Carpentaria Exploration Ltd.’s (ASX: CAP) Quentin Hill, Managing Director of this Emerging Producer of Premium Quality Iron Ore in Eastern Australia
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By Dr. Allen Alper, PhD Economic Geology and Petrology, Columbia University, NYC, USA
on 8/20/2017
Carpentaria Exploration, Limited (ASX: CAP) is an emerging producer of iron ore in eastern Australia. The
company aims to build a long term, low cost premium quality iron ore business from the development of its
flagship asset, the Hawsons Iron Project, utilizing existing infrastructure. Hawsons Iron Project is the
largest magnetite discovery in eastern Australia. Located only 60 kilometres from Broken Hill, a mining city
in the far west of outback New South Wales, Australia. It is near the border with South Australia on the
crossing of the Barrier Highway (A32) and the Silver City Highway (B79), in the Barrier Range. Hawsons has
access to established rail, road, port and power infrastructure in a region with a long, proud mining history
and a town with generations of skilled mining workers. We learned from Quentin Hill, Managing Director of
Carpentaria Exploration, the Hawsons Iron Project is extremely high grade and will supply the world's best
pellet feed at competitive production costs. According to Mr. Hill, there are very few projects that can
supply high-grade material and pellet feed, and be incentivized into production at the long-term iron ore
prices. This makes Hawsons Iron Project strategically very important and Mr. Hill believes this will help them
get the funding required.
Dr. Allen Alper: This is Dr. Allen Alper, Editor-in-Chief of Metals News, interviewing Quentin Hill,
Managing Director of Carpentaria Exploration, Limited. Quentin, could you give our readers/investors, an
overview of your company?
Mr. Quentin Hill: Certainly, Allen. Our company is focused 100% on development of the Hawsons
Iron Project. We're doing this in a difficult environment, because we understand we have a project that meets
a specific niche in the supply of global metallics, because of its extremely high grade, and the ability to
produce at competitive costs. What we're trying to do at Carpentaria, is develop the Hawsons Iron Project,
which will supply the world's best pellet feed. We see that the iron ore market has a problem. There is a
long-term iron ore price forecast around $55 to $65 a ton, but steel mills are increasingly wanting high-
grade, and they're increasingly wanting pellet feed. This includes the direct reduction market.
There are very few projects that can supply high-grade material, and/or pellet feed, and be
incentivized into production at the long-term iron ore prices. We think our project can, and there are reasons
why, which we can go into later. But because we can, we are very strategically important, and we think we will
get the funding required.
Dr. Allen Alper: That sounds great. Have you gotten approval on your product from the steel companies?
Mr. Quentin Hill: Absolutely, Allen. Just this week, yesterday we announced we plan to produce
10 million tons per annum of a 70% FE product, that is suitable for the direct reduction market, as well as
because of its unique fineness, it is also excellent pellet feed for the growing demand in China for increased
pelletizing burden, pellet burdens in their mills.
To answer your question, yesterday we announced that we now have 11.4 million tons per annum signed up under
non-binding letters of intent. However, we only plan to produce 10 million tons. We are over-subscribed. Our
off-take partners are blue-chip companies, who have invested in magnetite before, so we have Formosa Plastics,
who are steel makers in Vietnam. We have Mitsubishi RTM, we have Shagang Limited out of China, they're China's
largest private steel company. They signed on yesterday. In the Middle East, the direct reduction market, the
high-value, we have Barine Steel, Emirate Steel, and Kuwait Steel.
Dr. Allen Alper: Well, that's fantastic. That's outstanding.
Mr. Quentin Hill: We think that is rare for a project at this development stage.
Dr. Allen Alper: That is very good. What are your plans getting ready to deliver, and what is your
schedule for meeting these non-binding agreements?
Mr. Quentin Hill: The next step for us is to deliver our pre-feasibility study and meet our cost
targets, and make sure that our cost targets mean that we are incentivized into production. That means paying
back debt and paying a return to equity at the long-term iron ore price. If we meet those targets, we will be
a very attractive proposition for additional investment. We plan to deliver our pre-feasibility study at the
end of June this year. That will increase the investment grade of the company and the project, and increase
the pool of investors able to invest, fund managers and strategics. Now that we have introduced that level of
competition for the off-take, we believe there will be increased confidence from the fund managers that there
will be buyers and support for this project when required. In terms of the off-takers, we would like to think
that if they were to secure their product, investment in the next stage would certainly help.
Post-June 30, post-delivery of the pre-feasibility study, we'll be seeking capital for the bankable
feasibility study from both financial investors and strategic investors. We think there are probably 18
months’ worth of approvals and study to be done, then, 18 months of construction. That means we are targeting
production in 2020. We've told Japan we can do it before the Olympics in Tokyo, and in the Middle-East, we're
looking to do it before the World Expo in 2020 in Dubai.
Dr. Allen Alper: Sounds great!
Mr. Quentin Hill: All of that will be subject to receiving funding directly after the pre-
feasibility delivery.
Dr. Allen Alper: Great!
Mr. Quentin Hill: In terms of project construction, our capital cost is $1.4 billion US to build
the project for 10 million tons per annum. That's certainly what the second stage of the project looks like at
the moment, but in terms of where that places us, we have a significant amount of existing infrastructure. We
have a power line that passes very close on a reliable grid. We've identified the water. It can be provided
under existing regulations. We have a work force in Broken Hill, and we have a rail-line with 13 million tons
of spare capacity, that goes directly to either Port Pirie or Port Whyalla. We have a large amount of existing
infrastructure, which is why we believe the global steel companies have been attracted to us and our product.
The other thing is, the development risk is low compared to other projects. We don't need to build a vast
amount of infrastructure to get our product out. Conceivably, if we go through Whyalla, all we need is the pit
and the plant.
Dr. Allen Alper: Sounds very good!
Mr. Quentin Hill: It is, it is very good.
Dr. Allen Alper: Sounds like you're getting everything set. You have a good plan. You have your off-
takes coming in place. You are working on your pre-feasibility study. You're pulling everything together.
Mr. Quentin Hill: Yes, we think the message on the delivery of the pre-feasibility study will
bring it together quite smartly. The message to financial investors, reading your magazine, is, "Carpentaria
has been largely ignored by the capital markets in Australia. They've tuned out of iron ore for the last two
or three years. We know we've got something valuable here, and we've gone to those that will recognize it. The
industry participants do recognize it." The companies, I've mentioned to you, understand where the iron ore
market is heading. They understand the unique position, in which our cost structure has put the project. They
want to be a part of it, at least getting some of the product. They've endorsed what we're doing, and we think
it's only a matter of time before the capital markets see that.
Dr. Allen Alper: Sounds very good! You feel confident with the costs you have, that you'll be able to
make a good profit on the off-takes you'll be signing.
Mr. Quentin Hill: Without doubt. We're targeting a CFR China cost for a 70% Fe product of less
than $50 a ton. The product will achieve significant price premiums for two reasons, because it's the world's
best pellet feed in terms of chemistry and physical properties, which will give us two premium
characteristics. The other thing is that it's a direct reduction product, so we can land it in the Middle East
at the same cost, and the direct reduction premium in the Middle East is quite generous. We are confident,
absolutely.
Dr. Allen Alper: Excellent. Could you tell me a bit about your background and your management team and
board?
Mr. Quentin Hill: Sure. Our company started as an exploration company in 2007. We discovered the
Hawsons Iron Project in 2009. I was senior geologist with the company at the time, and part of the discovery
team. Since that time, we've been developing the project, along with other exploration assets. I'm a
geologist, and I worked largely in gold and nickel and other commodities within Australia, including coal with
Vale, as a consultant more than anything, and I've worked in government as well. However, I was promoted to
managing director of Carpentaria in 2014. At that stage, capital markets were very tight, and the board chose
to focus on what we'd already found in this very valuable asset, Hawsons, and dispense with the rest of the
exploration assets, because the capital markets were just too tight to pursue both.
We still found those markets to be very tough, which is why we're concentrating on those that know the
industry. However, we think now that the iron ore price and the iron ore market dynamics are becoming clearer,
since China has restructured and is partway along restructuring the industry path, people are confident now,
forecasting what's going on in China. Our decision to focus on the project will be shown to be the right one.
On our board, we have Neil Williams. After a long career with Mount Isa Mines, as head of exploration,
he then ran to South Australia, the leading government geo-science body in Australia for 15 years. Paul
Cholakos is Executive General Manager of technical services for Oil Search. He played a very key role in
making sure the $20 billion PNG-LNG project, I'm not sure whether it's Chevron or Exxon built, got the 20% of
feed required from Oil Search. Paul’s experience on mega projects is very valuable. Bin Cai is our other board
member, representative of one of our major shareholders.
Our project team is very lean and second to none. We have Australia's go-to magnetite engineer, in Ray Koenig
who started his career in the 70s at Savage River magnetite mine, where they have pelletizing, pipelines and
processing facilities. Ray also was one of the key members that designed the Olympic Dam Plant in South
Australia. He's widely known and widely respected, and he's the go-to guy for Magnetite in Australia. He's
been with us for six years. He's behind the flow-sheet that gives us, what we're calling, Hawsons Supergrade
Product.
We recognize we're going to have to fund this project. We've had Adam Wheatley, who's been with us for
around four years now, in a consultant capacity to make sure everything we do increases the bankability of the
project. Together, he is part of the strategy team to get this project into development. He had a key role for
Hancock Prospecting’s side of the Hope Downs financing. The team he built, went on to finance Roy-Hill, one of
the largest project financing exercises in history. Adam certainly knows his way around the iron ore financing
space.
Lastly, Lou Jelenich. He worked with BHP for 40 years, first in the blast furnace at Newcastle, and
later as head of technical marketing for BHP, which means he goes to the steel mills and he talks to them
about their furnaces. He knows, because he's run a furnace before, he knows the language. His job is to make
sure that the ore fits with the customer, and the customer can also fit with the ore. His contacts have been
marvelous in helping us secure an over-subscribed off-take. He's at the top of his field, as are Adam and Ray.
Dr. Allen Alper: Excellent! Sounds like you have a very strong team, well-prepared to do the job. Well
done.
Mr. Quentin Hill: Yeah. I think that's a fair comment.
Dr. Allen Alper: Could you tell me a little bit about your finances and your share in capital
structure?
Mr. Quentin Hill: Sure, we have 169 million shares on issue. We are heading towards $1 million
in the bank by the end of the financial year. We will be seeking capital once the pre-feasibility study is
delivered. We have three major shareholders, Silvergate Capital, Australia Conglin Group, and our first
institution, SG Hiscock out of Melbourne.
Dr. Allen Alper: That sounds great. What are the primary reasons our high-net-worth readers/investors
should consider investing in Carpentaria Exploration?
Mr. Quentin Hill: At the moment, we believe the market has largely ignored us, however the
strength of the project has been recognized by those that know, the iron ore and the steel industry. That is
clearly demonstrated by the quality of off-take partners we have. They have a history of investment in the
Australian industry, and once we secure investment from strategics and fund managers, this will demonstrate to
the Australian retail industry just what they've been missing, and will provide a significant rerating for the
company. We have a product that has a specific and important niche in the supply of global metallics that is
recognized across three different markets, Middle East, Southeast Asia, and China. We have off-takers capable
of assisting the project into development. We have off-takers that are over-subscribed, and we think it will
be the competition that drives the development and the investment in the project. Once we secure that, there
will be a significant rerating in the price, and significant potential uplift for investors.
Dr. Allen Alper: Well that sounds excellent. Very good!
Mr. Quentin Hill: Well, yes. It does sound excellent. We have big challenges ahead of us, of
course. There is a very high capital component to build this project. However, the rewards, in terms of
revenues per annum and other considerations, mean it will be a compelling investment. We look forward to
pushing it as hard as we can over the next two years.
Dr. Allen Alper: Excellent! Very good!
http://www.carpentariaex.com.au/
Quentin Hill
Managing Director
Email quentin.hill@capex.net.au
Phone +61 7 3220 2022
Mobile +61 4 2396 8786
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