Tough hurdles for new iron miners

The surge in iron ore prices over the past three years has delivered some spectacular returns for investors.

Fortescue Metals Group – a pure-play iron ore stock – and Mineral Resources have delivered some of the best share price gains over this period.

A plethora of smaller companies are working feverishly to try and join the iron ore boom, but most are finding the going tough.

Business News has identified six companies that have started iron ore production in Australia during the past year (see list).

There are at least 12 more companies aiming to kick off small-scale iron ore projects during the next two years.

Beyond that, there is a clutch of companies with much larger and more ambitious projects targeted for development.

In various ways, all these companies are finding iron ore a difficult business to break into.

It’s a bulk commodity that requires extensive infrastructure to mine and, much more significantly, to get to port.

First movers

The first movers to take advantage of the boom market included some privately owned and foreign-owned companies.

In the Northern Territory, NT Bullion reopened the Frances Creek mine and Nathan River Resources resumed mining at Roper Bar.

NT Bullion plans to export 2 million tonnes per annum from its Frances Creek mine, which started last August.

It has a marketing agreement with global player Anglo American, which is involved in several new Australian projects.

Nathan River Resources, a subsidiary of UK company British Marine Group, shipped its first ore last November.

Its reopened mine benefits from $250 million previously spent on infrastructure, including worker camps and a haul road to the Bing Bong transhipment port.

Like other new mines, the NT mines have modest annual production of between 1mtpa and 2mtpa.

In the Kimberley, private companies Habrok Mining and Ridges Iron Ore have resumed operations at their jointly owned Ridges mine.

Ridges was one of several small-scale mines that operated during the last boom but was shut down when iron ore prices collapsed.

The owners are evaluating the neighbouring Matsu project for future development.

Another company that quietly resumed mining this year is Sinosteel Midwest Corporation.

The local arm of the Chinese steelmaking giant is mining at Blue Hills, with help from two other Chinese-owned operations.

Its mining contractor is Kimberley Metals Group, which trucks the ore to Karara Mining.

Business News understands the ore is then loaded onto Karara’s rail wagons for transport to Geraldton.

As discussed later in this article, a much bigger question for Sinosteel is the future of its larger iron ore deposits at Jack Hills and Weld Range, which were meant to be foundation customers for the ill-fated Oakajee Port & Rail project.

Fenix rising

For local investors, the most successful new entrant to the industry is Fenix Resources.

With its first shipment leaving Geraldton in February, and production continuing at a steady rate since then, its strategy and timing could hardly have been better.

Its operational achievements are reflected in the strong gains in its share price.

Fenix is not a big producer, nor does it want to be.

Managing director Robert Brierley is focused instead on his profit margins.

“Our strategy has worked well,” Mr Brierley told Business News.

“We equity funded the project. We’ve paid that money back in spades and we’re building a nice big cash pile.”

Fenix achieved an average selling price of $US156 per tonne ($A208/t) in the March quarter.

With C1 operating costs of $93/t (before shipping and royalties), it achieved very healthy margins, and is aiming to improve those by cutting its C1 costs to $85/t after completing its production ramp-up.

Mr Brierley said the company was generating net cash of between $10 million and $14 million per month.

Fenix has achieved steady state production at a rate equivalent to 1.25mtpa.

The company could lift that but is constrained by its road haulage to port.

“We can flex up a little bit, to about 1.5 million tonnes or thereabouts, but to double production we would need to double the number of trucks on the road,” Mr Brierley said.

“Plus, the lead time to get another 25 or 30 trucks would expose us to iron ore price risk in 12 months’ time.”

The Fenix project was developed quickly, with about two years from drill-out to production, and Mr Brierley believes that is repeatable.

“Our expertise is doing small projects and keeping it in-house and keeping our costs low and collapsible,” he said.

Looking beyond its current mine, Mr Brierley said Fenix’s important assets included the storage shed it bought at the port of Geraldton, the long-term shipping allocation it had, and the road user agreement it had with the Shire of Cue and Main Roads Western Australia.

“We think that has strategic value,” he said.

“Once you control your supply chain, you can incrementally leverage off that.”

Its Iron Ridge mine has an expected life of about six years.

The next opportunity could be the neighbouring Pharos tenements, after Fenix struck a farm-in agreement with ASX-listed Scorpion Minerals.

But Mr Brierley is wary of getting ahead of the market.

“We’ve always got one eye on the other end of the cycle, so our mantra is ‘Make hay while the sun shines’,” he said.

“Just when everything is going swimmingly and everyone thinks the price is going to stay high forever, that’s when it normally goes down.”

Another local company to have entered the industry this year is GWR Group, which also exports through Geraldton.

Its share price ran up as high as 44.5 cents at the start of the year but is now trading around 28 cents, as the company focuses on improvements in the scale and efficiency of its operations.

Its C1 operating costs were relatively high at $120/t in the March quarter.

Planned mines

Mount Gibson Iron is by far the most substantial of all the companies seeking to open a new iron ore mine in the near future.

Mount Gibson has a long and successful history in the Mid West.

It is investing about $17 million at its Shine project, which will be modest in scale (it will produce 1.5mtpa starting in September).

But with cash operating costs of between $65 and $70/t per tonne, the project will produce very healthy margins during its two-year life.

Mount Gibson has signalled it will proceed with a stage two development if iron ore prices remain high.

The company is also progressing its much larger Koolan Island project off the Kimberley coast, where it resumed production in 2019.

For most of 2021, its focus has been removing overburden and upgrading the main pit wall and crusher.

Once this phase is completed, later this year, Mount Gibson will have better access to high-grade ore.

Another company looking to reopen an old mine in the same area is Cockatoo Island Mining.

The private Hong Kong-based company secured control of high-grade iron ore tenements on the island last October.

More than 44Mm has been mined and exported from the island since the 1940’s.

Executive director Rahul Goel told Business News the historic mining, which reached 50 metres below sea level, just removed the tip of the iceberg. 

The project’s current resource of 22.3mt at 66.6 per cent Fe (which constitutes a very high grade) is located in the next 50 metres to 75 metres immediately below the existing mine and is open at depth and along strike in both directions.

Mr Goel said the company has started drilling and infrastructure work on the island and is targeting the first quarter of 2022 for the first shipment.

It anticipates spending between $20 million and $25 million to reach that point.

The annual production rate is planned to commence at between 1mtpa and 1.5mtpa for three to four years.

Production will then ramp up to 2.5mtpa to 4mtpa once a new seawall is completed, which will require further capital expenditure.

The tenements held by Cockatoo Island Mining are separate from those held by local company Cockatoo Iron NL.

A newly formed company chasing iron ore in the same region is Pantera Minerals.

Led by chairman Barnaby Egerton-Warburton, Pantera lodged a prospectus this month to raise $7 million via an initial public offering.

It has agreements to acquire four exploration tenements, including the Yampi iron ore project, located on the mainland 30 kilometres south-east of Koolan Island.

Other companies aiming to open new mines include a diverse mix of junior explorers that hold iron ore projects among their portfolio of assets.

West Perth-based Venture Minerals is developing the Riley iron ore mine in north-west Tasmania.

It announced last month that commissioning of its wet screening plant had begun, after the structural steel had been erected and mechanical installation completed.

Venture was due to start mining last month and was targeting its first shipment through the port of Burnie before the end of June.

“The recent record iron ore price makes it a perfect time for the company to transform from explorer to producer,” managing director Andrew Radonjic said.

Another company close to production is the Tony Sage-chaired Fe Limited.

Mining contractor Big Yellow began earthworks last month at its JWD project in the Mid West.

The modest scale of this project was indicated by its mining rights agreement with GWR.

The deadline for extracting the first 300,000 tonnes of ore was extended from October 2021 to January 2022.

Strike Resources is progressing its Paulsens East iron ore project in the Pilbara.

The company, led by executive chairman Farooq Khan, is targeting a final investment decision and the start of site works in the third quarter of 2021.

However, it has plenty to do before then, including obtaining a mining permit and works approval, along with approvals from Main Roads WA to operate road trains.

Strike, which is targeting production of 1.5mtpa, also needs to lock in a shipping port.

One option would be to truck the ore 600km to Port Hedland’s Utah Point berth.

This is a very long distance, even by Pilbara standards, and there is no guarantee of capacity at Utah Point, which is used by Hancock Prospecting subsidiary Atlas Iron and MinRes (see more below).

Hence, Strike is also evaluating the use of Onslow, which is 230km from its proposed mine.

Another company going through a similar port evaluation process is CZR Resources.

Led by executive chairman David Flanagan, the company completed a pre-feasibility study last December for its Robe Mesa project.

The study was based on production of 2mtpa over a five-year mine life.

CZR was encouraged by the results of the study, which found the project would have modest upfront capital costs ($51 million) and low operating costs of $64.78/t.

Jupiter Mines spin-out Juno Minerals, which listed on the ASX last month, is another company targeting rapid development of a small ‘starter’ mine.

Juno had been aiming to raise up to $20 million in its IPO but ended up raising just $3.7 million.

Despite that, it is still targeting the first quarter of 2022 for the completion of construction and commencement of operations at its Mount Mason DSO project.

The project will have modest production volumes, as it hosts mineral resources of just 5.9 million tonnes grading 60.1 per cent iron.

Other companies looking to develop mines include Macarthur Minerals in the Goldfields, Iron Road and Magnetite Mines in South Australia, Eastern Iron in Victoria and Shree Minerals in Tasmania.

Royalties alternative

For small companies, developing their own mine is just one way to get ahead.

An alternative is to sell to a bigger, established miner, usually with modest upfront proceeds and the promise of production royalties if the mine is developed.

The miner that has done most of these deals is Mineral Resources.

In September last year, for instance, it purchased the Wonmunna project from Australian Aboriginal Mining Corporation, which had been battling for years to lock in funding.

MinRes brought the new mine into production just six months later and is ramping up to 5mtpa, with the possibility of expanding to 10mtpa.

The Chris Ellison-led company had the financial muscle, the operational depth, the established infrastructure, and the port access to make this happen.

The Wonmunna mine, along with the planned Lamb Creek and Wedge mines, are part of Mr Ellison’s goal to increase exports through Port Hedland’s Utah Point berth to 14mtpa.

MinRes wants to go a lot further with its expansion.

Mr Ellison has outlined plans to lift production to as much as 90mtpa across four hubs.

In the Yilgarn, where it already has extensive mining, processing, and rail infrastructure, MinRes is developing the Parker Range tenements, which it bought two years ago from Cazaly Resources.

In the West Pilbara, it has struck deals with BCI Minerals and Aquila Resources that provide the foundation for its proposed Ashburton hub.

That requires some very significant new infrastructure, including a transshipment port near Onslow, along with 200km of private haul roads, an airport, a workers’ camp, and two 15mtpa process plants.

MinRes has also formed a 50:50 joint venture with Brockman Mining to develop the Marillana and Opthalmia mines.

The mines will have annual capacity of 25mt, with MinRes funding initial development works to the tune of $105 million.

Once again, this project is dependent on development of a new infrastructure, most notably a shipping berth at Port Hedland’s South West Creek.

That is a big ask, for two main reasons: it will be an expensive development, even for MinRes, and it will be opposed by three even bigger miners – BHP, Fortescue Metals Group and Hancock Prospecting.

Any new berths at the heavily congested Port Hedland harbour would crimp their own expansion plans.

Long-term prospects

While Mr Ellison’s growth plans present some major challenges, several aspiring iron ore miners in WA face even bigger challenges.

These include Flinders Mines, Juno Minerals, Cashmere Iron, FI Joint Venture and Grange Resources.

Most of these companies have dusted off multi-billion-dollar development plans they worked on during the last iron ore boom a decade ago.

Others represent new owners who believe they can deliver what others could not.

Flinders Mines illustrates some of the challenges facing project developers.

Its Pilbara Iron Ore Project is potentially lucrative, but it is ‘stranded’.

In other words, it requires an expensive railway and a new port before it becomes a commercial proposition.

Both the mine and the proposed Balla Balla port are backed by New Zealand’s wealthy Todd family, but they have not been able to make it happen so far.

Companies like Juno Minerals and Macarthur Minerals are better placed, as their projects are located relatively close to existing rail lines in the northern Goldfields.

As discussed earlier, they are focused initially on small, ‘starter’ projects that require modest upfront capital expenditure.

That gives them more time to grapple with the challenges of large-scale mining, processing, transportation, and shipping.

In the Mid West, multiple big projects are stranded by the lack of transport infrastructure, among them Sinosteel’s Weld Range and Jack Hills mines.

A lesser-known project proponent is FI Joint Venture Pty Ltd, which is owned by Iran’s Fakoor Sanat Tehran Engineering Co.

FIJV is proceeding with work on its Yogi project, which it bought from ASX-listed Ferrowest for $600,000 in 2017. Its plans also include development of the nearby Yalgoo project.

That appears to have hit a regulatory roadblock.

ASX-listed Venus Metals Corporation announced two years ago that it had sold its 50 per cent interest in Yalgoo for $2.25 million.

According to its latest quarterly report, that money is still held in a trust account awaiting completion of the deal.

The delay is believed to be due to the lack of approval from the Foreign Investment Review Board.

Despite this, FIJV is continuing to work on Yogi, after engaging Engenium and SRK Consulting to help it prepare a bankable feasibility study.

The company is targeting the start of construction in 2022, and first ore on ship by the first quarter of 2024.

The Yogi project involves the production of 5mtpa of magnetite concentrate.

This will be transported via a 225km slurry pipeline to the port at Geraldton, where the magnetite will be dewatered.

The recycled water will be piped back to the mine site.

FIJV is aiming to follow the Yogi project with development of Yalgoo, which will also have capacity of 5mtpa of magnetite concentrate.

The third phase of its planned expansion involves construction of a further 2.5mtpa concentrate plant at Yalgoo.

Common-user infrastructure plan

Cashmere Iron has similar goals and recently announced what it hopes will be a breakthrough solution.

Australian Gas Infrastructure Group, which owns the Dampier Bunbury gas pipeline among other assets, has agreed to evaluate the development of common-user infrastructure in the region.

This would include a slurry pipeline to a new trans-shipment port at Oakajee, as well as a new gas-fired power station.

The concept was originally conceived by OSD Pipelines founder Brian O’Sullivan, who has been working on the concept since 2014.

OSD is now part of ASX-listed engineering services contractor Verbrec (formerly Logicamms).

 t has been working with AGIG on the concept for the past two years.

That work culminated in AGIG and Cashmere jointly agreeing to fund a $3 million pre-feasibility study of the common-use infrastructure plan.

Under a separate agreement, Anglo American has rights to negotiate investment, offtake, and funding for the Cashmere Downs magnetite project.

The mine project is likely to cost more than $2.5 billion, with annual output of 20mtpa.

There is no estimate at this stage as to how much the support infrastructure might cost.

Cashmere Iron chief executive David Hendrie hopes this series of agreements will pave the way for his company to complete an IPO.

It planned an IPO in 2012 but was caught by the market downturn.

“We’re looking to go to an IPO, hopefully in October,” Mr Hendrie told Business News.

“Argonaut has been appointed as our brokers.”

Mr Hendrie said the company would seek to raise between $20 million and $25 million to complete a definitive feasibility study and undertake further drilling to double the resource base.

That is likely to take a further 18 months.

First production is likely to happen in 2025 at best.

Mr Hendrie believes the project’s time has come.

“It’s not just the high iron ore price,” he said.

“It’s the change in sentiment towards magnetite.”

He said the big steel producers in China, Japan and South Korea were looking for higher-grade feed for their steel mills.

“They are looking for a product they can blend with lower-grade hematite ore, or they are looking at using magnetite pellets by themselves.”

Mr Hendrie said the proposed mine featured a high-quality magnetite outcrop.

“It has 60 to 100 metre widths of solid magnetite,” he said.

“The concentrate grades are exceptional, up to 43 per cent weight recovery.”

Mr Hendrie said other magnetite projects had a weight recovery in the mid 20s, which meant they had to move a lot more ore to get sellable product.

He believes experience in other parts of the world has proven that slurry pipelines are a proven transport solution, even when the mine is 540km from the planned port.

“It’s much cheaper using a slurry pipeline rather than a railway and has much lower environmental impact,” he said.