Pic: Getty
Mining
Australian companies are lining up to deliver new high grade iron ore mines in a bid to capture tailwinds from the need to reduce emissions across the sector.
This week no less than three studies have been released by ASX-listed juniors, targeting the production of up to a combined 15Mtpa of high grade iron ore concentrate across their proposed mines in WA and South Australia.
The most prominent is Grange Resources (ASX:GRR), already the owner of the Savage River magnetite mine in Tasmania which has been in operation since the 1960s.
It has long held the Southdown magnetite project in WA’s underexplored and relatively unexploited Great Southern region near the port town of Albany.
Like Tasmania, Albany is known for its agriculture, greenery and idyllic lifestyle.
At Southdown, Grange has also been sitting on 1.2Bt of iron ore resources at a grade of 33.7% DTR and reserves of 388Mt at 35.6% DTR having spent $180m on drilling, test work, land purchases, permitting and engineering studies.
A feasibility study on a 10Mtpa, 14-year proposal with a prohibitive $2.9 billion price tag has been gathering dust since 2012, before the last mining boom ended.
But high prices, momentum for greener steelmaking and the newfound success of Grange’s existing operations have brought Southdown back into focus.
Grange’s revised proposal to develop Southdown has pared its production rate back from 10Mtpa to a less ambitious 5Mtpa.
But that brings two added benefits. Firstly its life will be twice as long, making it a consistent producer and local employer in the regional WA community for 28 years. With conversion of resources to reserves that could increase to half a century.
More importantly, its upfront capex has also halved to $1.39b. It will also reduce water and power costs, with an innovative dry grinding technology also expected to improve efficiency and reduce draws on power and water.
$1.4b still sounds like a lot, but there is little doubt product like Southdown’s will be needed in the future, and much more of it.
Grange says it will deliver a 69.5% concentrate, around the highest in the industry and likely to draw an enormous premium against the 62% benchmark fines price.
Australia shipped around 875Mt of iron ore in 2021, mostly to China.
That’s around 60% of the seaborne market, but on average the cheap to produce, direct shipping ore sold by companies like BHP (ASX:BHP), Rio Tinto (ASX:RIO), FMG (ASX:FMG), Roy Hill and Mineral Resources (ASX:MIN) grades well below 62%.
The blast furnace steelmaking process that makes up the vast majority of China’s billion tonne a year steel industry actually produces more CO2 than steel for each tonne of the commodity it produces. All up steelmaking accounts for ~8% of global greenhouse gas emissions.
The only way to reduce those emissions currently is by increasing the grade of iron ore used in the steelmaking process or using processes that require higher grades of iron ore to be effective like direct reduced iron.
Aside from rare exceptions like Mount Gibson Iron’s (ASX:MGX) small Koolan Island mine, Australia doesn’t have many high grade hematite resources like those in Brazil or Africa.
For that reason, future high grade iron ore production in Australia will rely on lower grade magnetite deposits like Southdown which will be upgraded through processing to deliver some of the purest iron ore magnetite concentrate in the world.
Grange says it will have all in sustaining costs of around $84.12/t for Southdown, located around 90km from Albany.
30% owned by a JV between Japanese trader Sojitz – an early backer of Australian rare earths major Lynas (ASX:LYC) and Kobe Steel – Grange CEO Honglin Zhao described Southdown as “world class”.
“PFS 2022 considers innovation in the process to enable a reduction in the capital required to enable the project to proceed,” he said.
“Southdown is a world-class magnetite deposit that is becoming increasingly relevant as steel markets continue to demand premium iron ore products.
“At almost 70% iron content, Southdown’s concentrate product will be one of the highest-grade seaborne iron ores in the world.”
Premiums for high grade iron ores have been strong this year with high grade Brazilian producer Vale struggling to ramp up supply and Rio Tinto, the world’s largest shipper of iron ore last year, bringing more of its lower grade SP-10 product to market due to delays ramping up its new Gudai-Darri mine.
The closure of operations in Ukraine, one of the world’s top pellet exporters, and sanctions against Russia have also hit around 30% of the pellet iron ore market, driving a shortage in products suited to cleaner DRI iron ore production.
The strong premiums have driven massive profits for Grange, which produces a similar high grade product at Savage River, which it is also looking to expand via a new underground development.
Grange’s profits last year increased 58% from $204.179 million to $322.26m, funding a franked 10c a share dividend.
While it’s true it benefitted like every other iron ore producer when prices hit a record US$237/t in May last year, Grange remained highly profitable even in the December quarter.
It pulled in US$164.14/t for its product in the last three months of 2021, a slight increase on the September term, as prices for lower grade producers like FMG and MinRes tumbled.
The other two companies making noise this week were Magnetite Mines (ASX:MGT) and Macarthur Minerals (ASX:MIO).
MGT has delivered a new expansion study demonstrating its potential to increase the scope of its Razorback iron ore project in South Australia incrementally from 3Mtpa of 68% Fe concentrate to 7Mtpa.
The company has established itself as an advocate for the transition to high grade iron ore production in Australia, even releasing a white paper last year on the subject.
MGT is still pushing ahead with the 3Mtpa option outlined in its pre-feasibility study last year as its base case for a DFS to be released this year.
At estimated costs of US$423-$500M, the relatively low capex for a project of this nature (around a third of estimates compiled in 2013) is one of the attractive aspects of the development.
But if iron ore prices remain strong MGT could be in a position to add another two 15.5Mtpa processing modules to expand its scale to 5Mtpa and then 7Mtpa.
The enlarged mine would have a post-tax IRR of 27% and NPV of $2.455 billion at iron ore prices of US$110/t, equivalent to the long-term 10-year average.
At current prices of around US$150/t, that would increase to an IRR of 42% and NPV-8 of $4.598b, with an incremental IRR of 54%.
MGT is pricing a US$25/t premium over the 62% benchmark price as well.
The improved economies of scale would also drag MGT’s breakeven costs down by almost a third from US$58 a tonne to U$40/t.
“Magnetite Mines has an inter-generational resource and it was important to ensure our initial path to expansion was supported by robust data that could effectively inform and support stage 1 of our development plans,” MGT executive chairman and CEO Peter Schubert said.
Macarthur, meanwhile, released a feasibility study on Monday claiming its Lake Giles mine in WA’s Yilgarn region will deliver 3Mtpa of 66.1% Fe concentrate suitable for pellet feedstock over a 25-year mine life.
It has estimated the mine will require an initial capital investment of US$569m (i.e. it will cost around $800m to build) with all in C1 operating costs of US$71.74/dmt, a pre-tax NPV of US$579m ($816m), IRR of 13% and post tax NPV of US$315m ($443m).
“The company will now proceed with post study optimisation work, project development approvals and advancing project finance,” MIO CEO Andrew Bruton said.
The release of the study prompted a comment from MIO chairman Cameron McCall over in Brisbane’s Courier Mail that he and MIO’s fellow long-term directors, Joe Phillips and Alan Phillips, “could be the next iron ore magnates”.
A big call given its been several years since the company initially listed in Toronto (it came onto the ASX boards in 2019).
You have to dream big though we guess. MIO is worth just $70 million as we speak, but is up ~38.5% year to date.
Scroll or swipe to reveal table. Click headings to sort.
| CODE | COMPANY | PRICE | 1 WEEK RETURN % | 1 MONTH RETURN % | 6 MONTH RETURN % | 1 YEAR RETURN % | MARKET CAP |
|---|---|---|---|---|---|---|---|
| ACS | Accent Resources NL | 0.054 | -4% | -4% | 0% | -43% | $ 25,165,473.28 |
| ADY | Admiralty Resources. | 0.019 | 19% | -5% | 27% | -14% | $ 23,464,424.75 |
| AKO | Akora Resources | 0.345 | -3% | -9% | 64% | -7% | $ 17,956,794.68 |
| BCK | Brockman Mining Ltd | 0.043 | -12% | -27% | 0% | 43% | $ 417,565,445.90 |
| BHP | BHP Group Limited | 48.82 | 3% | 1% | 29% | 9% | $ 235,144,912,175.50 |
| CIA | Champion Iron Ltd | 7.35 | 4% | 10% | 57% | 30% | $ 3,678,276,557.12 |
| CZR | CZR Resources Ltd | 0.0075 | 7% | 7% | -6% | -38% | $ 26,147,424.58 |
| DRE | Dreadnought Resources Ltd | 0.04 | 3% | -2% | 8% | 111% | $ 113,547,342.04 |
| EFE | Eastern Resources | 0.051 | 6% | -9% | 24% | 446% | $ 49,485,425.30 |
| CUF | Cufe Ltd | 0.034 | 0% | -13% | -46% | -23% | $ 32,167,820.41 |
| FEX | Fenix Resources Ltd | 0.24 | -2% | 4% | 12% | 7% | $ 126,472,410.40 |
| FMG | Fortescue Metals Grp | 18.94 | 5% | -3% | 28% | -5% | $ 57,607,433,615.78 |
| FMS | Flinders Mines Ltd | 0.5 | 11% | 6% | -36% | -60% | $ 84,424,288.50 |
| GEN | Genmin | 0.18 | -12% | -18% | 6% | -31% | $ 49,400,373.75 |
| GRR | Grange Resources. | 1.085 | 7% | 36% | 164% | 138% | $ 1,220,992,326.39 |
| GWR | GWR Group Ltd | 0.15 | -6% | -9% | 7% | -41% | $ 48,985,539.89 |
| HAV | Havilah Resources | 0.175 | 0% | 3% | -8% | -20% | $ 52,667,148.69 |
| HAW | Hawthorn Resources | 0.073 | -14% | -17% | 52% | 6% | $ 25,680,702.20 |
| HIO | Hawsons Iron Ltd | 0.2 | 8% | 18% | 167% | 436% | $ 135,860,060.50 |
| IRD | Iron Road Ltd | 0.19 | 3% | 3% | 0% | -30% | $ 151,376,835.34 |
| JNO | Juno | 0.1 | -13% | -9% | -31% | 0% | $ 13,430,142.10 |
| LCY | Legacy Iron Ore | 0.02 | 5% | 5% | 33% | 43% | $ 128,136,523.98 |
| MAG | Magmatic Resrce Ltd | 0.096 | 3% | -4% | -2% | -9% | $ 24,430,732.61 |
| MDX | Mindax Limited | 0.059 | 0% | 48% | 9% | 1867% | $ 112,672,163.12 |
| MGT | Magnetite Mines | 0.033 | 14% | 3% | 50% | -15% | $ 104,271,647.07 |
| MGU | Magnum Mining & Exp | 0.077 | -8% | 10% | 28% | -30% | $ 37,783,013.46 |
| MGX | Mount Gibson Iron | 0.56 | 8% | -4% | 30% | -33% | $ 647,653,897.66 |
| MIN | Mineral Resources. | 49.09 | 5% | 4% | 8% | 26% | $ 8,841,966,879.02 |
| MIO | Macarthur Minerals | 0.485 | 18% | 28% | 2% | -3% | $ 69,961,674.24 |
| PFE | Panteraminerals | 0.175 | 3% | -10% | -49% | 0% | $ 8,225,000.00 |
| PLG | Pearlgullironlimited | 0.074 | -14% | -8% | -58% | 0% | $ 4,337,282.33 |
| RHI | Red Hill Iron | 3.59 | 0% | 0% | 22% | 1061% | $ 227,228,210.44 |
| RIO | Rio Tinto Limited | 113.74 | 2% | -5% | 19% | 4% | $ 40,997,118,674.16 |
| RLC | Reedy Lagoon Corp. | 0.027 | 4% | -4% | -10% | 0% | $ 14,805,645.21 |
| SHH | Shree Minerals Ltd | 0.019 | -5% | 6% | 90% | 27% | $ 20,201,500.95 |
| SRK | Strike Resources | 0.12 | -8% | 9% | 9% | -50% | $ 32,400,000.00 |
| SRN | Surefire Rescs NL | 0.013 | -7% | -7% | -7% | -46% | $ 14,665,532.82 |
| TI1 | Tombador Iron | 0.046 | 15% | 28% | 24% | -41% | $ 45,835,963.86 |
| TLM | Talisman Mining | 0.185 | 12% | -3% | 37% | 103% | $ 33,793,109.46 |
| VMS | Venture Minerals | 0.039 | 0% | -3% | -19% | -33% | $ 65,128,346.09 |
| EQN | Equinoxresources | 0.185 | 0% | -3% | 0% | 0% | $ 8,550,000.19 |
Thermal coal prices have moderated somewhat since the early days of the Russian invasion of Ukraine.
Having topped US$450/t, comfortably a record price, they have since come down to US$336/t … which would have been a record price at any point until like two months ago.
Those sorts of prices have been driven by extreme market tightness, caused by serious supply disruptions last year like rail outages, floods and port fires. A lack of investment in new supply, due both to a long period of low coal prices and increasingly contested and expensive environmental approvals processes, has meant there is little latent capacity to switch on.
Russia’s invasion of Ukraine and potential sanctions against Europe’s largest energy supplier was the straw that broke the camel’s back.
Australia’s Whitehaven Coal (ASX:WHC) was drafted in over the weekend to send a 70,000t shipment of coal through the Australian Government to Ukraine to shore up its energy supplies.
The Morrison Government hasn’t said how much it paid for the cargo, but given how tight the markets are right now it seems unlikely Whitehaven simply donated what was worth around $31.7m at current spot prices.
It could probably afford it though.
The latest example of the profitability of coal miners in 2022 came from $2.65 billion capped New Hope Corp (ASX:NHC), which swung from a $55.4m loss in the first of 2020-21 to a $330.4m profit through the first half of 2021-22.
The profit will power ~$250 million of payouts to shareholders, 17c through New Hope’s interim dividend and 13c in the form of a special dividend.
The company has built an enviable cash pile of $513m and undrawn debt of $420m after paying off the $310m debt it held at the end of July last year, as realised prices soared from an average $77.98/t last year to $192.38/t in the six months to January 31.
They will be even higher for the current period, with CEO Rob Bishop predicting strong demand for Australian coal in the short to medium term.
“Strong demand and lower than normal stock levels held by customers have pushed thermal coal prices well above the long-term average. Newcastle Index pricing is currently above US$300/t, and our forward sales book will support robust returns,” he said.
“The company is experiencing significant cash build following the remarkable recovery in coal prices since the lows of FY20.
“With the near-term coal price outlook remaining strong, coupled with a generous franking account balance the company is rewarding shareholders with larger fully franked dividends for this reporting period.”
Scroll or swipe to reveal table. Click headings to sort.
| CODE | COMPANY | PRICE | 1 WEEK RETURN % | 1 MONTH RETURN % | 6 MONTH RETURN % | 1 YEAR RETURN % | MARKET CAP |
|---|---|---|---|---|---|---|---|
| NAE | New Age Exploration | 0.012 | 0% | -14% | 9% | 0% | $ 17,230,786.92 |
| CKA | Cokal Ltd | 0.17 | 3% | 6% | 13% | 154% | $ 159,621,326.60 |
| NCZ | New Century Resource | 1.945 | -1% | 1% | -21% | -24% | $ 255,431,890.35 |
| BCB | Bowen Coal Limited | 0.275 | 0% | 34% | 96% | 369% | $ 395,258,487.52 |
| LNY | Laneway Res Ltd | 0.0055 | -4% | -12% | 15% | 4% | $ 30,813,485.58 |
| GRX | Greenx Metals Ltd | 0.195 | 0% | -11% | -37% | -6% | $ 49,455,990.48 |
| AKM | Aspire Mining Ltd | 0.095 | 6% | 8% | 13% | -5% | $ 47,717,876.59 |
| PAK | Pacific American Hld | 0.015 | 0% | -12% | -6% | -23% | $ 7,168,161.03 |
| AHQ | Allegiance Coal Ltd | 0.5 | -4% | 0% | -17% | 16% | $ 194,910,070.00 |
| YAL | Yancoal Aust Ltd | 4.52 | -13% | 37% | 87% | 92% | $ 5,796,729,128.43 |
| NHC | New Hope Corporation | 3.18 | 7% | 26% | 48% | 141% | $ 2,438,806,250.26 |
| TIG | Tigers Realm Coal | 0.014 | 27% | -22% | -18% | 75% | $ 156,800,428.42 |
| SMR | Stanmore Resources | 1.8 | -3% | 64% | 137% | 147% | $ 1,448,201,157.74 |
| WHC | Whitehaven Coal | 4.16 | 1% | 31% | 46% | 145% | $ 4,140,903,370.32 |
| BRL | Bathurst Res Ltd. | 1.02 | 3% | 29% | 28% | 149% | $ 164,968,316.20 |
| CRN | Coronado Global Res | 1.93 | -4% | 27% | 55% | 95% | $ 3,193,644,355.65 |
| JAL | Jameson Resources | 0.084 | 5% | 24% | 5% | -16% | $ 29,597,281.52 |
| TER | Terracom Ltd | 0.475 | 7% | 58% | 197% | 472% | $ 354,195,586.10 |
| ATU | Atrum Coal Ltd | 0.013 | -7% | -41% | -68% | -94% | $ 9,679,156.70 |
| MCM | Mc Mining Ltd | 0.105 | 27% | 27% | -22% | -16% | $ 16,986,151.05 |
At Stockhead, we tell it like it is. While Magnetite Mines is a Stockhead advertiser, it did not sponsor this article.
Mining
Mining
Mining
Get the latest Stockhead news delivered free to your inbox.
