ON the back of a board and management shake-up, Mount Gibson Iron recently declared a maiden interim dividend of $0.02 per share, fully-franked.
The independent hematite iron ore producer listed on the ASX in 2002. Following a successful takeover of Aztec Resources in late 2006, Mount Gibson has built a portfolio in WA comprising a number of exploration tenements, the Tallering Peak and Koolan Island iron ore mines, and the Extension Hill direct shipping ore (DSO) hematite mine in the Mt Gibson Range.
Mount Gibson has strong commercial relationships with major Chinese steel industry customers. It is generating steady cash flow and a new management team now is focussed on delivering returns to shareholders.
In the half year ended December 31, 2011 the company recorded revenue of $376.9 million with a net profit of $121.2 million. In addition to the dividend on shares, it had a cash position of $421 million.
“The directors are pleased to be able to deliver shareholders a maiden interim dividend and we continue to retain a strong cash position. Management renewal is under way, with the company being ably led by our COO [chief operating officer] and acting CEO [chief executive officer] Jim Beyer,” chairman Geoff Hill said in the half-year statement.
“Importantly, Mount Gibson continued to rebuild the board following appointments of two new independent directors and we aim to conclude a search for another independent director soon.” Shipments of ore for the nine months to March 31, 2012 totalled 4.05 million tonnes, compared to 4.28mt for the same period in the previous year.
Production of high-quality lump and fine hematite ores began at Tallering Peak, 175km east of Geraldton, in 2004. The mine achieved its target production rate of 3 million tonnes per annum in the first quarter of the 2006 financial year.
Mined ore is crushed and screened on site, loaded onto trucks and transported 75km to Mullewa where it is loaded into ore wagons at a purpose-built rail loading facility and railed directly to the Port of Geraldton. Ore is stored there in a 160,000t shed before being loading onto Panamax-sized vessels for export.
As at June 30, 2011 Tallering Peak had measured, indicated and inferred mineral resources of 8.96mt grading 60 per cent iron, 6.32 per cent silicon dioxide, 2.98 per cent aluminium oxide and 0.05 per cent phosphorus.
The company’s half-year statement reported that the mine’s production performance for the period was “disappointing”, with tonnes sold 29.2 per cent lower than in the previous corresponding period.
It reported that performance was hampered by labour skills shortages in key production areas, and compounded by very tight working areas in advancing the cutback plus delays associated with pit wall areas requiring unplanned ground support. Mount Gibson reported that these near-term operational issues impacted planned mine extraction sequences and were being worked through, with activities continuing to
focus on minimising the impacts as the site’s performance returned to expected levels.
As at December 31, 2011 Tallering Peak had 1.88mt of iron ore stockpiled.
In the March quarter of this year, waste material movement was 15 per cent higher than for the previous quarter, while ore mined was 68 per cent lower than in the previous quarter. The company reported that the increased waste movement reflected a revision of mine scheduling to rebalance ore development and production, and reduced shipping capacity from shared facilities at Geraldton Port.
A pit wall slip on the southeast side of the pit during the quarter resulted in a minor disruption to operations, although no injuries or equipment damage were recorded.
“Plans have been developed to regain access to ore in the affected area and recovery actions are under way. Minimal impact is currently expected as a result of the slip, however, the situation is being monitored for any unexpected changes,” the company stated.
During the quarter, some high-grade ore was sourced from the pit and blended with existing stockpiles. While crusher throughput and road and rail haulage were significantly lower than in the previous quarter as a result of the revised mining and shipping schedule, enhanced recruitment during the quarter achieved necessary staff levels in key production areas.
BHP Billiton mined about 70mt of ore from the Koolan Island hematite operation, off the northern Kimberley coast, between 1959 and 1993.
Production at Koolan Island re-started in early 2007, and first shipment was achieved in June of that year.
As at June 30, 2011 the mine had total resources of 71.9mt grading 62.8 per cent iron, 8.61 per cent silicon dioxide, 1.91 per cent aluminium dioxide and 0.06 per cent phosphorus. Ore from the operation is of
very high quality.
In the half year to December 31, 2011 ore production on Koolan Island was 16.6 per cent below that of the corresponding period in the previous year, with total material movement 23 per cent lower than in the previous corresponding period.
Mount Gibson began owner mining at Koolan Island in the September quarter of 2011. As the company had expected, the transitional period impacted on operational performance, as staffing and other changes were made.
“The failure of an existing customer to furnish scheduled vessels early in the quarter prompted Mount Gibson to reduce activity at the site until an amicable agreement was negotiated between the customer and Mount Gibson,” the company’s half-year report stated.
An earlier statement by Mount Gibson explained that the company had four customers that combined, had purchased 100 per cent of the life-of-mine production from Koolan Island. Following the demise of the Hamersley fines benchmark pricing system, Mount Gibson sought to negotiate with each of the customers a revised pricing mechanism.
Revised pricing agreements were concluded with Shougang Concord International Enterprises Company and APAC Resources in late 2010. However, despite lengthy good faith negotiations, agreements were not reached with the two remaining customers, Chinese group CITIC and Japanese trading company Marubeni.
Mount Gibson’s offtake agreements with Shougang and APAC provided that, where other customers’ agreements ceased to be binding, production formerly allocated to those other customers would become ‘available production’ subject to Shougang’s and APAC’s agreements.
Consequently, Shougang and APAC have an obligation to purchase, between them, all life-of-mine production from Koolan Island.
At the same time, Mount Gibson reported a separate dispute between Mount Gibson and Shougang, involving the sale and purchase of a number of hematite ore cargoes from Koolan Island.
As a result, Shougang failed to nominate and furnish vessels in respect of two cargoes of iron ore and failed to nominate a vessel to collect a third cargo due for collection. The dispute has been resolved, with Shougang agreeing to make up the shipments during the September quarter and to continue taking 80 per cent of the available production for the life of mine in accordance with its contractual commitment. At the end of the half-year period, 960,000t ore was stockpiled at Koolan Island.
Koolan Island operations were significantly disrupted by monsoonal rainfall during the March quarter that restricted access to the Mullet, Barramundi and East pits, and left the Main pit as the only source of ore.
Production was constrained due to the lack of working areas and the resultant congestion of activity, and disrupted by damage to haul roads caused by the heavy rains. Total material movement for the quarter was down 28 per cent on the previous corresponding period.
The Extension Hill hematite deposit, 85km east of Perenjori and 260km east-southeast of Geraldton, has a JORC-compliant total resource of 22.5mt grading 58.5 per cent iron, 7.35 per cent silicon dioxide, 1.91 per cent aluminium dioxide and 0.06 per cent phosphorus, and proven and probable reserves of 14.5mt grading 59.5 per cent iron, 5.98 per cent silicon dioxide, 1.65 per cent aluminium dioxide and 0.06 per cent phosphorus.
A 2007 definitive feasibility study confirmed the potential for a 3mtpa mining operation capable of generating strong financial returns. Mining began in the March 2011 quarter; the crusher
and site infrastructure was commissioned in October 2011; and the first shipment of ore from Extension Hill occurred in December 2011.
“This shipment is an exciting milestone for Mount Gibson and the Extension Hill project. It marks the culmination of much hard work and effort by the Extension Hill team. We are very proud of the great job our people have done to get us to this point,” Mr Beyer said in a statement at the time.
“With Extension Hill now shippingore, Mount Gibson has three very good operations underpinning the company’s future, and we are now well placed to capitalise on market opportunities as they arise.”
Under an agreement entered into in August 2011, Glencore will purchase 48 per cent of the life-of-mine production from Extension Hill: equivalent to about 1.44mtpa, assuming a production rate of 3mtpa.
Ore mined from Extension Hill is crushed and screened on site, transported by road to Perenjori and loaded onto rail wagons for transport to Geraldton Port. As at December 31, 2011 990,000t of iron ore was stockpiled.
Road haulage from Extension Hill to the Perenjori siding railhead increased during the March quarter, with 687,000t transported. Railing of lump and fines to Shed 4 at Geraldton Port, which also stores Tallering Peak product, totalled 351,000t. An additional 62,000t of ore was hauled by road to Geraldton Port and stockpiled in the new Shed 5 facility, allowing for continued ore deliveries to the port during interruptions to rail services.
Construction of the company’s Shed 5 facility and the new Berth 5 rail unloader was close to completion at the end of the period, and commissioning started in mid May.
“These new facilities will enable us to rapidly ramp up shipments from our Extension Hill and Tallering Peak mines, and provide a platform for long-term growth in the Mid West region,” Mount Gibson stated.
The infrastructure works, combined with the planned return to more consistent output from Tallering Peak, would allow Mount Gibson to fully utilise its existing train paths to ramp up performance and export capacity at its WA operations to a targeted 6mtpa.