BY CAMERON DRUMMOND
WITH discounts for lower quality iron ore increasing, Carpentaria Resources’ Hawsons project – the highest grade undeveloped iron ore project in the world – is ready to capitalise on growing demand from Chinese steelmakers for high grade product. We spoke with Carpentaria managing director Quentin Hill about the project’s Supergrade® product and his outlook on the future of the iron ore market.
Q: How is Carpentaria’s Hawsons iron ore project progressing?
We drilled the first hole in 2009, and released Hawsons first resource in 2010. It is a $US1.4 billion development cost over an 18-month period, and will produce an initial 10 million tonnes per annum (mtpa) of 70 per cent Fe Supergrade ore for projected annual revenue of $900m.
GHD performed an independent analysis of Hawsons and on a 62 per cent Fe basis, all-in sustaining costs are $23 per tonne, which puts us in the first quartile of the global cost curve. Our plan is to be in production by 2021, subject to funding.
We released our pre-feasibility results in July 2017. Since then, we have been focused on keeping the project to schedule, which includes EIS works and talking to equity markets and customers about raising between $25m and $30m for our bankable feasibility study, of which we are making great progress on.
We have been on several international trips and customers have been looking through the data and responses have been good.
While this has been happening, we have been tightening up our bankable feasibility program and schedule, and we have workshops where we’ve got a team with vast experience to help us to get the right organisational structure and right implementation strategies to take us through construction and into operation.
Q: What makes the Hawsons product attractive?
The key point is that the deposit and the ore is very different to other magnetites. The softness of the ore means the processing costs per tonne of product are well below any other magnetite project.
We are in a different geological domain to what’s in the west. It’s the secret of the deposit that makes Hawsons the world’s leading undeveloped, high-quality iron ore project. The ore itself is super soft, grinds super easy and has a very low amount of impurities.
This gives us the Hawsons Supergrade product. The physical properties – because it’s so fine – means it’s perfect for pelletising.
Iron ore pellets are the most efficient thing you can feed a blast furnace, and pellets are the preferred feed for a direct reduction (DR) furnace.
It terms of the iron ore market it’s quite sophisticated. When people talk about high-grade, they talk about pellets, which according to CRU Global has the highest growth rate in the iron ore market.
There isn’t enough feed out there and that’s where we come in. The demand for DR specification material is incredibly tight, and the growth is supply constrained.
This is why we have oversold 12 million tonnes of our 10mtpa ore in our initial offtake agreements.
Carpentaria managing director Quentin Hill
Q: Why the structural market shift towards higher grade ore?
It goes back to the Chinese industry restructure, which started when the iron ore price crashed. They wanted to close a lot of old, polluting steel making facilities – which they have done.
What this means is that capacity utilisation has gone from a low 60 per cent up to 80 per cent. Economics tells you that the margins are going to be high. If you have these high margins you want to produce as much as you can.
If you are feeding 58 per cent Fe against 70 per cent Fe – using the higher grade means you can produce more steel at lower costs and exploit those margins. That’s what people are paying for now.
Pollution is another factor. If you are running at an ore efficient level – you are burning less coal per tonne of steel. Due to increasing costs of pollution in China, steelmakers are looking to reduce that pollution – this again is why high grade ore is now more sought after.
China is also shutting capacity down in the winter due to pollution, which means the rest of the steel market has to make up for that loss, and how do they up productivity? Again, higher grade ore.
One more key point. To make the blast furnace most efficient, you increase the use of iron ore pellets, which allow gas flow and super-efficient use of the blast furnace. We are not just benefiting from the need for higher grade iron ore, we are picking the eyes out of the high grade market by targeting its highest growth sectors – the pellet feed market, as well as the tight supply DR specification market.
These markets will drive the development of our project.
Q: What factors are critical for iron ore juniors in Australia to be successful?
You need rail transport to lower costs, and you need a high quality product. If you have a product that the customers want, they will fund your development. In terms of direct shipping ore, it appears the best deposits have already been captured by the big four. That makes it hard for a junior unless iron ore prices are very high.
Most of the past juniors started at that those high iron ore prices. The magnetite projects find it difficult too due to the logistics chain and the high energy costs being prohibitive to their profit margins.
It’s also important to have good partners. Generally speaking, to get projects banked you need a project with excellent returns, and excellent customers whom the banks are prepared to lend against. In terms of Hawsons our customers combined have more than $130 billion of revenue and the ability to underwrite the revenue side of the contracts, and that makes our project attractive to lenders.
In terms of magnetite projects and what you need – the logistics chain and infrastructure is always very important for bulk commodities, and that’s why it’s very difficult to compete against the majors because they have such sophisticated logistics chains.
For Hawsons we are very fortunate. Because of our location, it is unlike any other undeveloped iron ore project in Australia. It’s right next to a power line, we have identified a water source and are adjacent to a rail line that goes to two ports – Port Pirie and Whyalla. There is also a nearby ready workforce that we can tap into from the well-known mining town of Broken Hill.
So that logistics chain is in place, we just need to negotiate access and contracts. On top of our super soft, super fine, super grade benefits, we also have those infrastructure benefits which lowers the overall capital expenditure for our project.
The market has warmed up a bit. Lenders are still scarred from the downturn, but people are investing at the junior end of the market a little bit more because they see that the cycle has turned and that there’s good times ahead.
We still see that the investment community in Australia is perhaps not ready for another magnetite project – but the customers are.
Our job now is to link investors to demand.