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  • WPG Resources Releases 3,000 Page PFS, Giffen Well Iron Ore Project "Affordable" 0 comments
    Mar 7, 2013 8:05 PM

    Re-emerging iron ore producer WPG Resources (ASX:WPG) has released a meaty 3,000 page preliminary feasibility study (PFS) for the development of the Giffen Well iron ore project in South Australia.

    The study shows that the capital required to develop Giffen Well is the lowest of any greenfield magnetite project in Australia.

    The PFS indicated that by outsourcing infrastructure (energy supply and potentially Port Pirie operations) to Build, Own and Operate that there is scope to reduce WPG's capex to approximately $1 billion.

    The capital cost is around $300 per annual tonne, a metric which is competitive with industry yardsticks.

    "The results show we have an affordable iron ore project complete with key infrastructure solutions", said executive chairman Bob Duffin.

    The $3 million PFS study, which runs to 3,000 pages was completed on budget and on time. It was prepared by WPG with technical and engineering inputs from a number of professionally independent consulting firms each expert in their fields.

    Highlights of the PFS:

    - The capital required is the lowest of any greenfield magnetite project in Australia
    - The project comes with complete energy, logistics and infrastructure solutions (subject to permitting approvals)
    - The all-inclusive FOB operating cost estimate is in line with WPG's former Peculiar Knob DSO project that was sold in November 2011 and which is now in production
    - The project's capital cost may be reduced further by off balance sheet funding of the energy supply

    Base Case Scenario from PFS

    The base case scenario for the project includes the construction of an open pit iron ore mine and magnetite concentrator at Giffen Well, an open pit coal mine and power station at Penrhyn.

    The latter would supply low cost energy to the iron ore operation, local services and infrastructure, a rail spur line that will connect to the Central Australian line near the Carnes siding, and the construction of rail receival, storage and outloading facilities on the Company's land at Port Pirie.

    Projected production

    The project will produce 5 million tonnes per annum of high grade (68% Fe) magnetite concentrate with low levels of impurities, and a further 0.4 mtpa of low-cost haematite concentrate recovered from scavenging the magnetite tailings.

    Concentrates will be railed to Port Pirie for transhipment to Capesize vessels at anchor in the upper part of Spencer Gulf. the magnetite deposit will be mined at the rate of 13 million tonnes per annum.

    Life of mine

    The life of the operation from mining and treating the main lode only at Giffen Well is 30 years. There are two other lodes and an oxide zone at Giffen Well which represents significant upside potential from the base case studied.

    Penrhyn Coal Deposit

    The Penrhyn coal deposit will be mined at the rate of 480,000 tpa of coal which will be washed and fed to a small, 90 MW power station that will provide energy to the iron ore project and all associated infrastructure.

    Over the 30 year project life less than 5% of the currently identified resource at Penrhyn will be mined. The power plant will be designed to meet or exceed current waste management and emissions standards.

    Water for the Giffen Well treatment plant and water to be used elsewhere will be obtained by dewatering the Penrhyn pit.

    Water supply

    There is adequate water available at Penrhyn to meet the anticipated 25 Ml/day required, and excess water will be reinjected. The groundwater at Penrhyn is highly saline, is unsuitable for stock, and will come from unconfined, non-artesian aquifers.

    A 132 kV high tension power line and a water supply pipeline will be built from Penrhyn to the Giffen Well project area, a distance of 110 kilometres.

    Capital Cost

    The anticipated initial capital cost for the development of the integrated project is estimated to be $1.58 billion inclusive of contingencies, with an additional $153 million required for working capital (mainly pre-strip at Giffen Well and Penrhyn) and rehabilitation bonds and refundable deposits.

    By outsourcing infrastructure (energy supply and potentially Port Pirie operations) to Build, Own and Operate that there is scope to reduce WPG's capex to approximately $1 billion.

    Operating Cost

    The FOB cash operating cost is estimated to be $71.48 per tonne of concentrate sold, inclusive of all royalties, MRRT, carbon tax, maintenance and replacement capital, transhipment costs etc.

    Product

    The high grade 68% Fe concentrate is expected to command a significant price premium in the market place to the widely quoted 62% Fe index price. The premium is currently about 10%.

    Expressions of interest

    Expressions of interest had been received from credible institutions for the provision of off balance sheet power solutions.

    It might be possible to reduce WPG's initial capital commitment by some 30% to approximately about $200 per annual tonne of saleable product using this approach.

    This option recognises the differing investment criteria of mining company shareholders and utility sector investors. WPG intends to further assess these alternatives and their potential to mesh favourably with the project's overall financing.

    Commenting further on the PFS, Bob Duffin said he was pleased with the results of the study. "There is little doubt that the project is feasible", he said.

    "The operating costs are in line with our previous estimates for Peculiar Knob, which we sold as part of a package of assets to OneSteel Limited (now Arrium) for approximately $320 million in 2011, and which is now in production.

    The capital cost is about $300 per annual tonne, a metric which is competitive with industry yardsticks."

    "We do not need to build an enormous mine and treatment plant in order that the cashflows will support very expensive new port developments, or new slurry pipelines", he said.

    "To our knowledge, the capital required for the development of Giffen Well is the lowest of any greenfield magnetite project in Australia, and perhaps the world. Our project is affordable".

    Production is targeted to commence in 2017.

    Analysis

    Having already sold the Peculiar Knob project to OneSteel Limited (now Arrium) for $320 million in 2011 (which is in production), Bob Duffin knows a thing or two about adding value for shareholders. There are similarities to that project in part, it would be a brave man betting against Duffin either developing the project or achieving a partial or profitable exit in some fashion.

    Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX "Small and Mid-cap" stocks with distribution in Australia, UK, North America and Hong Kong / China.

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