Grange Resources’ search for an equity partner in the development of its billion dollar-plus Southdown magnetite and iron pellet project has received a boost with a resource increase to more than 400 million tonnes.
Grange Resources’ search for an equity partner in the development of its billion dollar-plus Southdown magnetite and iron pellet project has received a boost with a resource increase to more than 400 million tonnes.
Getting the resource over this level was critical to the viability of the project. Latest drilling has lifted the Southdown resource, 90 kilometres north-east of Albany, from 279mt to 426mt at an economical 36 per cent magnetite.
A preliminary pit optimisation has forecast production of 142mt of upgraded 68.3 per cent iron concentrate over 22 years to be transported via slurry pipeline to Albany port, beginning in 2008.
A preliminary scoping study for the development of the Southdown magnetite and its pelletisation in Malaysia at 6.8mt a year adds further weight to the project’s economics. The study projects pellet operating costs of approximately $A44 a tonne, forecast pellet prices of $85.3/t for a cash margin of $41.3/t.
Final capital and operating costs will be determined by a $13.7 million bankable feasibility study, the technical aspects of which are due for completion before the end of the year, with environmental and statutory approvals expected mid 2006.
A 156-hole drilling program is due for completion this week.
Grange managing director Geoff Wedlock has acknowledged that funding is likely to involve new equity partners, with Grange retaining around 33 per cent, to be funded on a debt and equity basis.
The company has appointed Sydney-based BurnVoir Corporate Finance to assist in finding suitable joint venture partners and information on the project has been provided to a number of interested parties.
Mr Wedlock said that, ideally, the company wanted a partner (or partners) that would develop both Southdown and the Kemaman pellet plant on the east coast of Malaysia.
Grange has had lengthy discussions with the Albany Port Authority regarding an upgrade of facilities to handle larger, cape-sized ships.
Dredging is a critical feature of the project and involves taking the channel depth from 12.3 metres to 15m.
“If you can’t load big ships, you’re not going to be competitive in the long term. Whether Grange does it or the port authority is yet to be determined,” Mr Wedlock said.
The infrastructure at Kemaman is largely in place, with the current loading wharf requiring only minor modification to enable docking of cape-sized vessels.
Mr Wedlock sees the growing Asian market as the obvious one for the Kemaman product, with the short shipping distances providing a significant cost saving.
“Along with the Asian market, we are also well positioned to tap into markets in India and the Middle East,” he said.
Pellet demand has been steadily increasing since 2001 at between five million and six million tonnes annually. Few new pellet plants have been built since 1997, with the bulk of supplies coming from Brazil and Canada, distant sources with higher transport costs.
Grange plunged $5.1 million into the red in the 2004-2005 financial year, compared with a $5 million operating profit the previous year.
The loss was generated on revenue of $7.13 million, well down on the previous $27.3 million, the fall due to a decline in copper concentrate shipments from the company’s now exhausted and closed Reward Deeps and Conviction underground mine in Queensland.
At the end of the year Grange had net assets of just under $20 million, consisting mainly of $11.6 million in cash investments, including cash backed security deposits and a $7.5 million value attributable to capitalised exploration and evaluation expenditure associated with the Southdown magnetite project.
