Strategic Delusion. In-situ grade not scale the first priority. Catch 22?

Fourteen years after discovery and the immutable economic impediment of the Hawsons' Project very low in-situ "ore" grade has finally been admitted by the current board.

Approximately $40m in the last 18 months has been wasted pursuing a palpably flawed technical approach of maximizing resource tonnage at the expense of the in-situ "ore" and product grade. Do not be tricked, it’s this flawed technical strategy, as much as any claims of an unfavorable economic environment that scuttled a successful outcome for the scheduled Dec 2022 BFS. The complete lack of any senior geological resource and operational iron ore mining experience on the board nakedly evident.

The dubious strategic review findings as outlined are an obituary. Further investment in the scandalously slow paced and likely to fail 18 month BFS timetable is reckless folly. It’s difficult not to be cynical that the only credible raising purpose is employee salary preservation.

For too long HIO, and before that CAP, management have obfuscated and deluded themselves about the false primacy of scale and the final product grade – “supergrade” iron ore was always a marketing delusion.

The revised production of 11 Mtpa of magnetite concentrate is the same as that proposed a decade ago. Why has the project burned so much more capital to land where it started?

The proposed 20 Mtpa production was always delusional. Per the latest in-situ resource grade and stripping ratio information, roughly 230 Mtpa of rock has to be mined and processed to achieve this. This would be an operation moving more than twice the volume of rock as Australia’s largest current IO mine at BHP-Yandi - hardly credible. The halved strategic review target of 11 Mtpa would still rival or exceed the largest Pilbara pits. Also an incredible but not completely impossible objective.

The Strategic Review's proposed 400km slurry pipeline and the Myponie Point export port are non-existent and illogical fantasy. Both require huge capital, reams of approvals and many years if not a decade to complete. Objectives that are utterly counter to the stated critical high capex problem.

The board is engaging in Catch 22 “logic”. The capital/operational costs of the project are too high because the in-situ grade is low and, the capital/operational costs must be high because the grade is low so the only path to viability is huge scale…..

So no hope you say? Probably but it’s still possible Catch 22 could be dodged with some expert management.

There is a tried and tested, real world plan, not properly explored in the strategic review findings that could be quickly and cheaply assessed.

It would go something like this:

i) establish if (?) a discrete >20% DTR grade “starter core” resource as close to surface as possible (will be deeper than ~100m oxidation base) is present at Hawsons. It should be very quick and cheap to assess as in excess of $40m has been spent just oon drilling in last fourteen years - lots of detailed data is available.

ii) if, and only if, a “starter core” exists then redesign all engineering and costs based on producing a modest 2-5 Mtpa of concentrate using existing road, rail and port infrastructure to get a mine started and prove viability – a much ,much lower capital outlay and risk approach, and,

iii) Once proved viable via an initial operation then co-operate with (or acquire) other SA Braemar projects to incrementally develop and de-risk major capital infrastructure to scale-up and unlock the potential value of the giant low grade resources tonnages.

The odds are still very slim but a “start small” method utilizing existing infrastructure (an astonishingly ignored project advantage) is far more realistic and it minimizes wealth destruction risks.

Bottom line-- if there’s no higher grade “starter core” of roughly 20% DTR grade then Hawsons is uneconomic and should be stowed. Catch 22 wins.

If there is a “starter core” resource then define it fast (no more than 3-6 months) and finish a BFS in 9 months, not 18. The Braemar Province is unproved, it can only progress with modest and credible capital outlay development proposals.

Once some real operational credibility has bee established then others with deep pockets and the government will take note.

As it stands, the Strategic Review and revised BFS program is just another script in over a decade of hackneyed Tolkienesque productions.