positive scoping study for marillana iron ore

Positive Scoping Study Indicates Potential A$1B NPV for 10Mtpa Marillana Project
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Positive Scoping Study completed based on a 10Mtpa Iron Ore Project at Marillana.
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Expanded Pre-Feasibility Study encompassing detrital resources to commence during June 2008 Quarter.
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Potential NPV’s ranging from A$876M to A$1,006M and IRR’s of 47-54% for three alternative development scenarios.
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Excludes the recently announced +1Bt detrital resource.
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Estimated capital costs ranging from A$542M to A$755M, depending on different logistical and infrastructure options.
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Total forecast operating costs in the range A$28.94-36.72/tonne (including mining, processing, transport, loading, demurrage and administration/overheads).
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All 10Mtpa development scenarios have a 2-3 year capital payback.
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Additional early production scenarios based on 2-5Mtpa (2009/10) all return positive NPV’s as stand-alone projects.
Brockman Resources Limited (ASX: BRM – “Brockman”) is pleased to advise that it has completed a positive Scoping Study on its 100%-owned Marillana Iron Ore Project in the Pilbara region of Western Australia. On this basis, Brockman’s Board has approved the commencement of a Pre-Feasibility Study on the Marillana Project, which is expected to be completed during 2009.
The Scoping Study indicates a Net Present Value using a 12% discount rate (NPV12%) for the Marillana Project ranging from A$876 million to A$1.006 billion based on a 10 million tonne per annum (Mtpa) production rate. This was based on the previously announced conceptual Exploration Target for the Marillana Project of 100 million tonnes of mineralisation and excludes the recently announced resource upgrade to 1.1 billion tonnes of Indicated and Inferred Mineral Resources.
Capital costs are forecast in the range of A$542-755 million depending on different logistical development and ore transportation options, with the Internal Rate of Return (IRR) ranging from 47% to 54% and capital paybacks ranging from 2-3 years.
The Scoping Study was developed to a +/-30% accuracy from a Capital and Operating perspective and has considered a variety of Operating Scenarios ranging from 2-10Mtpa.
The Study assumed a mine life of 11 years, with all operating and capital costs modelled on the basis of mining and processing of the Channel Iron Deposit (CID) Ore delineated at Marillana. Initial production for the 10Mtpa Case study has been assumed from 2011.
The Scoping Study, which commenced in September 2007, was undertaken by Engenium Engineering Services as the principle consultant, in consultation with specialist service groups and sub-consultants including:
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Resource Estimation Snowden Mining Industry Consultants
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Flora and Fauna & Environmental Permitting Ecologia Environment
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Hydrogeology Aquaterra
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Price Forecasts & Financial Model CRU Analysis
Scoping Study:
The Study reviewed three principal options for the development of a 10Mtpa Production Project at Marillana:
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Option 1: The utilisation of the BHP Billiton rail system, accompanied by the full funding of a car dumper (unloader)* at Port Hedland;
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Option 2A: The utilisation of the Fortescue Metal Group (FMG) rail system, with the full capital cost of a rail spur from Marillana to Cloud Break; and
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Option 2B: The utilisation of the FMG rail system, with the rail spur from Marillana to Cloud Break being captured as an Operating (OPEX) cost.
* Note Option 1 has not modelled any “revenue” being generated from other potential end-users of the car dumper (utilising the +20Mtpa latent capacity in the car dumper).
It should be noted that Brockman does not currently have any third party rail or port access agreements in place with BHP Billiton, FMG or any other third party.
The economics associated with the three principle options are presented below:
Option
Production
Mt/a
Capex
(A$M)
Opex
(A$/t)
NPV A$M
(12%)
IRR
Production
Commencement
Payback
Period
Years
1
10
714
29.20
1,006
47%
2011
3
2a
10
755
28.90
986
44%
2011
3
2b
10
542
36.70
876
54%
2011
2
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A financial analysis of the three principal 10Mtpa development options was conducted utilising price forecasts for iron ore and currency exchange rates provided by CRU Financial Analysis, a leading independent, international commodities forecaster. Capital costs were developed by Engenium, in accordance with their industry experience and association with other major iron ore projects currently being undertaken within the Pilbara district.
The capital cost estimates included allowances for a 10Mtpa processing plant (including a 10,000tph train loader and conveyors), associated minesite infrastructure including a 400-person permanent and construction camp, airstrip and power generating capacity, mine pre-strip (approximately $70 million) and ore transport infrastructure including (depending on the scenario) rail loops and sidings, rail spur lines, haul roads and a car dumper (unloader) at Port Hedland.
The operating cost estimates represent the total estimated cost from mining to ship loading (including demurrage), inclusive of administration and corporate overheads.
A discount rate of 12% has been used in determining the NPV for the Project. The capital cost estimates are in December 2007 dollars and are fully inclusive of indirect costs and a 15% contingency. Capital and operating cost estimates have been escalated in line with various cost indices supplied by CRU Analysis.
The Internal Rates of Return (IRR) for the three development options, at a 12% discount rate, range from 47 – 54%, and all have a capital payback of less than three years.
Early Start-Up Scenarios (2-5Mtpa Production Rates)
In addition to the three 10Mtpa development scenarios, three additional “short-term” start-up operating scenarios of 2-5Mtpa were considered and modelled to capitalise on the potential early development of the Marillana Project and the ability to establish early cash flow and operating performance.
These project scenarios were modelled as “standalone” projects with a working life of 3-4 years only; all of these scenarios returned positive NPV’s. The combination of any of the start-up cases with the longer term operating scenarios outlined above is expected to improve the overall NPV of the Marillana Project, in its entirety. Staggered development of the Project will also facilitate better start-up opportunities for the full-scale Project and the early development of effective safety and operating procedures and policies.
The 2Mtpa start-up scenario could commence as early as late 2009, subject to obtaining relevant Project Approvals and other critical path criteria.
It should be emphasised that the Scoping Study was based solely on mining and processing of direct shipping mineralisation, with the overlying detrital mineralisation not incorporated into the Study.
Brockman Resources recently announced a substantial upgrade in the Indicated and Inferred Mineral Resource at the Marillana Project, with the overall tonnage of haematite mineralisation increasing to over 1.1 billion tonnes. This encompasses both Channel Iron Deposits (CID’s) with grades ranging from 55-60% (55% Fe cut-off) and detrital ore with grades ranging from 40-62% Fe. Incorporation of these additional substantial volumes of material in the model has the potential to substantially improve the value and extend the mine life of the Project. 3 | P a g e
Brockman will continue to carry out a detailed RC, Caldweld and Sonic Core drilling program throughout the year, to better understand the mineralogy and metallurgical performance of both the CID and detrital mineralisation at Marillana. Environmental, heritage and cultural surveys/monitoring programs to support a Mining Proposal/Public Environmental Review have already commenced. The Mining Lease Application for Marillana was submitted to DoIR in December 2007.
Following the positive results from the Scoping Study, Brockman’s Board has given approval to proceed immediately to a Pre-Feasibility Study on the Marillana Project. The Company will commence this Study during the second quarter of 2008 and it will be expanded to incorporate the detrital mineralisation within the Project area.
Wayne Richards
Managing Director
Brockman has not yet reported any ore reserves from its Marillana Project. While the Company remains optimistic it will report reserves in the future, any discussion in relation to production targets is only conceptual in nature as there has been insufficient work to define a Mineral Reserve and it is uncertain if further work will result in the determination of a Mineral Reserve.
The information in this report that relates to Mineral Resources is based on information compiled by Mr M Nimmo and Mr A Zhang.
Mr M Nimmo, who is a Member of the Australasian Institute of Geoscientists and a full-time employee of Snowden Mining Industry Consultants Pty Ltd produced the Mineral Resource estimate based on the data and geological interpretations provided by Brockman. Mr Nimmo has sufficient experience that is relevant to the style of mineralisation, type of deposit under consideration and to the activity that he is undertaking to qualify as