One just needs to look a bit deeper into the ONSLOW iron ore project which made headlines around the iron ore industry around the world yesterday to see how compelling HIO's Hawsons is.
ONSLOW PROJECT:
- FOB cash cost = USD $32.23/ton (excluding royalties) - Plus infrastructure capital charge of USD $7.74 - Plus royalties = ~USD $2/ton (estimate. Hawsons pays a higher royalties of $3.18 due to higher product selling price) - Total C1 all-in FOB = $USD $42/ton (versus Hawsons's USD $39.74/t) - Plus Freight+Insurance = $8.29/t - Total All-in-cost CFR = around USD $50.29/ton (versus Hawsons's USD $48.03/t).
The operating cost figures for Hawsons project was from the PFS in 2017. Since then the OPEX has obviously increased. I did allow for 30% increase in OPEX so the cost of USD $48 now becomes $48 × 1.3 = $62.40 which is very close to the updated OPEX figure from the KPS report of USD $63/ton and the OPEX figure from the IIR report of USD $61/ton.
However that is OPEX of USD $62.40 based on previous 10mtpa and no direct slurry pipeline. HIO is now going for 20mtpa with a direct slurry pipeline, so OPEX should be around $62.40 for the first 10mtpa plus a savings (synergy savings) of 30%-50% for the 2nd 10mtpa. I am going to apply a 30% savings only here. That gives us the average of $62.40 and ($62.40×0.7) = ($62.40 + $43.68)÷2 = $53 per ton.
With direct slurry pipeline savings of conservative estimate USD $5/t from previous RAIL & PORT item of $11.23, the new OPEX for 20mtpa with direct slurry pipeline is now = $53 - $5 = USD $48. This brings it back to exactly previous $48/t.
OK. So, on the OPEX front the 2 projects have similar cost structure. However the product selling prices tell a very compelling story here. At average Fe62% = USD $100/ton CFR (inclusive of Freight and Insurance fee)
- ONSLOW product Fe58% selling price is about USD $82-84/ton CFR. Profit margin is about USD $32-$34/ton
- HAWSONS product Fe70% selling price is about $128-$130/ton CFR. Profit margin is about USD $80-$82/ton. This is 150% higher profit margin than ONSLOW project if the average Fe62% is USD $100/ton.
If there is a certain periods of 6 months or 1 year during which Fe62% price drops to USD $70/ton corresponding with Fe58% dropping to around USD $52/ton and Fe70% dropping to $97/ton? Well, ONSLOW will start losing money but HAWSONS still makes USD $50/ton × 20mtpa = $1bil profit margin per year.
Hawsons is a super soft ore that consumes 70%-75% less energy to grind and crush that makes it even more economical to use as feed stock for steelmaking process in the current high energy cost enviroment and in the coming age of zero emission with European CBAM (Carbon Tax Scheme) coming effect in 2023 where coming goods and steel imports with high emission will have to pay a carbon tax.
HOW MORE COMPELLING DO PEOPLE WANT HAWSONS PROJECT TO BE?
THE BIG JV PARTNERS HAVE CERTAINLY CRUNCHED THE NUMBERS I BELIEVE.
HIO's sp has to re-rate to $2-$3 without a doubt to its 20% MC/NPV when the whole puzzle is revealed.
HIO Price at posting:
34.0¢ Sentiment: Buy Disclosure: Held
