Shree Minerals Gains Green Light To Begin Mining At Nelson Bay River Iron Project

Shree Minerals (ASX: SHH) can commence mining immediately at the Nelson Bay River Iron Project after receiving Federal Government approval under the EPBC Act.

Mark Butler, the new Minister for Climate Change Minister for the Environment, Heritage and Water granted Shree Minerals the approval to proceed with their proposed iron ore mine at Nelson Bay River in north-western Tasmania.

All necessary approvals are now in place for the mine to proceed, which is timely given iron ore prices are trading around US$130 a tonne, the lower Australian dollar and the low production costs at Nelson Bay.

With this, Proactive Investors understands that Shree Mining could be shipping iron ore within the next three to four months.

The approval follows after the earlier approval decision made on 18th December 2012 by the Federal Environment Minister to approve the NBR project under the Environment Protection and Biodiversity Conservation Act was set aside by the Federal Court as a consequence of an application for a judicial review in April 2013.

The Court ordered an injunction in May 2013.

A subsequent hearing was conducted and a decision was made by the Court in July 2013. Seven grounds of challenge were put up.

Three were abandoned during the course of the case. Three were dismissed by the Court. Only one was upheld that the Minister had failed to comply with a mandatory requirement that he consider an approved conservation advice regarding the Tasmanian Devil.

Now the new minister has undertaken a full assessment and advised of no impediments to begin mining after it was confirmed that Shree had acted in accordance with best practice environmental management, including measures to prevent acid drainage, to protect and enhance wildlife habitat and to minimise the risk of road-kill.

Background

Nelson Bay River Iron Ore DSO Project

Nelson Bay River is located in the west coast of Tasmania, in an area rich with infrastructure including proximity to roads and port.

Highlighting the prospectivity of the area, it hosts world class mines including Grange Resources' Savage River, Vedanta's Mt Lyell, Unity Mining's Henty and MMG's Roseberry and Avebury.

Nelson Bay River currently has a goethite-hematite Inferred Resource of 1.4 million tonnes, magnetite Resources of 7.8 million tonnes at 38.3 DTR.

Production is expected to be about 400,000 tonnes per annum.

The hematite ore is similar to ore found in Western Australia's Pilbara region; low alumina and a premium product and easy-to-extract.

The production schedule for the first stage of the project is to develop two relatively shallow open-cut mines to produce direct shipping grade hematite ore, which will require just crushing and sizing.

The second stage involves the continuation of mining of the second open-cut situated above the main magnetite orebody.

The hematite oxide cap consists of the central DSO ore section mined in stage one which is surrounded by lower grade ore considered to have potential to produce a commercial beneficiated oxide product.

Shree will then move to the third stage of the project, which involves open-cut mining of the deep magnetite orebody beneath the oxide cap.

Earlier studies have demonstrated that the magnetite ore can provide either a dense media magnetite product suitable for coal washery applications or a blast furnace pellet magnetite concentrate.

The mine life for the project based on the current mine plan is expected to be 10 years and has potential to increase with further exploration work.

Shree added the DSO project is planned as a contract mining operation based on contractor supplied plant and equipment including processing and transportation.

DSO Project Economics

Production from Nelson Bay River should generate $110-$130 million for the mining of DSO+BFO material which will generate strong near term cash flows in 2013/14 and transform Shree Minerals from explorer to producer.

Projected earnings from Stage 1 NBR Project for Shree Minerals are compelling - with potential to earn between $16 million to $18 million over two and a half years.

Offtake agreement

In May, Shree entered into an offtake agreement for its Nelson Bay River Iron Ore DSO Project in Tasmania with Singapore based trader Frost Global.

Importantly, Frost will provide US$4 million in funding to progress development of the project by way of an advance towards the supply of iron ore.

This will be paid back over the first eight shipments of iron ore, or US$500,000 per shipment.

Given that Nelson Bay River has low capital expenditure requirements and operating expenditure of about $58 per tonne for DSO product, which is not bettered by many iron ore producers, the funding advance will help progress the project towards production while allowing Shree to maintain a sizeable margin during payback.

Frost Global is a Singapore based company trading in agricultural products, metals, minerals, petrochemicals and textiles.

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