Hawsons Iron Ltd (ASX:HIO) will pursue a modified bankable feasibility study (BFS) for the Hawsons Iron Project near Broken Hill based on an 11 million tonnes per annum operation following a positive strategic review.
This review, which evaluated capital costs and production scenarios for the project, also recommended a two-pronged action plan to improve the Net Present Value (NPV) by further reducing processing plant capital costs and accessing higher grade ore earlier to accelerate start-up cash flow.
A key outcome has been the confirmation that the operating costs of a slurry pipeline from the project near the South Australia-NSW border would be “significantly” lower than rail and would also retain Environment, Social and Governance (ESG) benefits.
It also confirmed Myponie Point as the superior port location for start-up and staged expansion.
Hawsons chairman Dave Woodall said the Strategic Review had delivered clear findings on production scale, transport and port options and an action plan to improve the project’s mining and processing economics.
Raising up to $8.8 million
To fund a number of the key strategic review recommendations, the company has launched capital-raising initiatives to raise up to $8.8 million.
This comprises an institutional placement for which firm commitments have been received to raise $7.8 million before costs as well as a share purchase plan (SPP) for eligible shareholders to raise up to an additional $1 million.
Use of proceeds
The company intends to use the capital-raising proceeds for the following strategic review recommendations to support a modified BFS:
- A value-engineering analysis to further reduce processing plant and project costs; and
- The first two stages of a three-stage resource analysis program targeting high-grade ore at shallow depths from 30-to-150 metres to accelerate project cash flow.
The issue price represents a 17.2% discount to the closing price of Hawsons shares of A$0.0930 on January 31, 2023.
Hawsons has also received firm commitments from institutional investors for any SPP shortfall up to $1 million, which will be placed to those investors after the SPP closing date.
Opportunity for all shareholders
Woodall said: “The board has approved this institutional placement and SPP to fund additional value engineering analysis and a three-stage resource analysis program targeting higher grade ore from 30-to-150 metres to support a modified bankable feasibility study for an 11 million tonnes per annum project.”
He said the SPP provided eligible shareholders with an opportunity to subscribe for additional shares on the same terms as the institutional placement to support the company and mitigate dilution of their interests.
“Following the placement made in November 2022 we received feedback from a number of shareholders who would have liked to have been offered an opportunity to participate in the capital raise, so this SPP aims to provide that opportunity to all of our shareholders,” he said.
Shaw and Partners Limited is acting as the lead manager to the institutional placement and the SPP shortfall placement.
“Coherent, viable plan”
With the review, a team of highly-regarded partners including project management specialist JukesTodd, international engineering company Stantec (TSX:STN), Flinders Ports, mining consultancy Australian Mine Design and Development and resource specialist H&S Consultants undertook a three-month reassessment of all available project data.
“The outcome of the strategic review is a coherent, viable plan to realise the full value of our globally significant magnetite resource in response to challenging global economic conditions,” Woodall said.
Processing savings
Stantec has recognised expertise in magnetite processing and has significantly reduced the total capital cost estimate for a processing plant that is scalable to a 20 million tonnes per annum capacity.
However, the revised capital cost estimate was still considered excessive and Stantec has been engaged to conduct a deeper analysis of the processing plant design and liaise directly with manufacturers to identify further potential procurement cost savings.
This work is now underway and expected to take about two months to complete.
Accessing high-grade ore
The review also found the project’s mining economics and start-up cash flows could be greatly enhanced by gaining earlier access to higher-grade ore at shallower depths from 30-150 metres, requiring further drilling.
Previous drilling established the presence of higher-grade ore within the project’s existing 481 million tonnes resource from a depth of 150 metres.
However, mining and processing the lower grade material before reaching the richer grades below, negatively impacts project economics and financing by restricting capacity to generate positive cash flows during the first four years of operation.
Resource analysis program
With this in mind, several largely undrilled target areas within Hawsons’ MLA460 are considered very prospective for higher-grade ore at depths from 30 to 150 metres and will be the focus of a recommended three-stage resource analysis program.
A staged approach relying initially on seismic and soil surveys and a limited 10-hole drilling program has been designed to mitigate risk and cost.
Stages 1 and 2 of the resource analysis program have been estimated to cost about $2 million and take four months to complete. The scope and need for additional Stage 3 drilling will be determined once results from Stages 1 and 2 have been analysed.
Woodall said, “We are aiming to complete all this work and achieve the targeted mining and processing economic improvements by the end of the June quarter of 2023 with the objective of then securing a strategic partner to jointly fund a modified BFS assessing an 11 million tonnes per annum project.
“Work on this modified BFS could then restart, targeting completion by the end of June 2024.”
Infrastructure reviewed
The strategic review evaluated scale-up production options and associated capital and operating costs from 5-20 million tonnes per annum (dry). With assistance from Flinders Ports, potential use of existing alternative port and rail infrastructure combinations and related costings were also considered.
While Port Adelaide was identified as the best existing port option, its annual rail capacity was inadequate at 8-9 million tonnes.
The review also confirmed the operating cost of a direct-to-port underground slurry pipeline would be significantly lower than rail, thereby retaining targeted ESG benefits required to participate as part of the ‘Green Steel’ supply chain.
In line with these benefits, the proposed greenfield export facility at Myponie Point remains the superior port location for future scaling-up options, initially using barge loading.
A number of projects in South Australia including those in the resource-rich Braemar Province were likely to face similar infrastructure cost issues to Hawsons relating to energy, water and transport.
Stepping up collaboration
“Hawsons plans to step up advocacy efforts to foster greater collaboration between industry, governments, both State and Federal, and interested communities to support and help accelerate economic development of the Braemar Province,” Woodall said.
He stressed that Hawsons held non-binding Letters of Intent for the offtake of up to 58 million tonnes per annum of high-grade Hawsons Supergrade® concentrate from the global steel sector, confirming significant demand as pressure on the industry rises to decarbonise production.
“The LOIs we have in hand provide additional confidence that there is more than sufficient market demand to support the project, which offers options for a future modular expansion plan,” he added.