Mount Gibson on track to benefit from premium iron ore demand

The Koolan Island site in March. Image: Mount Gibson.

Mount Gibson Iron has bolstered its high-grade iron ore reserves at the Koolan Island restart project in Western Australia as demand for premium product strengthens.

Operations at the hematite mine in the Kimberley region were suspended in November 2014 following a seawall failure that led to the operation’s main pit being flooded.

Several years later and Mount Gibson, now more than halfway through the redevelopment of Koolan Island, is on track to deliver first sales from the operation in the March 2019 quarter.

The operation could potentially capitalise on surging demand for high-grade iron ore, with today’s reserves upgrade demonstrating this opportunity.

Mt Gibson has increased the reserves at Koolan Island by 64 per cent to 21Mt, at a grading average of 65.5 per cent Fe.

The upgrade also grows Koolan Island’s forecasted mine life to more than five years, up from the previous 3.5-year estimate.

Mount Gibson chief executive officer Jim Beyer said the upgrade dramatically increased the value of the project on even the most conservative pricing and exchange rate assumptions.

“The expected average grade of Koolan iron ore of 65.5 per cent Fe provides significant upside to prices above those used in our base case assumption,” Beyer said.

“For example, at the current (Platts 62 per cent Fe) spot price of approximately $US65 a dry metric tonne (dmt) and high-grade premium, the pre-tax net present value (NPV) increases to over $500 million.”

Beyer said this highlighted the value that came from re-establishing Mount Gibson as high-grade hematite producer at a time of rapidly growing demand for premium quality iron ore that was driving substantial premiums for high-grade ores.

“Importantly, it also provides a strong platform for further value creation,” he said. “Our substantial cash reserves and anticipated cashflow from Koolan Island will give us the capacity to undertake this investment without any need to take on debt for the project and be well positioned for other opportunities which may arise.”

The reserves increase follows a geotechnical evaluation at Koolan island aimed at confirming a method to access around 8Mt of high-grade iron ore, previously classified as indicated mineral resources, at the eastern end of the main pit.

Mount Gibson had completed 57 per cent of the restart project at the end of last month. The seawall construction remains on track with the project schedule to achieve first ore sales in the March quarter next year.

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