“We’re not just drilling holes and doing geology,” says Alien Metals Ltd (LSE:UFO) (LSE:UFO) chief executive Bill Brodie Good, taking time out from his holiday to explain the latest progress at the Hancock iron ore projects in Australia.
“We’re driving it forward.”
That much is also clear from the title of the most recent press release, which states “Hancock firming up as a standalone DSO operation.”
For the uninitiated, DSO stands for direct shipping ore, and is a term applied to ore that’s rich enough in iron to be shipped straight to port and on to a customer without any need for prior processing.
It can be a very lucrative business, especially if the ore is at or near surface, as it is at the Sirius Extension part of Hancock.
Here, Alien has been encountering grades consistently above 60% iron from surface or at depths of just one or two metres.
The plan now, as Brodie Good says, is to drive the project on towards establishing a formal resource, and then to move it rapidly towards production.
How long will this process take overall?
That’s hard to say, given that many operations in Australia are hamstrung by the coronavirus at the moment. But it’s worth noting that peers of Alien’s working similar operations in a similar environment typically take about 20 months from establishing a resource to digging up first ore.
What is sure is that in mining terms getting Hancock up and running as a producer isn’t going to cost much at all.
First up, there’s the matter of the grade and the proximity of the ore to surface. A typical DSO ore will run at upwards of 55%, and since Alien’s appears to be running significantly higher than that, the economics ought to look after themselves.
After all, at Hancock there’s no need for the company to build expensive rail spurs or port infrastructure.
“It’s all truckable by road,” says Brodie Good.
“We can take the ore to an existing port infrastructure that accommodates such projects.”
So, it’s about as simple a mining operation as you can get. Dig up ore at surface, and truck it out by road to port. No processing required, no major building works of any kind, and all the engineering to be focussed on the pit itself.
It must be conceded, of course, that although rich, the project isn’t exactly vast, and won’t be squaring up to any of the famous Australian iron ore operations run by BHP Group PLC (LSE:BHP) or Rio Tinto. Nevertheless, for a junior company, size isn’t everything. What counts is cashflow.
And at this stage, it looks as though Hancock is going to be very useful on that score. A reasonable scenario to consider, albeit before the official resource numbers are in, is that Hancock will produce around 1-1.5mln tonnes of ore a year over a 15-year mine life.
It may do better. Somewhere in the order of 60% or 70% of the tenement hasn’t yet been explored, and may hold a lot more material. And beneath the DSO, there may be lower grade ore that could become part of a longer-term operation, funded in part by the cashflow from the DSO.
But these are imponderables that can be addressed in due course.
In the meantime, Alien is moving rapidly towards establishing a viable DSO project, with all the upside that that entails.