Flooded Iron Ore Mine Attracts Investors As It Nears A Re-Start
Four years after the Indian Ocean inundated an iron ore mine on Koolan Island off the coast of Western Australia, preparations for mining to re-start are in their final stages.
When shipments resume around March, it could trigger a revival of interest in the company which owns one of the world’s richest iron-ore deposits.
Mount Gibson Iron has already enjoyed a modest share-price re-rating on the Australian stock market over the past 12-months, as it made progress repairing a damaged sea-wall and launched a major pumping exercise to dewater the pit which extends below sea level.
If the ore on the island, located off the Kimberley coast in Australia’s remote north-west, did not grade 65.5% iron and attract an 18% price premium over the widely-quoted benchmark price for iron ore (which is for material containing 62% iron) then a mining re-start might not have been considered viable.
Mt Gibson, however, has been aided by strong demand for its premium ore and a successful insurance claim for damage caused by the flood and loss of production with the insurance payout meeting much of the redevelopment cost.
Plugged And Pumped
Work on the redevelopment of the Koolan Island mine has involved plugging the gap in the seawall and installing a series of pumps to lower the water level.
By the middle of last month the water level had been reduced by 104 feet (32 meters), with 440 million cubic feet (12.5 million cubic meters) of sea water removed, or about 60% of the total amount of water in the pit.
Mt Gibson chief executive, Peter Kerr, said in a statement that work at the mine was on track for first ore sales to be made by the end of March.
Kerr said the water level had dropped to a point where the pace of dewatering could be doubled.
Mining work in the pit itself started in mid-November with just under one million tons of waste rock removed to provide access to the iron ore.
Sales Re-Start In March
“Mining is currently focused in the upper levels of the eastern end of the main pit, with the first benches of high-grade ore expected to be accessed in February, in time to commence sales in late March,” Kerr said.
Recruiting the 330 site-based workers is 80% complete and refurbishment of plant and equipment is being finalized.
Once iron ore shipments commence, Koolan Island will be the highest-grade direct ship hematite mine in Australia, though with reserves of just 21 million tons it is also one of the smallest mines.
Macquarie Bank rates Mt Gibson a buy as the mining re-start nears.
Unique Exposure To Iron Ore
“Mt Gibson offers unique exposure to high grade iron ore,” Macquarie said in a research nore which sees the stock rising from its current 36c to 45.5c, and perhaps higher.
“Currently, high grade ore, like that at Koolan Island, trades at a premium of around 20% to the 62% benchmark iron ore price.
“At spot iron ore and the U.S. dollar we see a 15% upside to our current valuation of Mt Gibson to 52.5c,” Macquarie said.