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| Jupiter Mines Ltd.'s Mount Mason iron ore project in Western Australia. |
Jupiter Mines Ltd. is looking to replicate the success of its 2018, A$240 million IPO by spinning off its iron ore assets as improved infrastructure and strong prices are leading to a swath of previously uneconomic direct shipping ore projects in Western Australia getting advanced and drawing investment.
On Sept. 4, Jupiter approved spinning out its Central Yilgarn iron ore projects in an IPO to be led by former CEO and COO Greg Durack, who managed feasibility studies on the Mount Mason DSO hematite project and the Mount Ida magnetite project.
Jupiter's London-based CEO, Priyank Thapliyal, said the IPO funds would fast-track Mount Mason's development, hoping to use the kind of "creative thinking" that brought its South African Tshipi Borwa asset from having no rail and port allocation to being a top-five manganese producer globally.
Thapliyal told S&P Global Market Intelligence that a long-term iron ore price does not need to be contemplated for Mount Mason, given the maiden measured and indicated resources in 2011 totaled 5.9 million tonnes grading 60.1% iron ore, so the project could start with 500,000 tonnes per annum, rising to about 1 mtpa later.
In the midterm, Jupiter will look at progressing Mount Ida, which has a 1.23 billion-tonne inferred resource but was frozen amid depressed iron ore prices in 2012 when a feasibility study indicated higher capital and operating costs than those estimated in 2011.
BHP Group first mapped Mount Mason in 1969 and assays yielded 62.8% iron, but infrastructure in the area was nonexistent at the time. Fenix Resources Ltd. Managing Director Robert Brierley said infrastructure and low iron ore prices have been holding DSO projects back for years now.
Price assumptions
However, Brierley and Thapliyal said that with iron ore prices hitting a six-year high in August on the back of the strong recovery in China's steel sector and with port opportunities at Geraldton and Esperance in Western Australia now available, DSO iron ore projects are becoming substantially more feasible.
Strike Resources Ltd. was granted a mining lease in September for its Paulsens East project, where a feasibility study is underway, and Coziron Resources Ltd. started a pre-feasibility study on its Robe Mesa project, both of which have proposed DSO operations in Western Australia.
Time to market is the biggest risk for DSO iron ore operations, given they are highly leveraged to the commodity price, Brierley said. The commodity price is where West Australian projects are better off compared to South Australia, which has also struggled with infrastructure issues.
Fenix can be in production in three months with first sales in the first quarter of 2021, having recently made a final investment decision on its Iron Ridge project. Australian broker Hartleys head of research Trent Barnett said Iron Ridge is "very marginal" in the long run, given the junior had previously estimated the cash flow neutral level at a selling price of US$68/t.
Market Intelligence recently upgraded its average annual iron ore price forecast for 2020 to US$100/t from US$92/t, though its longer-term outlook to 2024 suggests prices have peaked and will drift lower over coming years, which Barnett said was also the consensus view.
Though respectful of those who make forecasts, Thapliyal said that every time a consensus view came out on manganese during his several years running the Tshipi mine, the actual price had been different.
"The key is that current shortages in iron ore, and the even more severe shortages of high grade iron ore, could persist longer than consensus expectations," Barnett's note on Fenix said.
Barnett told Market Intelligence that "it's definitely all achievable ... it depends on the grade and iron ore price when you start." Brierley said Iron Ridge's break-even price is about A$100/t, which means current prices at A$170/t leave a "substantial amount of headroom."
Though current iron ore prices suggest there are a lot of economic DSO projects around, Barnett said long-term projections mean speed to production and rapid payback is key, so "you want to make sure you don't put too much debt into it."
Barnett said the ideal is to run it the way Mineral Resources Ltd. operates its Wodgina DSO lithium project — with a big balance sheet and reducing costs over time while always being in a position to turn the mine off if prices fall and then wait for them to rise again.
While conceding that Mount Mason is a leveraged play to the iron ore price with relatively high operational expenditure, Thapliyal said its economics can improve once the operation is proven, and costs can be reduced further by working with infrastructure companies.