JOHANNESBURG (miningweekly.com) – ASX-listed Aquila Resources CEO Tony Poli expects the continued growth in steel production in China to underpin the price of iron-ore – its key input – and does not believe that the largely anticipated oversupply of the mineral will materialise to any great extent.

Poli, whose diversified junior mining company was currently advancing several iron-ore projects across Brazil, Australia and South Africa, told journalists in Johannesburg that the expectation of an iron-ore oversupply was largely the result of strategic posturing by the larger producers rather than an abundance of projects that were due to come on-stream.

He said that, as larger projects came on-stream, the bigger iron-ore producers tended to “overpromise and underdeliver” [to create the impression of possible oversupply], as this tended to discourage banks from lending to smaller companies for new projects.

“What often happens then is that, three or so years later, there are no new projects and the beneficiaries of that windfall [and the supply gap] are the larger companies,” he asserted.

The Aquila head said he focused largely on anticipated production from the larger companies rather than expected demand when estimating future metal prices.

“While there is a chance that there could be a surplus, the cost of producing in China and the positive Purchasing Managers Index and New Orders Index – which continue to illustrate strength in the country – lead us to anticipate an iron-ore price of at least A$100/t in future,” he commented.

Poli added that, given the declining global grade of the metal, greater volumes of iron-ore were required to produce the same historical grade.

“For a company like Vale, for example, to produce the same iron grades as [it was] previously producing, [it] needs to produce about 30-million tonnes of additional iron-ore,” he said.

LOCAL OPPORTUNITY

Poli’s bullish view on iron-ore was manifested through the continued advancement of Aquila’s Limpopo-based Thabazimbi iron-ore project, which was currently in the scoping study phase and boasted a 75% measured and indicated resource of 80.8-million tons offering a high-grade product of 62% iron.

Having already spent R270-million on the project, to date, the company expected an openpit mine life of around 15 years, with a yearly production of some four-million tonnes at an initial capital expenditure of between $215-million and $300-million.

The company had recently lodged a mining right application with South Africa’s Department of Mineral Resources, and said its primary focus would now be on securing a memorandum of understanding with State-owned Transnet to investigate the transportation of product on the planned Waterberg rail corridor.

Poli confirmed that securing rail capacity along this corridor, as well as port capacity at Richards Bay, remained the most crucial element of the project.

“There is already [limited] rail and port capacity, so it’s a matter of negotiating capacity for Aquila and we’re working closely with Transnet to develop transport potential,” commented Aquila South Africa head Mike Halliday.

He added that, as the operation would have to undergo a ramp-up phase to achieve the envisaged four-million-tonne-a-year production rate, he was confident that, by the time this volume of iron-ore needed to be transported, the infrastructure would be in place.

“While it’s not confirmed yet, by 2018/19 there should be sufficient heavy-haul rail capacity out of Limpopo,” said Halliday.

Poli further alluded to the fact that the company had not ruled out the possibility of taking over the infrastructure of the Sishen Iron Ore Company-owned Thabazimbi mine, which was due for possible closure next year.

This would present an opportunity for the Australian entrant to fill the supply gap left by the mine and take over Thabazimbi’s primary supply contract with ArcelorMittal South Africa, which currently bought 2.5-million tonnes a year from the operation.

While not directly confirming that Aquila had entered into formal discussions with the Kumba Iron Ore subsidiary about potentially buying the operation, Poli confirmed that the company was “talking to all parties”.