After some time to digest this announcement, I think on balance it raises more questions than it answers, namely:
1. what changes to the BFS timeline will this entail (previously management have confirmed no changes and they have not done so here so I think it follows the timeline will push out);
2. Which port are they suggesting be used as a deep water port on the eastern side of the spencer gulf, SA Labor previously had a proposal in 2018 to build a deep water port on the eastern side (perhaps HIO are hoping to take advantage of a potential change of government and some state funding for the port component of option 2);
3. Funding, funding, funding - but how. While the NPV of 20mtpa is positively explosive, we were already broadly in agreement that CAPEX was the biggest hurdle to this project, exploring 20mtpa seems a step in the wrong direction in that regard;
4. Cash for the BFS changes - where from? Drawing down on the LDA deal early in the piece seems to be bad value for holders. The company says they will do this "if necessary" - what other options are on the table? Funding from an off-taker perhaps?;
5. Costs of a 400km pipeline. By comparison the Vale/BHP JV dropped $3.5B USD
in 2011 dollars on a 400km tunnel, 20mtpa mine expansion, concentrator and pellet plant (for 8.3mtpa of pellets). This was in brazil though where I would expect construction costs to broadly be lower than here in Aus. That is nearly double the CAPEX (admittedly including a pellet plant);
6. Why are passing lanes not being explored to increase capacity on the broken hill rail line as part of the 20mtpa option instead of just a highly cost prohibitive slurry line to port (and what port) - they mention underground for at least part of the tunnel, as I understand it competitors tunnels are rarely if at all underground (so extra cost); and
7. If we are building this tunnel there is no way time to first extraction does not blow out massively, management were also silent on this.
I'm sure there are plenty more things but these are just my initial questions/thoughts based on this announcement. Overall I am okay with exploring 20mtpa if there is a solid commercial basis for doing so (i.e. funders or offtakers are asking about it), but personally I am skeptical and think we are going in the wrong direction re CAPEX with this.
