Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

IMX Resources: Mt Wood Magnetite Project Viable For Development

IMX Resources (ASX/TSX:IXR) could mine magnetite from Mt Woods at lower capital and project complexity than current magnetite projects in Australia a Scoping Study has found today.

The Scoping Study concluded that the infrastructure required to develop the Mt Woods Project is already in place and could be used by IMX's Cairn Hill mine.

The Mt Woods project is located approximately 15 kilometres south-west of IMX's operating Cairn Hill Mine (IMX 51%) near the town of Coober Pedy in South Australia.

Key findings of the Scoping Study included:

- Base case 2.5 Mtpa option exporting through Port Adelaide provides a mine life in excess of 25 years
- Preliminary after tax project NPV of AUD 289 million
- IRR of 21% from a total pre-production cost of AUD 295 million
- High-grade concentrate produced for an operating cost of AUD $77/tonne FOB giving an operating margin of AUD $45/tonne

Rail and port capacity currently being used for IMX's Cairn Hill mine and coarse grind, allows for lower capital and project complexity than most Australian magnetite projects

IMX is actively developing the Mt Woods Magnetite Project on the highly prospective Mt Woods Inlier in South Australia.

The production rate of 2.5 Mtpa also represents the maximum rail capacity to Port Adelaide from Mt Woods, utilising the container based system and existing train paths currently used for Cairn Hill, given a maximum possible train length on the rail line of 1.8 kilometres.

Managing director Neil Meadows said: "We believe the Mt Woods Project is a unique opportunity in the Australian magnetite industry as the infrastructure required to develop the Project is already in place and being used by IMX's Cairn Hill mine.

"As a consequence, unlike most pre-development and current Australian magnetite projects, Mt Woods does not require large-scale capital investment and is not reliant on third parties for new infrastructure, in order to develop a potentially economically viable project.

"The existing rail and port infrastructure, along with the availability of grid power at Prominent Hill which could be reticulated to the Project site at a modest capital cost, provides the back bone of the key infrastructure.

"These factors, combined with the relatively coarse grind size producing a high-grade magnetite concentrate, have resulted in a capital intensity that is an order of magnitude lower than that typically associated with magnetite projects.

"This allows for a smaller scale project to be developed cost effectively, while maintaining optionality for a larger scale development.

"IMX's proven development and operational experience in the region at our successful Cairn Hill mine, has allowed the estimation of operating costs with a high degree of confidence. Together with the reduced risk and complexity of project development, the potential projected returns are strong at long-term forecast benchmark prices."

Project Upside

The 2.5 Mtpa option exporting through Port Adelaide was selected as a base case, as it balances capital expenditure with ability to finance given current market conditions and IMX's market capitalisation, while presenting a project that does not require third party investment in infrastructure development.

The production rate of 2.5 Mtpa also represents the maximum rail capacity to Port Adelaide from Mt Woods, utilising the container based system and existing train paths currently used for Cairn Hill, given a maximum possible train length on the rail line of 1.8km.

With an Inferred Resource base at the Snaefell deposit at Mt Woods of 569 Mt, grading 27.1% Fe (at 18% Fe cut off grade) along with the previously announced3 exploration targets of between 0.9 and 1.2 Bt ranging between 25% and 32% Fe at Tomahawk, Axehead and other prospects in the area, there is considerable scope to support a significantly larger operation than the base case 2.5 Mtpa option detailed above.

Larger options, specifically at 4.7 Mtpa and 9.4 Mtpa nominal production rates, were investigated as part of the Scoping Study and these demonstrated expected increased Project returns.

Project Parameters

All of the Project options considered were based on processing only the Snaefell deposit, located some 15km to the south-west of the Cairn Hill mine and 3km to the east of the Stuart Highway.

Power

The power supply options were investigated by Power Network Strategies, who have detailed knowledge of the power infrastructure in South Australia, and in particular as it relates to the delivery of power to Olympic Dam and Prominent Hill.

This technical study identified that up to 30 MW of load could be supported with the installation of a 132 kV overhead power line from Prominent Hill to the Mt Woods mine site and higher loads could be supported by connection back to Olympic Dam.

Rail

Transport of the product from the mine site to IMX's rail siding at Rankin Dam will be by slurry pumping with six pumping stations along a 48 km pipeline route.

The product will be filtered at the rail siding for loading into three quarter height containers for transport by rail to Port Adelaide, in the same manner as the current production from IMX's Cairn Hill mine.

Costs for the rail transport for all options were developed by IMX's rail provider, based on the current operating contract for Cairn Hill as a basis.

Port

Port handling of the product for the base case 2.5 Mtpa option outlined above, will utilise the same methodology as used for IMX's Cairn Hill mine. Product in three quarter height containers will be stored at Port Adelaide and then loaded into Panamax vessels using a container rotating system.

Costs and Financial Analysis

Concentrate pricing forecasts including the CFR China 62% Fe benchmark iron ore price, grade premium and foreign exchange rates have been determined using a range of market based sources.

The assumptions used for Project financial analysis are a 62% Fe benchmark price of USD 97.50/tonne CFR North China, a grade premium of USD 3.50/tonne/%Fe above benchmark and an AUD/USD exchange rate of 0.85 which gives an FOB product price of approximately USD 104/tonne (AUD 122/tonne) for the Mt Woods 68.5% Fe concentrate. This results in an operating margin of approximately AUD 45/tonne.

Next Steps

Information from the Scoping Study will be used to support the partnering process with Azure Capital that commenced early this year6. Project development activities will await finalisation of this process.

Production from the Project is currently expected to commence in 2016 following the completion of more detailed evaluation, financing and construction.

Development plans and a development decision for the Project will be finalised once a review of strategic commercial options is complete.