. His Torontobased company has created a unit called Century Food, with a plan to distribute eggs produced by Sunny Queen Pty., a chicken-farmer co-operative in Queensland, to consumers in Hong Kong and Macau.

With the backing of Wuhan Iron & Steel Corp. and China Minmetals Corp., the government-owned companies that own 30 per cent of Century Iron Mines, Chim is investing $2 million in the egg venture. He’s drawing on capital originally intended for Century’s flagship Joyce Lake mine project straddling Quebec, and Newfoundland and Labrador.

As recently as November, after tests indicated 24.3 million metric tons of reserves, Century was expecting to spend $250 million on development and start production in 2017. But iron ore went from bad to worse as pro- ducers such as Rio Tinto Group, Vale SA and BHP Billiton Ltd. expanded output from lower-cost mines. At the same time, demand slowed from steelmakers in China, who use about 70 per cent of output. Iron ore that touched a record $191.70 (U.S.) a ton in February 2011 fetched $56.31 on Aug. 12, below the cost of production at some older mines. Joyce Lake needed $58.25 to break even.

With Century focused exclusively on developing mines in Canada, the company’s shares have plunged 54 per cent in the past year on the TSX.

Small ventures such as Century usually make their money by finding reserves that they sell to bigger companies with deeper pockets. Faced with a money-losing mine, it’s not surprising Chim would steer the company elsewhere, said John Meyer, a mining analyst at SP Angel Corporate Finance in London.

“Sometimes it is a question of survival,” Meyer said. Mining entrepreneurs “are good at following the money and not patient enough to wait for the cycle to turn,” he said.

Century isn’t alone. In January, All Ore Mineracao SA in Brazil said it would abandon projects in iron ore and gold to produce cosmetics. All Ore’s shares surged as much as 70 per cent on the news and the company became Sweet Cosmetics SA.

Chim, 59, has seen the highs and lows of iron ore. Born in Hong Kong and now a Canadian citizen, he was an investor in the Bloom Lake mine in Quebec and a shareholder of Consolidated Thompson Iron Mines Ltd., which was acquired by Cliffs Natural Resources Inc. for $4.9 billion in 2011, when prices peaked. In January, Cliffs suspended production at Bloom Lake and sought creditor protection for the operation.

Financing for smaller iron-ore projects such as Century’s Joyce Lake have dried up, Chim said.

“We are going to sit on it and wait until the market comes back,” Chim said.

In addition to shelled eggs, Century plans to distribute Sunny Queen products including ready-made omelettes, poached and scrambled eggs. Century also may expand into other foods, Chim said.