Royal Resources (ASX:ROY) has announced an updated and optimized pre-feasibility study for its Razorback iron ore project in South Australia. By increasing the output rate to 9.3Mtpa and outsourcing the transportation of the ore and the ship loading, Royal Resources was able to reduce the capital expenditures by 46% to ‘just’ $1.2B. The additional operating cost caused by outsourcing some of the production steps is almost entirely compensated by economies of scale and climbs less than 10% to $69/t of end product which has an average grade of 67.4%.
All these changes caused the NPV to more than threefold to $2.2B (unfortunately the company did not provide which discount rate it used for its NPV calculation), and the annual EBITDA is now expected to come in at a very healthy $447M per year, based on an iron ore price of $120/t.
Whereas the Razorback project seemed worthless based on the outcome of the first PFS in January, this optimization study is a lot better. However, the IRR will drop below the 20% mark again if one uses an iron ore price of $100/t instead of $120/t.
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Disclosure: The author holds no position in Royal Resources. Please see our disclaimer for current positions.
