With iron ore continuing to fetch prices well above $US100 a tonne, the economics of Venture Minerals’ (ASX:VMS) Riley mine are sitting much higher than forecast as it nears production.

An August 2019 feasibility study estimated the Riley mine would deliver a post-tax cash surplus of $31m over the two-year production life, but that was using a base case of $US90 per tonne for 62 per cent iron ore.

Iron ore is priced on three grades: 58 per cent (low grade), 62 per cent (benchmark) and 65 per cent (premium grade).

The Riley mine is only a small deposit, around 2 million tonnes, but it is direct shipping ore (DSO).

DSO refers to minerals that are high grade and require only minimal processing such as crushing before they are exported, which keeps costs low.


Iron ore cash cow

With the much higher iron ore price, Venture will be banking more cash.

And the expectation is for the iron ore price to continue strongly, thanks to COVID-19 forcing mine shutdowns in major iron ore exporting countries and the trillion-dollar infrastructure spend by major economies like the US and China.

“The outlook for the iron ore price remains positive with the continuation of Chinese government infrastructure spending and COVID-19 related disruption of supply from key global producer Brazil,” Venture said.

The company has now started dry screening and associated mining operations.

The company says the start of the dry screening process will allow its to potentially realise early cash flow from the Riley mine while it finalises financing talks to fund the wet screening plant.

“Venture has successfully commenced dry screening operations at the Riley Iron Ore Mine achieving yet another key milestone in the life of the project as it ramps up towards full scale production,” managing director Andrew Radonjic said.

“The iron ore price continues to strengthen, and the company looks forward to delivering the first shipment into this positive demand.”

Former geologist and experienced stockbroker Guy Le Page estimates Venture’s capital and operating requirements will be quite low at around $9m-10m.

“Fairly low capital intensity, but I think this could deliver a very significant cashflow over the next 18-24 months,” he told Stockhead in June.

Venture Minerals (ASX:VMS) share price chart