Hidden gems are starting to emerge at the small end of the iron ore industry thanks to the growing interest of billionaire investors with low-profile CZR Resources (ASX: CZR) shaping as the stock to watch.
Super-rich Gina Rinehart and Mark Creasy are leading the charge into small iron ore stocks as the price of the steel-making material refuses to fall as noted in last month’s report.
With the price of high-quality ore sitting around US$150 a tonne every iron ore producer in the world should be generating handsome profits and this is likely to continue for some time as Chinese steel demand rebounds and the war in Ukraine crimps exports from that country and Russia.
Rinehart’s deal with Hawthorn Resources (ASX: HAW) and Legacy Iron Ore (ASX: LCY), which involves the potential development of the Mt Bevan iron ore deposit located about 250 kilometres north of Kalgoorlie in WA, has boosted both small stocks.
Creasy’s control of CZR (formerly Coziron Resources) is yet to spark interest despite it owning a potentially valuable iron ore deposit immediately adjacent to an operating Rio Tinto (ASX: RIO) mine which creates a possible win/win situation – develop a mine itself or sell to Rio Tinto.
Mt Bevan attracts Rinehart’s interest
Hawthorn and Legacy started working with Rinehart’s master company Hancock Prospecting last year with the aim being to develop a project producing upgraded magnetite ore, which is enjoying revived interest at Asian steel mills.
Last week a three-way tie-up was agreed which sees Rinehart’s junior iron ore business, Atlas Iron, pay $9 million for a 30% stake in Mt Bevan, leaving Legacy (which is controlled by the government of India) with a 42% interest and Hawthorn with 18%.
Legacy’s share price initially doubled from $0.02 to $0.04 before settling back to around $0.027 at last trade. Hawthorn repeated the move, doubling from $0.07 to $0.14 before easing back to $0.11.
Ongoing work at Mt Bevan is expected to lead to a bankable feasibility study into the eventual production of a high-grade, low-impurity, magnetite concentrate.
Creasy stays on CZR
CZR should be able to beat the Mt Bevan partners into production because its project is a far simpler dig-and-deliver mine, which is essentially focused on removing the top of an iron-rich mesa (flat-topped hill), which has been the style of mining in an area first developed by Robe River mining in the 1970s.
Investor interest in CZR has been minimal thanks to what looked to be a relatively small ore deposit on what it calls the Robe Mesa project which lies to the south of the bigger Yarraloola project.
But recent drilling on the mesa has substantially improved the ore reserve, which stands at a modest 8.2 million tonnes grading 56% iron, while the resource is a more impressive 89.1Mt at 53.7% iron – with work underway to convert more of the resource into the higher reserve category.
A recently completed drilling campaign which focused on the southern end of the Robe Mesa, as well as testing deeper iron bearing areas, has boosted the confidence that an early plan for a series of small pits can be superseded by a bigger and more efficient mine.
Potentially a project yielding 2Mt of saleable product a year could grow by 50% to 3Mt annually.
Adding value to the project is the beefing up of CZR’s management team, which includes the appointment last year of seasoned iron ore executive Russell Clark as chairman and equally well qualified Stefan Murphy as chief executive officer.
Clark once headed Grange Resources (ASX: GRR), which operates the Savage River iron ore mine in Tasmania and is strong advocate for the development of the dormant Southdown project near Albany in WA.
Murphy is a former BHP (ASX: BHP) iron ore geologist and chief executive officer of Nathan River Resources, which redeveloped the Rope Bar iron ore mine in the Northern Territory.
The key to CRZ’s potential success
Backing the new management team is Creasy and his estimated $1.1 billion fortune built by astute investments in gold and nickel.
But, in the background is the key to why CZR appears well placed to achieve what few small mining companies ever do and that’s to actually develop a mine and export iron ore.
The key to understanding how CZR could be poised to develop a mine lies in an obscure piece of WA land access law, which more than 100 years ago saw stock routes gazette as a critical rights of way for pastoralists to get their cattle to market.
The Robe Mesa, which is located in close to the Robe River, is located in what was once called the De Grey Stock Route, running for 1,500km from the mouth of the De Grey River (north of the Robe River) to Mullewa in what is now the wheatbelt north of Perth.
Robe River Mining, which disappeared inside Rio Tinto, pegged most of the iron rich mesas along the robe river valley, basing its operations on a series of mesa mines – but it could never claim the section of the Robe Mesa which lay inside the stock route.
So, while Rio Tinto pushed ahead with mining, the northern end of the Robe Mesa remained unclaimed until a change was made to the law which saw Creasy win control of the hill, eventually selling it to CZR in 2012 in a deal which lifted his stake in the stock from 38.5% to 70.7%.
Creasy’s holding in CZR has been watered down over time to 55%, but he remains the key man as far as future financing arrangements are concerned.
Murphy and Clark and the people charged with taking the Robe Mesa project from concept into production, a process which started with last year’s drilling campaign to expand the iron ore footprint (and deepen it) to be followed by an updated resource estimate scheduled of completion in the June quarter.
For investors, CZR is an interesting piece of WA mining history and a small company which could develop its own iron ore mine if another potential catalyst doesn’t trigger an earlier deal.
Could Rio Tinto make a play?
Rio Tinto, the company which regards the Robe River region as its iron ore backyard is currently mining the southern portion of the Robe Mesa with exploration crews reportedly moving steadily closer to the boundary its shares with CZR.
Last reports indicate that there are seven drilling rigs active on Rio Tinto’s side of the mesa which is understood to contain a uniform ore grade on either wide of the border.
In theory, Rio Tinto with a fully mobilised exploration team and heavy-duty mining equipment at the ready could make CZR a cash offer to buy the northern portion of the Robe Mesa and continue mining.
Whatever the outcome it is likely that CZR’s share of the Robe Mesa, and its greater Yarraloola project is worth somewhat more than the company’s current stock market value of just $22 million.
Even if Rio Tinto offered A$10/t for the 8.2Mt in the current reserve on CZR’s side of the boundary it would generate $82 million (close to four times the value of the company today), but with a new resource number on the way and with iron ore sticking at US$150/t any offer would have to be a lot higher to get CZR to consider a quick sale.