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High stakes

With a high-grade iron ore project in Western Austraila’s Pilbara and MOUs with Chinese steel mills, the only thing standing between Flinders Mines and a successful operation is finding an export route.

The Pilbara region of Western Australia is one of the world’s premier spots for iron ore and known for the massive mines of industry majors such as BHP, Rio Tinto and Fortescue Metals Group. For a junior company wedged in between, the area’s reputation and popularity can be both a blessing and a curse. This is at least the case for Flinders Mines (ASX: FSM), a small Australian exploration company with a 917Mt resource in the Pilbara’s heart.

“The key advantages – and disadvantages, I guess – of the Pilbara Iron Ore Project is that it’s in iron ore territory,” comments Flinders Chair Robert Kennedy. “It’s very close to Rio’s railway and Fortescue’s Solomon hub, and there are quite a number of ports nearby. However, finding a way to transport our ore from the deposit to the coast, and to put it on a ship, is not as easy as one thinks.”

On a basic level, Flinders’ Pilbara Iron Ore Project – or PIOP – is ideally located in terms of logistics and strategically close to existing and proposed infrastructure. In addition to power and water access, it has good road connections. Possessing a high-grade iron ore project with an estimated production rate of up to 15Mtpa, the company has a number of infrastructure solutions potentially available to it – but none are straightforward.

To get to Port Hedland, Dampier or Cape Lambert, Flinders would need to either negotiate a sharing arrangement with the companies who own rail lines – Rio Tinto, BHP or Fortescue; or negotiate with Atlas Iron or Brockman Mining over use of the proposed East Pilbara independent rail. Flinders already has a non-binding Memorandum of Understanding (MOU) with Brockman Mining to look into aggregating their Pilbara operations to increase the tonnage and the viability of building a new independent rail line. Alternatively, Flinders could look into finding its way to other ports, such as Cape Preston and Anketell Point, which do not yet have rail connections.

“We know there is enough ore at PIOP to be attractive to anyone in terms of shipping it,” says Kennedy. “Yet we are totally aware of the fact that, on our own, we cannot build our own rail and port direct from our Anvil and Blacksmith deposits, because it’s not economically sustainable. We will have to match up with someone else, or join in with any project or infrastructure that will get us to port and exporting our ore. We have a high grade and a reasonable quality deposit – our ore would be perfect for blending with other producer’s materia, or for shipping direct.”

What’s to play for

The PIOP is an impressive proposition, with 917Mt of JORC-compliant resource and plenty of upside potential. At an exceptional grade of 60% Fe over a significant portion of the resource, the iron ore is of direct shipping ore (DSO) quality and in low strip ratios. The existing conceptual mine plan, for the Delta pit alone, estimates a production of 5Mtpa over an eight-year mine life, with capital expenditure commitments that are modest in comparison with many other iron ore mines.

New data and better results from recent drill work have outdated the previous Preliminary Feasibility Study (PFS) that Flinders commissioned during 2010. On 5 September, Flinders released results for its Brockman Iron Deposit (BID) drilling programme that identified a significant number of high-quality BID intersections from new drilling on the Delta target area on the eastern side of the Blacksmith tenement. The mineralisation is predominantly DSO-quality and at a lower strip ratio than other parts of the PIOP resource, resulting in low processing and mining costs. It lies outside the existing resource and will form part of the next resource estimate once classified in terms of JORC.

“These results highlight good grades, thicknesses and close proximity to surface,” comments Kennedy. “We are encouraged by the significant number of high-quality BID intersections and that they occur at several target areas. For example, several excellent intersections were encountered at a large zone on the southern flank of Delta South, including HPRC5510 with 18m at 61.5% Fe and HPRC5511 with 18m at 61.3% Fe. Drilling adjacent to known BID mineralisation in Delta North has returned some excellent intersections, including HPRC5529 and HPRC5540, with 30m at 59.2% Fe and 16m at 59.1% Fe, respectively.”

There are additional extensions and high-priority targets that remain untested. Flinders hopes that its continuing exploration will add an Exploration Target of 180-280Mt at 55-58% Fe to its existing 917Mt resource.

Well prepared

While undertaking further steps to increase the resource, Flinders has also made good progress in de-risking the PIOP. It has the Native Title Agreement already in place, the Mining Lease granted and Environmental Approvals well progressed. Another significant step has been signing non-binding MOUs with various Chinese steel mills, in order to establish a market and future customers in China.

“We had our ore tested for its metallurgical properties in Beijing, which meant the results were much more acceptable to Chinese companies,” explains Kennedy. “On that basis, we were able to sign non-binding MOUs with various Chinese companies, and we just did another round of those.” The additional six MOUs signed in July brought the total number to 10.

Flinders’ marketing team has engaged with more than 40 Chinese steel mills to date, and expects several more will sign binding MOUs in the coming months.

“These agreements will allow potential customers of the sinter fines product from the PIOP to undertake technical and commercial evaluations of ore in order to assess its suitability for their steel operations,” says Kennedy. “We expect this will ultimately lead to Letters of Intent with a number of foundation customers.”

With MOUs, a large resource and all the preliminary approvals in place, Flinders will be spending the next several months working on solutions to its ore transport conundrum. Kennedy says Flinders is totally committed to progressing PIOP and “hopeful” of meeting its previously stated target of entering production in late 2014.

“The ideal outcome is to make some arrangement to get our ore onto rail and out of the port, or perhaps to sell it at the mine gate – whatever it takes to get it into production,” he says. “We want to be producing, with a strong cash flow to secure the position of our shareholders over the next immediate term, before looking again at our other tenements.

“We think ours is probably the best project of all the juniors in the Pilbara – we are well placed, with a high-quality iron ore deposit that is eminently blendable. So we’ll keep looking for solutions until we find one.”

www.flindersdiamonds.com

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