Australian iron ore projects take off

A raft of Australian iron ore projects are moving towards production next year, as sustained strong iron ore prices boost confidence that previously marginal projects will give a good rate of return over the next couple of years.

Western Australian (WA) iron ore developer Strike Resources expects its 1.5mn t/yr lump and fines Paulsens East iron ore project in the Pilbara to generate cashflow of A$167mn ($110mn) over its four year life at an average iron ore price of $100/t cfr China, rising to a potential cash flow of A$279mn at current prices of around $115/t cfr China. This would be a good return for an up-front investment of around A$15.7mn t but is reliant on iron ore price not falling back to the around $65/t seen in mid-2018.

Several other iron ore firms in Australia are relying on strong iron ore prices for at least the next couple of years to support projects designed to capitalise on the undersupply in the market from production disruptions in Brazil. Swiss bank UBS last week upgraded its iron ore pricing assumptions, based on the surprisingly strong pricing environment in July-September. It now expects average 65pc Fe fines iron ore price to come in at $100/t cfr China for 2020, falling to $93/t in 2021, $80/t in 2022 and $70/t in 2023, before settling at a long term average of $60/t. It has changed its near term assumptions from $98/t in 2020, $85/t in 2021 and $75/t in 2022.

These elevated prices, while still declining from current highs, give those pushing new iron ore projects in Australia more confidence and ability to attract investors prepared to back them.

In South Australia, Iron Road has signed a joint development agreement with Australian bank Macquarie Capital to pull together financing plans for its A$250mn Cape Hardy multi-user port, which underpins the development of its 12mn t/yr Central Eyre magnetite project. WA iron ore producer Mount Gibson has moved forward with its 1.5mn wet metric tonne/yr Shine project despite the long road haulage associated with it previously making it an uneconomic option.

Fenix has signed an A$360mn road haulage contract that is due to start next month for its 1.25mn t/yr Iron Ridge project in WA, with the high price for iron ore making road transport an economic possibility for several deposits previously considered stranded because of their lack of access to rail.

Venture Minerals has produced its 2,000t of ore at its Riley iron ore project in Tasmania and begun construction of a wet screening plant, with economics for the project running well ahead of its August 2019 feasibility study primarily due to higher iron ore prices and lower fuel costs.

Argus last assessed the ICX 62pc Fe fines price at $117.45/t cfr Qingdao on 30 October, up from $83.65/t six months earlier.

By Jo Clarke