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Commodity trading powerhouse Trafigura has been identified as the client behind Mineral Resources' (OTC:MALRF) $400 million prepayment deal for iron ore. The Australian miner has previously reported the deal in July without disclosing the client's identity.
"Due to confidentiality restrictions, we cannot disclose the terms or the customer that the transaction was undertaken with," a spokesperson for Mineral Resources said, per Bloomberg's report.
Yet, according to people familiar with the matter, that client is Trafigura- one of the world's largest commodity traders, which has been aggressively expanding its activities.
Over the past decade, Trafigura's iron ore volumes have surged more than fivefold, reaching 31 million tons by 2022, boosted by higher volumes at its Brazilian port and trade flows from Australia and India, per the half-year report.
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Prepayments are a standard financing tool in the commodity sector, allowing traders to secure resources by providing upfront payments to producers. These payments are typically structured as loans with interest but are repaid through future commodity deliveries.
In this case, the iron ore deliveries from Mineral Resources to Trafigura are scheduled between 2026 and 2028, ensuring a stable supply chain for Trafigura over the coming years.
Mineral Resources has been grappling with rising debt, primarily driven by the development of its Onslow mine and a new haulage road. Over the past five years, its debt rose from around $468 m to $2.95 billion. The company's iron ore projects have also faced higher production costs than other regional miners. Consequently, its net profit margin currently stands at a modest 2.37%.
"We're throwing everything off the deck just to make sure we can preserve cash," said Chris Ellison, CEO of Mineral Resources, reflecting the company's cautious approach.
Meanwhile, the iron ore market also faces challenges. The price of iron ore recently fell back below $100 per ton, driven by weak manufacturing activity and continued concerns over China's property sector—indicating the market's dependence on the world's largest consumer of the steel-making commodity.
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