GRANGE Resources is eyeing a significant increase in the scale and cost of its proposed $2 billion Southdown magnetite project near Albany to offset the negative impact of the Rudd government’s planned resource super profits tax.
GRANGE Resources is eyeing a significant increase in the scale and cost of its proposed $2 billion Southdown magnetite project near Albany to offset the negative impact of the Rudd government’s planned resource super profits tax.
Grange managing director Russell Clark told WA Business News the company was weighing up a 40 per cent increase in production capacity because of the tax, which threatened the fundability and potential returns from capital-intensive new projects such as Southdown.
“It’s the threat of the RSPT that really means we need to increase the size of the project to reduce the unit cost and maintain profitability,” he said.
Southdown was originally envisaged as producing about 7 million tonnes of magnetite concentrate annually to produce more than 6 million tonnes of high grade iron pellets at an offshore pelletising plant each year.
But magnetite production, which requires significant processing to upgrade low grade iron ore to a saleable quality, remains a relatively new industry in Australian making both funding and development more difficult than for conventional ‘dig and deliver’ iron ore projects such as those in the Pilbara.
Consequently, Grange appointed engineering group AMEC Minproc to undertake a detailed engineering review to further optimise the Southdown project earlier this year.
“We’ll be spending in the order of $20 million by the end of this year ... looking at the potential for a bigger project,” Mr Clark said.
“It’s currently permitted for 7 million tonnes a year so we are doing some work to see if we can get it to 10 (mtpa). The mine won’t be any bigger, it will just be mined quicker.”
To facilitate the increase in scale, Grange hoped to have its existing public environmental review approval amended to incorporate the more rapid mining rate, rather than have to start the whole permitting process afresh.
“We don’t want to go through a new process, we want to see if we can have our current PER adjusted,” Mr Clark said. “At the end of the day, in our PER we said we’d have a mine from here to there. That won’t change, it’s just the extraction rate that changes.”
Grange achieved a key milestone last week when the federal government gave environmental approval for a major dredging program at Albany Port to cater for bulk iron ore carriers.
Some local tourism operators had expressed concern about the spoil dumpsite in King George Sound, despite extensive scientific evidence supporting it as the best location. The dredging program now needs only formal state environmental sign-off to proceed.
Mr Clark said Grange expected the engineering review to provide definitive cost estimates for Southdown by the end of the year.
The company would effectively be required to commit to the project then, even though bankable feasibility studies would take further time to complete, due to the need to commit significant funding for engineering work and long lead items.
Mr Clark said Grange was already in advanced talks with its Chinese backers, and hoped to finalise its funding strategy in the next six months.
Japanese trading house Sojitz holds a 30 per cent stake in Southdown, while Grange is controlled by a consortium of Chinese groups as a result of its acquisition of Tasmanian magnetite miner Australian Bulk Minerals in 2008.
The deal delivered China’s biggest private steel maker, Jiangsu Shagang, a 47 per cent stake in Grange. It also delivered to Grange Australia’s only operating large-scale magnetite iron project, the 2.3mtpa Savage River operation in Tasmania.
While the 30-year-old project is finally generating good earnings as iron ore markets have rebounded, it almost went bust when the downturn hit hardest in late 2008.
Mr Clark said that provided a clear demonstration of the difficulties created by the RSPT for companies such as Grange.
“For us, Savage is now making some good money after being on the bones of its arse last year, and we are looking to put that into Southdown,” he said.
“Suddenly, if you start getting taxed more at the Savage River end ... you’ve got less to put into Southdown.
“At the same time, you then have to raise more money through debt, which is proving to be more difficult because people are concerned by the tax regime.”
