Key Points (all currency in Australian dollars unless stated otherwise):

•      Quarterly iron ore sales of 0.9 million wet metric tonnes (Mwmt), comprising 0.4 Mwmt of Koolan Island fines and 0.5 Mwmt of low-grade material from the Mid-West operations. Sales for the half year ended 31 December 2020 totalled 2.3 Mwmt, consistent with guidance.

•      Group cashflow for the quarter totalled $62 million before investment at Koolan Island of $40 million in scheduled advanced overburden stripping and $2 million in capital projects, for group net cashflow of $20 million. Group net cashflow for the half year totalled $52 million.

•      Group unit cash costs of $56/wmt Free on Board (FOB) for the quarter, before Koolan advanced overburden stripping and capital projects. Koolan site cash costs were $65/wmt FOB and Mid-West cash costs were $40/wmt FOB.

•      Cash and liquid investments at 31 December 2020 of $436 million, with no borrowings.

•      Strong iron ore prices enabled the Koolan Island operation to produce significantly higher than planned cashflows despite the constraints of the scheduled overburden stripping program, a rockfall on the Main Pit footwall reported in November which will require additional ground support measures, and heavy wet season rains in December.

•      The successful Mid-West low-grade sales program concluded at the end of the quarter when available material was fully depleted. The program has yielded sales of 4.1 Mwmt and cashflow of $30 million since June 2019. Rehabilitation and closure activities are now underway at Extension Hill.

•      Development activities on the Shine Iron Ore Project in the Mid-West have accelerated with initial site works now commenced and shipments targeted for early in the September quarter. The Shine Project is an attractive development proposition in the current iron ore pricing environment.

•      Mount Gibson is targeting to substantially complete the Koolan Island overburden stripping phase and Shine development in the next six months. As previously disclosed, total ore sales during this period will be lower than for the first half but are expected to be within annual guidance, before increasing significantly thereafter, subject to successful implementation of the Koolan Main Pit footwall support measures. Cost guidance will be updated with the Company’s half-year financials.

Comment

Mount Gibson Chief Executive Officer, Peter Kerr, said: “Mount Gibson delivered a steady performance in the December quarter and half year, with iron ore sales in line with plan amid challenging weather and mining conditions at Koolan Island late in the year. In the Mid-West, our low-grade sales program was successfully completed in December and progress at the Shine Iron Ore Project has accelerated with site works underway in order to meet our target of first ore sales early in the September quarter.

As scheduled, ore shipments will be lower during the next six months as we progress the peak overburden stripping phase at Koolan Island and develop Shine. However, strong iron ore prices continue to reduce the net investment required at Koolan Island compared with our original expectations during this period, and pricing outlooks remain very solid. Ore sales and cashflows are set to rise sharply from mid-2021 as the overburden stripping phase is substantially completed at Koolan Island and Shine enters production.”

PERFORMANCE AT A GLANCE

OPERATIONS

Sales of high-grade fines ore from Koolan Island totalled 0.4 Mwmt in the December quarter. In addition, 0.5 Mwmt of low-grade material from the Mid-West was shipped from Geraldton Port in the quarter representing the successful completion of the low-grade sales program from the Extension Hill mine site.

Shine Project

Development planning for the Shine Iron Ore Project, located approximately 85km north of Extension Hill, was reactivated in 2020 having been deferred amid deteriorating market conditions in 2014/15.

Early in the December quarter Mount Gibson declared initial Ore Reserves1 of 2.8Mt grading 59.4% Fe in the proposed “Stage 1” pit at Shine. Capital development costs are estimated at $17-20 million, with forecast production of approximately 1.5 Mwmt/year over an initial two-year period at an average cash operating cost of $65-70/wmt FOB before royalties.

The sustained increase in iron ore prices and demand in recent months has significantly enhanced the economics and outlook for the Shine Project. Should market conditions remain supportive, there is potential to extend the mine life by a further two years by proceeding with a “Stage 2” pit, based on Measured and Indicated Mineral Resources within the modelled pit shells. The Shine project has total Measured, Indicated and Inferred Hematite Resources1 of 10.8Mt grading 58.2% Fe.

Activity in the December quarter focused on site preparation, progressing remaining permitting requirements, and advancing key commercial arrangements. The base development case assumes ore is hauled approximately 300km by road from the mine site to the Company’s established export facilities at Geraldton Port. Alternative transport options are under advanced negotiation with third parties.

Equipment mobilisation occurred in the December quarter and site works commenced at the start of January, including laydown area clearings and establishment of the site water supply. The mobile mining fleet has been secured and recruitment of key senior site personnel is also largely completed.

The project remains on schedule to commence mining in April 2021 to achieve first ore sales early in the September quarter.

Expenditure on the project totalled $1 million in the December quarter, and Mount Gibson expects to incur most of the budgeted capital development expenditure in the June 2021 half year. In addition, approximately $15 million is expected to be incurred in the current half year period on overburden stripping assuming mining activity commences in April as planned.

Sales and Cost Guidance for 2020/21

As previously reported, the focus in 2020/21 is on increased mining movements at Koolan Island to substantially complete the planned open pit overburden stripping phase ahead of ore shipment levels rising significantly from next financial year onwards. In the Mid-West, the focus is on bringing the Shine project into production as quickly as possible now that low-grade sources from Extension Hill have been depleted.

In August 2020, Mount Gibson provided ore sales guidance of 2.8-3.3 Mwmt for the 2020/21 year, comprising 1.8-2.1 Mwmt of high-grade fines from Koolan Island and 1.0-1.2 Mwmt of low-grade material from the Mid-West.

Sales from the Mid-West were at the upper end of guidance while mining at Koolan Island has been more challenging and was interrupted by heavy wet season rains in the December quarter. Sales from Koolan Island are therefore expected to be at the lower end of the Company’s guidance range for the 2020/21 year. With the overburden stripping phase and increased investment in geotechnical support activities in the Main Pit, ore sales in the March and June 2021 quarters are expected to be broadly similar to volumes in the December quarter before increasing significantly in the September quarter, subject to the implementation of necessary additional footwall support measures mentioned in the Koolan Island section above.

Reflecting the impact of the December quarter interruptions on total material movement and on the increased geotechnical support activities required in the Main Pit, Mount Gibson expects group unit cash costs in the second half of the 2020/21 financial year to increase from levels achieved in the first half. Cost guidance will be updated with the release of the Company’s half year financial results in February.

Mount Gibson Iron Limited Quarterly Operating Statistics

More Info: 4Q2020 Report