Shree Minerals is Australia's next iron ore producer with Tasmania mine
Shree Minerals (ASX:SHH) has done what few mining companies do, move from iron ore exploration to production, and in Tasmania.
Shree
has fast tracked from a greenfield explorer to an iron ore producer in
under five years. The Nelson Bay River iron ore project is the first
greenfield mine in Tasmania into production in many years and won out
despite a long statutory approval and legal process.
Nelson Bay
River will ship first iron ore from Burnie Port in either the last week
of December or the first week of January 2014.
Shree will produce a very low deleterious elements lump & fines products from NBR.
Here is where it gets interesting.
Production from NBR is expected to be about 400,000 tonnes per annum for 2.3 years.
Now
while that may not be in same leagues as Pilbara miners - for a company
with a market cap. just shy of $19 million, earning revenues of A$36
million over two years, the wider market will dial back into the story
at some stage.
After that, its on to Stages 2 and 3 of the NBR project.
Offtake agreement
In May, Shree entered into an offtake agreement for its NBR with Singapore based Frost Global.
Importantly,
Frost has provided US$4 million in funding to progress development of
the project by way of an advance towards the supply of iron ore.
This will be paid back over the first eight shipments of iron ore, or US$500,000 per shipment.
Similar to Pilbara iron ore
The
hematite ore is similar to ore found in Western Australia's Pilbara
region; low alumina and a premium product that is easy-to-extract.
The
production schedule for the first stage of the project is to develop
two relatively shallow open-cut mines to produce direct shipping grade
hematite ore, which will require just crushing and sizing.
The second stage involves the continuation of mining of the second open-cut situated above the main magnetite orebody.
The
hematite oxide cap consists of the central DSO ore section mined in
stage one which is surrounded by lower grade ore considered to have
potential to produce a commercial beneficiated oxide product.
Shree
will then move to the third stage of the project, which involves
open-cut mining of the deep magnetite orebody beneath the oxide cap.
Earlier
studies have demonstrated that the magnetite ore can provide either a
dense media magnetite product suitable for coal washery applications or a
blast furnace pellet magnetite concentrate.
The mine life for
the project based on the current mine plan is expected to be 9-10 years
and has potential to increase with further exploration work.
Low operating costs
NBR
has C1 Costs FOB of $59 a tonne, comprised of site costs of $27 a tonne
and off-site transport & port of $32 a tonne. Add in about $21 a
tonne for shipping and total cost is $80 a tonne. This provides a very
handy buffer and a healthy profit margin at current and forecast iron
ore prices.
Iron ore price just fine
With
the iron ore price for 58% iron (FE), which NBR will produce, at around
US$120 a tonne, this will ensure NBR is a very profitable operating
mine from the get go.
In two years of Direct Shipping Ore (DSO) production Shree will earn $36 - $40 million in revenues.
Tight issued capital
At 95.6 million shares on issue Shree's Sanjay Loyalka has kept the register tight.
Projected earnings from Stage 1 NBR Project for Shree Minerals are compelling - with potential to earn between $16 million to $18 million over two and a half years.
Analysis
With that cash flow generating ability, NBR provides Shree Minerals with short term earnings as well as a longer term 10 year mine life from stage 2 and 3 after the DSO is mined. At current market cap. of $19 million, we have not seen so wide an under-valuation in some time.
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