Hi Tran.In the Pilbara, for both Rio Tinto and BHP, 1 kilometre...

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11/11/21

21:41

Post #: 57510611
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Originally posted by Tran: ↑

I have no doubt that the next resource upgrade will see most of the Inferred category resource being converted to Indicated category. Remember the last round of drillings to upgrade resource from Inferred to Indicated category? It was 96% conversion at 9.5% DTR cut-off grade. That 96% conversion has now become 100% after the latest optimal cut-off grade is found to be at 6% DTR cut-off. In other words, every where they drilled in the last round of resource upgrade drilling was successfully upgraded to Indicated category. Plus, most of the potential resource identified in the KPS, 150mil-250mil tons of concentrate will become Inferred category.

In the 2017 PFS, only 201mil tons of Indicated and Inferred was applied to the NPV calculations. The next update on NPV will easily utilize more than 400mil tons of concentrate. But I hope annual production target will be ramped up to 15mil-20mil tons from year 5 of production instead of 40 years LOM. The reason is anything from year 21 to year 40 will not result in much bigger NPV figure due to 8% discount rate.

For example:

$100mil in year 21 will be = $100mil ÷ (1.08)*21 = becomes only $20mil.

$100mil in year 30 will be = $100mil ÷ (1.08)*30 = becomes only $10mil.

In other words, an annual production of 20mil tons, for LOM = 20 years, will result in a much bigger NPV figure for the project than an annual production of 10mil tons, for LOM = 40 years. The NPV figures for the 2 scenarios will be very significantly different.

Of course HIO won't be able to start with 20mil tons production from year1 but they can do it from year 3 or year 5 with its retained profit.

The challenge will come down to available rail capacity to port Pirie and port Whyalla. HIO at that time can sign a long term transport contract with rail service provider to increase capacity (rail service provider will build extra rail line)?

Thought?

A 2 fold increase in annual production would result in a 2.5 to 3 times increase in NPV due to economy of scale (efficiency) and would make Hawsons project more attractive to the banks, investment community, funding partners, operational partners, off-takers and ultimately Andrew Forest.

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Hi Tran.

In the Pilbara, for both Rio Tinto and BHP, 1 kilometre of rail cost around 1 million dollars. It doesn't take that long to build either, especially thinking about the flat plains between Broken Hill and Whyalla. So, for about 4 million dollars you'd have 4 overtaking lanes on the rail, which should easily upgrade the capacity of the whole line. A drop in the ocean when comparing it to the cost of mine setup. I wouldn't think upgrading the rail line would be an issue.

HIO Price at posting: 7.7¢ Sentiment: None Disclosure: Held
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