Hawsons Iron Ltd (ASX:HIO) is trading higher as the company kicks off a strategic review to consider staged scale-up options for production from its namesake project near Broken Hill, New South Wales.
A scale-up concept will consider the potential to use existing rail and port transport infrastructure to reduce capital costs.
Hawson managing director Bryan Granzien said while the bankable feasibility study (BFS) activity for the preferred 20 million tonnes per annum option had slowed due to an unforeseen escalation in recent infrastructure capital cost estimates - the review would examine less expensive pathways.
Granzien stressed that while the global economic climate and associated supply chain cost impacts had changed rapidly, the longer-term future potential of the Hawsons Iron Project remained unaffected by the decision to slow activity on the BFS and the market’s response this week.
Hawsons shares were trading as high as 12.5 cents during a strong midday run, up 28.87% from the previous close.
“Multi-stage mining operation”
Granzien adds: “The board’s decision to slow activity on the 20 million tonnes BFS was rightly taken to prudently preserve the company’s cash resources while we take stock, move into problem-solving mode and formulate the optimal path forward, which will be impacted by the changing world conditions.
“The strategy could conceptually involve developing a multi-stage mining operation with a lower-base production rate initially to 'right-size' the project until improved market conditions enable the development of our preferred 20 million tonnes operation.”
Strategic review
The strategic review will:
- Consolidate and safeguard all the valuable data and information captured to date.
- Examine all potential options, including scaling the project up using existing rail and port infrastructure to minimise up-front capital costs.
- Conceptually consider a multi-stage mining operation with a lower base production rate to 'right-size' the project until improved market conditions enable the development of the preferred 20 million tonnes per annum operation to resume.
Meanwhile, the project’s potential as a source of high-grade magnetite concentrate remains.
Granzien adds: “To reiterate, we absolutely believe in the value of our project as a source of high-grade magnetite concentrate for the ‘Green Steel’ supply chain and are fully committed to examining all options available to us.”
The recently completed mineral resource upgrade established a project resource of 481 million tonnes of Hawsons Supergrade® iron concentrate and ongoing discussions with potential off-takers have identified much greater demand than the proposed 20 million tonnes production profile.
Optimal pathway
In a recent report, 'Pedal to the Metal', research and consultancy firm Wood McKenzie underlined the importance of high-grade iron ore products to emissions reduction in the carbon-intensive steelmaking industry and the potential for the Hawsons Iron Project to support Australia’s contribution.
However, Granzien said in order to evaluate and determine the optimal pathway forward, the company would still need to raise additional working capital, contingent on shareholder approval of several resolutions at the forthcoming annual general meeting on November 15, 2022.
He urged shareholders to support these resolutions which would significantly enhance the company’s equity-raising placement capacity and options for funding required activities.
“We were preparing to raise additional capital earlier in the year, but a rapidly rising aversion to risk within equity markets abruptly curtailed our plans in the face of mounting global economic uncertainty,” he said.
“The updated capital cost estimates included implausible contingencies of up to 50% and in some components of the project an escalation of as much as 300%-plus within a year.
“These numbers could not be ignored and it is expected many other companies around the world will be facing similar challenges.
"The board’s decision to slow down work on the BFS was taken in response, and we were obliged to advise shareholders before determining the optimum solution,” said Granzien.
He added that the inflationary impacts of the pandemic on the global economy, combined with the interest rate policy responses of central banks around the world and the Russian invasion of Ukraine, could continue generating strong market headwinds for some time to come.