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Micro-cap spotlight: Carpentaria Exploration

Carpentaria Exploration (ASX: CAP) is a micro-cap base and precious metals explorer and developer that has interests in iron ore, gold, tungsten, copper and tin. Although it has a number of gold projects in eastern Australia, it is wanting to develop several mine sites in SA and NSW, which may open up a new iron ore region.

Chief amongst these is its Hawsons Iron project, located about 60km southwest of Broken Hill, NSW. I recently spoke with the managing director, Quentin Hill, to find out what the project had to offer and where it was in development.

The resource is magnetite ore and the company is proposing a plan for a mine that could deliver 10 million tonnes of ore for shipment annually, to be sent from Port Pirie, SA.

Hill explained that although it is magnetite, which is regularly seen as a more costly ore to mine with lower grades of purity, this mine has a twist that will make it potentially less costly. It comes from the geology of the material, in that the ore is situated in material that is relatively soft and cheaper to process.

“Subject to pilot testing, the proposed processing plan takes advantage of the soft material properties, eliminating one step of grinding, allowing the lower magnetite ore grade to be converted into a higher grade concentrate at about one-quarter the regular cost of other mines,” he said.

The capital cost per tonne of capacity is projected to be about $150. That puts the mine on a level of hematite expansion projects that have average capital intensity costs of $200 upwards. The ore grade is half, but the cost is a quarter. Therefore it projects that overall processing costs should be about half of other mines.

The company has identified about 13 million tonnes of existing spare capacity leading to Port Pirie and some 20-30 million tonnes of expansion capabilities at the port. It has signed a memorandum of understanding with the port owner, Flinders Ports, concerning potential shipments, but the facilities will need a small upgrading.

What makes this Hawson project interesting and more of a possibility to develop economically is that the resource is not way off in the middle of nowhere, but within a short distance from one of Australia’s most famous mining cities. Nearby you have rail transport, electrical power and even a water source has been identified for potential use.

The feasibility study is due in May 2014 and to reduce initial development costs and make it more attractive to investors, the plan has been scaled back to 10 million tonnes a year production, down from 20 million tonnes per year. In November 2014 the environmental impact statement is scheduled for completion. That should clear the way for the mining lease to be granted.

After the mining lease is granted, Hill said it would take about two years until first production. There are no environmental issues to impede it, the land is completely free of native title, and with the nearby existing infrastructure the project will have lower startup costs. Finding funding for the feasibility study and beyond is the task at hand. It is working to lower the risk of the project by looking at a lower capital option, negotiating with the ports and confirming infrastructure access and costs.

“From an investment point of view, it would depend on investors’ view of iron ore prices, the iron ore market, and Chinese investment” he said. One of its major shareholders has significant network connections to investors and steel mills in Asia, and another actually deals in iron ore trading in Asia. Hill said: “De-risking the project will encourage more potential investment by offering low capital intensity costs and lower long-term operating costs.”

Foolish takeaway

The proposed mine is a story investors can follow. Development funding will have to be sourced and more work remains to be done. Other small iron ore miners like Mount Gibson Iron (ASX: MGX) and Atlas Iron (ASX: AGO) went from being explorers to producers – so see how they developed and compare them with this company. You need to investigate the progress and performance to make your investing worthwhile. I first came across this company back in 2011 at a presentation in Brisbane, and I still periodically read updates and reports to stay up with the story. With this company there is no need to rush like trading in and out of some hot stocks. Having a long-term perspective on investing also means having patience in allowing a promising opportunity to grow.

 

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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