AUSTRALASIAN Resources says it has completed the bankable feasibility study for its 12 million tonne per annum Balmoral South magnetite project in Western Australia’s Pilbara region with the project on track for commissioning in 2011.
Drilling at Australasian Resources Blamoral Southern Block magnetite deposit in the Pilbara
Investors welcomed today’s news with the Perth-based iron ore miner’s share price gaining A32c (24%) to hit an intraday high of $1.65 in morning trade.
The Balmoral South project, 80km southwest of Karratha, involves mining and processing magnetite ore from the Susan Palmer deposit to produce 12Mtpa of iron ore products including 7Mtpa of pellets.
Australasian said in a statement today that the feasibility study predicts a capital cost of $A2.7 billion for the project and shows a real after tax net present value (NPV) of $5.075 billion and internal rate of return (IRR) of 20.8% based on extensive engineering studies, consultant and vendor input.
The project is estimated to produce average annual earnings before interest, tax, depreciation and amortisation (EBITDA) of $1.332 billion and average annual net profit after tax (NPAT) of $821 million.
Construction of Balmoral South is expected to begin on January 1 next year and take three years, with commissioning to begin in October 2011 and production of concentrate and pellets to start in January 2012 and continue for 25 years until December 2036.
The company’s operating costs, excluding royalties and fees, have been estimated as $49 per tonne of concentrate free-on-board and $61/t of pellets free-on-board.
Chinese company Shougang is working towards a 50% share in the Balmoral project by providing all project funding through an interest-free project loan, guaranteeing the purchase of all the project’s iron ore products and constructing the project or guaranteeing the construction by another constructor.
Based on the proposed joint venture arrangements with Shougang, if it elects to proceed with the purchase, the real NPV of projected cash flows for the company is $3.01 billion after tax over the life of the project.
Australasian said it would issue a feasibility notice to Shougang this week that will signal the start of a three-month period in which Shougang can present a finance offer to Australasian to finance 100% of the project’s development.
“The company anticipates that Shougang will propose additional enhancements to the project based on its extensive experience in magnetite mining and processing,” Australasian said.
The company said the enhancements are expected to form a part of Shougang’s construction proposal that is required together with the finance offer.
Meantime, the Public Environmental Review document for the project will be submitted this month, the company said.
The documents seek approval for a 24Mtpa operation to reflect the possibility of Australasian acquiring additional tonnage, which is in the final stages of negotiation with Clive Palmer’s private company Mineralogy.
Shares in Australasian have cooled to $1.60 in early afternoon trade.
ARH Price at posting:
0.0¢ Sentiment: LT Buy Disclosure: Held
