Hancock, Atlas push next big thing

Gina Rinehart’s Hancock Prospecting has only recently started mining at its Hope Downs iron ore prospect in the Pilbara, but is already advanced in the planning of its next two mines.

With much of the focus currently on its 55 million tonne per annum Roy Hill 1 operation, due to come online in 2011, the company is moving onto its next potential operation, the Central Pilbara project.

The project, consisting of eight tenements, is touted as having similar tonnages as Roy Hill, which holds a resource of more than 1 billion tonnes.

Roy Hill 1 is currently in prefeasibility study stage with transport options for ore being investigated.

One of the options under consideration is linking Roy Hill 1 to the Rio Tinto-owned Lang Hancock rail line, which is already transporting ore from the company’s first mine, Hope Downs, to Rio’s infrastructure including the Dampier port.

The same option could be used for the Central Pilbara project by linking it to the Lang Hancock rail line or use existing rail lines owned by BHP Billiton or the Fortescue Metals Group line, located about 35 kilometres away.

Speaking at an iron ore conference last week, Hancock Prospecting general manager for new business, Grant Young, told delegates the potential big resource and the three different types of ore found on the tenements could potentially lower overall development cost with the set up of a central processing facility.

“We believe it will contain significant resources and that’s important in the Pilbara, because infrastructure is difficult, with those sort of resources behind you, it makes a stand-alone infrastructure a viable option,” Mr Young said.

“We believe its layout will benefit from the development of a production system with lower capital blending.” Hancock Prospecting plans to undertake a large drill program at the project this calendar year and complete an order of magnitude study.

The company anticipates production at Central Pilbara will start around three years after Roy Hill 1.

The Roy Hill 1 prefeasibility study is due to be completed in the middle of this year and a bankable study, along with financing arrangements, is due to start soon.

Hancock Prospecting started production at its first iron mine, Hope Downs, late last year.

The $1.3 billion mine is a joint venture with Rio Tinto.

Atlas Iron is another Pilbara company boosting up the credentials of its next iron mine, Abydos, where its current 15mt exploration target is being flagged as too conservative.

Regardless of potential, Abydos could already make $300 million over three years based on its 8.6mt resource, with capital cost to start the project in two years pegged at less than $40 million.

The company has already signed memorandum of understanding agreements with Fortescue to use its rail line and Anderson Point ship loading facilities.

“Looks like we’ll be getting a good commercial arrangement in hauling ore from [Abydos] into the port,” Atlas Iron managing director David Flanagan said.

The company is targeting a 3mtpa operation by late 2009 for Abydos, which together with the Pardoo iron ore mine, will produce 6mtpa of iron before 2012.

Pardoo, which cost $9.1 million to develop plus an extra $900,000 in contingency for a 1mtpa operation, is due to come online in October.

Mr Flanagan said the mine would be ramped up to 3mtpa in 2010 for a total cost of $13.8 million with a mine life of between five and seven years.

Mr Flanagan hopes to finalise offtake agreements for Pardoo’s ore by May.

“We’re looking at selling our product in less traditional ways, perhaps participating on the spot market a bit more aggressively, to maximise our return or capture as much of the high iron ore prices over the next couple of years as possible,” Mr Flanagan said.

Hartleys resource analyst Andrew Muir said investors could expect to see more iron ore companies take advantage of the high prices of the spot market, which earlier this week was more than $US200 per tonne.

“The spot market is substantially higher than long-term offtake agreements; companies are trying to capitalise on that.

If they can get more money for it, why not?” Mr Muir said.

The trend for spot sales follows Rio Tinto’s annoncement late last year that it would sell 15mt of iron ore on the spot market.

Rio is also aggressively pursuing a price increase of over 71 per cent for its contract sales.

Hartleys has forecast iron ore prices for 2009 to stay flat, however Mr Muir said that was a conservative view with forecasts now pointing to a further 30 per cent increase on top of this year’s price rises.