LJ - a Jewel in the Crown, page-105

Interesting thread.

Mineral Resources plan was always an interesting one. POS's lake Johnston plant is about 213km from Mt Marion. Using SH94 its 277km to Bald Hill. Going direct into Widgiemooltha its 225km.

Lets assume trucking costs are 10c/ton km. Each ton of fines transported to Lake Johnston (at an average distance of say 225km) is $22.50. Transport 1.5Mt of fines and the trucking cost each year is $34m and probably increasing over time. MinRes would be using public roads so there would be no assumed opportunity to use automated road trains as they are doing up in their Onslow iron ore project. If this is a 15 year hub (to 2041) then MinRes would incur an additional $510m of trucking operational costs by acquiring a capital cheap flotation plant. There may be modest incremental costs on that of takng the concentrate back to Mt Marion before it goes to port. This $510m may increases to $600-700m with inflation in trucking costs.

Across Bald Hill, Mt Marion and potential other deposits they may need more flotation capacity than 1.5Mtpa anyway, particularly if they are going to make any serious headway into existing fines tailings, middlings. The fines and middlings tailings produced each year and providing a contract service to others. This half billion dollar incremental operational cost of going capital light means the business case wouldn't have been a slam-dunk no-brainer.

Phrased another way, if the fines have an average grade of 1% and a recovery rate of say 65% then you will need about 8.5t of fines for one ton of 5.5% concentrate. Using the Lake Johnston facility would add over A$191/t of SC5.5 to the cost structure relative to a purpose built facility at Mt Marion. If transport costs increase over time that increment could easy increase to A$300/t. If new is more efficient then that could be A$400/t of incremental operation costs. That is a lot of lost profits. The proposed royalty would add to those cost relative to a Mt Marion project.

So why do the deal?
What if all the material POS supplied has enabled MinRes to make >$5m of capital/operational cost savings for an inhouse flotation development and/or identify flaws in the apparently poorly performing Mt Marion flotation plant? It would be $1m well spent!!


Alternatively MinRes may have assumed that closer projects like TG6 (disc holder)/CHR (not holding) would remain small and there would be a margin in toll treating them because they wouldn't get to a scale where they could justify their own plant. There could still be a win-win deal with TG6 but it won't involve the same about of upfront cash that MinRes proposed.