BC Iron project to cost $85m

01/07/2008 - 09:20

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BC Iron Ltd will move to feasibility study stage over its Nullagine iron ore project in the Pilbara, following a scoping study that estimated a capital cost of $85 million.

BC Iron project to cost $85m

BC Iron Ltd will move to feasibility study stage over its Nullagine iron ore project in the Pilbara, following a scoping study that estimated a capital cost of $85 million.

The scoping study focused on the recently announced resource of 28 million tonnes at 57.4 per cent iron at Outcamp Well and Coongan Well deposits, which form the larger Bonnie Creek channel iron deposit.

BC Iron's base case operating and capital costs assumes an open pit mining operation with the production of a single fines product, which is then trucked to Christmas Creek where Fortescue Metals Group Ltd holds an iron deposit.

Last year both companies signed an agreement whereby FMG subsidiary The Pilbara Infrastructure Pty Ltd will provide BC Iron with bulk commodity transport service for the Nullagine project.

The study revealed a target production rate of 3 million tonnes per annum ramping up to 5Mtpa over a six year mine life. Operating costs have been estimated at $42 per tonne.

The company is targeting a resource of 40Mt within two years and aiming for a minimum mine life of seven years.

The full announcement is below:

BC Iron Limited (ASX: BCI - "BC Iron") is pleased to announce the successful completion of a positive Scoping Study on the development of a 3-5Mtpa Direct Shipping Ore (DSO) operation at the 100%- owned Nullagine Iron Ore Project, located 140km north of Newman in Western Australia's Pilbara.

As a result, BC Iron's Board has committed to the commencement of a Feasibility Study on the Nullagine Project, which has the potential to underpin a high-value iron ore business for the Company.

The Scoping Study focused on the recently announced Inferred Resource of 28Mt at 57.4% Fe (65.1% calcined Fe) at the Outcamp Well and Coongan Well Deposits. These two deposits are part of the larger Bonnie Creek Channel Iron Deposit (CID), which also encompasses Warrigal Well, Bonnie Creek East, and Dandy Well prospects, where a further 15-25Mt of DSO grading 55-58% Fe is being targeted through current drilling programs.

BC Iron has a Memorandum of Understanding (MoU) in place with Fortescue Metals Group Limited ("Fortescue") to negotiate rail and port access. The Scoping Study assumed that BC Iron will have access to Fortescue's infrastructure at commercial rates.

The Board's commitment to the Feasibility Study expands on the preliminary studies already underway.

Earlier in the year, BC Iron located sites for the camp, plant, and haulage routes and Fortescue provided BC Iron with a location for train loading at its proposed Christmas Creek operations. The fast-track approach is consistent with BC Iron's focus on developing the high-quality CID resources at Bonnie Creek and commencing DSO production as rapidly as possible to take advantage of very strong demand and pricing for quality DSO products in world markets.

Bonnie Creek Scoping Study

Location

The Nullagine Project is strategically located north of Fortescue's recently commissioned Chichester Project, from which the recently completed open access railway line runs between Chichester and Fortescue's dedicated iron ore berths at Herb Elliot Port in Port Hedland, 260km to the north. Fortescue recently announced the completion of this railway line and the export of its first shipment of iron ore from Port Hedland.

Project Parameters - Base Case

BC Iron commissioned GR Engineering Services (GRES) to manage the Bonnie Creek Scoping Study utilising specialist sub consultants. The study examined a number of alternative options for mining, processing and marketing. BC Iron's Base Case operating and capital costs assumes simple open pit mining, crushing and screening to a single fines product, and road haulage to Christmas Creek. It also assumes ownership of the processing facilities and associated infrastructure, cost of construction of the rail load out siding, contract mining, and contract rail haulage and ship loading at Port Hedland.

- Target Production Rate 3Mtpa ramping up to 5 Mtpa

- Estimated Capital Costs A$85M

- Estimated Operating Costs $42/tonne

- Current 'in pit' Resource 27.7 Mt @ 57.4% Fe - 98% of Total Resource

- Current mine life 6 years

- Stripping ratio 1:1

- Target Resource DSO > 40 Mt within 2 years

- Target Mine Life > 7 years

Resource Estimate and Optimisation

The Inferred Resource at the Coongan and Outcamp Well deposits, which in part make up the Bonnie Creek CID Project, was released to the ASX in March 2008 (see Table 1). The DSO resource is part of a larger mineralised CID where lower grades occur on the margins or are interbedded with the DSO zones. As BC Iron has not entered into off-take agreements, there is potential for customers to accept lower grade material than that currently classified by the Company as a DSO Resource (>57%); such a scenario would result in a higher DSO resource tonnage. For the purpose of the Scoping Study, BC Iron has assumed DSO to be > 57% Fe.

Golder Associates carried out Whittle optimisation of the resource model based on product prices and mining costs provided by BC Iron. Conceptual pits were digitised around optimised pit shell and modelled ore blocks as a guide. Significantly, almost the entire DSO resource reports to the conceptual shell with a life of mine strip ratio of 1:1.

Marketing

BC Iron is currently in discussions with several potential customers. However, the Company has not entered into any marketing or off-take agreements and will retain this marketing advantage into the near future.

Ongoing work by the Company's consultants and potential off-take partners indicates that the pisolite ore from the Nullagine Project is extremely saleable due to its low impurities and high calcined iron grade (> 65% CaFe). Pisolite ores produce mainly a fines product comprising goethite-haematite and have become a highly sought after product as a sinter feed.

BC Iron's Base Case study assumes 100% of sales at contract prices. From meetings with trading houses, BC Iron believes that there is potential to sell a significant percentage of its production into the spot market at substantially higher prices than the current contract price. This would significantly improve the project economics of the proposed Nullagine development.

Environmental

As part of the Scoping Study, Strategen Environmental Services carried out desktop environmental studies on the abundance, diversity and distribution of the ecosystems over the project area to ensure the avoidance or management of the impact of mining operations at Bonnie Creek.

The studies indicated that no significant issues have been identified which would have an adverse impact on the Company's proposed timeline for developing the project.

Several recommendations were made as a result of the studies in order to assist with the approvals process for a potential mining operation. Prior to completion of the study, the Company committed to implementing these recommendations to move the project forward as quickly as possible, and to capture the effects of the recent wet season. As the conceptual pit locations were established, the location of plant, camp, and haulage routes were selected and environmental baseline field surveys commenced on the infrastructure areas.

Heritage and Community Relations

BC Iron has conducted three Heritage surveys and a Working Group meeting with the Palyku Traditional Owners since the beginning of field work in 2007. The Company has established a good working relationship with the Palyku and continues to maintain regular and open dialogue with them to move the project rapidly towards production.

Ongoing Work

BC Iron is pleased to report that Blair Duncan has joined the Company as General Manager of Operations and will lead the Feasibility Study. Mr Duncan has extensive experience in mining operations in Western Australia and is highly regarded within the mining community. On the exploration front, a second Reverse Circulation (RC) drilling rig has arrived on site and resource development drilling will continue at Outcamp Well and Coongan Well to upgrade the JORC status of the current resource estimate. Drilling will also be carried out at the Warrigal Well, Bonnie Creek East and Dandy Well prospects, where a combined exploration target of 15-30Mt with grades of between 55-
58% Fe has been outlined. Diamond drilling and bulk testing will be also carried out to establish ore quality and other parameters for marketing.

BC Iron believes the positive results from the Scoping Study provide a sound base from which to develop a mining operation at Bonnie Creek. With resource definition and extension drilling programs continuing, combined with the commencement of the Feasibility Study, the Company is well placed to bring the Nullagine Project into production in the shortest possible timeframe.

 

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