London Mining has confirmed that both 5 Mtpa (million tons per annum) and 10 Mtpa operations were feasible and identified resources to allow mine extension and further capacity increase for the Wadi Sawawin iron ore project in the Kingdom. Wadi Sawawin is located 60km from the Red Sea port of Duba in Saudi Arabia and is held through Saudi London Iron Limited. The Saudi joint venture company is held equally by London Mining and National Mining Company. Wadi Sawawin will provide Saudi Arabia with a domestic source of DR pellets for use in the DRI steel plants which account for 90 percent of steel production in the Middle East and North African region. London Mining plans an 8,000 meter drilling program in 2010 to delineate further economic mineralisation to expand the resource and enable 10 Mtpa DR pellet production for 20 years. Metallurgical testwork undertaken by British Steel over a 20 year period has identified a process route that has been confirmed by Ausenco, Worley Parsons and Corus Consulting. The process involves fine grinding followed by selective flocculation and calcium activated reverse anionic flotation, to produce a high-grade concentrate suitable for pelletising as a direct reduction furnace feed. In addition, 8000m of drilling is planned before the end of 2010 to increase confidence in the existing resources and to bring the identified exploration target into the project's resource base. The company said the bankable feasibility study (BFS) showed a capex (capital expenditures) at around $1.6 billion, which favorably compares to the previous estimate of $1.8 billion. It also assumes an opex (operational expenditure) of $47.4/t (ton) of direct reduction (DR) pellets FOB Red Sea with an extended mine life of up to 20 years - expected to be confirmed in the new JORC resource which is due around February 2010 - after additional work on resources currently in the proposed mining area. The BFS included an updated market study undertaken by CRU Strategies, which assumed a long-term price of USD119/t FOB Red Sea for DR pellets, incorporating CRU Strategies estimate that Wadi Sawawin pellets would also benefit from a long-term USD21/t freight premium to Brazilian Tuberao pellets. The study also identifies a sustained 17Mt supply deficit for DR pellets in the MENA region in 2013. The current JORC resource of 230 Mt (million tons) grading 41 percent Fe (iron) is sufficient for a mine life of 14 years. The current resource is based entirely on the exploitation license of 3.5 sq km (square kilometers) with exploration licenses of 211.2 sq km to be investigated in 2010. The capex comprises $184 million for the mine and ore transportation, $399 million for processing, filtering and tailings, $246 million for pelletising and another $556 million for port, power, desalination plant and other infrastructure, making for a total installed cost of $1,385 million. Construction, EPCM services, design allowance, owners costs and contingencies bring the total capex to $2.0 billion. The opex estimate consisted of $22.7/t for processing, $8/t for pelletising and port, with the remainder incorporating mining, road transport and administration expenses. The costs could go up to $58/t if power and water are acquired from a dedicated third party provider, including a capital charge payable over 14 years. Project IRR (internal rate of return) was put at 9.4 percent, producing an equity IRR of 13.5 percent based on 60 percent leverage. Should power and water be provided by a third party, the project IRR will go up to 10 percent and equity IRR to 14 percent, while the NPV8 (net present value with an 8 percent discount rate) will increase from $225 million to $282 million. The company believes it can slash capex by $75 million based on the expectation of a long term price of $134/t, or $15/t above the current level. This would result in a project IRR of 11.9 percent and equity IRR of 18.4 percent and a project IRR of 13 percent producing equity IRR of 20 percent if power and water are supplied by a third party. NPV8 would then amount to $668 million, or $734 million with third party water and power supplies. CRU noted though that while an operation of 5 Mtpa (million tons per annum) of direct reduction pellets was feasible, the regional market could support a supply increase of at least 10 Mtpa.
