SPECIAL REPORT: The value of investment into WA gold projects is about four times as much as this time last year, while growth in spending on lithium has been even more substantial.
The number of mining projects under development in Western Australia is is double that of a year ago, with the go ahead on a series of lithium and gold projects taking total investment in progress to about $3 billion.
Business News has identified 19 mining projects currently being built in the state, including seven gold projects worth about $1 billion. Leading the way on gold is the Gold Road Resources and Gold Fields joint venture’s $507 million Gruyere mine, which received a final investment decision late last year.
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There is a similar amount being pumped into iron ore, with around half a dozen projects in progress, led by Rio Tinto’s $441 million Silvergrass project.
Other developments to have been approved include Yandi Oxbow and West Angelas, both by Rio and together worth about $370 million, and most recently, a move to restart mining at Koolan Island, with a $97 million investment to be made by Mount Gibson Iron.
Notably, however, those investments are dramatically smaller than the mega projects of the past decade, a trend that ended in June when CITIC Pacific Mining’s Sino Iron was fully commissioned.
The biggest growth has been in lithium.
This time last year, one such project was under way worth around $80 million.
That was the Mt Marion mine, which was then controlled by Neometals and is now under the remit of Mineral Resources.
Galaxy Resources then spent $22 million to return the Mt Cattlin lithium mine to production, starting shipping in January.
Now two more projects are in development, both associated with the Greenbushes mine in WA’s South West, which is the source of about a third of the world’s hard rock lithium production.
Tianqi Lithium, a Chinese company that owns half of Greenbushes mine operator Talison Lithium, turned the first sod on a $400 million lithium hydroxide plant in Kwinana in October.
Talison Lithium, the other half of which is owned by New York-listed Albemarle Corporation, will be investing $320 million to double lithium concentrate production from the Greenbushes mine itself.
The next two cabs off the rank will likely be Pilbara Minerals, which recently has awarded a major contract for the Pilgangoora project, and Altura Mining, which awarded a mining contract for its flagship project, also called Pilgangoora.
A smaller mine at Bald Hill, operated by Tawana Resources, could be a starter after the company secured an offtake deal with a Hong Kong-based company to supply lithium from early 2018.
Investment is also picking up in other technology related metals, known as rare earths, with Northern Minerals giving the go ahead for a pilot plant at Browns Range.
Chamber of Minerals and Energy chief executive Reg Howard Smith said there was an increased level of optimism in the resources sector compared with six or 12 months ago.
“New capital investment has changed, we went through the extraordinary period that I don’t know if we’ll see replicated again for many, many years – the decade leading up to 2013-14,” Mr Howard-Smith told Business News.
“I think it’s pleasing that we’re seeing some of the lesser known commodities (to the general public); we’ve seen positive discussion around lithium, we’re seeing investment in rare earths, which is equally positive.
“You can’t call lithium new, we’ve been mining it now for a quarter of a century here in WA, but there’s clearly an expansion of the lithium sector, and there we see processing, there’s already one of those operations that has been announced.”
Additionally, he noted, ongoing employment in mining was about double the level prior to the boom.
Ore horizons
Mr Howard-Smith said iron ore prices were around $US15 per tonne above the long term average of $US50/t.
“Generally commodity prices are much more positive than they have been for some time,” he said.
“We’ve seen announcements of expansions, there are approval applications in for expansions, particularly post the state election.
“That is a sign of confidence.”
One example of that confidence is the Balla Balla rail and port project, which would link to the Flinders Mines’ Pilbara Iron Ore project.
Balla Balla is being backed by New Zealand private business Todd Corporation, which is the major shareholder in Flinders; a state agreement was signed for the infrastructure portion of the project in January this year.
All up, investment would be around $5.6 billion, while proponents claim the project would be economic throughout the commodity price cycle.
The target would be around 50 million tonnes of iron ore exports annually.
The big miners are also active, with Rio Tinto likely to proceed with the $US2.2 billion Koodaideri mine, currently at the feasibility phase, in order to replace depleted reserves at currently operating mines and keep throughput at capacity through its rail and port network.
Koodaideri would have output of around 40mtpa.
Two other large projects are likely in the medium term to bring replacement tonnes online – BHP Billiton’s South Flank, which would produce 80mtpa, and Rio Tinto’s Mesa A, which could produce up to 25mtpa.
The value of the two projects is as yet unclear, but if both have a similar capital intensity to Koodaideri, the investment would be nearly $US6 billion between them.
There was one disappointment in the iron ore sector, however.
Thanks in part to a legal battle with Clive Palmer’s vehicle and Sino Iron landlord, Mineralogy, Citic Pacific shelved a series of facilities investments at the Sino Iron project, including improvements to its processing plant.
A trial has been set for June to thrash out Citic’s situation with regard to royalty payments to Mineralogy.
Golden sunrise
Several miners are hoping to get gold projects under way, creating a pipeline of possibilities for when the seven projects currently in development are completed.
The most likely of those is Gascoyne Resources’ Dalgaranga project.
At least two companies with projects that are now being built have major exploration plans.
Gold Road has pencilled in $30 million for exploration this calendar year, with half of that to go on its North Yarmana tenements.
A further $11 million is to be spent at Gruyere, and $3.3 million at South Yamarna.
Dacian Gold executive chairman Rohan Williams told Business News his company, which is developing the $220 million Mt Morgans mine, had committed $20 million for exploration.
“We’re about company number eight at Mt Morgans, but I reckon we’re the one company which has spent (the most) on exploration,” Mr Williams said.
That was because other companies had had numerous other projects to which they dedicated capital and time.
Appetite
Dacian Gold last month signed GR Engineering as the engineering, procurement and construction contractor for Mt Morgans, while a letter of intent has been signed with diversified mining contactor RUC Cementation Mining Contractors for underground work.
“We’ll have the plant built, a 2.5mtpa treatment plant, by February next year,” Mr Williams said.
The first gold bar would be produced by late March, he said.
“The whole plan for us is to get enough ore stocks at the side of the plant so that when the plant is commissioned in March next year there’s around 0.5mt of ore sitting on the (run of mine) pad,” Mr Williams said.
“We start processing at around the 2.5mtpa throughput rate, so there’s effectively a very minor ramp-up to full production.”
The company raised capital for the project and its exploration, with a roughly even mix of debt and equity.
Although there was some volatility in the market driven by geopolitical factors, Mr Williams said, Mt Morgans had stood up as a strong project.
“We’ve done a combination of debt and equity, we’ve raised about $130 million in equity, just before Christmas last year we announced we’d raised about $150 million in debt,” he said.
“The equity market for gold investment right now is a little bit volatile.
“There’s quite a few swings in gold share prices on a daily basis.”
Despite the volatility, he said the gold price at more than $1,700 per ounce was welcome, with breakeven for the project close to $1,000 per ounce.
That was in the zone that the market would reward, he said, because margins were strong.
Gruyere and Dalgaranga are projecting similar costs.
