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Market: AIM
Sector: General Mining
EPIC: FRX
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Ferrex Plc
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Ferrex is an AIM listed exploration and development company focussed on advancing low capital intensive iron ore and manganese deposits in Africa through the development cycle and into production.

Pdf

Ferrex says Malelane iron ore project has direct shipping potential

July 27 2011, 8:13am Ferrex has an exploration target of 775-930 million tonnes of iron ore at 34-36 per cent iron for Malelane.

 

Ferrex (LON:FRX) revealed this morning that drilling on the Malelane project in South Africa had uncovered near surface, high grade iron ore with direct shipping potential.

The company has completed 920 metres of reverse circulation drilling and the best hole returned a 14 metre intersection at 55 per cent iron ore. A close second was hole SPRC01, which delivered a superior grade of 60 per cent over a 16 metre section.

Then there were sections of 94 and 200 metres at 38 and 34 percent iron respectively. 

Ferrex has an exploration target of 775-930 million tonnes of iron ore at 34-36 per cent iron for Malelane.

The intention is to define a maiden JORC-compliant resource in the first quarter of next year.

Chief executive Dave Reeves said: "In addition to significant widths of iron mineralisation, we intersected near surface high grade iron ore in the vicinity of the historical mine workings, which highlights the potential for Malelane to host direct shipping ore.  

“A larger drill programme to investigate the area of high grade mineralisation, extensions of the northern banded iron formation, and an initial portion of the southern BIF horizons will follow up on these highly encouraging initial results with the aim of delineating a maiden JORC compliant resource by the first quarter 2012." 

Ferrex made its AIM debut last week as the shares were listed at 3 pence each. Last night the stock closed at 3.75 pence.

The new listing raised £2 million, which will fund its plans in South Africa to take the Malelane iron ore and the Leinster manganese projects to maiden resource status. 

Ferrex also has a manganese earn-in deal in Mozambique, and is looking to acquire further assets in west and central Africa. 

CEO Reeves heads an experienced management team that has worked for Afplats, Zimplats and Chromex. 

Collectively they can boast having raised around US$1 billion in the past and taken two major projects into production and one into development.

Ferrex has set its stall out to be a medium-scale, low cost producer of steel feed products. Malelane is a case in point. The nearest rail line is six kilometres from the site, while it is 170 kilometres to Maputo, the nearest port.

It means the company won’t be forced to spend hundreds of millions of pounds creating the backbone infrastructure for this potentially high grade mine. 

 “Your current capital for an iron ore mine is getting close to US$200 per tonne per annum,” Reeves said in an interview with Proactive Investors last week.  

“We are looking at well under US$100 a tonne. So the capital intensity is so much less and of course that helps the economics too.”

It is possible the Malelane project could be up and running in as little as two years, particularly if the ore is suitable for direct shipping, Reeves revealed.

“If we can get direct shipping ore into some reasonable tonnage then, from a technical viewpoint, it is as easy as it comes,” he added.

“Regulation and mining permits will take the time. Realistically you are talking about two years.”

The listing was done in part to raise the profile of the company, but will give it access to further funds as and when they are needed.

While there is enough cash to see Ferrex through the next 18 months, it is likely the company will tap the market earlier than this. 

When exactly this will be depends on just how quickly he and the team want to proceed with their projects.

“With the IPO, it is a small raise. We have done this mainly to increase our profile,” the chief executive added. 

“We kept this to £2 million. That’s all we need to get the resources on both Malelane and Leinster and do a bit of other work.” 

The fundamentals for so-called steel feed products have never been better, with the iron ore price at close to record levels. Demand from China and India remains sky high, while supply continues to be restricted.

The listing gave the company an initial market value of £15.5 million, which is modest in comparison to similar companies with projects where economics are inferior to those of Ferrex.

The excitement around the stock will be created as it brings on board new projects, though news flow from the drilling programmes should also get the stock moving.

“Given the infrastructure (we have) and the costs of getting into production for the iron ore, and the infrastructure at Leinster....we would like to rapidly rise up the ranks,” Reeves said. 

 

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