It’d take one phone call and control of emerging Pilbara iron ore producer Red Hawk Mining (ASX:RHK) could go to one of Australia’s iron ore giants. That phone call wouldn’t include Red Hawk’s Managing Director Steven Michael.
Mr Michael has been Red Hawk’s Managing Director since March. He’s overseeing the development of its Blacksmith project – a 173.8 million tonne resource at 60 per cent iron – a grade considered good in the Pilbara.
Rio Tinto (ASX:RIO) is neighbouring to the north and Fortescue Mining Corporation (ASX:FMG) to the south.
“Previously the expectation from neighbours was if they waited long enough, the project might come to them and now we’re progressing the project and its development is a lot more certain,” he said.
“I think with close to 200 million tonnes at 60 per cent (Fe) – and this is a new resource only a month or two old – people will potentially think it does have some opportunity for that.”
“I wouldn’t know about it”
“I wouldn’t know about it – one phone call could see control of Red Hawk Mining change hands,” Mr Michael said.
That’s because two of Red Hawk’s 4000 shareholders – Todd Corporation (NZ family-owned company) and OCJ Investment (Melbourne) – together hold the vast majority of the company. Todd Corporation has a 59.5 per cent stake and OCJ holds 20.8 per cent.
The Blacksmith project is an iron ore stash in the Pilbara that’s had nearly 200,000 metres of drilling, narrowed down in some parts to as close as 50-metre intervals.
“This will be a really big junior iron ore player – essentially our resource is the same size as all the other Pilbara junior iron ore companies put together,” Mr Michael said.
Red Hawk’s scoping study, released last month, suggests it’ll be feasible to mine three million tonnes per annum; to build a 25-kilometre access road; and, to cart the ore on 60 metre-long ultra quad 150-tonne capacity haulage road trains all the way – 446 kilometres in total – to Port Hedland’s Utah Point shipping facility. That transport cost is $45 a tonne, representing the bulk (62 per cent) of operating costs.
The study figures were done at an iron ore price of US$89 a tonne, with a $150 million capital expenditure, a payback period of just over three years and a 20-year mine life.
The company plans to convert three to four years supply of the Canga and Dales Gorge Member iron ore to JORC-measured status by mid-next year and start production a year later, in 2025.
Quality over quantity
An experienced mining analyst, Mr Michael was appointed earlier this year to revisit the project’s potential and scale.
“Most companies in the Pilbara are mining the hills, ours has tumbled down off of the hills into the valley – detrital deposits,” he said, “that’s what makes it different”.
“High grade wins out every time. We are now going for grade over volume”.
He said if the company could generate lump iron ore material as well as fines, the economics would be enhanced because the lumps could be sent directly to a blast furnace and not require sintering.
And, the project leaders had the benefit of strong relationships with the traditional owners, proactively addressing concerns around the local water table. Red Hawk has vowed not to mine below the water table.
Road vs rail issue
Red Hawk doesn’t have access to the rail networks owned by its mining giant neighbours and haulage is the largest cost factor in the Red Hawk project equation.
As Mr Michael explains, this is despite the ‘spaghetti junction’ of rail lines.
“We sit in the middle of that, but don’t have access to anyone else’s infrastructure,” he said.
“To be able to sit together with one of those majors and say, can we use your railway line? The door’s not open.
“We would like to get to the position to be able to speak to neighbours about using their infrastructure.”
Liquidity issue
Mr Michael admits Red Hawk has an issue with liquidity with Todd Corporation and OCJ Investments holding such a large percentage of the company.
When the company launched its $6.3 million entitlement – which closes later this month – to fund the pre-feasibility study, $5.1 million was immediately committed thanks to those shareholders. A good problem to have, but one that comes with limitations.
“Our problem is 80 per cent of shares are held by two groups. We need to look at ways of increasing liquidity and turnover,” he said.
“This is important to help realise the full value potential of this project in our share price.
“The plan is to increase marketing over the next six to 12 months”.
World supplies & price forecasts
Perhaps the $89 a tonne iron ore price is conservative. But then, what’s to say demand won’t collapse and the price crash?
China’s property sector has been a worry and Mr Michael predicts West Africa will bring 150 million tonnes on line.
“West Africa will add volume into the mix and we will see a reduction in the Pilbara with the move to more magnetite supplies – a rebalancing of the type and the location,” he said.
“Magnetite is a large part of the future of iron ore. It’s a higher-grade product at about 65 per cent iron and has less impurities.
“Our aim has to be over 60 per cent, plus low silica and low impurity alumina. There will be a market for that.”
Red Hawk Mining last traded at 65 cents.