Special report: High-grade iron ore players are a rare breed and Chinese steelmakers are increasingly demanding higher-grade product, making it the ideal space for Fenix Resources to break into.
Emergent Resources will re-list as Fenix Resources with a proposed ticker of ASX:FEX
Fenix (ASX:FEX) has a competitive advantage with the strong potential to produce up to a 65 per cent product – which attracts big dollars and is something not even majors BHP (ASX:BHP) and Rio Tinto (AS:RIO) are producing.
Fenix’s goal is to become a niche supplier of high-grade products to the steel industry.
The company, which has now launched a $4.5 million capital raising at 4c per share to pave the way for re-listing on the ASX, is acquiring the Iron Ridge project through the acquisition of Prometheus Mining.
CPS Capital is the lead manager and partial underwriter of the IPO. The prospectus is available from http://fenixresources.com.au/
On re-listing, Fenix will have a market cap of around $8.5 million, with more than $4 million in cash – giving it an enterprise value of a little over $4 million.
The Iron Ridge project has a current resource of 5 million tonnes at 64.1 per cent iron ore and an exploration target of up to 12.7 million tonnes of additional iron ore at 58 to 65.3 per cent.
There are currently only a couple of mines in Australia that can produce grades of up to 65 per cent – and neither are in operation at the moment.
Mount Gibson Iron’s (ASX:MGX) Koolan Island mine is scheduled to come back into production in the March quarter next year.
Structural change drives high-grade demand
The price gap between low-grade and high-grade iron ore is widening as Chinese steelmakers increasingly favour higher grade feedstocks to boost mill productivity and meet more stringent pollution control measures.
A low-grade 58 per cent product is fetching around $US45 a tonne, while the benchmark 62 per cent product sells for about $US67 a tonne at the moment.
A 65 per cent product, meanwhile, is attracting as much as $US93 a tonne – a substantial premium over the low-grade stuff.
BHP said recently the price spread between different grades remained wide.
“In the medium to long-term, the ongoing supply side reform, the migration of steel capacity to the coastal regions and more stringent environmental policies are all expected to underpin the demand for high quality seaborne iron ore fines and direct charge materials such as lump,” the major said.
On top of that, China’s crude steel output hit a record high of 81.2 million tonnes in July – a 7.2 per cent jump over the previous year – and is projected to be much higher over the next two years than previously forecast.
Chinese steel production is expected to reach 900 million tonnes this year – two years earlier than expected – and climb to 950 million tonnes by 2020.
Low capex advantage
The premium Fenix expects to make will more than make up for the cost required to truck the ore around 490km to the Geraldton Port.
The company also has other cost advantages with it not having to build port infrastructure because Geraldton Port currently has abundant surplus capacity for ore storage and ship loading.
A high-grade product also only needs minimal processing and no tailings disposal facility.
A 1-million-tonne-per-annum operation would only need a small fleet of heavy earthmoving equipment and a mobile crushing and screening plant, both of which are readily available from contractors.
Fenix’s strategy is to pick up small high-grade mines that have been overlooked because they lack scale.
“We have plans to do more in the high-grade steel material sector,” non-executive director Rob Brierley told *.
“Iron Ridge is a starting asset and we believe there’s significant value in that. We’re hoping to acquire more assets, and not just in iron ore but other steel materials products such as coal and manganese.”
Fenix plans to undertake an initial drilling program at Iron Ridge to increase the resource to between 8 million and 10 million tonnes.
All-scrip deal
Fenix, which will eventually be renamed Fenix Resources, has struck an all-scrip deal to acquire Prometheus Mining, with 80 per cent of the consideration performance based against resource and production targets.
The consideration includes an initial issue of $1 million worth of shares.
