Magnetite Mines started life as a typical West-Perth junior entity exploring the entire periodic table under the moniker Royal Resources. It has become an exploration company focusing on the iron ore reserves in South Australia with a JORC 2004 compliant resource of over 3.9 billion tonnes at its 100 per cent owned priority project, the Mawson Iron Project (MIP). The project is located 240km NNE of Adelaide, South Australia in a very large magnetite province and contains a conservative exploration target of 16-35 billion tonnes.
RGN met with Magnetite Mines executive chairman and CEO Gordon Toll in London to discuss the latest on the Mawson Iron Project and the future plans for the company.
Toll began to invest in the company in 2012 and initiated a key juncture in the company’s outlook. He decided it should be a pure magnetite and iron ore player, changed the management and refocused the entire company’s direction to align with the name change.
Toll brought with him a wealth of experience of the Australian mining industry – having held executive positions at BHP Billiton, Rio Tinto, Ivanhoe Mines and the founding chairmanship at Fortescue Metals Group. Toll has vast knowledge of the industry and has been able to draw on this expertise to bring Magnetite into a position to realise its 100 mtpa mine.
Toll explained the reason behind changing the company name at the end of 2015. “We wanted people to know what we were all about, we want to be a pure iron ore player. People think it should be a diamond or gold company with a name like Royal. We have a more sensible name now.”
Mawson Iron Project
Magnetite’s primary project MIP contains 2.7 billion tonnes (indicated and inferred) at the Razorback Ridge Deposit and a further 1.2 billion tonnes in the nearby Ironback Hill deposit. Toll believes the resource is the largest assembly of magnetite anywhere in the world and he is confident the project will become a highly productive mine.
“It is not difficult to envisage a project that can produce 100 mtpa of concentrate running at 68 per cent iron which is pretty attractive on all counts,” said Toll.
“We can do it at a cost to rival direct shipping operations as we don’t have any blending needs. We make concentrate which is steady on 68 per cent and it will remain so for the entire life of the mine.”
Within the MIP sits the Razorback Iron project which will act as the flagship to Magnetite due to its large low-grade, high-tonnage reserve and the ease with which it can be accessed and produced. There is minimal to no overburden, low comminution costs, a simple geological structure and is close to existing infrastructure and deep water for shipping, Magnetite Mines completed Resource Definition and a Prefeasibility Study in early 2013.
“It will probably be the place we start mining because we know the most about it and in that area in the fullness of time we will prove the full geological potential,” Toll commented.
“I believe there is potential for 30 billion tonnes at Razorback. That’s a lot but it is relatively low grade and will translate to approximately 6 billion tonnes of product.”
Toll is focusing on keeping costs as low as possible at the MIP. The use of a slurry pipeline will act as a storage facility between the project and offshore in itself and there is room there for a cape size vessel full of magnetite. Toll knows that stockpiling product is a drain on financial resources and can increase cost by between $1-5 per tonne.
“One of the key aspects of this project is that we pick it up in the mine and the product doesn’t stop until it’s on the customers’ dock in China, South Korea or Japan.”
The MIP will specifically benefit from its location in terms of the availability of existing infrastructure and the access to government in South Australia.
Magnetite is collaborating with Braemar Infrastructure Pty Ltd who will be responsible for building and operating the infrastructure support throughout the project which will include the floating port and slurry pipeline transport, the water usage, supplying power, communications and building the access road to the project.
While the infrastructure provided will be open to third party use, as a foundation partner in the collaboration, Magnetite will receive preferential treatment on both access and pricing and Toll believes this will prove to be a shrewd financial move by the company.
Further to that there are already existing dormitory towns in close proximity to the mine with operation centres, hospitals and most importantly the skilled workers are already based there.
“The skills are there, the hospitals are there – there are no big social infrastructure costs. I’ve worked with fly-in/fly-out operations and drive-in/drive-out and this is by far the best,” said Toll.
The mine will be interconnected with the entire eastern Australia grid system and will profit from cheap power, however, the water supply for the project has required an innovative approach.
Magnetite will use a combination of seawater and desalinated water in mine operations. Seawater will be pumped up to the mine and be used in the processing procedure. The cost of a large desalination plant (relatively cheap at $140 million) has been factored into the project and that will provide fresh water to use in the slurry pipeline.
“That fresh water will then be available for municipal use, for agriculture and for industry. It will be a valuabe product that will contribute greatly to regional development,” noted Toll.
“Its first use is as a carrier for the slurry, but once filtered to 8.5 per cent moisture for 25 mtpa we will produce about 12 gigalitres of good quality water.”
You cannot just assume water availability. Without a JORC like study on the availability of ground water there is no guarantee of the resource. Toll joked, “We’ve figured out that if Spencer’s Gulf runs out of water the world has bigger problems than if I can build an iron ore mine or not.”
Toll is also happy with the access to government in South Australia. He believes it is the best government the region has had for a long time in terms of championing free enterprise and ensuring its attractiveness as a resource state.
“In Western Australia or Queensland, it’s like they [the local government] are doing you a favour just answering the phone whereas in South Australia they make you feel wanted,” chided Toll.
The project has been supported by some key suppliers and contractors throughout the developmental stage. Toll elaborated on how key contractors had helped the project along.
“Orica and Davey Bickford have provided expertise in explosives, we have used Sandvik for in-pit crushers and conveyors and MMD are pitching in to on this subject. Also the Australian engineering companies GHD and Ausenco have really helped along the way.”
Magnetite has received significant interest in the project from China, South Korea and Japan – Toll has developed strong relationships with his visits to China already.
“We are getting a significant amount of work that will contribute to our DFS done in China for free, because people there want the business,” said Toll.
“We have two ship-building companies working on our behalf, a couple of process equipment companies. Almost everything can be sourced there if we want. But there are other sources too which keeps everyone honest.”
Having completed the pre-feasibility study on the MIP, Magnetite are focusing efforts on securing financing to produce a definitive feasibility study. Toll understands the difficulty in this area and has visited China recently to raise money.
“All the concepts are mapped out and we know they will work but we have to secure the nuts and bolts of the project,” said Toll drawing on his experience at Fortescue. “It’s certainly the subject of a lot of the time I am spending in China. The DFS money will be the hardest money we raise – it was at Fortescue.
“Although we used to say at Fortescue, if you do it the same way as the other guys you will only ever be as good as the other guys, so we have to find new ways.”
Magnetite has so far garnered interest for financing the project from Chinese banks although with a caveat that the product will mainly be going to China.
Despite the importance of the DFS in completing the project Toll knows in the short-term his priority is keeping the company alive. He is a realist on this matter. Toll thinks the major producers in the iron ore industry have mismanaged their oligopoly, decreased shareholder wealth and destabilised the industry thus resulting in new projects facing uphill battles for development funding.
“I have no worries that if we can survive and get the DFS done then we can get the project done. A mine with 100 mtpa of the highest-grade iron-making material readily available for the next 50 years and delivered to China for costs that rival the Pilbara will put us in a great position.
Toll makes the point that the Chinese Steel Industry needs magnetite concentrates. Domestic Chinese production of such concentrates has decreased by almost 200 million tonne per year in recent times. Domestic concentrates containing 66% Fe are currently selling for the equivalent of US$69.00 per tonne ex-mine. Magnetite’s MIP could be look at as simply replacement for declining domestic Chinese production.
“This is better than Rio Tinto’s Simandou which will cost $20-25 billion just to get going. Give me what Rio has spent to date at Simandou and I will develop this project… that’s $3 billion.”
Moving forward in five years Toll sees Magnetite loading its first shipment which will be the only carrier in Australia with the capability to load 400,000 dead weight tonnage at all times due to the area’s water depth.
In 10 years Toll believes the list of top iron ore producers will read Rio Tinto, Vale, BHP Billiton, Fortescue – and Magnetite.