With much of the pre-development legwork already completed at its recently acquired flagship Balla Balla project in Western Australia, Forge Resources has begun marketing a magnetite iron ore product as the company seeks to secure project financing.
Balla Balla is a large-scale, JORC compliant titanium-vanadium-magnetite resource close to the coast in Western Australia with defined reserves on granted mining tenements. Major approvals such as environment, native title, water access and conditional gas agreements are in place and a definitive feasibility study (DFS) was completed in early 2010.
“The DFS shows the project is very financially robust as a magnetite only project. However what is attractive about Balla Balla is the additional vanadium and titanium contained within the resource, which we view as an embedded option for the company,” says Matthew James, managing director of Forge.
Initially, the vanadium which is contained within the magnetite concentrate that will be sold to steel mills, most likely in China, will act as a free credit for those mills that have the technology to separate the vanadium, he explains.
“This vanadium credit allows steel mills to lower their net cost of production. In addition we will be getting a titanium revenue stream from an ilmenite by-product produced alongside the magnetite. In the longer term we aim to extract the full value of both the titanium and the vanadium,” says James.
However there is one missing link, which is the original studies were built on access to 10 million tonnes per year (Mt/y) of shipping capacity at Port Hedland.
James explains that Forge bought the Balla Balla project from Atlas Iron for A$39.5 million, which was over $100 million less than Atlas Iron paid approximately 18 month prior to acquire Aurox Resources, which then owned the project. Atlas kept the 10Mt/y Port Hedland capacity for its own DSO hematite iron ore operations.
“Without the Port Hedland capacity we knew an alternative transport route would be required to get to export. We were already looking at trans-shipping as an option, which we think is feasible particularly as a trans-shipment operator is already in northern Western Australia. In places like South America and Indonesia there is quite a bit of this being done, where the material is barged from the coast to a ship anchored offshore” says James.
A back up plan includes negotiating capacity at Anketell Port since the Balla Balla project is situated just 100km east of the area and Forge has been short-listed for consideration, but the company’s main focus is on trans-shipment.
“Our primary plan is the trans-shipment option. We have identified three locations near the mine that we are evaluating for trans-shipment. We have finished scoping studies on the sea-side of the operation and on the land side we are doing detailed studies on environment as well as engineering in terms of infrastructure requirements.” he adds.
Working with GR Engineering Services as well as other supporting engineers and specialists in the mining industry, Forge is anticipating the release of a revised DFS report in August which details the company’s views on revised capex and opex figures.
Currently, capex is at $1.3 billion, but James explains that this may be significantly reduced and Forge is aiming to see that number come down closer to $1 billion. Some of that reduction will come from removing the costs of a slurry pipeline intended to carry product to Port Hedland and associated port infrastructure requirements which accounted for $310 million of the original capex figure. That is not to say there will not be expenditures on a transhipment option, he notes, but in general the company is confident that both capital and operating costs, currently approximately $40 per tonne of 58 percent Fe magnetite concentrate, can be reduced all around.
In a recent capital raising effort, Forge raised $50 million in a combined debt and equity package to purchase 100 per cent ownership of Balla Balla. Todd Capital came in as a strong unincorporated joint venture partner, contributing $10 million towards the purchase for a subsequent 25 per cent ownership of the project as well as contributing towards the equity component, raised at $0.5/share, to become a 19.9 percent shareholder in the company.
“As Forge is the project manager we will be developing a close relationship with Todd Capital in the development of the Balla Balla project. After the purchase of this asset, Forge is left with $10 million for working capital, which we are using for the work to get us through to project finance,” James says.
Towards this end, Forge has received a letter of interest from National Australia Bank in relation to project funding and the company aims to complete this step by the end of 2012.
“One of the key aspects why Forge is a good investment opportunity is the track record of the management team, for example, our chairman has a strong track record of identifying and financing resource projects,” he says.
On board and offtake
Apart from an extensive history in the resource banking and development sector, chairman Nick Curtis has seen two companies through from tens of millions to billions in market cap on the ASX – Sino Gold and later, Lynas Corporation.
James himself is an alumnus of Lynas as is Forge’s non-executive director, Harold Wang, an experienced resources expert who has worked across China’s ferrous and non-ferrous sector as well as in Australia. Prior to Lynas, James worked at McKinsey & Company and Deutsche Bank, both in London.
After securing project financing, Forge expects that from start of engineering to first product will be a three-year schedule starting with 6Mt/y production and ramping up to 10Mt/y a year later.
Mineral reserve estimates shows proven and probable reserves of 229 million tonnes (Mt) with 45 per cent Fe content, 0.62 per cent vanadium oxide and 13.8 per cent titanium oxide.
There are historical offtake agreements equating to 10Mt/y with two Chinese steel mills with which Forge has started initial discussions in a bid to revive the contracts.
“The Balla Balla project is a flagship project, a company-making asset and in a relatively short time-frame can be put into production which will create significant value for the company,” he adds.