Equatorial Resources (ASX:EQX) has announced the results of a pre-feasibility study on its Mayoko-Moussondji (hereafter ‘MM’ for simplicity’s sake) iron ore project in the Republic of Congo (keep in mind this is NOT the DRC). We are extremely surprised to see the low initial capital expenditures for this project as Equatorial was able to keep the capex below $200M at $182M which is quite low for a mine which is expected to produce 2.5M tonnes per year when in full production. As the initial output is expected to be just 1 million tonnes per year, the capex needed to get the project going is just $135M which is remarkably low.
On top of that, the operating expenses are very low as well at less than $40/t and the highest operating cost will be to rail the ore (using an existing railway) to the port of Pointe Noire, which is expected to cost almost $15/t. The study was based on a 8.5 year mine life using a part of the 182Mt of hematite at an average grade of 35.7% Fe, and we think the mine life would be considerably expanded if the inferred resources could be converted into measured and indicated resources. The after-tax NPV10% based on a benchmark price of $74/t (which isn’t really that far off from the current iron ore price) is $115M (increasing to $145M if you’d use a discount rate of 8%). This compares quite favorable to Equatorial Resources’ current market capitalization of US$25M.
Iron ore is probably the most hated commodity out there right now but Equatorial’s project might actually make sense, despite the current circumstances.
> Click here to go to Equatorial’s website
Disclosure: The author holds no position in Equatorial Resources. Please see our disclaimer for current positions.
