geography and windimurra

I really think that ASIC needs to smack a few fingers in the wider iron ore market this quarter over these Exploration Targets, and in particular MXR which has based its conceptual target of 3Bt magnetite on gravity modeling.

Even a geologist such as myself has to scratch his head and wonder about where they get off on announcing this sort of stuff. CDU got heavily caned by the regulators over their infamous release, which was a much better argued Exploration Target than MXR's.

But I will accept the argument, because I know what Big Kev is on about and I can understand the science. I, however, don't think that this announcement is anything more than waving a red flag at stupid punters on the same week as a bull run in Fe. A craven and base (and successful, short term) effort to just pump the sp up.

Longer term, if the capital requirements and logistical and infrastructural challenges - let alone the marketing - were also laid out for investors in as much scientific detail as the fantasies about 3Bt, then people wouldn't be so keen, methinks.

Lets lay it out.

Number one, bulk commodities is about Location, Location, Location. Canegrass is about 160km south of Mt Magnet, and that is several hundred Km inland. For example, consider the distance to port (Geraldton) from Canegrass for a bulk commodity (maps). This amounts to ~400km to the coast, the first ~120-160km to Mt Magnet with no roads whatsoever, and no rails.

So lets assume a 10Mtpa magnetite concentrate operation with a 160km slurry pipe to Mt Magnet (cost +$850M) with an Opex >$35/t. Then we have to find either a rail ($30M/km, 150km to the Yalgoo railhead = $450M capex) for an additional $8/t opex, or road transport at 20c/loaded km = $35/t. Not much margin left on a con grading 58% Fe or $78/t on 2008 prices.
$78 - $35 Opex to Magnet - $8 rail to Geraldton = $40/t margin at best. Capex $1.2Bn.

Geraldton will, according to MGX (~20Mtpa), MIS (+10Mtpa), GBG (+10Mtpa), etc, be trans-shipping in excess of 40Mtpa magnetite and lacks this capacity even with the Oakajee expansion. So MXr will need to tip its hat into the ring to part-pay for a probably $250M port expansion just to ship its iron.

Now we get to marketing. AXO has sewn up offtakes with Chengde/Panzihua and RockCheck steel. The South Africans have no need for further supplies of Ti-magnetite, the Russians are so far away and would opt for the surplus of Finnish options, the Japanese can't do Ti-magnetite ore, and of the remaining 8 operators of blast furnaces capable of refining this ore, the spare capacity expansions planned are thin on the ground - certainly not 8Mtpa. MXR would also have to argue for similar price arrangement to AXO to simplify the contracting, or it could attempt to extract more value from the product somehow via arguing for a vanadium bonus - however, the vanadium market is about to be flooded by AXO and WVL, so I doubt they'd be looking good on that account.

So, I see some real problems in getting excited over little more than a reasoned argument that a gravity anomaly equals 3Bt of magnetite when barely 20 holes are in the ground. MXR has to convince me they have a route to market, a market, and a port to ship from, let alone that they can produce a saleable product and find a beneficial contractual option to get something for it.

This is Big Kev's challenge (and ditto for FDL); turn these billion tonne blue skies into something clouded over with fat drops of cash-clouds and storming earnings just over the horizon.

First cab off the rank, a +100,000m drill out. Lets assume the 4km x 2km, 400m thick zone is there. You still need to drill on a 100x100m grid through it, to a nominal 200m depth, to achieve a Inferred and Indicated Resource. That's around 860 holes, and 86Km drilling, for a cost of +$10M (and three to five years work for a rig). $7.7M and current cash burn of $1.7M suggests that if you start a 1,500m/month RC drilling spree at Canegrass to define this target by, oh, 2013, MXR needs o go to the kitty inside 6 months to afford this drilling.

I think that MXR will spin this off inside 6 months. The capacity in funds, focus and skills let alone market sentiment is not there for a clapped out gold explorer fiddling in a mud pit in Qld and stuffing around with uranium, or that pissy shoot in SA.