Is Karara now profitable ??, page-7

This story was on Argus Metals today. The first part of the story is about Grange Resources GRR and the second part is about Gindalbie GBG

Australian iron ore pellet projects recover
Magnetite concentrate and pellet projects are back in favour in Australia, as stricter pollution controls imposed in China and elsewhere boost the value of higher-grade steelmaking materials.

Existing magnetite projects are hitting production targets, or ramping up to do so, while new projects are being revived with the aim of further increasing supply. The rising availability of higher-grade material will put further pressure on low-grade producers, such as Australian independent Fortescue Metals, which are already facing a wider discount for their products.

Prices of imported pellet in China have been buoyant for most of 2017, largely thanks to the impact of pollution controls and lower concentrate supply from Chinese domestic mines, several of which have been shut down because of environmental violations. And the shutdown of Brazil's Samarco mine in November 2016 has starved markets in Europe, Japan and South Korea of a key source of pellet, and diverted supplies of higher-quality European and Brazilian pellet to these countries instead of China.

Most pellet sold in China is either 64pc Fe grade Indian pellet or Ukraine-origin supply. Offers for Indian pellet were at $123/t for mid-December loading dates, slightly below highs reached a few weeks earlier but still well above levels in previous years.

Australian magnetite concentrate and pellet has Fe content of 65-70pc, leaving it well positioned to compete in current market conditions. The supplies have a higher grade than benchmark 62pc Fe ores from UK-Australian mining firms BHP Billiton and Rio Tinto, although they would not be able to match the volumes produced by these companies in the short to medium term. But a ramp-up in magnetite supply could replace ore from India, as well as from some of Australia's lower-grade mines that produce hematite in the 55-59pc Fe range, including those owned by Fortescue, Mineral Resources, Cleveland Cliffs and Mount Gibson.

Magnetite projects have had a difficult run in Australia. Technical problems and cost blowouts have affected the ramp-up of newer projects, while older projects such as Grange Resources' Savage River operations in Tasmania have struggled to stay competitive against direct-shipping hematite ore from the large mining firms in the Pilbara region of Western Australia (WA). But the recent rise in premiums for pellet, and corresponding widening of discounts for lower-grade iron ore, has reignited interest in the projects.

Grange Resources, which is backed by Chinese steelmaker Shagang, has revived its 10mn t/yr Southdown magnetite project in WA after shelving it in 2012. The project's economics have improved, despite the lower benchmark 62pc iron ore price, because of a significant increase in the pellet premium towards $60/t and a reduction in project costs in WA as the mining boom eases.



Shagang has agreed to buy 2mn t/yr of magnetite concentrate from South Australian (SA) firm Magnetite Mines, which is proposing to build the 8mn t/yr Mawson magnetite project in the state. Several other smaller mining firms in Australia are looking at magnetite projects, while Fortescue will make a decision on the development of its 9.5mn t/yr Iron Bridge magnetite joint venture with Taiwanese conglomerate Formosa Plastics by June next year.

Test cases eyed

All these developers are keeping a close eye on two WA magnetite iron ore projects, the 8mn t/yr Karara venture between Chinese steelmaker Ansteel and Australian independent Gindalbie, and the 24mn t/yr Sino Iron project owned by China's state-run conglomerate Citic.

Karara appears to have finally reached steady production, with output at around 2mn t of 66pc Fe concentrate for each of the past four quarters. It has had a difficult ramp-up since commissioning in 2011 and has reported significant cost blowouts and technical issues. Ansteel in January 2016 threatened to halt all funding for Karara unless cost savings were made and production targets met, sparking concerns that the project could close.

The future of the Sino Iron project has also been hanging in the balance, with original owner Mineralogy opposing the expansion needed to optimise the plant's performance and reduce costs. Sino Iron also experienced significant cost blowouts, technical difficulties and delays during the construction and ramp-up phase. Citic expects the plant to produce 15mn t of concentrate this year, up from 11mn t in 2016, but this would still be some way short of the 24mn t/yr of 66.5pc Fe concentrate that is its ultimate goal.

Citic is considering its options after it lost a long-running court case with Mineralogy over royalty payments in November. Citic has previously said it could pull out of the project if this happens, but is considering an appeal before deciding what action to take.

The difficulties experienced at Sino Iron and Karara have deterred many would-be Australian magnetite developers. But high pellet premiums — and hopes they will remain strong — as well as lessons learnt from the projects' troubles have now revived interest in developing the huge reserves of magnetite available in WA and SA.