The company’s proposed A$1.85-billion Pilbara iron ore project recently moved a step closer to reality with the inking of a binding contract with China Railway Engineering Corp. (CREC). State-owned CREC, China’s largest construction group, has agreed to build and finance an open-access, 250-km-long railway linking Fortescue’s proposed mine in the Christmas Creek area of the Chichester Ranges to planned ship-loading facilities at Port Hedland.
The fixed-price agreement also covers all the earthworks, culverts and bridges, and calls for CREC to source and finance the bulk of the rolling stock, excluding locomotives, which will be sourced internationally and may be added to the existing agreement.
Under the agreement, CREC would assume all the risk associated with the railway; Fortescue, via the Pilbara Infrastructure Fund (PIF), would only assume ownership once certain performance specifications are attained. CERC would then provide Fortescue with a longer-term financing agreement.
Construction of the railway is expected to begin early next year and should last around 18 months. Capacity is pegged at up to 90 million tonnes of iron ore per year, including extra capacity for the shipment of material from other operators. CREC has already begun talks aimed at lining up local engineering and construction groups as joint-venture partners. Environmental approval for the railway is anticipated for the first half of 2005.
The nearly A$1-billion railway is the linchpin in the company’s Pilbara project, which also includes a proposed A$410-million mine and processing facility and the planned A$470-million ship-loading facilities.
Earlier this summer, the Port Hedland Port Authority advised the company to expect access to Anderson Point; discussions aimed at completing an agreement are ongoing. Construction of the port facilities is expected to take up to 20 months.
In early April, Fortescue acquired five exploration licences covering 880 sq. km of land previously held by Rio Tinto and Hamersley Iron. Three of the tenements are in the Christmas Creek area of the Chichester Range.
The company quickly completed some 5,640 metres of reverse-circulation drilling in 210 holes and identified a broad, shallow and flat-lying structure. Preliminary results indicate a grade of 56.5% iron and a relatively high hematite content.
In July, the company tabled plans to relocate the Pilbara project’s initial mine development to the Christmas Creek deposits rather than the previously planned Mt. Nicholas deposit, which is home to an indicated and inferred resource of 400 million tonnes grading 50% iron.
The new location is 100 km closer to the planned Port Hedland facilities and is thus expected to lower transportation costs. Fortescue has also postponed further work at Mt. Nicholas, focusing instead on more prospective areas at Christmas Creek.
“Christmas Creek has emerged as a location of at least three open pits, one of which will be four kilometres long by three kilometres wide,” Andrew Forrest, former head of Anaconda Nickel, said in a prepared statement. “It is now unquestionably the principle contender for the mine site, offering opportunities of scale in mining not previously available to this project.”
More recently, Fortescue identified significant, near-surface tonnages of direct-ship microplaty hematite at Christmas Creek. Steel mills favour the ore type, as it is less likely to clog blast furnaces; it also helps to lower melt times and production costs.
BHP and Hamersley Iron drilled the area more than 30 years ago, but to disappointing results. Fortescue says the drilling failed to test below a depth of 20 metres.
Fortescue continues to drill the discovery and expects to have a resource estimated by the end of September. Drilling has so far outlined enough material to meet at least the first two years of production. Annual output is initially pegged at 40-45 million tonnes.
The high haematite content and shallow nature of the mineralization at Christmas Creek are expected to trim the capital cost of the proposed mine and processing facility. The company is investigating the use of draglines for waste removal and possibly mining, as opposed to a comparatively costly fleet of excavators and dump trucks.
Australia’s Worley Group is performing a feasibility study of the mine, rail and port facilities. The study, due in February 2005, is also assessing the impact of the additional resources identified at Christmas Creek.
In all, Fortescue holds more than 15,000 sq. km of iron ore tenements in the Chichester Ranges area of the Pilbara, including the Christmas Creek, Mt. Nichols, Mt. Lewin and Cloud Brake targets, plus a stable of other exploration targets.
Fortescue recently tabled plans to issue 12.8 million shares priced at A55 apiece to JF Capital Partners, a unit of JP Morgan Fleming. The A$7 million in proceeds will be used to carry out feasibility work. The company still needs to come up with A$15 million to complete the A$34-million study. Details and funding for the port and mine have yet to be ironed out.
Fortescue has retained Patersons Securities to help sort through an array of investment options being proposed by several potential partners.
In line with its ambition of opening up access to the region’s resources, Fortescue ultimately plans to sell up to 60% of the Pilbara Infrastructure Fund. The company says several major infrastructure groups, finance and leasing companies, mining and steel companies, and shipping groups have already expressed interest in the fund. Fortescue then plans to float the fund on the Australian Stock Exchange, and internationally.
In February, Fortescue said
In the end, the Pilbara project is expected to deliver its first ore shipments in late 2006 or early 2007.
Meanwhile, Fortescue has asked Australia’s National Competition Council to declare access to BHP Billiton’s nearby rail lines — something the major has been loathe to allow. If access is granted, Fortescue plans eventually to loop-in its own lines to allow for greater access to the Pilbara iron ore fields.
The application seeks access to a 295-km portion of the Mt. Newman railway line; the section runs from a proposed rail siding at Mindy Mindy to port facilities at Nelson Point in Port Hedland. Fortescue is also looking to use a 17-km stretch of the Goldsworthy line from its intersection with the Mt. Newman line to port facilities at Finucane Island in Port Hedland.
Fortescue says access to BHP lines would also mean the immediate advancement of the nearby Mindy Mindy project, a 50-50 joint venture with
Further drilling at Mindy Mindy is planned for later this year, with a resource estimate to follow in early 2005.
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