Atlas Iron Limited (ASX code: AGO)
ASX RELEASE
25 February 2008
Open
Briefing®. Atlas Iron. Production and Export of DSO
Record of interview:
corporatefile.com.au
Atlas
Iron Limited (ASX code: AGO) is focussed on commencing iron ore production and
exports from its Pardoo Project through Port Hedland in 2008, and progressing
the Abydos Project, also through Port Hedland. Can you briefly describe these
two Pilbara hematite (DSO) projects, the status of each and the quality of
resources? Are you on track for first shipments from Pardoo in October this year?
MD David Flanagan
Yes, our Pardoo project is all on track for first production and
export in October this year. Being only 75 kilometres from port and not
constrained by needing a rail
agreement is very handy.
The mining agreement has been signed with the native title
claimants, the mining leases have been granted and we’re currently
recruiting our workforce. We also
expect to be awarding key contracts in March and get the last of
the environmental approvals in July.
Pardoo currently has resources of over 14 million tonnes and
reserves of over 5 million tonnes. They are growing fast. We will produce 1
million tonnes per annum from Pardoo for the first two years, and will grow
that to 3 million tonnes per annum thereafter.
We started drilling at Abydos,
120 kilometres south of Port Hedland in July 2007, and we’ve already got
a resource of over 8 million tonnes. It is inconceivable to
me that we have found it all at this project in 6 months, so I
expect we will find a lot more. Right now we are working through the Abydos pre-feasibility
study
which will deliver reserves by mid-year. The plan is to be in
production by the end of 2009 at a rate of 3 million tonnes per annum.
Atlas has a MOU with FMG which covers rail and port services. The
FMG and BHPB railways, the proposed Hancock railway as well as the Great Northern Highway
all cross the project. Abydos
is a very well located project. We also have a port agreement with the WA State
Government which guarantees 3mtpa across the new Utah Berth. That is like gold,
it’s going to be a world class shipping facility and a major advantage
for Atlas delivering into China.
We’ve met nearly all the major steel mills and they all want
to buy our ore. There is very strong demand for our ore. Having deposits in
similar geological terrain as the Goldsworthy and Yarrie operations helps
customers to understand how our ore will behave in the blast furnace.
corporatefile.com.au
What are your medium-longer term Pilbara DSO production targets
for the Company?
MD David Flanagan
Our first ore shipment from Pardoo is scheduled for October this
year. We expect to produce 1 million tonnes per annum and grow that to 3
million tonnes per annum within two years. That is our number one priority
right now. The second leg to our production growth is to get Abydos up and running. We are targeting to
get it into production by the end of 2009 at a rate of 3 million tonnes per
annum.
By 2010, we expect to be exporting 6 million tonnes from the two
projects with an operating margin of better than $30 per tonne. That will make
a pretty good iron
ore business and it justifies all the effort we are throwing at
the projects right now.
We have 7 drill rigs in the field and I can’t imagine us
advancing these two projects any faster.
With an anticipated operating cost of $30 to $40/tonne for both
Pardoo and Abydos,
the recent price negotiations are indicating we will likely have operating
margins of greater than $50/t in our first few years. That would
have us making some very serious cash for shareholders.
Our aim is to grow annual DSO production to beyond 10 million
tonnes by 2012, keep operating margins in excess of 30 dollars per tonne and
generate more than
300 million dollars a year in operating cash flows. We have a
great team and an amazing group of tenements in the right place at the right
time.
corporatefile.com.au
Atlas Iron Limited is also progressing a DSO project in the
Midwest of Western Australia and a magnetite project in the Pilbara. Can you
briefly describe these two
projects and the status of each?
MD David Flanagan
Other production expansion options come from the Ridley Magnetite
Project at Pardoo and other Direct Shipping Ore (DSO) projects in the Midwest region of
Western Australia.
We think Ridley is one of the stand-out magnetite project in Australia.
It has size and proximity to infrastructure as its biggest advantages. The
resource at Ridley Magnetite Project at Pardoo is already at 853 million tonnes
at 37.2% iron with a proposed production rate of 10 mtpa concentrate grading
68.9%. The resource target at 1 – 1.5 billion tonnes is massive.
The Ridley Deposit is at Pardoo and has all the same
infrastructure advantages being 75 kilometres from Port Hedland, it’s
bisected by a water pipeline, a powerline, railway, gas pipeline and a national
highway. There is nothing out there which comes close for location.
Operating costs are certainly competitive. Atlas has signed an MOU
with Fortescue in respect of ship loading of 10 million tonnes per annum of
concentrate.
The strip ratio is about 0.5 to 1, operating costs are about
$40/tonne.
Like all magnetite projects, Ridley is a large capital project,
but it is expected to produce 10 million tonnes of 69% concentrate each year.
Recent scoping studies
were modeled on a mine life of 25 years.
Think about it for a second, 10 million tonnes per annum at $30
per tonne operating margin, means $300 million per annum for 25 years. That is
$7.5 billion
in free cash for the life of mine. A lot of people don’t
realise that half of the world’s steel comes from magnetite ore.
Steelmakers in general know magnetite very well. Blast furnaces are typically
built with a 70 year life and cost billions of dollars to build. They need a
secure, long life supply of ore because you can’t simply turn a blast
furnace on and off, they need to stay running. Ridley offers long life and
large ore supply and we expect the resource to grow to somewhere between 1 and
1.5 billion tonnes.
The Midwest assets are an option on
infrastructure. When the rail and port get up and running we think these
tenements should be able to support 3-4 million tonnes
per annum. We are doing a scoping study on this at the moment but
operating margins in the order of $30/t for a high grade product should be
feasible. By high
grade I mean greater than 63% Fe.
corporatefile.com.au
You are planning for significant increases in Pilbara DSO
resources, and a very significant production profile. While you have delineated
substantial Pilbara DSO
resources, some 23 million tonnes, in a very short space of time,
can you explain why you are so confident that you will delineate such
significant additional iron
ore on your tenements?
MD David Flanagan
We made our first discovery at Pardoo in August 2005 and as at
January 2008 we had about 23mt. We have been finding iron ore at a rate of
about 1 million tonnes
per month. We now have more big targets in front of us than we
have ever had before, we’ve got a bigger, more effective exploration
team, 3 rigs in the bush
drilling and I am sure we are going to grow our resource inventory
very quickly from here.
corporatefile.com.au
Can you outline the scope of the financial parameters of the
Pardoo and Abydos DSO projects? What is the outlook for iron ore markets and
your DSO product?
What is the sensitivity of the projects to the anticipated
increase in iron ore price?
MD David Flanagan
The capital cost to develop Pardoo and truck the ore 75 kilometres
into Port Hedland is about $10 million, which is the lowest capital cost of any
iron ore
project in Australia.
In fact, nothing else out there comes close. The initial capital will export at
1 million tonnes per annum with an upgrade to 3 million tonnes per
annum in our second year. That increase to 3 million tonnes per
annum will cost an additional $14 million.
Abydos is scheduled for commissioning in late 2009 at 3 million tonnes
per annum and scoping studies suggest capital costs of $38 to $46 million
dollars. It is
budgeted to produce similar cash flow to Pardoo at >$30/t.
Our financial models are currently being revised to factor in the
new pricing forecasts produced by CRU. Their current price forecasts have our
operating
margins exceeding $50/t early in project life and falling towards
$30/t after a few years. Our plan is to maintain the biggest margin we can as
long as we can by
growing production and reducing costs.
We’ll be selling our DSO mainly into benchmark contracts
with some at spot. Because of the low capital cost of our projects we
don’t have to enter life of mine
benchmark contracts. This gives us some flexibility. We’ll
manage the risk and enjoy the pricing upside by selling some into spot markets.
Both projects will use standard 100 tonne dump trucks and 120
tonne diggers, and a simple crushing plant. It’s plain vanilla off the
shelf gear. It’s available now and
ready to go at a press of a button.
We had budgeted on generating approximately $180 million in
operating cash flow per annum when both the Pardoo and Abydos projects are producing an aggregate of
six million tonnes per annum. That was at a margin of $30 a tonne, which was
our budget figure before the recent iron ore price rises. That budget obviously
looks pretty conservative now. That’s a very strong cash flow considering
the very modest capital outlay, and relative to Atlas’ market
capitalisation.
corporatefile.com.au
What is your development strategy with regard to the Ridley
magnetite deposit?
MD David Flanagan
At the moment, we’re in the pre-feasibility stage. Upon
completion of the prefeasibility study we will introduce a partner to provide
financial support and for
them to have a major say in the design decisions for the project.
To date we’ve had discussions with some 30 top-tier groups who we know
have strong financial
capacity. They have all shown a good deal of interest in getting
involved.
corporatefile.com.au
Can you comment on Atlas Iron’s ability to attract the right
technical people for the projects, including the experience of your Board?
MD David Flanagan
We believe in what we are doing. We are going to make a great
contribution to the state and the Pilbara region while we make money for
shareholders.
Employees are rewarded and challenged, they can make a difference,
they are all shareholders and we make a real effort to be a family friendly
work place
wherever we can.
We have an absolutely fantastic team running our projects, from
Ken Brinsden, Mark Hancock, Garry Plowright, Mark Gunther, Jeremy Sinclair,
Adam
Liebenberg, Bob Third and Tony Walsh. If they were footballers
they could only be described as the all stars. We have about 80 people working
for us now and
they all have the experience, the passion, the energy and the
ability to deliver our projects on time. Atlas is a very exciting place to be
working.
At the Board level we are also very well equipped. David Nixon,
our Chairman, has about 40 years mining experience and was Project Director for
the Mining
Area C mine in the Pilbara owned by BHP Billiton. Geoff Clifford was
a Director with Aztec and an Executive at Portman Mining, Jyn Sim Baker was
previously
Managing Director of Midwest Corporation which successfully
commissioned the Koolanooka iron ore project in the Midwest.
David Hannon has a very experienced commercial head and has been involved in
resource companies for about 20 years, in this sector he is a real asset and we
are very lucky to have him.
Our Directors have been involved in all aspects of developing
mining projects.
corporatefile.com.au
What is your current cash position? Can you describe your share
register?
MD David Flanagan
Atlas has a strong cash position, with approximately $80 million
in the bank, no debt, and first production planned for October. We are looking
very good right now.
About 70% of Atlas’ shares are held by our top 50
shareholders. Our largest shareholder is IMC Ltd, a diversified logistics
company specialising in Asian shipping. They currently ship about 20% of Indonesia’s coal exports, they’re
building a port in China,
they have interests in ship loading facilities and shipyards, and they own 25%
of the Ashton Colliery. They are a very big privately owned business and they
are very keen to see Atlas become a large independent iron ore producer. In
addition, Atlas has a register of around 40 international and domestic
institutions. Again our register is extremely well put together and supportive.
corporatefile.com.au
How do your assets and your strategy differentiate Atlas from your
peer group?
MD David Flanagan
We are going into production in a little over 6 months, our
project is 75 kilometres from a port with capacity and we are not relying on
rail access, we have no debt
and we will get up and running for $10 million.
We are building a pipeline of 3 to 4 million tonne per annum DSO
projects.
Pardoo and Abydos
are the first two projects. Our Mid-West mining leases and the 3 recent
acquisitions have the potential to provide more of these projects. That
should be more than sufficient for Atlas to produce +10 million tonnes
per annum of DSO not looking too far ahead. If you add this to 10 million
tonnes of
magnetite concentrate per annum, we are starting to look pretty
big, a globally significant iron ore producer.
We own all of our assets 100%, they have combined potential for 20
million tonnes per year with operating margins greater than $30/t and annual
cash flows
greater than $600 million.
Over the next 6 to 12 months we will be ticking more boxes and building
that vision and I see that as a real opportunity for new and existing
shareholders.
Having tenements close to infrastructure is also key to our
business strategy. We recently picked up 1500 square kilometres of ground and I
am very glad the
vendors chose to deal with Atlas. It is very good ground and we
are looking forward to getting on the ground and drilling a lot of holes. We
have built up a fantastic team and pipeline of projects that will grow our
business.
There is no one else out there with all that.
corporatefile.com.au
Thank you David.
For further information on Atlas Iron please visit www.atlasiron.com.au or call
David Flanagan on (08) 9476 7900 or email davidf@atlasiron.com.au
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