Kogi Iron continues to step on the gas with the definition of a maiden Ore Reserve of 205 million tonnes at 45.7% iron at its Agbaja Iron Ore Project in Nigeria just weeks after delivering a Pre-Feasibility Study.
Notably, the Ore Reserve confirms the PFS assumption that there is sufficient mineable ore to support a minimum 21 year mine plan.
The PFS had established Agbaja as an economically robust and technically viable project with average operating costs of US$42.98 per tonne concentrate FOB, estimated pre-tax NPV of US$420 million (at a 12% discount), an IRR of 23.7% and CAPEX estimate of US$497 million.
The long term forecast FOB price of US$73 per tonne iron ore concentrate supports a net margin of US$30 per tonne and average EBITDA of US$136 million per annum.
“This Ore Reserve is another important milestone in Kogi’s vision to be an African iron ore producer and comes only a matter of weeks after the Company announced the very positive results from its PFS, giving us further confidence in the Agbaja Project,” managing director Iggy Tan said.
“The 205 million tonne Maiden Ore Reserve re-affirms the PFS findings that there is sufficient mineable ore of requisite grade within the Stage 1 and Stage 2 mining areas at Agbaja to support economic mining and processing operations at an annual rate of 5 million tonnes of iron ore concentrate, for 21 years.
“The Maiden Ore Reserve will be the basis for a Definitive Feasibility Study at Agbaja, which the company expects to complete by the end of 2014.”
Kogi had moved to immediately start the DFS after completing the PFS in late January.
Maiden Ore Reserve
The Maiden Ore Reserve of 205Mt at 45.7% iron was determined in accordance with the JORC Code (2012) by Harry Warries of independent international mining consultancy Coffey Mining Pty Ltd.
Kogi has made rapid progress towards this Reserve, first announcing a maiden Inferred Resource of 488Mt at 42.7% iron on 28 September 2013 before increasing this by 20% to 586Mt at 41.3% iron on 10 December 2013. The company had also at the same time defined an Indicated Resource of 466Mt at 41.4% iron.
The cut-off used to define the Reserve was based on the magnetic susceptibility of the mineralised material as the processing method selected for Agbaja incorporates magnetic separation.
These magnetic susceptibility measurements identified that the boundary between magnetic and non-magnetic material is very sharp.
Agbaja exhibits a relatively consistent ore profile that comprises the Zone A layer of lateritic material (non-magnetic and not treated at this stage of the Project) followed by the Zone B layer of oolitic material (magnetic).
In addition, the deposit is relatively contiguous and readily discernible. As such, no pit optimisation was undertaken. The pit design was based on the Stage 1 and Stage 2 mining areas that exhibited the lowest waste to ore strip ratio and was sufficiently large to sustain a 21 year mine life.
Coffey undertook detailed mine planning work based on the company’s 466Mt Indicated Mineral Resource and considered various material assumptions and modifying factors from the PFS to determine the Ore Reserve.
Agbaja Iron Ore Project
The Agbaja Project unique sedimentary magnetite Channel Iron Deposit (CID) that is 100% owned by Kogi Iron and includes 17 exploration licenses that cover 400 square kilometres.
Drilling and development efforts are focussed within Exploration Licence EL12124 where the Resource and Reserves are located.
The Reserve is sufficient to support a 5 million tonne per annum project for a period of 21 years.
Magnetite iron mineralisation is contained within very shallow and flat lying channel iron deposits that are ideal for low cost surface mining using traditional truck/excavator open pit development.
Agbaja is ideally located close to the Niger River, and within 60 kilometres of an under-utilised heavy haulage rail line that leads to the Port of Warri, and just north of Lokoja with a population of 90,000 which serves as the capital city of Kogi State.
The PFS had focused on the use of barging to transport ore with barging and transhipping costs estimated at around US$19 per dry metric tonne free on board, or $0.0297 per tonne kilometre.
Analysis
With the estimate of a maiden Ore Reserve of 205Mt at 45.7% iron just weeks after completing the Pre-Feasibility Study for its Agbaja Iron Ore Project, Kogi Iron has established one of the key elements for the Definitive Feasibility Study.
Progress on the project has been quick with just six months between establishing a maiden Inferred Resource and today’s Ore Reserve announcement, which in itself a milestone – and a fast one at that.
Coupled with the PFS establishing the project as being economically robust and technically viable, Agbaja is very well placed at the forefront of West Africa, as the next iron ore hub underpinned by Chinese seaborne demand as it looks to diversify away from the large Australian iron ore producers.
Kogi remains an iron ore player to watch and corporate interest from China or Asian steel companies would not surprise as they move to lock-in African iron ore supplies.
Notably, Agbaja Fines have low silica content, which is much sought after by Asian customers, and is relatively coarse, making it more attractive for sintering.
The Resource and now Reserve is also one of the highest grade beneficiable iron ore resources in West Africa with massive scale potential given that it covers just 20% of EL12124.
The remaining 80% hosts a conceptual Exploration Target of 1.3 billion to 2 billion tonnes at a grade of 32-48% iron.
Proactive Investors maintains a share price target of $0.28 (undiluted) on successful completion of the DFS at the end of 2014.
