Iron ore 'biggest risk' for MinRes but expansion plans still on track

Mineral Resources (ASX:MIN) founder and managing director Chris Ellison says iron ore prices are the biggest risk facing the diversified miner.

Speaking to shareholders at the $8 billion iron ore, lithium and mining services company’s AGM yesterday, Ellison acknowledged the volatility in iron ore prices, which also saw the company reduce FY22 guidance at its higher cost Yilgarn hub from 10.5-11Mt to 8-8.5Mt.

“Our biggest risk that we have in the business today is the iron ore business and we know that’s been a huge winner over the years, and it’s been the poor cousin,” he said.

“We’re dealing with that in the sense that we’re going to have three different zones with our ore that are all going to be in the low cost quartile, it’s going to take us two years to get the first one going.

However, Ellison is still confident its ambitious growth plans in iron ore will come to fruition, with new developments to place the company in the “lowest quartile” of producers on costs.

“We’ve got three main areas that we’re managing and the iron ore was the risk, but we managed that and we have plenty of experience in dealing with it,” he said.

“Going forward on the bigger projects that we’re talking about, I don’t see any risk on them or whether they will or won’t happen.”

MinRes’ AGM came the same week official Chinese data revealed steel production in October was the weakest since February 2018, with steel mills’ reported output of just 71.58Mt, down 23.3% year on year.

Benchmark 62% iron ore was fetching a record US$237/t in May, but has fallen to around US$90/t. MinRes is likely to also cop discounts for its production, which is commonly below benchmark grades.

Ashburton hub could be built within two years

While it is yet to be approved by the MinRes board, Ellison told shareholders he expects the 30Mtpa Ashburton hub will be up and running within two years, with first ore to be shipped by the end of the 2023 calendar year.

MinRes is also studying a plan to transition its sprawling hematite operations in the Yilgarn, where it has 5-6 years of life on a 15-pit business spanning some 200km in the Goldfields, towards a 5Mtpa magnetite processing operation.

The Ashburton hub, where MinRes and its JV partners boast billions of tonnes of iron ore resources, is set to be built at a capital cost of $80/t, which Ellison said was well below sector averages.

MinRes is developing its own transhipping business and private haul road network in the Pilbara to make it cost competitive with the major iron ore players ahead of the development of the Bungaroo South and Kumina mines.

Ashburton would run at an operating cost of ~$30-35/t, inclusive of mining services charges from MinRes to operate the mines, which could expand to 55-60Mtpa in a potential stage 2 development down the track.

MinRes is also expecting a call from the WA Government on final allocations for the South West Creek berth at Port Hedland to open up its Marillana deposit in the Pilbara, which it expects to develop in around five years.

Ellison was bullish on the outlook for MinRes’ mining services and lithium businesses.

MinRes recently announced it and partner Albemarle would be restarting the Wodgina lithium mine in the Pilbara, while the Australian miner is also planning to exercise its offtake rights for half of the 480,000tpa produced at its Mt Marion joint venture with China’s Ganfeng for conversion into lithium hydroxide.

Albemarle and MinRes are planning to begin production at their 60-40 owned lithium chemical plant in Kemerton near Perth in 2022.

“It’s in that green zone; I mean, if you want to store power, you’ve got to have lithium,” Ellison said.

“They’re getting better and better at it but if you have a look at the cars that are coming on-stream in the lithium business, I’m not sure where the supply is coming from.

“I said a couple of years ago, there’s nowhere near as much lithium on the planet as people think there is, the deposits have got to be economic, you have got to be able to mine them. You got to be able to get at them.”

MinRes not into developing green fuels, but will phase out diesel

MinRes has joined other major mining companies in adopting a net zero by 2050 target, but unlike Fortescue Metals Group (ASX:FMG) and its founder Andrew Forrest, it is not jumping head-first into green hydrogen.

“We’re not capable of developing green fuel inside MinRes, we’re focused on running the business, but we certainly will join with anything that comes out where we can incrementally reduce our carbon into the atmosphere,” Ellison said.

“We’re hoping that over the next 5-7 years, we’ll be able to completely eliminate diesel. So if we can do that, that’ll be the biggest game changer we can do in the next 30.”

It is planning a transition to gas, where MinRes is planning to use its Lockyer Deep discovery in the Perth Basin to underpin an in-house energy business, along with increased uptake of solar.

A production test and drill appraisal wells are scheduled to take place over 2022 with front end engineering design and a final investment decision potentially taking place in 2023.

MinRes is also considering restarting the Red Gully plant in the onshore Perth basin, one of the assets picked up in MinRes’ takeover of the collapsed Empire Oil and Gas in 2017.

Ellison also voiced concerns over a skills shortage in the WA mining industry, quipping MinRes would turn $40,000 earners into $120,000 in 10 weeks by training unskilled workers to work on the company’s mines, pitching heavily for new female employees.