BC IRON
LIMITED (ASX: BCI)
ASX RELEASE
21 APRIL 2008
Open Briefing®. BC Iron. MD Explains Nullagine
Resource Upgrade.
Record of interview:
corporatefile.com.au
BC Iron Limited (ASX code: BCI) has
recently delivered a maiden inferred resource estimate at its Nullagine Project in the Pilbara,
Western Australia.
The global resource totalling 47.2 million tonnes of mineralised Channel
Iron Deposit (CID) includes 28.0 Mt of Direct Shipping Ore (DSO). Why is this a significant
milestone for the company? Can you explain the tonnage size and
classification differences between the global and DSO resource estimates?
MD Mike Young
Obviously, outlining any mineral
resource which is considered to be mineable (which DSO is) is significant for any small
resource company, particularly one of our current size. If you initially
look at the 28 million tonnes of Direct Shipping Ore,
using current economics, we believe most of that material may well go into an
economic pit shell. At a conservative operating margin of around A$20 a tonne before capital, this becomes a significant resource
with the potential to generate over $500 million in operating cash flows before
capital and infrastructure costs. We’re a junior explorer with a
hematite resource and it’s a simple deposit requiring simple low-cost
infrastructure, which means the pathway to unlocking this value for our
shareholders is relatively quick and uncomplicated. It’s
significant for us given our proximity to Fortescue’s
infrastructure and the fact that we have an existing MOU with Fortescue which will assists us in getting our product to
market. Obviously we aren’t mining yet and these are theoretical
projections.
DSO is an ambiguous term, but one
with significance in the iron ore game. It means Direct Shipping Ore, and
it’s effectively whatever a customer wants. As such, putting an
exact grade on it is difficult. For example, if you had a customer who,
because of your low contaminants, might take 56% Fe-content as your
specification grade as opposed to 57%, that would become DSO. We
deliberately haven’t yet arranged contracts with customers as we wanted
to maintain a market advantage, so we have adopted a conservative approach on
our “DSO resource” classification and decided that 57% Fe and above
is a saleable product on the spot market for iron ore.
We have also published a
“global resource” of 47.2 million tonnes
to provide the market with the information that we do have a low grade halo
around the direct shipping part of the deposit and, if spec grades or iron
prices were to increase again, we would be able to dip into that for blending
to give us a larger mineable resource. It is
important to emphasise that the entire lower grade tonnage
is still Channel Iron Deposit (CID) and not detrital
ore, which requires additional processing before it can be shipped.
corporatefile.com.au
Follow-up resource drilling will
start in the June quarter 2008 at Warrigal Well and
Bonnie Creek East. What do your previous results here tell you about the
DSO resource potential of these prospects compared to the Coongan
and Outcamp prospects? What is the size and
scope of your planned drilling program? When could any new results be
incorporated into your resources?
MD Mike Young
The drilling will start later this
month (April), depending on the schedule for the heritage survey. We will
initially start off with infill drilling at Outcamp
and Coongan Well to lift the resource categories on
both those deposits. Obviously being infill drilling, it’s not
going to add too many tonnes to the resource, but we
want to get these two deposits done first so we can get them into the
feasibility study as soon as we can.
Warrigal Well has some fantastic
intersections which came out during the drilling last year including up to 27 metres of mineralised CID at 55%
Fe, and several significant intersections of +58% Fe. In fact, one of the
mesas, which was very close to Outcamp, consistently
has 11 and 13 metre intersections of +58% Fe.
That’s a significant deposit again and, being above surface, means that
mining costs will be low.
Bonnie Creek East seems to have a
bit more overburden present but we’re looking at potentially 5 to 10
million tonnes and probably 10 to 15 million tonnes additional DSO coming out of Warrigal
Well. All up, towards the end of the year – when the drilling is
completed – we think we may be able to double the current DSO resource.
Currently, we have a 25,000 metre drilling program planned. One of the advantages
we have is that all of our drilling targets are less than 30 metres depth and therefore being shallow holes; the
drilling logistics are very simple.
We will have two rigs going from
mid-May and we expect to be largely completed by late July.
corporatefile.com.au
You are scheduled to complete a
Scoping Study on a 3Mtpa DSO operation at Bonnie Creek
during the June quarter 2008. Is this progressing to schedule? When
will you be in a position to define a mineable
reserve for Nullagine? What is your development
timeline?
MD Mike Young
The scoping study remains on
schedule for delivery in the June quarter and we are working through some of
the final details now, including operating and capital costs.
We won’t be in a position to
deliver a reserve because all of our resources are currently Inferred.
That’s the reason for expediting the next round of drilling, to get those
resources in to an Indicated and Measured status so that we can move that eventually
into a mineable reserve.
What we will be able to do though is
indicate the part of the resource that will be captured by a pit shell.
The idea is then to get the drilling done; get the Indicated and, if required,
Measured resources out; move those into feasibility as quickly as we can and be
in direct feasibility study by the end of the year.
Longer term, one of the other issues
we have is securing the appropriate environmental permits. We have an
excellent environmental team helping us toward having our environmental
approvals by the middle of next year. If we can get the feasibility study
done to coincide with that time, we should be in construction by the second
half of next year. That’s an aggressive timetable, but our plan is
to meet that deadline.
corporatefile.com.au
With $10.0 million cash in the bank,
why can’t you just accelerate your drilling effort to bring forward your
feasibility study currently scheduled for commencement later this year?
MD Mike Young
That is exactly what we are
doing. Our plan is to get Coongan and Outcamp drilled as fast as we can, and then get into the
feasibility. Firstly though, we have to go through several permitting
exercises, one of which is heritage approvals. We have the utmost respect
for our native title claimants and are working with them to get the heritage
surveys done as quickly as we can. We have not and will not shortcut
anything. We have a good working relationship with our claimants and, as
soon as those heritage approvals are finished, the drill rigs will literally be
a day behind them.
We’re certainly accelerating
things as fast as we can. Of course, in the Pilbara
you have extremes of weather with the heat during the summer and, just from a
purely logistical and safety standpoint, we chose not to drill during the wet
season.
It’s also worth noting that
the $10 million we have in the bank ought to carry us through our drilling and
feasibility study right up to a development decision.
corporatefile.com.au
Fortescue Metals Group (FMG) has just
commenced shipping iron ore from its Cloud Break deposit, adjacent to BCI’s Bonnie
Creek project. Your
current MOU with FMG will see BCI negotiate terms for rail and port facilities
to get its ore to market. How will you manage this as Fortescue
expands its production output? What are your other options?
MD Mike Young
One of the things we’ve done
from the outset is to build strong relationships with the various stakeholders
and neighbours in the project. We have a good
relationship with FMG and very early on we signed up an MOU with them to
negotiate access to their facilities.
We would expect that, once we are in
a commercial arrangement with FMG, they would continue to haul our material at
the agreed rate. That being said there are a number of alternative
options we are looking at to ensure we achieve the best outcome for our
shareholders.
corporatefile.com.au
In a recent presentation you
produced an “Investor Checklist”, highlighting the advantages of
the Bonnie Creek CID prospect. What do you see as its key points of
difference to other hematite and magnetite projects? Can BCI reasonably
compete against these much larger projects?
MD Mike Young
Yes, I believe BC Iron can
compete. In this market, there will always be opportunities for niche
producers like us, particularly with our pisolite
ore. This is the same type of ore that comes from the world-class Yandi and Robe
River operations and they
supply well over 40% of the iron ore coming out of the Pilbara.
Importantly, they’re a high demand product in the steelmaking
process. The Bonnie
Creek ore is low silica,
low alumina, very low sulphur and very low
phosphorous. Our ore is attractive as a blending agent to those
steelmakers who use high phosphorous coals – which are becoming
increasingly prevalent as coal supplies tighten.
One of the things about the
magnetite/hematite debate – and everyone would agree on this point
– is that magnetite deposits are much larger, but their operating costs
and capex are much higher as well. We have a
hematite deposit. The key difference for us is that our deposit literally
sticks out of the ground. We will have no open pits – we will
literally be stripping the tops of hills. We’re close to existing
infrastructure being developed by a group with whom we have an existing
MOU. When you start looking at all the boxes that need to be ticked, that
is the key point of difference with us. Of the 70 or 80 iron ore juniors
out there, half may have some sort of resource, but how many are close to
infrastructure that’s accessible?
corporatefile.com.au
What do you see as the challenges
for BC Iron in maximising value in an increasingly
competitive Australian iron-ore market? Does this make you particularly
vulnerable?
MD Mike Young
If you look at our project and the
potential of the resource at Bonnie
Creek, we are undervalued
and, yes, that does make us vulnerable. At the other end, we have strong
support from our major shareholders: Consolidated Minerals, Alkane
Exploration and UBS Wealth Management.
The way to maximise
value for this company is to get Bonnie
Creek into production as
quickly as possible. The challenge for us is securing access to the
shipping facilities at Port Hedland and, in this
regard, we are well advanced.
We also keep our eye out for any
exploration opportunities, but we’re not going to expand our portfolio
quickly for the sake of having exploration targets. That’s not to
say we won’t look at other opportunities to create shareholder value.
We are a small company and we want to focus on getting our first deposit into
production.
corporatefile.com.au
Thank you Mike.
For further information on BC Iron
Limited please visit www.bciron.com.au or
call Mike Young on (08) 9324 3200.
For previous Open Briefings by BC
Iron Limited, or to receive future Open Briefings by email, please visit www.corporatefile.com.au.
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The information relating to the terms
“exploration target”, “iron ore”, “economic pit
shell” and “direct shipping ore” should not be misunderstood
or misconstrued as an estimate of Mineral Resources and Reserves as defined by
the JORC Code (2004) and therefore the terms have not been used in this
context. It is uncertain if further exploration or feasibility study will
result in the determination of a Mineral Resource or Mining Reserve.
For more information on the Mineral Resource Estimate,
please refer to BC Iron’s release to the ASX dated 31 March, 2008.
This release may include forward-looking statements.
These forward-looking statements are based on management’s
expectations and beliefs concerning future events. Forward-looking
statements are necessarily subject to risks, uncertainties and other factors,
many of which are outside the control of BC Iron Limited that could cause
actual results to differ materially from such statements. BC Iron Limited
makes no undertaking to subsequently update or revise the forward-looking
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