Iron ore explorer Macarthur Minerals (ASX: MIO) is about to debut on the ASX, but unlike most juniors, which have a long road ahead, Macarthur has already begun work for a bankable feasibility study, secured major environmental approvals and locked-in an offtake deal with Glencore International.
Speaking with Small Caps, Macarthur chief executive officer Joe Phillips said the company had been listed on the TSX-V for the last decade, but it made sense for an Australian-based company with an Australian iron ore project to be on the ASX, which is among the best exchanges globally for junior miners.
He added that Australian investors also have a good understanding of the iron ore sector with many success stories in Western Australia’s Pilbara region – the home of WA’s iron ore boom, which started out in the 2000s and gathered momentum until it overtook coal as the country’s most valuable export in 2010.
Macarthur’s securities will begin ASX life, trading under ticker code ‘MIO’, after the company’s IPO raised at least $5 million via the issue of 20 million shares at $0.25 each.
Upon listing, Macarthur’s primary objective will be to transition from explorer at its flagship wholly-owned Lake Giles project to a producer of high-quality magnetite concentrate for global markets.
Lake Giles iron ore project
Lake Giles is an advanced iron ore project based in WA’s Yilgarn region and includes 15 tenements spanning 62.5 square kilometres.
To-date, more than $62 million has been spent on developing the asset, which is split into the Moonshine magnetite project and the Ularring hematite project.
Moonshine has an inferred resource of 1.316 billion tonnes at 30.1% iron, while Ularring hosts an indicated resource of 54.5Mt at 47.2% iron and an inferred resource of 26Mt at 45.5% iron.
In readiness to begin mining the Ularring hematite material, Macarthur has secured requisite environmental approvals, which pave the way for development to begin.
A preliminary economic assessment was published on Lake Giles in June this year which revealed life of mine free cashflow of US$1.4 billion from revenue of $6.8 billion was possible over 31 years.
Capital expenditure to establish a 3.4Mtpa operation is estimated at US$326 million including a US$44 million contingency.
The study incorporated Moonshine and Ularring resources to generate a high-grade blended premium magnetite concentrate exceeding 65% iron.
Macarthur is proposing to ship the product via the WA Government-owned Port of Esperance which is believed to have capacity.
The ore will be processed on site then hauled 80km to the existing open access rail network and then railed to the port.
To de-risk this plan, Macarthur has established an exclusive negotiation agreement with Aurizon for the rail haulage.
Macarthur also noted it was in advanced discussion with the WA Government regarding port access and capital estimates for infrastructure upgrades.
Advancing Lake Giles
The preliminary economic assessment gave Macarthur enough information to kick-off infill drilling at Lake Giles, which was completed last week.
Mr Phillips said the next step at Lake Giles will be to upgrade the project’s resources to measured and indicated status, which would then underpin the bankable feasibility study, which IPO proceeds will help fund.
To de-risk the project even further, Mr Phillips said the company already has an offtake partner in Glencore.
The binding aspect of the March offtake agreement covers phase one mining. The agreement also incorporates commercial terms for Glencore to opt to extend the agreement beyond 10 years – taking about 4Mtpa of Lake Giles ore.
At the March iron ore price of US$98 per tonne, Macarthur pointed out the 10-year agreement could generate US$4 billion over the period.
Premium magnetite product
Currently WA’s larger iron ore producers dominate the seaborne iron ore market with 58-61% iron products.
Of those products, 96% of the iron ore is hematite.
Macarthur’s strategy is to differentiate itself by offering a premium export product of 65% iron and above.
In addition to its higher grade, Mr Phillips said the Lake Giles ore would appeal to Chinese steel producers due to its lower impurities.
Lower impurities enable more steel to be created, while the reduced sulphur would also generate less carbon dioxide emissions during processing compared to a hematite material.
Additionally, magnetite concentrate typically requires a smaller amount of coking coal compared to lower grade iron ore products.
Mr Philips said this would lead to improved furnace optimisation for steel producers. He added all these factors would appeal to Chinese steelmakers particularly with the country’s strict environmental regulations now in place.
Lithium and gold assets
In addition to iron ore, Macarthur has exposure to other commodities including lithium and gold.
To unlock their value while it focuses on Lake Giles, Mr Phillips said the non-core assets had joint venture partners and were subject to active exploration programs.
Mr Phillips said this gave Macarthur exposure to any upside from the projects without the company having to expend millions on exploration and development.