why invest in australian iron ore exploration? hope downs and beyond

WhyWhy Invest in Australian Iron Ore Invest in Australian Iron Ore Exploration?Exploration?

Hope Downs and BeyondHope Downs and Beyond

Presentation to Australian Iron Ore and Steel Summit 2002

Parkroyal Darling Harbour, Sydney30 - 31 October 2002

by Tad Watroba - Director, Hancock Prospecting Pty Ltd

Hancock Prospecting Pty Ltd

• Why not?Why not?• • Success of Rio Tinto, BHPB, Robe River and othersSuccess of Rio Tinto, BHPB, Robe River and others• Benefits to Western Australia and to the nation• Benefits to Western Australia and to the nation• How has it happened• How has it happened• Hard road to Hope Downs• Hard road to Hope Downs


Why Investing in Iron Ore Exploration?

• Development of towns, ports, railways, roads etcDevelopment of towns, ports, railways, roads etc• • Royalties and taxesRoyalties and taxes


Benefits to Western Australia and to the nationto Western Australia and to the nation

Western Australian Iron Ore Royalty Receipts

Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

A$ M 145 151 158 139 153 154 182 235 205 233 286

• • Australian Balance of PaymentAustralian Balance of Payment

• • Jobs, jobs, jobsJobs, jobs, jobs

Pioneering Family of the North West:•Pastoralists since 1860’s•Mineral exploration since early 1930’s

Lang Hancock ‘father’ of the Pilbara discovers vast quantities of iron ore in 1950’s, 1960’s & 1970’s

Hancock Prospecting earns mining royaltiesContinued exploration for iron ore and Hancock is

the only other holder of significant iron ore reserves in the Central Pilbara outside Rio Tinto and BHPB


Hancock Group - SummaryHancock Group - Summary

June 10 1909 Langley George Hancock born in Perth to George and Lillian Hancock

August 4 1947 Langley George Hancock and Hope Margaret Nicholas married

November 22 1952 Discovery flight with wife, Hope Hancock, whilst flying from their Nunyerry mine to Perth

1953 Returning to discovery area, landing in spinifex and collecting samples for more than 50 miles and sending to Perth for analysis. After analysis, realisation he had found an iron ore zone of possible world significance


Hancock Group - HistoryHancock Group - History

Flying ProspectorFlying Prospector


1955 Established family company, Hancock Prospecting Pty Ltd (HPPL), now run by his daughter Gina Rinehart

1953 – 1960 Lobbied for lifting of Iron Ore export embargo by Federal Government.

• Continued exploration• Established committee for North West development with pastoralist friends Frank Thompson and Bill Leslie and proposed and lobbied for tax incentives, with the provision that monies be reinvested in the North West

1960 Export embargo on Iron Ore lifted



1960 – 1961 Lobbied for lifting of State embargo on pegging for Iron Ore.Together with partner E.A Wright of WPPL, endeavoured to interest Steel Mills and mining houses to invest in Hancock’s Pilbara discoveries

1961 State embargo on pegging of Iron Ore lifted

1961 Pegging of Iron Ore areas discovered by Lang Hancock with team on ground headed by cousin Bill Newman

Hosted the visit of Val Duncan, Chairman of Rio Tinto, London, and other Senior Executives



1961 – 1962 Together with E.A Wright, negotiated agreements with Rio Tinto for the purpose of furthering development of Hancock’s discoveries

Hosted the visit of Tom Price of Kaiser Steel, USA, which brought in the involvement of Kaiser Steel into what became the new company, “Hamersley Iron”

Increased exploration efforts with Dr Bruno Campana of Rio Tinto Australia, and mapping of the entire Hamersley Iron Province

Identified and named “Campana’s Horizon” (also known as “Bruno’s Band”)




Bruno’s BandBruno’s Band

1962 Hosted the visit of Dr Muraoka and staff from Marubeni, Japan, utilising Hancock’s “Hamersley Station” as headquarters for Marubeni’s, and Hancock’s continuing exploration efforts

The exploration report of Dr Muraoka brought the Japanese Steel industry’s interest into the Pilbara



Dr Muraoka and Lang HancockDr Muraoka and Lang Hancock


1963 – 1964 Arranged and hosted the visit of the world’s then richest man, Daniel K Ludwig, and interested him in presenting a cost saving proposal to the West Australian government for the building of a large central port and unified railway system to service the entire Pilbara Iron Ore region, to enhance the region’s competitiveness.

1966 Tom Price commissioned, and Port and town of Dampier established



1966 – 1971 Brought Hamersley Iron Executives to Paraburdoo and interested them in developing Paraburdoo

Sought to interest Texasgulf of USA, CSR, MIM, Utah, and Consolidated Goldfields into participation in Hancock’s and Hanwright’s exploration teams

1969 Established with WPPL the Sunday newspaper “The Sunday Independent”



1970 - 1971 Hanwright explored with the co-operation of Mr Hancock’s brothers’ in law Jim and Bill Nicholas, and friend Don Rhodes, the West Angelas, which Mr Hancock named after E.A. Wright’s daughter, but these areas were then confiscated by the West Australian government, and later given to a competing company

1972 HPPL and WPPL established with Texas Gulf the Iron Ore (Rhodes Ridge) Agreement with the West Australian government



Rhodes Ridge JV with Texas GolfRhodes Ridge JV with Texas Golf

1972 HPPL and WPPL established with the Iron Ore (Wittenoom) Agreement with the West Australian government

HPPL and WPPL established with MIM, Utah and Consolidated Goldfields the Iron Ore (McCameys) Agreement with the West Australian government

1973 Paraburdoo Commenced production



1974 Established the nationwide “National Miner” newspaper

•Gained jet pilots license at age 65, and acquired first Lear Jet and utilised for overseas visits to promote Australian mineral developments, and to show executives, politicians and others the Pilbara’s potential



1975 Arranged and hosted the visit of close friend, and Premier Joh Bjelke-Petersen and party to the Pilbara, and promoted the establishment of a railway line across Australia linking the Pilbara’s Iron to Queensland’s coking coal

After years of worldwide effort with Marandoo, and completing the feasibility study, received “Letter of Interest” from Nippon Steel, allowing Nippon Steel to participate up to 1/3 in the Marandoo project.




Premier Joh Bjelke-Petersen Visit

1979 Wrote and released first book “Wake Up Australia” (launched on June 10 by Premier Joh Bjelke-Petersen and his daughter Gina, in his absence due to ill health) on “Wake Up Australia” jumbo jet tour of Australia’s mineral assets and potential



Wake-up Australia FlightWake-up Australia Flight

Wake up Australia FlightWake up Australia Flight

1987 Achieved government support for infrastructure sharing for the McCamey’s project by way of a State Agreement with BHP to allow third parties to access their railway

1989 - 1991 Achieved first tonnage to be mined at McCamey’s Monster, first Hancock’s own iron ore mine in production

1992 March 27th, passed away unexpectedly, despite strong will to live, his daughter Gina Rinehart takes over HPPL




The Man of IronThe Man of Iron

1992 December - HPPL achieved the Iron Ore (Hope Downs) Agreement with the state Government

1993 Mrs Rinehart hosted visit by Premier Mr Richard Court, and party to Pilbara

1993 June 10th, a new planet, discovered by Dr Candy, named in permanent honour of Lang Hancock

1994 Marandoo commenced production

1997 Pre-feasibility study for Hope Downs finalised and bankable feasibility study commenced



1998 29th January announcement of participation of Iscor Limited to develop the Hope Downs Iron Ore Project with Hancock Prospecting Pty Ltd

1999 June 10th Naming of Hancock Range in the Pilbara in honour of Lang Hancock and the Hancock family, and their pioneering history in the North West region

2000 Established program with the Notre Dame University to commence the Hancock Free enterprise lectures



Mining•Hope Downs•Joint Venture Partner in Rhodes Ridge (25%) with Rio Tinto•Objective:- to be Australia’s 3rd iron ore producer•Other Iron Ore Tenements (East Angelas, Roy Hill, Mulga Downs and others)•Coal•Ferruginous Manganese

Other Interests•Pastoral •Property


Hancock Group - Position TodayHancock Group - Position Today


Location MapLocation Map

1971 Pacminex exploration (19 holes)

1985 Geological Mapping

1987 RC drilling programme

1988 Low level aeromagnetic survey

1991 100m decline Diamond drilling Preliminary metallurgy


Hope Downs ProjectHope Downs Project

1992 Initiated environmental studies30,000m of RC drilling730m diamond drillingHope South discoveryHope Downs Iron Ore Agreement Act

199360,000m RC drilling programme5 winzes sunk in Hope North & South2400m diamond drill corePermanent camp established



19947 winzes sunk in Hope North & SouthMetallurgical testwork commenced at AmmtecGeotechnical studies Hope North & South3D interpretation & Orebody Modelling of Hope North

1995Mine Planning for Hope North3D interpretation & Orebody Modelling of Hope SouthFurther metallurgical testwork CISIRI, British Steel



1996Mine Planning for Hope SouthCSIRO and MPL metallurgical testworkMarketing Documentation

1997MarketingExploration of Hope 2 and 3Continuation of Pre-feasibility StudyDiscussions with Potential Partners




Hancock and Iscor Agreement for Hope DownsHancock and Iscor Agreement for Hope Downs

Tenements 100% owned by Hancock GroupTotal Delineated resource for Hope Downs 1, 2, 3 and East

Angelas (Not part of the agreement with Kumba) exceed 1,200 Mt

Extensive pre-feasibility work by Hancock had proceeded for over 6 years (total spent exceeds $25 M)

Drilling, geology, mine planning, metallurgy, engineering, environmental, native title and heritage studies

Hope Downs 1 comprises two deposits - North & South with scheduled recoverable reserves over 400 Mt


Hope Downs Project Status after Signing with IscorHope Downs Project Status after Signing with Iscor

Hope Downs Feasibility Study PeriodHope Downs Feasibility Study Period In 1998, the Hancock Group and the Iscor Group began a bankable

feasibility study of the potential development of the Hope 1 iron ore deposit

Hope Downs Management Services (HDMS) was formed to manage the bankable feasibility study (BFS)

The original Project concept was to:• Produce 15 Mt/a of discrete Marra Mamba lump and fines from Hope

1, and• Deliver the ore “on ship” using shared rail and port infrastructure

In late 2000, the Project concept was revised to:• Produce 25 Mt/a of discrete Marra Mamba lump and fines from Hope

1, and• Deliver the ore “on ship” using independent rail and port

infrastructure The FS technical report was completed in July 2002


Geological ProgramGeological Program

100,000 metres drilling during pre-feasibility 32,000 metres drilled in feasibility study 13 exploration shafts sunk (1000 m) Representative samples - 1997 and 1999 Revised Resource model - September 1999


Geology Geology Most iron ore deposits of economic value in the Pilbara were derived by

enrichment of either the Brockman Iron Formation or the Marra Mamba Iron Formation

Iron ore from the Marra Mamba Iron Formation will be mined at Hope 1 Hope 1 is made up of 2 orebodies

• Hope North• Hope South

Figure 3.5 Diagrammatic cross section of Hope 1

WittenoomDolomite

Marra Mamba

Iron Formation ore

ore

detritusdetritus

HopeSouth

HopeNorth

E

W


Geology Geology At Hope 1, the mineralised zone contains three ore-types:

Figure 3.9 Schematic diagram showing the locationof different ore-types at Hope 1

Hydrated ore-type

2. Hydrated ore-type, <10%, generally LGDetrital ore-type

3. Detrital ore-type, <10%, generally LG

1. Bedded ore-types, ~80%, mainly HG

Bedded ore-types

• Main minerals are goethite and hematite• Ore-type characteristics are the same at Hope

North and Hope South


GeologyGeology Initially, most of Hope 1 had

been drilled on a 200 m 50 m grid

Infill drilling (on a 100 m 50 m grid) was carried out during the BFS to:• Confirm the structural

interpretation• Confirm the accuracy of

drilling data• Increase confidence in the

Mineral Resource Drilling summary (total)

• 1552 holes• 134 172 m (16% diamond

drilling) Drill rigs operating at Hope 1


GeologyGeologyMineral Resource estimate - Hope 1 Derived from geological cross sections based on drilling Consistent with the Australian Code for Reporting Mineral Resources and Ore

Reserves (Mineral Resource tonnage estimate is inclusive of Ore Reserve tonnage estimate)

Cut-off grade = 58%Fe ; Average in-situ density = 2.8 t/m³

61.8

3.0

1.6

0.06

% dry basis

Fe

SiO2

Al2O3

P

0.1

6.7

Mn

LOI

Mineral Resource490 Mt, in situ#

Measured; 195 Mt

Indicated; 270 Mt

Inferred; 25 Mt

# dry, to the nearest 5 Mt

Increasing level ofgeological knowledge

and confidence


Sample evaluationSample evaluation

Bulk sampling (drum sample) programs:• A decline (mainly hydrated ore-type)• 12 winzes (vertical shafts), maximum

depth 81 m• 8 winzes in Hope North• 4 winzes in Hope South

Winze and decline locations at Hope 1

6000 N

10000 N

12000 E

Hope NorthHope North

Hope SouthHope South

1

2

3 456

78

9

10

11

12

Decline

6000 N

10000 N

12000 E

Hope NorthHope North

Hope SouthHope South

1

2

3 456

78

9

10

11

12

Decline

12

3 456

78

9

10

11

12

Decline

• A bulk marketing sample was prepared from winze material in 1999

– Represented the first ~110 Mt of ore to be mined– Lump ore was conditioned

• Material recovered from the winzes was also used for evaluation of ore processing characteristics


MiningMiningOre Reserve estimate - Hope 1 Derived from the Mineral Resource estimate (Measured and Indicated categories only) Consistent with the Australian Code for Reporting Mineral Resources and Ore

Reserves (Ore Reserve tonnage estimate is within the Mineral Resource tonnage estimate)

Tonnage and grade estimates include dilution (<5%)

Apply mining recovery factors, schedules & blending ratios

Ore Reserve400 Mt, saleable#

Proved; 175 Mt

Probable; 225 Mt

61.6

3.09

1.59

6.7

% dry basis

Fe

SiO2

Al2O3

LOI

Mineral Resource490 Mt, in situ#

Measured; 195 Mt

Indicated; 270 Mt

Inferred; 25 Mt

# dry, to the nearest 5 Mt


MiningMining

Conventional open pit mining operation• Horizontal 10 m benches

6 0 0 0 N

1 0 0 0 0 N

1 2 0 0 0 E

S o u th C e n t r a l

S o u t h E a s t

N o r th E a s t 1

N o r th F la t T o p

N o r t h W e s t

H o p e N o r t hH o p e N o r t h

H o p e S o u t hH o p e S o u t h

S o u th W e s t

N o r th E a s t2

H o p e 1

M t W h a le b a c k

M a r a n d o o

H o p e 1


M a r a n d o o

6 0 0 0 N

1 0 0 0 0 N

1 2 0 0 0 E

S o u th C e n t r a l

S o u t h E a s t

N o r th E a s t 1

N o r th F la t T o p

N o r t h W e s t

H o p e N o r t hH o p e N o r t h

H o p e S o u t hH o p e S o u t h

S o u th W e s t

N o r th E a s t2

H o p e 1


M a r a n d o o

H o p e 1


M a r a n d o o

Definition of pit areas for mine planning

Mine planning – pit design and operations• Hope North is:

– divided into 4 pits for scheduling– ~6000 m long and 500 m wide

• Hope South is:– divided into 3 pits for scheduling– ~5000 m long and up to 750 m wide


MiningMiningMine operations – equipment Equipment selections were made to:

• Ensure the required mining selectivity

• Take advantage of the latest developments in mining technology

• Standardise the mining fleet

Mining operations – quality control concept• Target product quality will be achieved by:

– Grade control drilling– Maintaining adequate drilled and broken stocks– Mining from pits with complementary blending

grades– Using run of mine stockpiles (before primary crusher)

Table 5-11 Major mining fleet at 25 Mt/a productionEquipment Proposed size Number

Blast hole drills 251 mm diameter 4

Hydraulic excavators 30 m³ bucket 2

Front End Loaders 16 m³ bucket 2

Haul trucks 231 t 18

Komatsu 830E haul truck


PlantPlantFlowsheet and facilities Plant design by Fluor Daniel Final design production rate = 25 Mt/a

(dry) Two stage crushing and screening

plant to produce separate lump (-31.5+6.3 mm) and fines (-6.3 mm) products at Hope 1

Construction will proceed in 2 phases:

Phase 1: initial design production rate of 15 Mt/aPhase 2: additional production capacity of 10 Mt/a

25 Mt/aPhase 2; +10 Mt/a

overlandconveyor

HopeSouth

Schematic outline of ore processing plant

Phase 1; +15 Mt/a

lump

productscreeningmodules

fines

scalpingmodules

secondarycrushingmodules

primarycrushingmodule

HopeNorth


PlantPlantMine stockyard The mine stockyard will be located

inside the rail loop Stockyard capacity will be 600 000 t

(live) Each live stockpile has sufficient ore

to fill 2 trains, each of 224 ore cars

Train loading and infrastructure Train loading

• Proposed system used successfully at other Pilbara operations

• Designed to load 224 ore cars with up to 125 t per ore car in a total time of 3 hours

Infrastructure• Stand-alone services• Appropriate to a fly-in / fly out

operation Ore processingplant

Trainloadout

Rail loop

Schematic outline of mine stockpiles and train loadout

Overland conveyor(from Hope South)


Feasibility Study Results – Mining and Ore ProcessingFeasibility Study Results – Mining and Ore Processing

Mineral Resources . . . . 490 Mt at 61.8%FeOre Reserves . . . . . . . . 400 Mt at 61.6%FeWaste : Ore ratio . . . . . 1.4 : 1.0Mining method . . . . . . . Open-cut; drill, blast, load &

haulProduction ramp-up . . 5 Mt/a steps to 25 Mt/a by Year

5Ore processing plant . . Dry, 2 stage crushing and

screeningProducts . . . . . . . . . . . . 47% lump, 53% fines at mineApprovals . . . . . . . . . . . Secured


Product quality projectionsProduct quality projections

Projections of physical properties have been made based on:

• Results from testwork carried out on the composite lump and fines prepared during the BFS

• Simulation of the mine to port handling and transportation process

Table 9-5 Projected physical properties (at port) Test Typical value

Bulk density (uncompacted, dry)

Lump, kg/m³ 1850

Fines, kg/m³ 2050

Tumble Strength ISO 3271

Tumble Index; TI, %+6.3 mm 86

Abrasion Index; AI, %-0.5 mm 8

Decrepitation ISO 8371

Decrepitation Index; DI, %-6.3 mm 5

Reduction Disintegration ISO 4696-1

LTB, %+6.3 mm 60

LTB, %-3.15 mm 22

Reducibility ISO 4695

(dR/dt)40, %/min 1.24

65% reduction time, min 50


Iron Making Slag Rate Index comparisonIron Making Slag Rate Index comparison

The slag rate index of Hope 1 lump is: * ~5% lower than Brockman lump

The slag rate index of Hope 1 fines is: * ~15% lower than Hamersley and Yandi fines * ~25% lower than Mt Newman fines

* ~55% lower than Mesa J fines


Infrastructure - RailInfrastructure - Rail

New heavy-haul railway from Hope 1 to Port Hedland

Designed as an independent operation

Total length ~370 km 3 passing sidings

required for a capacity of 25 Mt/aHope 1

km0 100

N

BHP Yandi

Mt Whaleback Jimblebar

PortHedland


RailwayRailway

Schematic long section of proposed railway

0200400600800

0 40 80 120 160 200 240 280 320 360Distance, km

Heig

ht, m

RL


PortPort Hope 1 ore exports through Port Hedland New ore handling & ship loading facilities designed HDMS has lease options over land on the western side of

Port Hedland harbour and a new berth site at Harriet Point

Aerial view of Port Hedland harbour, looking E

N S

W

E Nelson Point berths (BHPBIO)

Finucane Island berth (BHPBIO)

Harriet Point


PortPort The port materials handling system will be

developed in 2 stages:• Stage 1: initial capacity = 15 Mt/a• Stage 2: to increase capacity to 25

Mt/a The system will comprise:

• Train unloading facilities (twin cell dumper)

• An in-loading circuit• ore stacking (capacity = 10 000

t/h)• stockpiling (capacity = 4.1 Mt at

Stage 2)• An out-loading circuit

• ore reclaiming (capacity = 10 000 t/h)

• lump rescreening (up to 9 screens at Stage 2)

• A fines-return circuit and bulking in circuit

• Product sampling facilities Schematic outline of port materials handling system

Stage 1; +15 Mt/a

Stage 2; +10 Mt/a

Car dumper

Total; 25 Mt/a

Lump rescreening plant

Feasibility Study - ConsultantsFeasibility Study - Consultants

Geological Modeling - Snowdens Hydro-geology - Aquaterra Mine Design & Scheduling - Snowdens Process Plant - Fluor

Daniel Rail - HGM/ Fluor Daniel Materials Handling - Fluor

Daniel Marine - HGM Environmental - Biota

Iron Ore Market Outlook - DemandIron Ore Market Outlook - Demand Further

consolidation amongst steel makers

China to rely more on imported iron ore

Consumers focusing on consistent, high quality, raw materials

Iron ore imports by China(historic and forecast)

~155 Mt

020406080

100120140160180

1985 1990 1995 2000 2005 2010 2015

Year

Mt


Iron Ore Market Outlook - SupplyIron Ore Market Outlook - Supply

Consolidation of iron ore supply; completed?

Continued growth in seaborne iron ore trade

High quality lump ore supplies are limited

Seaborne iron ore trade

0

100

200

300

400

500

600

1985 1990 1995 2000 2005 2010

Year

Mt


Iron Ore Market Outlook – Hope DownsIron Ore Market Outlook – Hope Downs

Strong formal support for the Project from China

HDMS is working to secure formal support from other markets

Proposed sales - by market

China50%

Japan25%

Other Asia10%

Europe15%


Financing OptionsFinancing Options Kumba Resources Ltd

• Public listing on JSE (October 2001) Equity Investor/s Conventional Project Finance

• Strong market support• Sound engineering design• Competent managers

Mining Contractor Infrastructure Outsourcing

• Infrastructure Funds• Rail & Port investors



Ownership Structure: Joint Venture stageOwnership Structure: Joint Venture stage

HancockHancock KumbaKumba

Hope DownsHope DownsJoint VentureJoint Venture

EquityEquityInvestorsInvestors

Project Development ScheduleProject Development Schedule

Feasibility Report completed . . . . . . February 2002

Letters of Intent/sales contracts . . . . 4th Quarter 2002

Government approvals . . . . . . . . . December 2003

Construction commences . . . . . . . . January 2004

Shipments to customers commence . . 2nd Quarter 2006


Why Not? - That WhyWhy Not? - That Why


WA IRON ORE PRODUCTION AND DESTINATION - 2001

Mine Domestic Japan China Korea Taiwan Europe Other Total

HI operations - 19.0 12.6 10.3 4.4 4.0 0.6 50.9Channar - - 9.7 - - - - 9.7Newman 3.2 11.2 7.7 3.1 2.7 2.5 - 30.4Goldsworthy 2.5 3.5 0.8 - 0.5 - - 7.3BHP Yandi 1.5 14.6 3.0 8.1 2.0 1.6 - 30.8Robe River 0.4 17.2 1.0 1.4 - 7.9 0.4 28.3Koolyanbobbing 0.1 - 3.2 - - - - 3.3Cockatoo Island - - 1.2 - - - - 1.2

Total bydestination

7.7 65.5 39.2 22.9 9.6 16.0 1.0 162.0

Why Not? - That WhyWhy Not? - That Why


COMMITTED OR POSSIBLE NEW IRON ORE PROJECTS IN WESTERN AUSTRALIA

Mine Expected Production Destination Expected Start-up

West Angelas 20Mt/a East Asia July 2002Mining Area C 15Mt/a Korea 2003Eastern & Western Rangesand Paraburdoo

20Mt/a China 2004

Hope Downs 25Mt/a East Asia 2006Portman Expansion An extra 5Mt/a China 2006BHP Billiton’s Yandi An extra 5Mt/a short term East Asia 2003Nammuldi/Silvergrass An extra 3Mt/a short term East Asia 2007Mount Gibson 1.5Mt/a East Asia 2003Yandicoogina expansion An extra 3Mt/a East Asia 2007

TOTAL 97.5Mt/a

why invest in australian iron ore exploration? hope downs and beyond

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