HIO (ASX) Ann: Starlight Purchase

Originally posted by Johnyb888: ↑

Hi Orey

I just wanted to give some perspective on your comparison of HIO to the Simandou project in Guinea. Some time ago I did a bit of a deeper dive into that project because of its potential impact on the high grade IO market and the incredible production figure touted by mainly the Chinese. I want to also go into some metrics to compare HIO to Simandou

Now the most obvious and number one reason for the Simandou project not to be able to get to production is its location. Guinea is an unstable, corrupt and unreliable country to invest in and with a Capex of something like 20 billion USD no company (or country like China) would comfortable to invest that sort of $$ when at any time unrest could break out or the government could simply change the rules at any time. Already the project has suffered ownership issues with deals being done and undone, it has suffered corruption, and recently the Guinea government decided that instead of allowing a railway through Liberia (which would save quite a bit on the capex and transport costs) it would have to be a much longer railway all the way through Guinea to the coast so Guinea can benefit from this transport.
It is simply a terrible place to do business.

However there are other reasons why the Simandou project compares less favorable to Hawson.

Hawson Capex estimate $2billion USD (for 20Mtpa)
Simandou Capex estimate $20billion USD

The Simandou project has resources of up to around 4Billion ton. There might be more but probably not a huge amount more.
Hawsons has current 400M tons concentrate. But this is likely to grow to 1billion ton or more.

So comparatively the capex of Hawson per ton will be much lower over the life of mine. The Hawson capex is only 10% of Simandou but the recourse is likely to be 25% or so of Simandou. So per ton the Simandou project requires 2.5x the capex!

The Chinese boasted about Simandou producing 200Mtpa...But pretty much all insiders have said it likely would never top 100Mtpa
Hawson is currently looking at 20Mtpa

This again is favorable for Hawson with its production being 20% of Simandou so one a per annum tonnage basis Simandou's capex is double that of HIO.

Simandou would be producing approximately 65.5% hematite IO vs HIO 69.9% magnetite.

So obviously HIO's significantly higher grade will mean higher $$ per ton received.

But that isn't all. Simandou will produce hematite IO. So although it is high grade, it isn't suitable for many green steel processes like pelletization or use in EAF's. Since it would be many years before they could be in production it isn't how big the demand would be, but its fair to say that next to the grade gap there is likely to be a bonus for HIO's magnetite (or a penalty for Simandou's hematite if you will).

Now I don't know what the exact production cost for Simandou CFR China would be but I doubt it would be much lower then HIO's. The shipping distance is quite a bit further and there is also a pretty long rail distance so even if they can dig it up pretty cheap, most of that advantage would be gone by the time it gets to China.

So in short the Simandou Capex is much higher both in real and relative terms on a total resource and production per annum basis, for a far lesser product that can not easily be used in the main growth sector of green steel. And all this is an very unfavorable location where HIO is arguably in one of the best locations imaginable.

The Simandou project is impressive in its size and grade, but in no way does it stack up to Hawson.

Expand

Yes and thank you for proving my point. There is more to a project than just NPV and random what if calculations....

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Last 2.2¢		Change 0.000(0.00%)		Mkt cap ! $22.36M

Open	High	Low	Value	Volume
2.4¢	2.4¢	2.2¢	$11.69K	499.3K

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