Ironclad Mining (ASX: IFE) has few boxes left to tick in the development of its low capital expenditure Wilcherry Hill Iron Ore Project in South Australia.
With a successful Direct Shipping Ore (DSO) export program, the project will be only the second iron ore mine worldwide to supply direct shipping grade magnetite iron ore for export.
Four years after its discovery, Wilcherry Hill differentiates itself from other iron ore projects in Australia as it has a relatively low start-up capital cost of around $26 million. A robust rate of return and quick pay back is possible at current and projected iron ore prices.
The project will produce up to 2 million tonnes of premium quality DSO a year in its first three to four years. The DSO will be sold to Chinese steels mills under a sales and marketing agreement announced six months ago.
Thereafter throughput will increase over time, with the addition of magnetite concentrates to inventory. Five to six million tonnes output is targeted by the end of year three.
With an average iron ore price of A$133 net of freight charges into China (current pricings are about A$144 net of freight costs), initial operating costs of A$85 per tonne and robust margins of approximately A$50 per tonne are predicted.
Based on a comprehensive Definitive Feasibility Study (DFS) these figures, at first full year’s production, will return an operating cash flow of around A$100 million a year in stage one of the project and will ensure a rapid payback of any borrowings.
The project is an 80:20 joint venture between IronClad and Trafford Resources Limited (ASX: TRF) which discovered the iron ore when exploring for gold in 2006.
The company has now ticked the following boxes on the path towards development:
Over 133,000m of drilling has been completed over the iron ore deposits within the 976 km2 Wilcherry Hill tenements. Previously unrecognised, high quality, skarn magnetite was identified.
The large Hercules deposit 45km east of Wilcherry Hill was also discovered. Wilcherry Hill will supply ore to the project for many years whilst Hercules remains the long term future of the company.
The company announced a JORC compliant resource of 69.3 million tonnes of near surface crystalline (skarn) magnetite ore at Wilcherry Hill comprising 48 million tonnes in the indicated category and 21 million tonnes in the inferred category.
The total potential for skarn magnetite is approximately 600-700 million tonnes. 198 million tonnes of ore has also been outlined at Hercules – however the overall potential there remains in excess of 1.5 billion tonnes.
Extensive metallurgical and processing studies have confirmed that the Wilcherry Hill crystalline magnetite is an extremely high quality material, easy to mine, self fluxing and with very low level of contaminants.
Direct Shipping Ore Identified: In August 2009 IronClad advised that tests on near surface high grade crystalline magnetite had demonstrated that some ore could be mined as a premium grade direct shipping ore (DSO) by crushing, screening and a simple dry magnetic separation process.
The company immediately focussed on defining enough DSO grade magnetite to achieve an early, low cost entry into iron ore production.
Iron Ore Sales Contract
IronClad signed a comprehensive sales and marketing agreement with Singapore based OMS Materials on September 14, 2010 under which OMS will purchase the first two years production of Wilcherry Hill iron ore at market prices for shipment to a stockpile in southern China and distribution to steelmakers as required. OMS was also appointed exclusive agent in China for Wilcherry Hill Iron Ore.
Native Title Agreement
A Native Title Mining Agreement signed by the Gawler Ranges Native Title Claim Group and Executives of IronClad on September 1st 2010 provides opportunities for the local Aboriginal people and opens the way for Native Title and Aboriginal heritage clearances.
Over two years of environmental studies were completed and the results embodied in documents provided to the state government of South Australia for their consideration as part of the Mining Lease Approvals process.
The Mining Lease Applications have been completed and submitted to the South Australian government for their approval. It is anticipated that such approvals should be forthcoming by August or September of this year.
An early works programme has previously been approved and many local site works have already been completed and all major tenders and contracts pertaining to the project are in the process of finalisation.