Kogi Iron Limited (ASX: KFE): A Unique Investment Opportunity for Building an Iron Ore to Cast Steel Plant in Kogi State, Nigeria; Interview with David Turvey, Managing Director
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By Dr. Allen Alper, PhD Economic Geology and Petrology, Columbia University, NYC, USA
on 8/27/2020
Kogi Iron Limited (ASX: KFE) intends to build a cast steel plant on the Agbaja Plateau in Kogi State, Nigeria. The project will supply a cast steel feedstock to steel manufacturing and product fabricators in Nigeria and overseas. We learned from David Turvey, Managing Director of Kogi Iron that based on their large iron ore resource, they are creating a vertically integrated, import replacement, iron ore and steel project for the domestic market in Nigeria. We learned from Mr. Turvey, that they have successfully completed proof of concept of steel production at the laboratory scale, and now they are talking with potential customers, and raising funds to support a feasibility study in the production of steel billet. According to Mr. Turvey, Kogi Iron is unique because it will be the first domestic steel producer for the growing Nigeria's economy.
David Turvey, Managing Director
Kogi Iron Limited
Dr. Allen Alper: This is Dr. Allen Alper, Editor-in-Chief of Metals News, interviewing David Turvey, who is Managing Director of Kogi Iron Limited. David, could you give our readers/investors an overview of your Company, the vision you have for your Company, and what differentiates your Company from others?
David Turvey: Thanks, Allen for the introduction. Kogi Iron Limited is a publicly-listed company on the Australian Stock Exchange. It's been in existence for approximately ten years. The Company’s principal assets are located in Nigeria, where initially it explored for iron ore and was successful in discovering a large iron ore resource on a plateau in Southern Central Nigeria. In 2014, the Company studied the potential to export its iron ore as a raw material, which involves conventional shallow open-pit mining and wet crushing and screening to produce a consistent iron ore concentrate product. A typical export operation well-understood in Australia. However, due to economic conditions of the time, including iron ore price and infrastructure costs, the Company decided not to go ahead with the export of iron ore, rather it decided to evaluate the domestic steel market, and consider a project of using its own iron ore to produce an intermediate steel product called billet. Then sell that billet product to the domestic steel industry, being fabricators that currently import all their raw materials principally as scrap metal. So in other words, the Company re-focused its efforts from initially an iron ore export project, to what is now a vertically integrated import replacement iron ore and steel project. Prior to joining the Board about a year ago and based on my background in project evaluation, I conducted personal due-diligence on the assets, the investment jurisdiction and commercial opportunity. It interested me as having a large number of key competitive advantages as a Company, and as a project.
Dr. Allen Alper: Could you go into more detail about the iron ore project and how you're going to proceed to produce steel billets?
David Turvey: The fundamental asset of the Company is it’s 100% owned iron ore resource. This resource estimate is based on a number of years of exploration and evaluation, which involved detailed reverse circulation and core drilling on a plateau, called the Agbaja Plateau in Kogi state. In late 2013, the Company announced a large resource of approximately 586 million tons at 41.3% iron (Fe), but importantly, within that resource a zone of a higher grade material of 405 million tons at 45.1% iron (Fe). Importantly, this iron ore resource is classified as indicated and inferred resources under the JORC 2012 code in Australia. It is large enough at the moment to support a potential export project, but also to support what the Company is now doing, which is evaluation of steel billet production.
Since 2016, the Company has conducted steel test work in South Africa. The results of which were announced towards the end of 2018.
Agbaja Oolitic Iron outcrop
We took a large bulk sample of our iron ore and other local raw materials, such as coal and limestone, down to South Africa to MINTEK laboratory, which is world renowned for having good pyrometallurgy equipment and expert scientists. We were successful in producing an export quality steel billet product at the laboratory scale. So. in effect, a proof of concept of steel production that gave us some indicative information and numbers on the process flow sheet. Not just the iron ore mine and the beneficiation plant, but then through the upgrading, smelting, refining and product casting process.
In 2018, the Company contracted Fastmarkets UK to complete with us a survey of the local steel industry including the history of imports of steel by steel fabricators, in other words potential customers for the Kogi Iron Project. Fastmarkets UK previously known as Metals Bulletin is a world renown research and information company with significant experience in the steel sector worldwide.
Both these recent technical and market studies were completed at a pre-feasibility study level. They gave us comfort of the potential steel production scale relative to the structure and size of the domestic and regional marketplace. The market study did lead to a number of letters of intent and memorandum of understanding from potential customers, that upon project development would support product off-take.
Currently, the Company is raising funds in stages to support a feasibility study on the production of steel billet. Initial funding of one to two million US dollars will be used to focus work over the next three to six months on critical path value drivers.
These value drivers are highlighted in our public documents on near-term business strategy as being industrial – scale steel refining test work to guarantee removal of phosphorus impurities, a competitive gas supply contract, and market entry policy based on import replacement price parity. Once we progress these critical path value drivers, there is the need for about an additional six to seven million US dollars of funding to complete the remaining feasibility study and support project financing. Steel plant design engineering is the longest lead time and most costly part of the feasibility study, which will ultimately include an independent financial model.
We plan to build the steel plant within five kilometers of the mine and iron ore processing plant. This is very close by industry comparison and represent as a fundamental competitive advantage for the Agbaja Project. Another potential competitive advantage is that there is an existing gas pipeline running across and adjacent to our iron ore resource. As such, a key critical path value driver is securing a competitive gas supply contract. The Company needs to align the gas supply contract with results of the industrial-scale refining test work that I mentioned before. We have identified an engineering group that can provide process guarantees of the refining test work using conventional process technologies and production methods.
An important critical path value driver relates to investment policies of the Nigerian Government related to pioneer steel production in Nigeria. There is no other steel production in Nigeria at the moment so, as a pioneer producer, the Company has the opportunity to discuss and negotiate how we interact with both Government policy and the current steel customers regarding import replacement. The Government is very keen for us to replace steel imports because they come at a high cost and with limitations to the Nigerian economy. They are also interested to work with us on how we support the local industry and grow the business of current fabricators, our potential customers.
It’s important for all parties to discuss the merits of policy for import replacement parity pricing.
So, the Company has clearly stated its three key critical path value drivers as; refining tests on removal of phosphorus, the market entry policies and the gas supply contract. That's what we're focusing on right now with the first one to two million dollars in funding.
Dr. Allen Alper: Well, that sounds very good. Sounds like you have it all well planned out and understood. Could you tell our readers/investors, the primary reasons they should consider investing in Kogi Iron Limited?
David Turvey: Yes, thank you for that the question. I'll just use the one word that really attracted me to this project when I looked at it, and it continues to surprise me and encourage me. And that is the word “unique”. When you evaluate projects all over the world, it’s rare to find something that is quite as unique as the Agbaja steel project. Certain projects have differences or advantages in either jurisdiction, or quality of results, or quality of market, or position in market. But the Agbaja steel project has surprised me on most accounts. So, I'll reflect on your question by defining what is unique about this project - its key advantages and some of the commercial drivers.
Nigeria, I didn't know all that well, other than it is a large emerging economy in Africa with a population over 200 million people. It's been independent since 1960. Since that time, its economy has been largely reliant on oil and gas revenues, which did attract large-scale international investment over the last 30 years, both onshore and offshore oil and gas developments. That's quite common for countries emerging from independence, where Governments’ focus on some of the very large resource assets they have, and oil and gas is often early targeted as a development industry. Oil and gas are supporting the
Agbaja Plateau Community Meeting Regarding Development Plan August 26, 201
Nigerian economy via exports, as the vast majority of those energy units are exported and sold to provide foreign currency. The domestic economy is very much agrarian based to provide domestic food and support local trade, whereas the industrial manufacturing sector is relatively underdeveloped other than a strong cement industry and some fertilizer Production.
Nigeria’s large population interested me as a demand driver. The economy has obvious needs if it wants to industrialize to provide for increased domestic investment in infrastructure, housing and manufacturing sectors. Further of interest was that Nigeria’s industrialization has been constrained by the high-cost of supply of imported materials, as it does not produce any domestic steel. For a country with such a large population and a sizable economy that is actually quite rare worldwide. Most economies when they get to a certain size of GDP will have steel production domestically. Yes, some countries import different raw materials, such as Japan imports a lot of iron ore from Australia. But they do have control of their own domestic steel production. In other words, they don't import steel to fabricate steel, which is what Nigeria currently does. The very nature of a large economy with import substitution as its fundamental premise interested me a lot.
The Company has discovered a good iron ore resource, it has completed pre-feasibility level studies, the market is good and the location within Nigeria is great. The southern central location of the iron ore resource is between the coast, where the gas is produced and Abuja, the federal capital of Nigeria, and located between and within major infrastructure corridors. Importantly for me, I think the timing is right for Nigeria to industrialize now as it has had good government stability for the last decade or so.
There is money available offshore that is now flowing back into the Country. So, now is the time to focus on the Nigeria’s mining and related industrial sectors, which has certainly been under capitalized and is very much in its infancy. It’s important for the Government to identify projects within its mining sector that can create wealth, that is the way I think about it. It's not just a matter of import and export substitution. Valid mining projects will create wealth for the economy and people.
The Agbaja steel project is a very attractive investment opportunity and rather unique, as it has the potential to have a low-cost base on a global scale. As an investor, it’s good to know that the project has the potential for low cost based on integrated 100% owned iron ore and Nigeria’s abundantly available natural gas to support competitive gas fired power.
Minister MMSD World Bank & Permanent Secretary
The Agbaja project has the potential to have very low costs in both these areas. In 2014, the Company completed a pre-feasibility study on mining, beneficiation, and export of the iron ore as a public document. This study showed the potential for low cost production of iron ore concentrates. So, the two main cost inputs into making the steel, being iron ore and power support the potential to be low steel producer by global industry standards.
Importantly, what is particularly attractive to underpin investment in the Agbaja project is the structure of the domestic steel market. There isn't steel production in Nigeria, so you could say, the competition is the import of high-price scrap steel, and the government is very keen for us to replace that. It's a very interesting and fertile place to do business where you have a large economy with latent market demand.
Nigeria’s steel demand would most likely be higher if it didn't have to pay a very high price for imported scrap steel, along with limited domestic scrap availability. Logically, with potential low-cost of production and good solid returns from the marketplace the Agbaja project is a compelling business opportunity. It’s rare to see industrial projects, with this many potential competitive advantages with solid investment fundamentals and commercial drivers. What’s required now is to complete and international quality Feasibility Study, making sure that we tick all those boxes to support funding of project development.
Dr. Allen Alper: I think that gives our readers/investors a very good picture of the opportunity. And it seems like a very good opportunity.
David Turvey: Thanks Allen, there is a clear six months to two-year business path the Company has outlined in its recent August presentation. Initially, we are raising the about one to two million dollars to focus three to six months work on the key value drivers being steel refining tests, gas supply contract, and market entry policy. Based on success with these value drivers and their public announcement, hopefully that will add to the share price and increase our market liquidity. We expect people will see quite a bit of renewed energy in the Company by following this clear focus. Then we’ll progress with the remaining aspects of the feasibility study, over the next 12 to 16 months after that.
So these are very important messages for me to get across. That we are currently looking at funding, that there are quite clear value drivers and value growth milestones, key things that need to be done that really should ‘move the needle’. To summarize. We own the iron ore, we have done pre-feasibility studies, we have the potential for low cost steel production and the potential for good returns. All these factors give Kogi Iron’s Agbaja Steel Project the competitive advantage to become the pioneer steel producer in Nigeria.
I hope my enthusiasm and passion for Kogi Iron, with the validity of the fundamentals, makes for a compelling story. That's my vision. that's what differentiates our Company.
Dr. Allen Alper: I think you have given our readers/investors a very good understanding of the opportunity with Kogi Iron. Your opportunity is very interesting. We’ll publish your press releases as they come out so our readers/investors can follow your progress.
https://www.kogiiron.com/
David Turvey
Managing Director
For more information, please contact:
Ray Ridge
Company Secretary
Kogi Iron Limited
Tel (office): 61 8 7324 4047
Email: ray.ridge@kogiiron.com
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