Special Report: Carpentaria’s move to increase its ownership in the Hawsons iron project is expected to provide greater clarity and certainty as it progresses towards development.
And all it took was one phone call from chairman Peter Graham shortly after he joined the company in May for the company to convince its partner Pure Metals to convert its share in the project into equity in Carpentaria Resources (ASX:CAP).
Speaking exclusively with Stockhead, Graham said that simplifying the ownership structure of Hawsons will allow it to progress.
“As someone with a financial background, if someone comes to you with a 69 per cent interest in a project, there’s always a little psychological issue about having to deal with minority joint venture partners,” he noted.
“Having a 94 per cent interest sends a sort of message that Carpentaria are the people to speak for the project, that they absolutely control it.”
The remaining 6 per cent is held by Starlight Investments, which had previously invested in the project in 2013 through Pure Metals.
Starlight has committed to fund its share of feasibility studies.
Steel and iron ore contacts
Just as importantly, the deal brings Pure Metals’ boss Linda Lau on board as a non-executive director of the company.
Lau played a key role in setting up China’s Anshan Iron & Steel’s – now the giant AnSteel Group – first joint venture in Australia.
But it is her wealth of contacts that may prove the most valuable as it neatly addresses a major deficiency faced by the company.
Graham noted that when he first looked at who Carpentaria was dealing with, it was a list of 20-30 people with little representation in China.
“She has been on the China Steel Association and all sorts of committees and brings her extensive network of contacts in China’s iron and steel industries to Carpentaria,” he added.
“Bringing Linda onboard now opens the company up to all the Chinese steel mills.”
Hawsons iron ore project
The Hawsons iron ore project in New South Wales is expected to be capable of producing a high-quality 70 per cent iron ore product that is expected to be valuable going ahead as the steel industry starts to move towards the use of hydrogen rather than coal.
“China and Germany have announced they want to go to zero emissions by 2050-2060 while Thyssenkrupp is trialing steel mills running on hydrogen in Sweden and Germany,” Graham added.
High grade iron ore translates to more efficient steel making, which further lowers environmental and energy costs.
Carpentaria has already completed a pre-feasibility study estimating that the project could deliver ore to various markets at less than $US50 per tonne, putting it in cheapest quartile of Wood Mackenzie’s global iron ore supply cost curve.
The US$1.4bn project is expected to produce 10Mt of ore per annum for 20 years with potential to expand output and extend mine life while payback is expected in less than three years.
Current iron ore prices could reduce payback to just one and a half years.
Resources have already been defined at over 300Mt and there is existing port, rail and power infrastructure in place.
The magnetite ore body’s large size, low variability and simple geology translates to predictable low-cost mining and processing.
Hawsons also benefits from an existing offtake option with Japan’s Mitsui, which will provide $5.4m towards the cost of a bankable feasibility study.
This grants Mitsui an option to offtake 2Mtpa of Hawsons’ high-grade iron ore product.
Offtake will be secured by Mitsui exercising its option with a US$60 million contribution to the debt funding package for the construction of the project.
Graham is looking at going back to Mitsui and changing the further contribution from debt funding to and equity funding before trying to get other steel mills in on the same deal.
“That’s what we’re going to work hard towards in the next six months, and we’re also going to talk to different people about some creative ways of funding,” he added.
This article was developed in collaboration with Carpentaria Resources, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.