News over the coming months, page-5

I have been thinking a bit about the PFS today.

My first thought was why would management want to release a PFS unless it was going to show something positive. I commented above that it's worth listening to how both Jeremy and Tom talk about the PFS in their interviews. Both seem excited to be able to release the PFS.

My next thought was why get the PFS out now, before the impact of any by-product revenue from hematite and silica sands has been confirmed. My thoughts there are that if the PFS only producing magnetite can stand on its own, then its worth getting out now. Any upside from hematite and silica sands can be added later once appropriately by-product streams have been proven up.

I then started to wonder what the PFS might look like. The only detailed information we have is from the PFS that was released back in 2017.

Now before you say it, yes I accept that a lot of costs have gone up a lot since then.

But a lot of other things have changed since then as well. And I think there is a lot that will offset and perhaps improve the economics from 2017.

The base case from 2017 had an NPV of US$867M ungeared (no debt funding) and US$1,091M geared (with debt funding) with an IRR of 17.8% ungeared and 29.9% geared. This increased to US$1,432M ungeared and US$1,091M geared with an IRR of 22.6% ungeared and 37.9% geared if the then current price of iron ore was adopted (I will get to the iron ore price shortly). I note the NPV back then used 10% whereas 8% is more common to use these days and that would increase the NPV.

I think its important to consider the IRR or internal rate of return. That is because it is the rate of return that is expected from an investment in the project - and that is one thing that I believe a potential JV partner would consider.

The expected capital costs back then were only US$1,401M - and that is one area where we expect there to be a lot of increases for inflation and other reasons. However, there are a few things that will offset this:

• The big one is obviously the dry grinding process. This reduces the capital cost of the processing equipment, but also the need to source water from an aquafer many km's away and the need to build a large tailings dam.
• The 2017 PFS was going to mine from the main zone, which has more overburden. The drilling last year confirmed ore nearer to the surface in the fold zone, so less overburden to remove before mining and cash flow has a material impact on up front costs, NPV and IRR.

However, the biggest change from 2017 that will impact the NPV and IRR positively is the iron ore price. The base case NPV from 2017 used a 62%Fe price of US$63/t - compared to the current price of US$90-$100/t but probably averaging around US$100/t over the last year. The 2017 NPV using the then current 65% Fe price was only US$85.40/t. That price is currently around US$108/t but has averaged around US$115/t over the last year.

What I found interesting is that back in 2017, a premium on only US$1.10 was allowed for each additional 1% Fe above 65% - so only an extra U$3.30 would be added for 68%Fe. Now, a premium of around US$5 could be expected for each additional 1% Fe.

To highlight the comparison of the difference from the 2017 NPV base case using 62%Fe price of US$63 and current prices, below is the pricing table that was used for the PFS that was released mid last year for the Mt Bevan JV into which Hancock Prospecting are the funding partner.



Therefore, whilst capital costs may have gone up generally, this would be offset reduced equipment costs with dry grinding, reduced cost for water access and tailings dam, access to nearer surface ore for early mining. In addition to a reduction in capital costs, the dry grinding process will also reduce operating costs.

Further, whilst iron ore prices might not be at their peak, they are well above the levels that were used in the 2017 PFS. And even further, there was really no talk of green steel back in 2017. compare that to the current the focus on premiums for higher grades generally and additional demand for DR grade feedstock.

Therefore, I think there could be a lot to look forward to when the PFS comes out - hopefully we do not need to wait too long.