THE spotlight on Western Australia’s emerging magnetite iron ore...

THE spotlight on Western Australia’s emerging magnetite iron ore producers has been fixed on the state’s mid-west lately, with the proposed Gindalbie Metals-Sundance Resources merger and fighting over much-needed infrastructure grabbing most of the headlines. But the focus should swing to the north in the first half of next year, and it might just stay there.

More than $US150 million of mining equipment is already on order and due to arrive over the next six months at Cape Preston, near Dampier, where the Hong Kong-based, Chinese Government-backed CITIC Pacific is quietly moving forward with the first stage of a possible multi-phase, multi-billion-dollar magnetite production complex. Next door, major Chinese steel producer Shougang Corporation and Australian-listed Australasian Resources Ltd are aiming to head down a similar path.

Further up the coast, near Cape Lambert, Cape Lambert Iron Ore hopes to produce 5-7 million tonnes per annum of magnetite concentrate from a 2.5-billion-tonne resource only 5km inland, while minnow Atlas Iron has a vision of an $A1 billion-plus magnetite project at Pardoo, near Port Hedland – with Chinese backing.

Fortescue Metals Group (FMG), which is building a $A900 million railway between its Cloud Break hematite iron ore mine and Port Hedland, recently signed a joint venture deal with one of the big committed buyers of hematite ore from its developing 55Mtpa Pilbara project, Baosteel, to explore known magnetite areas along the rail corridor. Asked why the Chinese steel producer was interested in the lower-grade iron ore, FMG executive director Graeme Rowley told HighGrade: “They’re looking at a future when the hematite will run out. It [magnetite] is what primarily drives their domestic market and they are very competent upgraders of magnetite. So they see a time when … magnetite will be the future.” He noted magnetite already accounted for half the world’s steel mill iron ore feed.

That CITIC’s Balmoral iron ore project will be a heavyweight Pilbara mining venture is underlined by the make-up of the purchased mining fleet, which includes the region’s first ultra-class haul trucks, 1000-tonne hydraulic excavators and mega-wheel loaders. First equipment is due to be delivered in November this year. The 360t-payload, AC electric-drive mining trucks are expected to arrive on site in the June quarter next year.

The trucks, excavators and loaders will be the new mechanical giants of the Pilbara.

CITIC, which paid Clive Palmer’s Mineralogy $US215 million for access to 1Bt of magnetite resource at what is known as the Central Block of the much bigger Balmoral deposit, confirmed late in September that it planned to get the best bang for its buck by building infrastructure for a grander Cape Preston venture from day one. That is, a 24-36Mtpa producer of magnetite products rather than the stage-one, 12Mtpa version. The investment would be $US1.75 billion instead of $US1.1 billion.

China Metallurgical Group Corp, which will become a 20% partner in the project, has put a 3-5-year timeline on construction but expects to have most of it built within three years.

Mining of 40Mtpa of magnetite ore – ramping up to 80Mtpa when a second billion-tonne resource is confirmed – is expected to start late next year with the first product shipment slated for 2009.



See the sea ... Balmoral South is about 25km from the coast.

The Australian public face of the vast emerging iron ore venture unfolding at Cape Preston is provided by Australasian Resources, controlled by Palmer, which is tracking about a year behind CITIC with its proposed $US2.1 billion project. Managing director Andy Caruso told HighGrade after an investor presentation in Perth last week that China’s appetite for iron ore and long history of mining and processing what were now diminishing stocks of domestic magnetite ore had opened a window of opportunity for several large-scale developments in Australia.

“I think the first thing to say is with the burgeoning Chinese market, if you look at Gindalbie and Australasian potentially putting 20Mt into the market by, say, 2010, there’s certainly room for both in terms of filling the current supply gap,” Caruso said.

“But I heard [Gindalbie Metals managing director] Garret Dixon come out and say that Karara is the biggest and best magnetite resource in Australia and I don’t think that claim is correct,” Caruso said.

“At Balmoral there is an estimated 60-100Bt [of magnetite resources] right on the coast. I’d dare anyone to come up with something bigger and better than that.

“If it’s about differentiating between the key players, Gindalbie is fairly comparable to our project in terms of scale. We’re looking at 12Mtpa, they’re looking at 8Mtpa. A significant difference is that they’re 225km from the coast and we’re 25km from the coast, and that importantly will translate into lower transport costs for Australasian.

“One of the issues we’ve got is that CP Mining’s been moving forward under the radar. It’s a subsidiary of CITIC Pacific and not listed here. But they’ve got truck parts turning up now on site, and they’re due to start construction within the next six months. They are due to start production by early 2009.

“So if you look at pure fundamentals on size and who’s going to get to market first in terms of magnetite plays on a large scale in Western Australia, it is CITIC out of Balmoral that will be the first to market.”

Australasian’s plan to produce up to 12Mtpa of iron ore concentrates and pellets – and convey material to the CITIC/China Metallurgical port, rather than rail it – is based on a proposed 67Mtpa mining operation (41Mtpa ore/balance waste) at Balmoral South, where the company has publicised indicated and inferred resources totalling about 1.1Bt grading 23% magnetite iron.

Despite the low grade, independent assessment of the proposed project is said to have put average operating costs in the world’s lowest cost quartile at $US24.41/t (FOB) for concentrate and $US30.73/t for pellets. The London-based independent consultant James F. King said in a report produced earlier this year that the concentrate cost was equivalent to US35.91c per dry metric tonne unit of iron – the conventional iron ore price measure – and for pellets US45.58c/dmtu.

“Information on the costs of production of existing iron ore operations around the world is maintained and published by King,” Australasian has said. “King’s information shows the average operating cost for traded iron pellets in 2006 as US59.4c/dmtu. FOB on a vessel at the shipping point and the lowest-cost 25% of capacity had operating costs below 49.9c/dmtu FOB.”

According to King, Australasian’s projected cost of US45.6c/dmtu “provides a significant strategic advantage to investors if iron ore prices weaken in the future”. He believes an average operating cost for hot briquette iron produced at Balmoral South could be internationally competitive at $US81.31/t (FOB from the plant), compared with the global average for DRI of $US139/t.

No decision has been made by Australasian on a final product mix. The $US2.1 billion project capital cost estimate includes $US320 million for a HBI plant.

Caruso said on Australasian’s recently revised probable reserve of 680Mt grading 32.7% iron for Balmoral South, the project could produce about 200Mt of concentrate over 17 years. Testwork had indicated a likely concentrate grade of 69.1% iron and “low impurities”, including 3.17% silicon, 0.065% aluminium and 0.027% phosphorous.

With its feasibility study in progress and strategic partner, China’s fourth biggest steel producer Shougang, providing “valuable … geological assessment, testwork [and] process design and engineering” input, Australasian has also engaged China Metallurgical Group to prepare bids for the design, construction and installation of “key process modules” and infrastructure for Balmoral South, with Caruso indicating to HighGrade offshore sourcing of pre-assembled plant, and possibly engineering and construction labour, would be a key to the project avoiding WA’s skills and labour gridlock.

“Leveraging off our partnership seems to be a logical alternative,” he said.

“Labour’s a key [factor] and we’re working with a number of groups and talking labour strategy as part of overall project implementation. I think there is an opportunity for us, firstly, with Shougang’s 80-90 years of experience in building and operating these plants, to build plants offshore using South-East Asian or Chinese labour, and modularising the modules and barging them across to Balmoral.

“In terms of installing those modules … we are looking at labour supply from China but continue to explore other options. As part of the feasibility study we’re going through that’s one of the key elements we’re looking at.

“I don’t see any concerns on an immediate basis in terms of the feasibility study. We’re using an array of contractors and consultants and that will carry us through into 2008.”

Shougang can earn a 50% stake in Balmoral South by arranging all project funding, guaranteeing to purchase all of its output, and building it. The company had already engaged China EXIM Bank in an assessment of “the compelling advantages” of the project, Australasian said last month. “The continuing interest of EXIM Bank provides added impetus to the company’s plans to develop the asset with Shougang into a world-class operation commencing production in 2010,” it said.

Caruso said Australasian had not yet fully explored development and operational synergies with CITIC beyond sharing port facilities and some other infrastructure. Australasian said last month technical meetings with CP Mining were continuing on the detailed design and engineering of shared facilities such as product stockyards and the port.

“The port’s already contracted, but in terms of further synergies all I can say is that those synergies are being explored at an early stage,” Caruso said.

“Certainly the engagement with CP Mining is now increasing. I think there’s certainly going to be some commonality. They’re looking at large hydraulic shovels, and trucks, which are conducive to large, bulk-scale mining. We’ve got a deposit there that’s relatively simple to mine in terms of there being large, continuous ore zones. It’s pretty hard material, so there might be some things we can pick up from CP in terms of drill and blast, and operating practices.

“In terms of our feasibility study, we’re looking at a fairly standard truck/shovel arrangement, but also at the potential for innovation downstream via putting crushers in the pit and conveying the ore out of the pit. We will remain focused on optimising our final mining methods and layouts to get the lowest operating costs.”