reality

Ok, lets take a good hard look at the facts.


brm have.

56.2mt of saleable product.

47.2mt of that is from the north west sector @ 57ish Fe% and highish silica and alumina. This is right on the tenement boundary, so a pit would require an agreement with another tenement holder. Why would a major agree to a JV with a junior at the top of the market when they can wait a few years and pick it up for a song? (The major has time on their side)

The rest is scattered around in numerous pits.

The detritals may be the saving grace of the company, if they come good, all good, if not well hello 80c

Have another read of this.

Juniors may not be all aboard

16th June 2008, 8:15 WST

For the fledgling North West Iron Ore Alliance, last week’s release of the State Government’s much-anticipated draft Pilbara Railways (Third Party Haulage) Regime should have served as a massive confidence booster.

This was the blue print detailing how junior iron ore miners would be able to gain access to BHP Billiton's and Rio Tinto's railway lines, negating the need to build costly infrastructure and therefore greatly improving their project economics.

Unfortunately, the regime release clashed with a bad week for the Australian sharemarket, and the share prices of all four alliance members — Atlas Iron, BC Iron, Brockman Resources and FerrAus — lost ground.

Whereas the draft regime is an encouraging step towards allowing the Pilbara's junior sector to piggy-back off its giant peers' infrastructure, the road to reality is likely to prove more treacherous than the one across the rain-swollen Nullagine River that claimed two Consolidated Minerals road trains laden with Woodie Woodie manganese at the weekend.

Here's how the haulage access regime process is supposed to work:

Aspiring miner Red Hope Mines has iron ore-rich tenements adjacent to Rio's railway line but cannot justify a stand-alone railway. Red Hope therefore needs access to Rio's rail if it wants to turn ore into cash.

Fortescue Metals Group is the exception, having built its own infrastructure at a cost of $2.8 billion (including the mine), which will prove impossible to emulate for most Red Hopes unless they have similarly large quality orebodies, the salesman's skills of Andrew Forrest and willing lenders.

So Red Hope asks Rio how much it would cost to have its ore hauled on Rio's trains from mine to port.

Rio does some basic modelling work to come up with a price range for the work that is involved, such as loading facilities, extra rolling stock, extra track work such as passing loops depending on Red Hope's proposed production schedule, and an unloading facility as the Rio train arrives at the port.

Say Rio comes back with a price range of between $300 million to $400 million. After discussions with its financiers, Red Hope gives Rio the green light to come up with a final price within that range.

Whatever the final price is, add more dollars to cover Red Hope's cost of trucking its ore to the Rio rail loading point and — the hammer in all this — the cost of getting the ore from the unloading point to Red Hope's designated port facilities and the potential costs of a berth, given the regime does not include access to Rio's port operation.

On top of that, Rio will charge Red Hope a transport tariff, based on a formula worked out by the Economic Regulation Authority.

At best, Red Hope is going to be paying a huge price for the multiple-handling of its ore from the time it is mined to its loading on to someone else's vessel. Miners with low start-up costs, such as Atlas and Territory Resources, are targeting operating profits of $40 a tonne, but watch that margin dwindle with increased infrastructure costs.

At worst — and there must be serious concerns among the juniors whether the access regime can work in the real world — the cost will prove too prohibitive for most.

In any case, the regime is still years off being tested for the first time, and that assumes Red Hope and Rio do not end up in dispute and the resultant six-month arbitration process.

WA's iron ore market is operating in the most bullish times ever and has been enjoying price rises previously only dreamt off.

Unfortunately, most analysts expect prices to fall off their historic highs by 2012, which will only place more pressure on marginal producers like Red Hope, regime or no regime.

PETER KLINGER
[email protected]