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Macarthur Minerals is an emerging iron producer as it advances its one billion tonne Lake Giles Iron Ore Project

Breakaway Research - 05-Oct-2020

KEY POINTS

  • Macarthur Minerals is an emerging iron ore producer as it advances its one billion tonne Lake Giles Iron Ore project located 175 km northwest of Kalgoorlie. When developed, this project will deliver many decades of high quality magnetite concentrate production to a market which is increasingly demanding the higher quality and ‘green’ credentials of steel produced in nElectric Arc Furnaces.
  • The major development hurdle has been the ability to secure a route to market and this requires development of a 93 km road haul to a proposed rail siding on the Perth – Kalgoorlie rail line. The rail line continues to the Port of Esperance where it is proposed to load capsize ships for export. Historically the capacity on this line has been fully utilized by Cleveland-Cliffs from its Koolyanobbing mine but with declining reserves, production from this mine has fallen and mine was sold to Mineral Resources Limited (ASX: MIN) in 2018. This ‘release’ of rail line capacity along with proposed enhancements to rail haulage and unloading using Helix dumpers looks set to overcome the largest obstacle in the development of the Lake Giles project.
  • The Company is moving forward with its Bankable Feasibility Study which is targeted for completion in the 2H CY 2021. High-level components are:
    • Resource upgrades – Completed
    • Route to market – applications submitted on haul road and rail siding, advanced discussions on rail paths (including unloading solutions), discussions advancing on port access and ship-loader capacity.
    • Mine design – commenced
    • Process flow sheet – final test work but low risk given extensive Davis Tube Recovery tests completed to-date
    • Plant design – commenced
    • Mine accommodation facilities, utilities, workshops, etc. design – commenced
  • The project is strategically positioned near Mineral Resources’ Koolyanobbing mine which has substantial infrastructure but limited reserves. Meanwhile the Lake Giles project risks are being significantly mitigated and this is likely to be reflected in an increasing share price. In our view high impact project risks are the finalization of the rail and port access (on track) and with the completion of the BFS next year, the project financing. We note that the share price of Champion Iron (ASX: CIA) increased significantly with these milestone announcements.

Macarthur Minerals is moving forward with its Lake Giles Iron Ore project with the potential to secure rail and port access stepping closer. Other components of its BFS have been completed (e.g. resource upgrade) or have commenced with BFS completion expected 2H CY2021. However, given the substantial project resource size (1 billion tonnes), the confirmation of access to market is likely to stimulate increasing interest in the Company. Hence, Breakaway Research has a BUY recommendation on MACARTHUR MINERALS with a price target of A$0.92/share reflecting our NPV valuation.