Billionaires bullish on magnetite as new hematite discoveries slow

In the wake of Fortescue Metals’ trailblazing move to bring the Iron Bridge magnetite iron ore operation into production outside of Port Hedland in WA, the long-established iron ore landscape in WA appears to be shifting. The oft-maligned poor cousin of the iron ore industry known as “magnetite”, is starting to hit its straps as the discovery rate of the much higher-grade “hematite” iron ore deposits slow.

Hematite typically occurs in the ground with an iron content of between 60 per cent and 63 per cent, with a number of exceptions outside that range and magnetite is often found in ground at grades between 20 something and thirty-something per cent.

For years the Chinese insisted on grades around 62 per cent from hematite however billionaire Andrew “Twiggy” Forrest built FMG as the third force in iron ore when he successfully predicted they would take grades as low as 57 per cent – and lots of it.

Magnetite is notable for the almost biblical scale of its deposits, however in the past, the capex required to build a “beneficiation plant” to increase the grade from twenty or thirty something to sixty something per cent was considered prohibitive – although that might be changing.

After what it says was a “20 year lead in”, FMG’s Iron Bridge magnetite iron ore project in WA is now producing iron ore and even though it did cost US$3.9b to build, FMG reportedly received US$28 a tonne more for its beneficiated magnetite product in the September quarter than it did for its hematite product.

Whilst magnetite has its drawbacks, it comes with the added advantage of being upgradable to grades in the late sixties or possibly even 70 per cent iron - for which the market will pay a premium above the typical 62 per cent hematite product.

So has magnetite finally arrived at centre stage? Another billionaire who obviously thinks so is Gina Rinehart.

Australia’s richest person and leading lady of mining recently took control of the multi-billion-dollar magnetite iron ore project at Mt Bevan, 120km north of Kalgoorlie. Reinhart’s Hancock Prospecting picked up 51 per cent of that project after completing its commitment to sole fund a pre-feasibility study on the project that shot out a net present value for it of up to $3.6 billion.

Legacy Iron Ore retains an interest of 29.4 per cent in the project and Hawthorn Resources is swinging off its coattails with a 19.6 per cent stake.

The 1.29 billion tonne Mt Bevan magnetite iron ore project promises a 25-year mine life producing 12 million tonnes annually, with exports likely to be routed through the Port of Esperance.

Importantly, Legacy Iron’s biggest shareholder, with 91.38 per cent of the company, is the Indian government-owned National Mineral Development Corporation (NMDC) – the nation’s biggest iron ore producer.

The NMDC made headlines last year after a much-publicised meeting in Australia was revealed between Indian Prime Minister Narendra Modi and Rinehart, to discuss, among other things, the future of the project and its importance to India’s burgeoning steel industry.

With a projected ore quality above 70 per cent iron, Mt Bevan would command a premium in steel markets and aid in reducing carbon emissions—a critical concern in today’s global steel production.

Should the major iron ore project in WA’s Yilgarn region go ahead, it would imply not only a move to more magnetite production for Australia but could also spell the beginnings of a second powerhouse iron ore jurisdiction in WA outside of the Pilbara.

And Hancock is not the only company sensing the windfall potential of magnetite out of the Yilgarn.

Just over the horizon lies Macarthur Minerals, which has carved its own magnetite foothold north west of Kalgoorlie with its Lake Giles Moonshine magnetite iron ore project.

Located a short distance from Mt Bevan, Macarthur’s Lake Giles Moonshine and other related deposits boast total resources in excess of 1.2b tonnes of ore.

The Moonshine deposit alone comes replete with a 218m tonne indicated resource going 27.5 per cent iron and an inferred resource of 449m tonnes grading 27 per cent iron. The company has already eked out a 54m tonne reserve at Moonshine at 30.8 per cent Fe that it says will beneficiate up to a handy 66 per cent iron that would fetch a premium in the market. This too would be slated to follow Mt Bevan’s product down the Kalgoorlie railway and out the Port of Esperance in its production scenario.

Macarthur recently sold the rights to its adjacent 80-million tonne hematite Ularring project to iron ore newcomer Gold Valley.

Gold Valley has secured all-important Esperance port capacity and offtakes with major metals trader Glencore and a $5 million payday awaits Macarthur after the first 1m tonnes has been shipped and a further $5m will drop into Macarthur’s tin after the 2nd million tonnes has been shipped. Macarthur will then pick up a $1 a dry metric tonne royalty thereafter.

The transformational deal could reap a total massive payout of more than $70 million for Macarthur over time – which would be handy as it looks to muscle its way into the magnetite iron ore scene amongst the billionaires with Moonshine.

Gold Valley just this month celebrated its first shipment out of the Port of Esperance, providing something of an indicator that despite its southerly location, the Esperance port may still be a viable option for WA bulk tonnage producers looking to ultimately ship their product to China and other northern jurisdictions via Esperance.

The potential revenue will fuel Macarthur’s ambitions to push the Lake Giles Moonshine magnetite project into high gear, with Macarthur chairman Cameron McCall expansively suggesting the Yilgarn magnetite region, could represent something mirroring Twiggy Forrest’s success with FMG or the Pilbara iron ore opportunity from some 30 years ago.

Another that stands to benefit from a growing Esperance hub and the move to cleaner magnetite concentrate is ASX-listed minnow Reedy Lagoon and its Burracoppin magnetite project between Perth and Kalgoorlie.

Reedy Lagoon’s magnetite deposit is well positioned with existing open access infrastructure including, rail and the Esperance port facilities, with the company planning further drilling and metallurgical testwork to establish Indicated resources which, if achieved, will enable financials for the mining and production of a magnetite iron concentrate.

As Rinehart, Forrest and other billionaire types move to capitalise on magnetite’s market potential, it’s clear that Western Australia’s mining frontier is expanding—and the Yilgarn/Esperance connection might just become the epicentre of a new iron ore revolution that could rival the heydays of the Hancock and Wright Pilbara legacy.

Is your ASX-listed company doing something interesting? Contact: matt.birney@businessnews.com.au