Tawana Resources (ASX:TAW) has announced the results of the scoping study on its Mofe Creek iron ore project. The initial capital expenditure for a 1Mtpa operation is just $53M, but the bulk of the capital expenditures are expected in first two years of the operation as the Mofe Creek project will increase its production rate from 1Mtpa to 2.5Mtpa. However, to reach a steady state output of 2.5Mtpa iron ore, the additional capital expenditures are estimated at $227M, which means that at the current iron ore price it’s unlikely Tawana Resources will generate sufficient cash flow to fund the Phase 1B construction works.
However, the operating costs are quite low, as Tawana expects to produce an end-product grading 64-68%Fe for just $42.4/t in Phase 1A and $40.5/t in Phase 1B, which would make the company competitive even at the current iron ore price. This is mainly caused by the low labor cost in Liberia and by the fact the project is located close to the coast which limits the transportation cost. However, the shipping cost from Liberia to China (which would likely be the final destination) will be approximately $25/t, resulting in an expected FOB price of $75/t which is less than the $87/t used in the scoping study to end up with a NPV8% of $432M. But even at the current iron ore price, Tawana’s Mofe Creek project seems to be quite robust, and we’re looking forward to see further developments.
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Disclosure: The author holds no position in Tawana Resources. Please see our disclaimer for current positions.
