30/01/2008 - 22:00

Race on for iron ore prize

30/01/2008 - 22:00


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With Andrew Forrest’s Fortescue Metals Group set to become the Pilbara’s third iron ore exporter this year, many other companies are racing to join the ranks of iron ore producers in the resource-rich region.

Race on for iron ore prize

With Andrew Forrest’s Fortescue Metals Group set to become the Pilbara’s third iron ore exporter this year, many other companies are racing to join the ranks of iron ore producers in the resource-rich region.

While several companies have active exploration programs, the reality is that only a handful can attach any certainty to their mining and export plans.

Atlas Iron is almost certain to become the region’s fourth iron ore producer later this year, when it commences operations at its small Pardoo mine near Port Hedland.

Another listed company with advanced plans is Aurox Resources, which intends to invest more than $600 million in its Balla Balla project.

China-backed CITIC Pacific Mining, Clive Palmer-backed Australasian Resources, and Gina Rinehart’s private company, Hancock Prospecting, have even bigger plans.

Hancock is already a joint venture partner in the Rio Tinto-operated Hope Downs mine, which started operations late last year and is looking to develop mines in its own right.

FerrAus, Iron Ore Holdings, Brockman Resources, Cape Lambert Iron Ore, Aquila Resources, and Apollo Minerals are among the other exploration companies aspiring to become iron ore producers in the Pilbara.

While most companies are targeting haematite ores, which have long been the mainstay of the region, several others are focused on magnetite ores, which require processing prior to export.

CITIC Pacific Mining and Aurox Resources both have a stated goal of becoming the first magnetite producer in the region.

CITIC, a wholly owned subsidiary of listed Hong Kong company CITIC Pacific, has been quietly proceeding with its ambitious Sino Iron project, located near the coast south of Karratha.

The company plans to spend $5.2 billion building its mine, concentrator, pellet plant and associated infrastructure, including a power station and port.

Its aim is to produce 27.6 million tonnes per annum of iron ore concentrate and pellets.

A spokesperson for the company said it was still aiming to commence production and processing through the concentrator in early 2009.

Australasian, which has tenements are adjacent to CITIC’s tenements, is close to completing a bankable feasibility study for its own 12mtpa operation.

Its major shareholder, Brisbane investor Clive Palmer, is cashed-up after selling CITIC the rights to mine some of his extensive Pilbara tenements.

Another heavy hitter is Hancock, which will start earning serious revenue this year from its half-owned Hope Downs mine.

Hancock is planning to become a diversified mining house, though its initial focus is its Roy Hill 1 iron ore project in the Pilbara and its Alpha coal project in Queensland.

This year it is aiming to complete a drilling program and pre-feasibility study on Roy Hill, which has an estimated resource of 1.6 billion tonnes.

New entrants to the industry will have to deal with spiralling construction costs and acute labour shortages.

With incumbent producers BHP Billiton and Rio Tinto pursuing aggressive expansion plans, and major oil and gas projects also competing for scarce resources in the Pilbara, those problems are unlikely to get any easier.

FMG disclosed last week that its Pilbara infrastructure and mining project was 82 per cent complete and that it was on schedule for its first shipment in May.

The capital cost of its project has risen slightly to $2.7 billion, pushing it to its financial limit.

The company said there was no remaining contingency amount in its ‘forecast final cost’ but the project still had $80 million in its back-up reserve, with a further $300 million held by FMG.

Its project is designed to export 45mtpa, but FMG is already working on a major expansion to meet China’s growing demand for iron ore.

The smaller explorers active in the Pilbara are led by Atlas Iron, which is seeking environmental approval for its Pardoo project.

Pardoo is a small and very simple operation: the ore is to be trucked 75 kilometres from the mine to Port Hedland, and it has an initial capital cost of only about $10 million.

Atlas is aiming to start production in October, with output initially at 1mtpa and rising to 3mtpa by 2010.

It is also pursuing development of its Abydos mine, with targeted production of 3mtpa starting in late 2009.

Hartleys analyst Andrew Muir said Atlas was his preferred iron ore stock in the region.

“They are one of the most advanced and are just waiting on environmental approvals before they hit the ground,” he said.

Mr Muir added that iron prices were likely to rise by about 35 per cent this year, and could rise by as much as 50 per cent, which would boost the earnings of entrants to the sector.

Aurox Resources has ambitious plans for its Balla Balla magnetite project, which will cost more than $600 million to develop.

It has engaged FLSmidth Minerals to commence detailed engineering work and secure key components for its processing plant and has signed a letter of intent with Siemens for the associated port infrastructure.

Firm price contracts are being drafted by both groups with execution expected next month.

Managing director Charles Schaus said in a statement the company was aiming to deliver its first concentrate to Port Hedland in the third quarter of 2010.

The Balla Balla processing plant will be designed so that output can be increased from an initial 6mtpa to 10mt by 2014.

While Atlas and Aurox have completed bankable feasibility studies for their projects, other explorers are less advanced.

FerrAus recently completed a pre-feasibility study for its 2mtpa Robertson Range project, and on the strength of that has submitted a mining proposal, with site works and initial production planned during 2009.

Iron Ore Holdings recently completed a scoping study for its 1.5mtpa Phil’s Creek project, and Brockman Resources is due to complete a scoping study for its Marillana project by the end of March.

Cape Lambert Iron Ore has acquired additional tenements and is proceeding with a drilling program as a prelude to completing a bankable feasibility study.

It is aiming to produce at least 15mtpa of magnetite concentrate over 20 years.

Aquila, which is already a coal producer in Queensland, is looking to define an initial resource at it West Pilbara project to support a 25mtpa mining operation, and is targeting first shipments by the end of 2011.


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