Yalgoo Iron Project
Project Overview
The Yalgoo Iron Project concept envisages the mining of magnetite iron ore from the Yogi deposit, which is 100% owned by Ferrowest and 14km east of Yalgoo in the mid west region of Western Australia. The magnetite ore would be crushed and fed into a beneficiation plant, located at the mine site to produce around 770,000 tonnes per annum of magnetite (iron ore) concentrate grading 67% Fe.
The magnetite concentrate would be fed into a manufacturing plant, located at the mine site adjacent to the beneficiation plant, to produce merchant pig iron (“MPI”).
MPI is a value added 96%Fe iron product (in the physical form of nuggets or small ingots) that is used as feedstock for high quality steel making, primarily by electric arc furnace (“EAF”) production methods.
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The high value MPI product (worth 4 to 5 times the value of direct shipping iron ore) can be stored in the open, is easy to handle and would not present a combustion risk or generate dust.
It is currently planned that the MPI product would be transported 233km on the existing Geraldton to Mount Magnet road (a designated road train route) to the Port of Geraldton where it can be stockpiled in the open. Ship loading will occur using either an existing ship loader or a new ship loader currently being installed by the Geraldton Port Authority for iron ore exports.
The Project also envisages utilising natural gas for power generation, reduction of the ore and smelting with gas sourced from an existing gas pipeline that passes through the Project site.
The MPI market is growing rapidly with strong demand from EAF steel makers (35% of world steel production) who produce quality steel products (particular flat products). These steel makers require a source of low contaminant iron units (such as Ferrowest MPI) to supplement the scrap iron that is the predominant feedstock used by the EAF steel mills. The expanding world steel production has caused a shortfall in low contaminant scrap iron that in turn must be met by ‘scrap alternates’ such as MPI, direct reduced iron (“DRI”) and hot briquetted iron (“HBI”). Of these three products MPI commands a premium because of its higher metallised iron content and ease of handling and storage.
Current plans are for the Project to commence production at around 500,000 tonnes per annum, expanding over the initial years to up to 2 million tonnes per annum, subject to successful feasibility studies. Even 500,000 tonnes per annum would generate in the order of A$200,000,000 revenue annually from this value added MPI product.
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Figure A shows the location of the Company’s 100% owned iron ore deposit, called “Yogi” which is located 14km east of the regional town of Yalgoo in the mid west region of Western Australia and only 233km from the existing Port of Geraldton.
This location and ore body were specifically chosen for the Yalgoo Iron Project because of the existing infrastructure at the mine site which includes:
- A natural gas pipeline that passes through the Yogi tenements and which will provide the energy necessary for the value adding process;
- Water available on the site for the manufacturing processes;
- A road train approved, sealed highway through the Yogi tenements which will provide for road haulage of the MPI product by 110 tonne road trains 233km straight to the coast;
- A port at Geraldton which has existing storage and loading capacity to handle the MPI product into Handimax vessels that are ideally sized for the export of this high value product; and
- The proximity of Geraldton to markets in Asia provide a significant shipping cost advantage over the main competitors in the MPI market that are located in Brazil. However the relatively high value and low volume of MPI (compared to iron ore) means that it can be shipped to markets further affield in Europe, the Middle East or North America when regional price differences exceed the additional shipping costs.
Ferrowest has 100% ownership of the Western Australian mineral tenements shown here covering about 26,000Ha that are collectively known as the Yogi magnetite deposit. These mining and exploration leases form the basis of the Yalgoo Iron Project.
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The iron mineralisation at Yogi extends for approximately 30km trending roughly north-south. The visible outcrops of magnetite commence just south of the main Geraldton to Mount Magnet highway. From there the banded iron formations (“BIF’s”) continue northwards to the northern most border of the Company’s most northern tenement.
Ground mapping, aeromagnetic surveys and more detailed ground magnetics surveys have been conducted over the entire BIF strike length at Yogi. Due to the outcropping and presence of magnetite, the BIF units can be targeted easily as they appear as magnetic “highs” as shown on the aeromagnetic map.
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This combined with geological interpretation and computer modeling has provided the Company with a very good understanding of the structure and extent of the BIF. Exploration drilling to date has confirmed the excellent correlation between the computer modeling and the actual ore body in the ground.
The iron in the Yogi deposit is in the form of magnetite which means that it needs beneficiation (upgrading) to increase the iron grade prior to processing into MPI. While the magnetite iron grades at Yogi would not be particularly suitable for a magnetite concentrate export operation, this does not affect its suitability for MPI production. A high quality representative iron ore concentrate has already been produced from the Yogi magnetite. The additional costs of mining and processing the magnetite from Yogi is more than offset by the advantages provided by the existing infrastructure, particularly energy available at the site in the form of natural gas.
To date about 10km of the Yogi deposit have been drilled (approximately one third of the total available strike length) and an Inferred Resource of 112.5 million tonnes at 25%Fe has been classified and reported in accordance with the Joint Ore Reserve Committee (“JORC”) Code that governs the proper reporting of Resources and Reserves for companies listed on the Australian Stock Exchange.
The details of the Inferred Resources are:
|
Resource Classification (Ore Type) |
Million Tonnes |
Fe % |
SiO2 % |
Al2O3 % |
P % |
LOI % |
|
Inferred (Fresh) |
95.3 |
25.33 |
49.55 |
5.57 |
0.057 |
0.34 |
|
Inferred (Transitional*) |
17.2 |
25.14 |
49.23 |
5.75 |
0.056 |
0.65 |
|
Inferred Total |
112.5 |
25.30 |
49.50 |
5.60 |
0.057 |
0.39 |
Four granted mining leases cover the area of this Inferred Resource.
Mining of the orebody would be by simple open pit methods utilising a fleet of haul trucks, excavators and ancillary mining equipment such as blast hole drill rigs, bulldozers and graders. The Project site is such that the beneficiation plant and merchant pig iron plant will both be located a short hauling distance from a series of proposed mine pits.
The orebody has been drilled to a depth of between 130 and 200 metres depending on the width of the BIF beds which range from 30m to around 100m in the main pit areas.
It is likely that Ferrowest will contract the services of a recognised mining contractor to conduct mining operations at Yogi. Selective mining of the ore is planned to exclude any portions of the resource which would otherwise require excessive grinding. This will optimize the process efficiency and will require detailed grade control during mining but is expected to provide significant dividends in reduced equipment sizing and lower processing costs. Grade control of the mining operation will be managed in-house by Ferrowest as this is a critical function to ensure optimum beneficiation plant efficiency.
Mine planning will also take into account the option of increasing the production of MPI by adding further production 500,000 tonne per annum modules to the process plants in later years.
The Project is located 14km from the rural and mining township of Yalgoo, which is expected to house the mining and operations staff and provide the administrative centre for operations.
A natural gas pipeline passing through the Project area in close proximity to the proposed plant site will have sufficient capacity to provide gas for processing and for the generation of electricity.
Electricity demand of approximately 25MW would be supplied by a gas turbine power station contracted on a build, own and operate basis.
The Geraldton – Mount Magnet highway, passing through the Project site, is a sealed road freight corridor suitable for road trains, providing an excellent quality, low capital cost opportunity for the transportation of MPI product to the Port of Geraldton. The road trains can also back-load the coal supplies that would be required with any coal based technology for the production of the MPI.
Transportation studies will also give consideration (particularly in regard to future increased production) to:
- trucking MPI to Mullewa and then transferring to rail for delivery into the Port of Geraldton; and
- restoring the rail line from Mullewa to the Project site along a pre-existing rail easement, a distance of 134km.
It is anticipated that enough fresh water (~750ppm TDS) will be available within the Project area to meet the Project needs.
There is an airfield at Yalgoo that can meet urgent logistical needs and is suitable for the Royal Flying Doctor Service in emergency situations.
In general, operations staff would be housed at Yalgoo, with tourist type coaches providing pick-up services from Geraldton and major regional centres if a demand arises. Costings have also assumed some portion of the workforce will be on a fly-in fly-out basis to Perth.
The Port of Geraldton is expected to have the capacity and materials handling capability to provide for the unloading, storage and ship loading of the MPI. In addition the Geraldton Port Authority has nearly completed a new loading facility on berth 5 which will be dedicated to iron products.
MPI does not generate dust and will not contaminate ship loading equipment used in the handling of other products through the port. Therefore there will be no requirement for a dedicated berth or specialist loading equipment.
MPI production will rely on a combination of natural gas and coal as the major external consumables. The Company is investigating the cost benefit of using either the lower grade Western Australian coals or the higher grade (but more expensive) coal sourced from the east coast. Coal imports can be handled through the Port of Geraldton, if required, or railed from Collie to Narngulu or Mullewa. In either case, coal can be back-loaded to the mine site in the empty trucks that have delivered the MPI to the port or rail head.
Magnetite Concentrate Production
The first stage in manufacturing the MPI is to produce magnetite concentrate grading 67%Fe. This occurs in a beneficiation plant.
Crushed magnetite ore will be concentrated in a conventional beneficiation plant comprising grinding, magnetic separation and dewatering circuits to produce magnetite concentrate. An early ‘cobbing’ stage will reject around 70% of the waste material in the ore stream at a relatively course grind in order to reduce the quantity of material that need grinding.
The beneficiation plant will be designed to facilitate expansion so that additional MPI making capacity can be installed at a later date to increase production from the planned 500,000tpa, up to an eventual 2.0Mtpa. The economics of the various production scenarios will be analysed during the study phase to determine the optimum initial plant configuration.
A representative concentrate has been prepared from the magnetite ore obtained from drilling carried out across the Yogi deposit. The specification of this concentrate is:
|
Fe% |
SiO2% |
Al2O3% |
TiO2% |
P% (XRF) |
S% (XRF) |
Cu% |
|
67.0 |
5.36 |
0.58 |
0.07 |
0.012 |
0.023 |
0.002 |
This iron ore concentrate has been sent to certain providers of the MPI manufacturing technologies to confirm its suitability for use in the manufacture of MPI.
As part of the feasibility studies into the Yalgoo Iron Project, the Company is evaluating MPI manufacturing technologies for use in value adding to the planned magnetite concentrate in order to produce a high grade iron product (96%Fe) suitable for export.
Ferrowest’s preferred technology at this stage of the studies is the ITmk3® process from Kobe Steel that has excellent potential for the Yalgoo Iron Project. The ITmk3® process is currently being commercialized at full scale and the Company’s choice of this technology is contingent on it being available to Ferrowest in time to meet the Project’s development timetable.
The ITmk3® process, described below, is typical of the emerging MPI production technologies, one of which Ferrowest will adopt in order to add value to its magnetite mineralisation at Yogi.
ITmk3® is the so called third generation of iron making. The first generation is the blast furnace and the second generation is gas-based direct reduction of iron oxides. ITmk3® is a coal based reduction process which utilises the well proven and commercialised rotary hearth furnace (RHF) technology used for decades in the iron and steel industry worldwide. ITmk3® produces metallic iron nuggets in a single and energy efficient process that generate approximately one third less green house gases than other technologies.
The ITmk3® process utilises pulverised coal as a reductant which is mixed with iron ore concentrates (magnetite or haematite) and a binder to form a ‘greenball’ pellet. The ‘greenball’ pellets are dried prior to loading into the rotary hearth furnace where reduction of the iron oxide pellets to metallic iron takes place (driving off the oxygen from the iron oxide).
After reduction, the furnace temperature is raised in the melting zone and the iron melts to form nuggets and slag nodules, which are quickly cooled in the next zone. During the cooling process the slag nodules separate from the iron nuggets and the nuggets are recovered using a magnetic belt.
The ITmk3® process is an elegantly simple process as shown in the flow sheet with a one-step furnace operation that requires less energy and capital, with lower operating costs than existing iron making technology. Consequently, a high quality iron product is produced at a lower cost than other technologies.
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The 96%Fe MPI can be used in any steel making plant in the world as a high quality source of pure iron units but it is in the EAF steel making plants that MPI has the greatest value in use.
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EAF steel making plants represent about 35% of world steel production, which equates to more than 400 million tonnes annually. The feed material for these EAF plants consist of around 75% scrap iron (recovered from the steel making process itself, from manufacturing of goods and from obsolete steel that has been recycled such as car bodies, ships, buildings and other old machinery). This scrap contains impurities such as copper, plastics and other materials that limit the steel makers ability to produce high quality steel. To reduce the percentage of the contaminants in each batch of steel the EAF steel makers will try to source ‘clean’ quality scrap iron and scrap alternates such as MPI, DRI and HBI. These scrap alternates are low in impurities. DRI is around 92%Fe (about 85% metallised iron available for steel making) and MPI is 96%Fe, the premium scrap alternative. HBI is a compressed form of DRI that is suitable for transport and merchant sale.
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A high quality EAF steel maker may use around 30% of scrap alternates, such as MPI, in each steel production batch. MPI commands a premium price over the best quality scrap because of its pure iron nature. The price of MPI therefore tracks the price of high quality clean scrap but at a premium. In turn, the price of high quality scrap is largely governed by supply and demand. When world steel production is growing, the demand for good quality scrap iron outstrips supply and causes higher demand for MPI and higher prices.
The 2006 year ended up being another robust year for world steel manufacturing. World steel production grew by a further 9% YoY, with steel prices climbing 15.2% and metallics (scrap, MPI, DRI & HBI) prices climbing 20.2%.
World steel production grew by 102 million metric tonnes in 2006 and for the first time in a number of years the growth was not all about China. One third of steel production growth occurred outside China and in fact Chinese steel production growth, while still strong, fell from 27% in 2005 to 20% in 2006. What was evident was a resurgence of steel production growth worldwide. As shown below, all major steel producing regions expanded production in 2006.
| Growth in World Steel Production in 2006 by Region | |
|
Steel Production Region |
YoY Growth in Production |
|
Asia |
Up 13.0% |
|
Eastern Europe |
Up 13.0% |
|
CIS |
Up 6.0% |
|
America |
Up 4.5% |
|
Western Europe |
Up 4.0% |
|
Middle East |
Up 1.0% |
Source: CRU Group
CRU International forecasts that an extra 390 million metric tonnes of steel will be produced annually by 2011 (of which 28% or 109.2 million metric tonnes will be produced outside of China. For MPI to maintain its market share of the metallics market, would require an additional 13 million metric tonnes of MPI to be produced annually.
MPI is a commodity in strong long term demand.
MPI’s value as a commodity is underlined by the price growth multiplier in the last 10 years:
Steel Price Growth | - | 1.7 times |
Iron Price Growth | - | 2.2 times |
MPI Price Growth | - | 2.4 times |
Continuing Asian growth, the resumption of worldwide steel production growth and reduced scrap exports from the CIS are likely to see demand for EAF feedstock (scrap iron, MPI, DRI & HBI) remain firm from 2007 to 2011 with prices at historic highs.
Market data clearly shows a long term shortfall in metallics and particularly in low residue feed such as ‘prompt’ scrap (scrap obtained from manufacturing that contains low impurities), MPI, DRI and HBI.
The availability of prompt scrap is clearly an issue for the market as far out as 2017. The quantities of traded prompt scrap are forecast to fall over this period, causing an increasing average premium for the prompt scrap over obsolete scrap. This premium flows onto MPI prices and should see sustained high average prices out to at least 2017.
Despite the very high current prices and the ‘bullish’ price forecasts for MPI, the Company has taken a more conservative long term average price assumption into account in the preparation of its financial modeling of the Yalgoo Iron Project.
There is a forecast shortfall of 60 million metric tonnes of metallics by 2011. Some of this will be met by new captive capacity DRI developments on the front end of existing steel plants. The shortfall will also cause higher scrap prices which in turn will make it economic to recover more scrap iron but as this scrap will be obsolete scrap, price pressure will remain on the premium feed such as prompt scrap and MPI. The predicted shortfall is large enough to provide a high level of confidence that a healthy market will exist for Ferrowest to sell its MPI product into in 2011.
The largest market for metallics remains Asia, the Yalgoo Iron Project’s closest market. The major competitor in the MPI market is Brazil, over which the Yalgoo Iron Project holds a significant shipping cost advantage.
Project Capital & Operating Cost Estimates
This section provides indicative capital and operating cost estimates for the Yalgoo Iron Project as established in the Pre-feasibility Study completed in July 2007. A conservative approach has been taken to cost estimates and further optimization of the project economics is likely as the detailed engineering and other studies are further advanced.
Operating Costs
Operating costs have been estimated from indicative quotations received or derived from first principles using consumption data and rates from industry sources.
| Operating Cost | (0.5mtpa) | A$270.65/t MPI |
| (1.0mtpa) | A$252.15/t MPI | |
| EBITDA per tonne | (0.5mtpa) | A$151.43/t MPI* |
| (1.0mtpa) | A$169.93/t MPI* |
Note * Assumed long term MPI price forecast is A$422.08/t.
Current prices are well in excess of this forecast.
Capital Costs
The capital cost estimate takes into account all currently anticipated capital expenditure which the proponent of the Project is likely to bear including the establishment of the mine, beneficiation plant and MPI plant. In addition to the construction estimates for the various plants, this estimate also includes incidental costs such as pre-stripping of the mine, recruitment and training of the workforce, first fills of spares and consumables and the values of materials ‘in work’ to fill the various stockpiles throughout the production chain (to the point of export).
| Capital Cost – Stage 1 | (0.5mtpa) | A$437.3M |
| (Additional – Stage 2) | 1.0mtpa | A$302.5M |
Resource and Product Specifications
Iron Ore Resources
The quoted iron ore Resources are 100% owned by Ferrowest.
The following Inferred Resource has been classified and reported in accordance with the Joint Ore Reserve Committee (“JORC”) Code that governs the proper reporting of Resources and Reserves for companies listed on the Australian Stock Exchange.
The details of the Inferred Resources are:
|
Resource Classification |
Million Tonnes |
Fe |
SiO2 |
Al2O3 |
P |
LOI |
|
Inferred (Fresh) |
95.3 |
25.33 |
49.55 |
5.57 |
0.057 |
0.34 |
|
Inferred (Transitional*) |
17.2 |
25.14 |
49.23 |
5.75 |
0.056 |
0.65 |
| Inferred Total | 112.5 | 25.30 | 49.50 | 5.60 | 0.057 | 0.39 |
The information in this report that relates to Exploration Results, Mineral Resources or Ore Reserves is based on information compiled by Graeme Johnston, a Fellow of the Geological Society of London and Malcolm Titley, a Member of the Australasian Institute of Mining & Metallurgy.
Graeme Johnston is a Director of the Company and a geological consultant to it through Corad Pty Ltd. Graeme Johnston has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a ‘Competent Person’ as defined in the 2004 Edition of the ‘Australian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Graeme Johnston consents to the inclusion in this report of the matters based on his information in the form and context in which it appears.
Malcolm Titley (MAusIMM) is a Director and Principal Consultant of CSA Australia and is responsible for the estimation of the Mineral Resource for the Yogi deposit. Malcolm Titley has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the Australian Code for Reporting of Exploration Results, Mineral Resources and ore Reserves. Malcolm Titley consents to the inclusion in this report of the matters based on his information in the form and context in which it appears.
Iron Ore Concentrate Specification
The specification of the representative iron ore concentrate produced from the Yogi ore deposit is:
|
Fe% |
SiO2% |
Al2O3% |
TiO2% |
P% |
S% |
Cu% |
|
67.0 |
5.36 |
0.58 |
0.07 |
0.012 |
0.023 |
0.002 |
Merchant Pig Iron Specification
The provisional specification for the merchant pig iron from the Yalgoo Iron Project is:
- 96-97% Fe
- 2.5-3.5% C
- <0.05% S
- Physical form: Iron Nuggets
