Transcription of Finance News Network Interview with Rutila Resources Limited (ASX:RTA) Executive Chairman, Nick Curtis.
Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me from Rutila Resources (ASX:RTA) is its Executive Chairman, Nick Curtis. Nick, welcome to FNN.
Nick Curtis: Thank you Lelde.
Lelde Smits: Rutila has just inked an alliance agreement with iron ore developer Flinders Mines Limited (ASX:FMS) in the Pilbara of Western Australia. Could you outline what the alliance involves?
Nick Curtis: Certainly. We’re very excited about that Alliance Agreement. The Alliance agreement is quite a breakthrough. It actually is an agreement between Flinders and Rutila to use excess capacity at Rutila’s Balla Balla Export Facility, which was designated originally for its Balla Balla mine, to deliver Flinders ore from its Central Pilbara PIOP operation, Pilbara Iron Ore Project operation, to the coast.
It gives us a foundation user for the infrastructure, offsetting significantly our cost base for the Balla Balla mine and providing an interesting business in its own right. As well as giving Flinders of course a much needed infrastructure solution to give them access to sea for their iron ore.
Lelde Smits: As you mention the railway will connect Flinders’ Pilbara Iron Ore Project (PIOP) with excess capacity at Rutila’s Balla Balla Mine and Export Facility (BBMEF), what are the anticipated benefits for both companies?
Nick Curtis: Well for Flinders a stranded iron ore deposit that has limited value becomes a real project with real access to the Chinese and other international markets. They suddenly go from being a hopeful to a real project, so it makes value for the Flinders operation.
For us, it gives us a very exciting business development opportunity within the infrastructure side. But importantly, that also offsets the capital cost we had associated with the infrastructure development for the Balla Balla project and makes the Balla Balla project a much more viable project at the same time.
Lelde Smits: The Balla Balla JV will develop the Balla Balla Export Facility and Central Pilbara Railway. How will the system look like when it is built and what cost have you put on developing it?
Nick Curtis: It is a large scale project between the Flinders mine at something north of $1 billion and the railway, should we get permission to put a rail system between the export facility and the PIOP operation, plus the port, it’s another $2.2 billion or so. So just for that leg it’s about $3.2 billion. The Balla Balla mine would be about $700 million, $600-700 million of its own. So that’s about a $3.8 billion total spend, which on the surface of it is a lot of money without a doubt. However when you break it down to the dollar cost per annual tonne of throughput production, and I think this is very important, we come in below $130 - $140 dollars per annual tonne of iron ore capacity. Benchmarked against other industry players it’s very, very low cost.
Lelde Smits: Could you outline the key commercial terms of the deal with Flinders Mines and where is the funding coming from?
Nick Curtis: Sure. Break that into two – The key commercial terms are that we fund our capital costs associated with infrastructure. They fund their mine operating cost. They pay us a return for using the facility. The specifics of the deal are that they pay us - $25 is the base rate, but given the foundation nature of their usage we’re giving them a $5 refund – so approximately $20 over cost. Plus we get a price participation in the iron ore price, being 30 per cent of the revenue above $60 per tonne. Flinders of course have through that an access, which still allows them to land their material in China ‘round about $60 per tonne which is a very viable operation for them.
Lelde Smits: How will the construction of the Central Pilbara Infrastructure impact surrounding mining companies in the region?
Nick Curtis: Well I think once you’ve got this infrastructure, and we need to fund and built it, but once you’ve got this infrastructure you’ve opened up another gateway. And, we are not building this to open the gateway, but once the gateway is open I presume there will be other interested parties.
Central Pilbara Region is in fact a significantly underdeveloped iron ore region. The ore bodies there are known, it is in the same region as the Solomon Hub of Fortescue Metals Group Limited (ASX:FMG). And, we believe it has a high growth potential as a region for delivering iron ore. We’ll see how that develops. At this stage we are going to focus on funding our $3 billion-odd project with Flinders.
Can I come back to the question of funding for one second, because I want to make a point that I didn’t make earlier or didn’t talk about earlier. We are in, and very happy to be in joint venture in this with the Todd Corporation of New Zealand. Todd Corporation of New Zealand are owned by the Todd family of New Zealand. They are a very well-respected, wealthy New Zealand family who have very significant interests in oil and gas.
They are seeing this as an important diversification into the minerals sector for them and they have undoubted financial capacity to fund their share of this project. That’ll take 32 and probably 40 per cent of the project, as they have an option to go up to 40 per cent. So we are in a position where we already have an anchor partner to fund the core of this project.
Todd, like us, take a view of this as [a] long-term, intergenerational asset. And, that then goes to question of, what does this mean for the Central Pilbara iron ore people. We think this asset once built will be there for a long, long time and hopefully it will deliver a lot of tonnes of ore out of the Australian market.
Lelde Smits: Certainly. If we can look at the financials now - What capital costs have been estimated on both the Balla Balla project and export facility and how have these estimates changed following Rutila’s alliance agreement with Flinders?
Nick Curtis: We originally had about a $1.1 billion capital cost associated with, just a bit shy of that actually, about $1.02 [billion] capital cost associated with the Balla Balla mine development for the concentrate, plus the export facility. The export facility there was about $400 million. We’ve estimated $2.2 billion for the infrastructure component, being about $1.6 billion for the railway line component and about $600 million for a larger export facility component, but incorporating that $400 million. Of course what happens with the Balla Balla mine is that we can take $400 million off the capital cost because it will be effectively monetised through the infrastructure fees that we charge for access, meaning that the Balla Balla capital cost to get to market has come down to around $600 [million], just over $600 million – which is a very major reduction. And, the economics of the operating charges that we are able to charge Flinders, successfully for Flinders, suggests we could get a good return independently on the infrastructure.
Lelde Smits: Finally Nick, as you move to advance the Balla Balla Vanadium - Titanium – Magnetite Project, export facility and Central Pilbara Railway what are your immediate priorities and where would you like to see the project, facility and railway positioned by the end of this year?
Nick Curtis: We hope, and we are in conversation, but it’s a very, very preliminary conversation with the Government. We hope to be able to apply for a State Rail Agreement later this year. Clearly we have to do this with the consent of the Parliament of Western Australia and be granted a new State Rail Agreement for this proposed Central Pilbara Railway. That’s in the very early stages of examination by the Department of State Development and others.
We have had some very good progress with EPA in Western Australia and we have Native Title Agreement on the infrastructure facility and the port facility. But, we will have to progress those as well.
We hope by the end of the year to be engineered, to have access fairly well covered and be well on our way to funding so we can look at FID [Final Investment Decision] for this project in the early part of 2015.
Lelde Smits: Great well Nick Curtis, thank you for the update to Rutila Resources.
Nick Curtis: Pleasure, thanks Lelde.
Ends
RTA Price at posting:
26.0¢ Sentiment: None Disclosure: Held
