Macarthur is also encouraged by a robust iron ore market enhanced by low shipping rates and low oil prices.
Macarthur Minerals Limited (ASX:MIO) (CVE:MMS) remains focused on bringing to production its Western Australia iron ore projects, with the price of the key commodity remaining robust and largely unaffected by the COVID-19 pandemic.
Cadence, an investment group that has a keen interest in opportunities in the iron ore sector, has this week doubled to GB 6.55p after the Amapá Iron Ore Project in Brazil received court approval to start iron ore shipments.
Shared iron ore vision
Macarthur and Cadence share the same vision of producing a high-grade, low-impurity iron ore concentrate and for this reason, Cadence has been a long-term corporate partner and investor in Macarthur.
Both companies are developing profitable and significant iron ore assets globally with Macarthur focused on the Lake Giles Iron Project in Western Australia.
The common ground extends beyond this vision with Cadence chairman Andrew Suckling also a non-executive director of Macarthur and chairman of the company’s Audit Committee.
Feasibility study progress
At Lake Giles, Macarthur is making strong progress on a feasibility study, focusing on the higher-value magnetite resource.
The location of Lake Giles with existing and planned logistics.
XRF assays and David Tube Recovery (DTR) analysis from infill drilling completed at the end of 2019 have confirmed significant intersections of magnetite mineralisation.
These results are being incorporated into an updated mineral resource model being prepared by CSA Global.
Detailed ‘route to market’ studies, including port and rail designs, are underway and remain a key priority as they will form the background of rail access, haulage and port contracts.
Tenders have also been called for metallurgical testing, process and infrastructure design, and mining studies to support a detailed feasibility study.
Large magnetite resource
Lake Giles mineral resources include the Moonshine magnetite resource and the Ularring hematite resource, which is approved for development.
Moonshine has an inferred magnetite resource of 710 million tonnes while Ularring has indicated resources of 54.5 million tonnes at 47.2% iron and inferred resources of 26 million tonnes at 45.4% iron.
Core samples from Lake Giles.
Macarthur’s executive chairman Cameron McCall said the company’s business case remained strong.
“Investor confidence across the board has taken a hit lately but we’re confident that the company is close to receiving a major shot in the arm on the back of an updated resource estimate and how we will get this to market.”
“Resolute” market fundamentals
He said: “On a macro-level, there are supportive market fundamentals that remain resolute; global steel production continues to rise and so does the demand for higher-grade, lower-impurity iron ore feedstock such as magnetite.
“While the prices of most major commodities are wilting in the face of the coronavirus, iron ore has been resilient with the benchmark 62% iron product hovering around a relatively robust $US90 per tonne, that’s up from $US72 in November last year.
“Lower oil prices, lower shipping rates as well as a declining Australian to US dollar should see a rapid rebalancing as all these variables impact positively on corporate returns.”
Ruling a key Amapá milestone
The Amapá ruling from the Commercial Court of São Paulo marks a key milestone for re-starting the Brazilian project.
This project is owned by DEV Mineração SA (DEV) in which Cadence can earn a 20 per cent stake.
Independent surveys of the iron ore stockpiles indicate that 1.39 million tonnes of iron ore in three stockpiles are available for immediate export with an average grade of 62.12% iron.
First shipment could be as early as the end of this quarter, but this depends upon the receipt of permits and any COVID-19 restrictions that may apply.
Cadence CEO Kiran Morzaria said: “For Cadence, this a significant step forward for the redevelopment of the fully integrated Amapá Iron Ore Project.
“We are truly entering the operational phase of the asset, and despite the current turbulent and volatile market conditions, the iron ore prices remain robust.
“Our chairman (Andrew Suckling) has previously referred to Amapá as a ‘company changing’ project for Cadence, and it is now on its way to deliver this goal.”
Low shipping rates
Macarthur and Cadence are also encouraged by low shipping rates due to the decreased supply of iron ore to market and this is enhanced by very low oil prices.
This will also have an impact on existing suppliers as the ongoing need for iron ore pushes up demand, particularly post-COVID-19.
Suckling said: “The ruling from Brazil’s São Paulo court marks a significant milestone for the re-opening of the Amapá iron ore project and its long-term benefits for stakeholders and the region.
“This ruling brings the Amapá project back to life.
“Despite the severe disruption created by COVID-19, management has remained focused on delivering the Amapá project as planned, supported by a robust iron ore market that continues to justify the opportunity.”
“On cusp of transformational change”
The importance of this deal has been recognised by prominent UK-based wealth management and corporate broking company WH Ireland Group PLC (LON:WHI) that states “Cadence is on the cusp of a transformational change”.
In a new research note on Cadence, WH Ireland states: “An easy to ship stockpile of 1.4Mt of 62% iron ore would sell for a current SPOT price of $84/t. Taking in re-handling and port costs (WHIe) of $10/t and ocean freight estimate of $30/t leaves an operating margin of nearly $45/t of iron ore shipped.”
This is “a healthy margin which could be used to pay senior bank creditors (once agreement has been reached) and complete a feasibility study into the reopening of the Amapá mine and pay for some of the new infrastructure required”.
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