Touted as the world’s sixth largest undeveloped iron ore deposit, the Kalia Iron Ore deposit, which was recently acquired by Millennium Panorama Group Limited (MPGL) subsidiary, Stella Vista, is ready for a revised bankable feasibility study (BFS) ahead of being taken up the value curve and into production. By Nelendhre Moodley.
“We remain highly focused on updating the BFS numbers as a first step, which will provide a credible development plan with associated economics. Simultaneously, we are focusing our efforts on securing access to both rail and port infrastructure, which will underwrite the successful development of the mine,” says MD Blair Sergeant.
Located in central Guinea in the Faranah Region, the Kalia project represents one of the world’s largest iron ore reserves with an estimated 6.16 billion tonnes of magnetite.
Prior to its acquisition by Stella Vista last year, the mammoth project was owned by AIM-listed Bellzone Mining, which invested over $350 million to upgrade the resource, taking the asset from a 2.4 bt resource to 3.74 bt in 2010 and to over 6 bt in 2011.
In 2012, a revised BFS with incredibly robust numbers – net present value (NPV) of $7 billion, an internal rate of return (IRR) of 53% based on a 45 mpta for a 20-year Life of Mine (LoM) – was issued.
However, given that the BFS, which relied on the development of appropriate rail and port infrastructure, did not occur, in 2013 Bellzone revised its BFS to reflect a lower production rate of a 7 mtpa over a 10-year LOM and trucking as the new mode of material transport to port.
The new estimation also offered a robust IRR of 37% and a NPV of over $1.35 billion.
However, the project was further hampered by the Ebola outbreak between 2014-2016.
“Following two years of the Ebola outbreak, in 2016 Bellzone issued a JORC resource of 79 mt of nickel @ 0.69% and published a pre-feasibility study (PFS) for a ferronickel project producing a NPV of $80 m and an IRR of 27%. At the time, the nickel price was in the order of $10 000/t. Today, nickel is trading at roughly $18,500/t. Despite Bellzone advancing the project to the point where it had proven robust economics, secured all regulatory approvals required to commence mining, raised over $300 m in equity, completed feasibility studies on the required rail and port infrastructure, they ultimately fell victim to a sustained fall in iron ore prices resulting in a difficult capital markets environment,” explains Sergeant.
Kalia – Waking a sleeping giant
So how does the mega project fit into MPGL’s portfolio?
For MPGL, which also owns approximately half of the even larger Tonkolili Iron Ore Project in Sierra Leone (Tonkolili was once owned by AIM Listed African Minerals), and which had reported Resources of over 11 bt, iron-ore is a well understood commodity with the latest acquisition set to enhance the company’s existing portfolio of assets.
“Given the scale and the advanced nature of the project, i.e., a mining licence has been granted, the mining convention has been agreed to and ratified, environmental approvals on-hand, the completion and publication of two BFSs and potential access to port infrastructure, Kalia represents an opportunity worth pursuing,” says Sergeant.
In addition, the Kalia iron ore deposit is primarily a magnetite deposit, meaning production from Kalia will be a very high grade (67%+) magnetite concentrate, which is essential feedstock in the low carbon emitting steel production process.
“Magnetite concentrates of 67%+ already receive a premium when compared to the benchmark 62% Fe fines product, and given that it is essential in the production of iron ore pellets, as it is the feedstock for direct reduction iron making (much lower carbon footprint compared to traditional blast furnace), demand is expected to grow significantly. Lastly, the asset also comes with a previously defined, yet under explored, laterite nickel deposit that overlays the iron ore deposit. In 2016, Bellzone published a PFS which defined a JORC Resources of 79 mt @ 0.69% Ni and in addition, processed the material to produce a ferro nickel product.”
Moreover, with nickel’s growing importance and role in battery chemistry, and the fact that the nickel is at surface, Stella Vista intends to complete some additional test work with a view to potentially exploiting the nickel opportunity as a first step in developing the Kalia asset.
Kalia not only holds importance on the global iron ore stage, it also has the potential to have meaningful positive impacts on the local community in Kalia, and the Guinean economy as a whole.
“To provide context, the reported total resources at Kalia of over 5.7 bt of Fe are larger than the total resources reported at Simandou – another renown untapped high-grade iron ore deposit in Guinea. Not all deposit types are identical but, for sheer size, Kalia is, in fact, larger. Added to this, half of the Kalia licence area remains unexplored and it is estimated that the total resource could in fact double,” says Sergeant.
Rail infrastructure development set to benefit Kalia
Underpinned by robust economics, the well-advanced world-class Kalia Iron Ore project, which will begin development against a historically high pricing environment, is set to gain from the Government of Guinea’s commitment to ensure the development of key rail infrastructure.
“The recent commitment by the Government of Guinea, together with various significant JV partners in Rio Tinto, Baowu Steel, and the Winning Consortium Simandou, to build the rail infrastructure with capacity of 100 mt, from Simandou in the East to the coast just south of Conakry, is an incredibly fortuitous turn of events for our project and the development of the iron ore industry in Guinea generally. In particular, the Kalia project is located roughly halfway between Simandou and the coast, and the proposed rail route is planned to run within roughly 20 km of Kalia. Lastly, the Government of Guinea has always been very clear that the rail line must allow, and be designed for, multi users and third-party access. Our intention therefore is to negotiate and secure access to this rail and, in doing so, unlock the true value represented by the size and quality of the Kalia deposit,” states Sergeant.
The above, combined with the Chinese Government’s stated objective of reducing its reliance on Australian Iron Ore, bodes extremely well for the much-anticipated development of the West African Iron Ore Industry, starting with Guinea, he adds.
Short-to-medium term plans for Kalia
The first step for the Stella Vista team, says Sergeant, is to update and refresh the BFS of 2013, to reflect any material changes to the underlying development assumptions and to reflect 2023/24 economic and pricing assumptions.
“We are extremely confident that the refreshed BFS will confirm the robust nature of the financial returns on the project. Once we have published the refreshed BFS, our intention is to secure the necessary project finance and commence construction, so that the project will be ready to commence production in line with the completion and availability of rail access.”
The total capital expenditure required to develop the project will be determined as part of the BFS process.
“Our intention is for Stella Vista to make an initial public offering (IPO) at the appropriate time. Funding is likely to be a combination of equity and debt, as is usually the case for projects of this nature.”
The refreshed BFS will be based on the following initial mine development:
- 10-year LOM, producing 7 mtpa
- Initial product will be a 58-60% Fe fines product
- Mine will be open cut with a very low LoM strip ratio of 0.7:1
- As the mine approaches end of life, mining will focus on the magnetite resources (5 bt) and beneficiated to produce 67-68% Fe concentrate.
- Production of the magnetite concentrate will be 10 mtpa or more, and for an LoM of 25yrs++
Iron-ore market fundamentals
Steel is absolutely fundamental to both the developed and developing world.
In addition, the global focus on reducing the carbon footprint of industry, in particular the steel industry, has brought into sharp focus the need for the steel producers to use alternative methods of production. In the first instance, higher grade iron ore is better than lower grade iron ore. More specifically, use of electric arc furnaces and direct reduction iron processes rely on a pelletised feedstock, which itself requires magnetite, not haematite, as the raw material.
In both cases, a high-grade magnetite concentrate is the essential feedstock for EAF and DRI plants which the steel industry requires to reduce its carbon emissions. Given the net zero targets set by Governments across the globe, the expectation is a material increase in demand for magnetite, reflecting the wide-spread adoption of EAF and DRI steel plants throughout the world.
Adding to the attractiveness of the Kalia magnetite concentrate is the intention to source all power requirements for the mining and beneficiation processes from renewable sources, in particular hydro power.
“Based on the previously published BFSs, the project is world class in terms of both scale and potential economics. In particular, the large-scale nature of the deposit has the ability to underwrite a globally significant iron ore mine which, in the form of the BFS, delivered an NPV of over $7 billion @ an IRR of over 50%. These numbers compare to some of the best mining projects in the world,” concludes Sergeant. §