Special Report: The iron ore reserves in WA’s Pilbara region are being depleted. To continue capitalising on the country’s rich deposits of iron ore, it is crucial for government and industry look to other prospective states.

The Pilbara region of WA has long been Australia’s major iron ore hub, home to three of the world’s biggest miners — BHP (ASX:BHP)Rio Tinto(ASX:RIO) and Fortescue Metals (ASX:FMG). But decades of mining has depleted a lot of the resources in the region.

And while the majors are still bringing on new mines to replace old ones in the Pilbara, concerns have been raised that it is time the industry diversified into new regions to help fill the anticipated supply gaps.

Particularly as direct shipping ore (DSO) — the stuff that you can just dig up and ship — becomes harder to find, and processed ores like magnetite become mainstream.

Interestingly, iron ore has been mined in South Australia longer than any other state, but it hasn’t managed to attain the same ‘major iron ore hub’ status that the Pilbara has.

“While South Australia has been producing iron ore longer than any other state in Australia, it has really been overshadowed since the late 60s by the Pilbara, which has obviously grown essentially to supply well over half of the world’s traded iron ore,” Mark Eames, director of junior developer Magnetite Mines (ASX:MGT), told Stockhead.

This is largely because the Pilbara started with an abundance of DSO material, which results in less costly product as it doesn’t require processing to lift the grade.

And more than 90 per cent, or around 14 billion tonnes, of South Australia’s identified iron ore resource is magnetite, which is located in several prospective areas of the state, including the Braemar.

While some years ago the defined iron ore resources in the Pilbara were far bigger than those in South Australia, the map below shows the increasing size and growing number of South Australian resources.

Australian iron ore deposits and operating mines 2018. Source: Geoscience Australia


Magnetite’s time has come

There are two main types of iron ores – hematite and magnetite. Hematite is typically higher grade in the ground, while magnetite deposits are large and quite low grade – but produce very high-grade products.

And it is actually not that hard to upgrade magnetite to a higher-grade material using magnetic separation – basically you just grind the material and place it under a big magnet that captures the magnetite in a concentrate. These deposits usually have a very long life.

With the depleting DSO resources in the Pilbara, end users like steelmakers in China are increasingly demanding more processed ores like magnetite.

About a third of the world’s steel is made from processed or magnetite-rich ores and globally there’s a bunch of big successful mines that have been producing for years.

“The original Pilbara resources are reaching exhaustion,” Eames said.

“The old high-grade operations are starting to reach the end of their life and the next place where there’s a lot of massive iron ore endowment is actually in South Australia.”


Unique South Australian Braemar magnetite

The Braemar magnetite, the type hosted within Magnetite Mines’ 4-billion-tonne Razorback project, is actually much softer than magnetite in the Pilbara.

This provides a very distinct advantage because soft rocks require much less energy to grind than harder rocks, substantially reducing the cost of an operation.

“Much more of the material out of the Pilbara is now beneficiated or concentrated to produce higher grades,” Eames explained.

“Probably about half of the ore is processed at the moment, but the Pilbara ores actually don’t respond very well to processing.

“It’s quite hard to get a good grade uplift and so the advantage of South Australian ores is, while they are lower grade in the ground, they respond much more readily to processing so you can produce a higher-grade product.”

A case in point is the fact that lab tests undertaken by Magnetite Mines has delivered grades of nearly 70 per cent from its Razorback mine.

Another advantage of the Razorback ore is it has very low cover, which also keeps the costs down because less waste material has to be moved to get to the good stuff.


Big economic benefits

The South Australian government has realised the value of getting this iron ore out of the ground and is aggressively promoting the state’s magnetite to steel producers.

It’s aiming to secure $10bn of investment to get those resources out of the ground. By 2030, South Australia wants to be a leading global supplier of quality magnetite products for steelmaking.

And more recently the state government released its 20-year infrastructure plan.

“The release of South Australia’s 20-Year State Infrastructure Strategy is an important first step in developing the infrastructure required to harness the untapped potential of South Australia’s resources sector,” South Australian Chamber of Mines & Energy (SACOME) CEO Rebecca Knol told Stockhead.

“The Braemar province, if it were developed, has the potential to double the states royalty revenue for 30 years. Current royalties are $325m per annum.”

The state’s infrastructure strategy is key to developing the major infrastructure necessary to support the iron ore industry.

While mines like Razorback are located close to rail, port and power infrastructure, bulk mineral operations require heavy ore railways and large capacity dedicated ports to load big vessels.

“Development of the Braemar province is dependent on key infrastructure inputs of power, water, rail and port,” Knol said.

“Infrastructure is fundamental to the everyday operation of the resources sector. Road, rail and ports are vital for the transport of mineral and petroleum products along supply chains and power and water are critical to project success for our sector.

“Importantly, the strategy recognises the resource sector’s outstanding mineral, oil and gas resources; and the requirement for infrastructure solutions that provide efficient routes to market.”


A strong contender

Magnetite Mines has already completed a low-cost scoping study that returned some pretty promising numbers for its Razorback mine.

The focus was on a low capital, staged development and the results of the study confirmed this approach.

The next step is to complete a pre-feasibility study (PFS).

The “globally significant” Razorback mine is already proving it has all the right ingredients to make it a lower cost development project than other mines.

>>NOW LISTEN TO: RockTalk: Ex WA Premier Colin Barnett and iron ore juniors on China and the robust outlook

This story was developed in collaboration with Magnetite Mines, a Stockhead advertiser at the time of publishing. This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.