as of today owns 94% of the Hawsons iron project near Broken Hill, NSW after resolving the major issue that has held up this project over the last 4 years that is the JV between CAP and Pure Metals. Pure Metals held 30% interest of the project and has not been able to work with CAP to move this project forward. But finally this issue has just been resolved. CAP now owns 94% majority of the Hawsons project and can move forward to BFS and then to production.
The special characteristics of this project is its super-soft ore, enabling CAP to achieve concentrate of 70%% Fe
Let's take a close look at its PFS and its NPV calculated 3 years ago.
Basically, the NPV of USD $1.432 billion = AUD $1.9 billion was based on:
- Average exchange rate during the life of mine of 20 years = 75c AUD/USD (I do think this exchange rate is quite reasonable. But if the average exchange rate falls to below 70c AUD/USD as has been seen during the last few years before the Covid in 2020, then NPV could be as high as AUD $2.1bil-$2.3bil)
- 65% Fe price of USD $85.40
- Hawsons iron project is to produce the Supergrade 70% Fe ore concentrate due to its unique characteristics of super soft ore. Supergrade 70% Fe ore attracts a 40% price premium over the standard 62% Fe and a 17%-18% over the price of 65% Fe. (eg: when 62% Fe was USD $63, 65% Fe price was $75 (19% premium) and Supergrade 70% Fe was $88 (a 40% premium over 62% Fe)
- But if you want to use the standard 62% Fe price as reference, then the All-in-costs of the Hawsons iron project is unbelievably low at USD $23.03. That makes it one of the lowest cost projects in the world.
But that was year 2017. Fast forward to current iron prices in mid-2021 where current 62% Fe is at around USD $200/ton, and an average of USD $35 premium (17% higher) to get 65% Fe price and at least another $25 premium to get to Supergrade 70% Fe. The economics works extremely well for Hawsons project.
Put it another way, at current premium due to world's transition to clean net zero emission and the high demand for higher quality iron ore, Hawsons project is cost-free if you use 62% Fe price as a base. Based on the previous NPV calculation, the Supergrade all-in-costs is USD $48.03 AND is $25 higher than the cost of producing 62% Fe but the premium price that Supergrade gets now is around $60 higher than the price of 62% Fe.
What you see from the PFS key metrics above is:
- NPV10 = USD $867mil when the price of 65% Fe = USD $75/ton, and EBITDA = USD $401 mil per year
- NPV10 = USD $1.432bil when the price of 65% Fe = USD $85/ton, and EBITDA = USD $497 mil per year.
In other words, for every USD $10 increase in the average price of 65% Fe ore, the project will earn in extra approximately USD $96mil per year and NPV of the whole project over 20 years LOM will increase by USD $565mil.We all have heard of many institutions and commodity analysts predicting the price of iron ore 62% Fe to stabIlize to long term average price of USD $120/ton. So, let's see where the Hawsons project's NPV stands:
At USD $120/ton for 62% Fe price, the price of 65% Fe fines will be about USD $143/ton (19% premium over 62% Fe price), new NPV will be:
NPV10 = ($143 - $85)/10*565mil + $1.432bil = USD $4.7billion = AUD $6.27 billion(using average exchange rate during its 20 years LOM of 0.75c AUD/USD). Most of mining projects at this stage of progress, ready to move to the BFS (final step before investment decision and funding), MC would be around 30% to 50% of NPV, which suggests that CAP market cap should move to $2bil-$3bil after the BFS release.
For mathematics sake, at current 62% Fe price of USD $197/ton and 65% Fe price of around USD $230/ton,
NPV10 = ($230 - $85)/10*$565mil + $1.432bil = USD $9.6billion = AUD $12.8bil
