Eliwana iron ore approval sees Fortescue Premium grade

Australian iron ore producer Fortescue Metals plans to introduce a 60pc Fe iron ore product called Fortescue Premium during January-June next year, after its board of directors approved the development of the $1.275bn Eliwana mine.

Eliwana will not start production until December 2020, but its approval allows Fortescue to pull out higher grade ore from other operations to start supplying Fortescue Premium from January-June next year.

Fortescue will maintain production at around 170mn t/yr with the introduction of Eliwana, but the new development will give flexibility to increase exports should the market support it, said Fortescue chief executive Elizabeth Gaines. The mine will include a new 30mn t/yr dry ore processing facility and will be connected into Fortescue's existing railway with a 143km spur.

Fortescue plans to introduce its new premium product in response to the wider discount it has been receiving for its lower grade 58.3pc Fe blended fines and 56.7pc Fe SSF fines. In March it was forced to [revise down] (https://direct.argusmedia.com/newsandanalysis/article/1651252) its price realisation guidance for the 2017-18 fiscal year to 30 June to 65pc of the 62pc Fe benchmark from its previous expectation of 70-75pc Fe. But it was able to narrow it s discounts for May index-linked contract iron ore cargoes to 39pc from the 62pc benchmark for its SSF from 40pc for April, and to 34pc for its blended fines from 35pc.

Portside SSF fines narrowed their average discount to the Argus 62pc Fe PCX assessment to 37pc in April from an average of 39pc in March and an average 40pc in February. But the month-to-date SSF is pricing at a 39pc discount, or 167 yuan/wet metric tonne (wmt), to the PCX price that has averaged Yn456/wmt fot Qingdao in the month to date.

Eliwana, located to the west of Fortescue's Solomon mine, will replace the 27mn t/yr Firetail mine in the Solomon hub, which will run out of ore around 2021. Eliwana is 110km west of Solomon. The firm had been weighing up the development of Eliwana against the larger but lower grade Nyindighu deposit that is located 40km south of its Chichester operations. But the large discounts for Fortescue's lower grade material favoured the Eliwana project.

Eliwana and the nearby Flying Fish deposit, which together are known as the Western hub, contain 740mn t of resources averaging 59.1pc Fe. Nyindighu contains 2.5bn t of resources at an average of 57.4pc Fe. The Western hub also gives Fortescue more blending opportunities because it contains a Brockman-style ore mined at Solomon and a Marra Mamba ore similar to that produced at Chichester.

Fortescue plans to produce an average of 30mn t/yr at Eliwana, but applied for environmental approvals to develop infrastructure to support output of 50mn t/yr to allow for peak production periods. The Eliwana pit is largely below the water table, requiring dewatering, while Flying Fish is above the water table. The new mine will have a lifespan of 24 years.