Royalties & Deferred Payments

Bungaroo South

BCI agreed to sell Bungaroo South to Mineral Resources Limited (ASX:MIN) in March 2020. Deferred consideration of A$14M is payable to BCI upon certain project milestones being achieved. BCI is also entitled to a 1% FOB revenue royalty on iron ore mined from Bungaroo South.

At the time of sale to MIN, Bungaroo South had Ore Reserves of 134Mt at 57.6% Fe. MIN is planning to develop Bungaroo South as part of its Ashburton Hub. 

Kumina

BCI agreed to sell the Kumina tenements to MIN in October 2018 for total cash consideration of A$35M. The final A$4M deferred payment is due 12 months after first export of product from Kumina. Like Bungaroo South, MIN is planning to develop Kumina as part of the Ashburton Hub.   

Nullagine Royalty

In October 2016, BCI agreed to sell its 75% interest in the paused Nullagine Project to Fortescue Metals Group Limited (‘Fortescue’; ASX:FMG). BCI retains a royalty on 75% on all future iron ore mined from Nullagine of:

• 0% to 2.0% of FOB revenue for ≥55% Fe iron ore; and
• 50 to A$1.50 per tonne for <55% Fe iron ore, adjusted for 15% yield loss.

Fortescue will initially pay BCI 33% of the agreed royalty in cash, until the total amount waived by BCI equals A$7.5M. Thereafter, Fortescue will pay BCI 100% of the agreed royalty.

A 50% reduction in the royalty rate will apply to all iron ore mined above 15 million tonnes and a 75% reduction will apply to all iron ore mined above 25 million tonnes.

At the time of BCI's sale to Fortescue, the Nullagine Project had Ore Reserves of 21.6Mt. The mine could be restarted rapidly if Fortescue elects to do so.

Koodaideri South Royalty

Koodaideri South forms part of the larger Rio Tinto proposed Koodaideri mine in the Central Pilbara. BCI is entitled to a royalty of 2% of FOB revenue on any ore mined from the Koodaideri South project area.

At the time of sale to Rio Tinto, Koodaideri South had mineral resources of 106Mt at 58.6% Fe.

Extension Royalty

The Extension Project is owned by Maiden Iron Pty Ltd (formerly Australian Aboriginal Mining Corporation). BCI is entitled to a $1.75M cash payment 90 days after production commences and a royalty of 1.25% to 2.50% of FOB revenue on all iron ore produced.

At the time of sale to AAMC, Extension had mineral resources of 15.6Mt at 54.0% Fe.

Iron Valley

BCI’s Iron Valley tenements are located in the Central Pilbara and the mine is operated by Mineral Resources Limited (AXS:MIN) under a royalty-type agreement. AAs at 30 June 2022, Iron Valley’s Mineral Resource was 167.2Mt at 58.0% Fe and its Ore Reserve was 54.5Mt at 58.2% Fe (refer here for more details).

Iron Valley commenced exports in October 2014 and is a relatively simple direct shipping ore operation which produces both lump and fines, which are hauled to Port Hedland utilising road trains and exported via Utah Point. It has a mine life of greater than 10 years based on shipment rates of ~6Mtpa.

MIN operates the mine entirely at its cost and purchases Iron Valley product from BCI at a price linked to MIN’s realised sale price. BCI retains ownership of the tenements and certain statutory obligations, including payment of royalties.

BCI's EBITDA from Iron Valley has totalled A$197.8M since operations commenced, including a record A$69.5M in FY21.

Image supplied from Mineral Resources (ASX:MIN).

Other Assets

BC Iron holds a number of other earlier stage projects in Western Australia, which are prospective for a range of commodities including iron ore, gold, base metals and salt. The Company also holds four potential iron ore royalties in the Pilbara.

Nullagine Royalty

In 2016, BC Iron agreed to sell its 75% interest in the Nullagine Project to Fortescue Metals Group Limited (“Fortescue”). BC Iron retains a royalty on 75% on all future iron ore mined from Nullagine of:

• 1.0% to 2.0% of FOB revenue for ≥55% Fe iron ore; and
• A$0.50 to A$1.50 per tonne for <55% Fe iron ore, adjusted for 15% yield loss.

Fortescue will initially pay BC Iron 33% of the agreed royalty in cash, until the total amount waived by BC Iron equals A$7.5M. Thereafter, Fortescue will pay BC Iron 100% of the agreed royalty.

A 50% reduction in the royalty rate will apply to all iron ore mined above 15 million tonnes and a 75% reduction will apply to all iron ore mined above 25 million tonnes.

Koodaideri South Royalty

Koodaideri South forms part of the larger Rio Tinto proposed Koodaideri mine in the Central Pilbara. BC Iron is entitled to a royalty of 2% of FOB revenue on any ore mined from the Koodaideri South project area.

Extension Royalty

The Extension Project is owned by Australian Aboriginal Mining Corporation Limited (“AAMC”). BC Iron is entitled to a royalty of 1.25% to 2.50% of FOB revenue on any iron ore produced from the project.

Breakaway Royalty

AAMC has an option to purchase the Breakaway tenement which, if exercised, would result in BC Iron being entitled to a cash payment of A$3.75M and a royalty of 1.25% to 2.50% of FOB revenue on any iron ore produced from the project.

Mardie

The Mardie tenements are located on the coast in the West Pilbara region, approximately 70km south west of Cape Preston East. The Mardie project area is likely to be suitable for production of salt via solar evaporation. BC Iron is currently completing a scoping study on a 3Mtpa operation.

Maitland River

The Maitland River tenement is located in the West Pilbara region, approximately 20km south east of Cape Preston East and within 5km of the North West Coastal Highway and the Bunbury to Dampier natural gas pipeline.

This deposit has a Mineral Resource of 1,106Mt @ 30.4% Fe which is hosted in three deposit areas. A concept study was completed in December 2012 (refer here for more details).

Mardie Salt & Potash

The Mardie Salt and Potash Project (Mardie or the Project) is 100% owned by Mardie Minerals Pty Ltd, a wholly owned subsidiary of BCI Minerals Limited (BCI). The Project represents a rare, sustainable opportunity to develop a large-scale, multi-generational solar evaporation operation on the Pilbara coast of Western Australia (WA).

The Pilbara coast is one of the world’s premier regions for solar salt production. Five existing solar evaporation salt projects have been operating successfully in this region for up to fifty years, producing a quality, reliable salt product which is consistently in high demand in the chemical and other industries.

Mardie’s site has all the critical characteristics for establishing a large-scale solar evaporation operation, including: optimum climate conditions (high temperatures, low rainfall, low humidity, and high windspeeds); a large area (~100km²) of impermeable mudflats as an ideal floor for evaporation ponds; minimal environmental and heritage sensitivities; and a coastal location for low cost shipping to Asian markets.

At Mardie, an inexhaustible seawater resource will be concentrated through solar and wind evaporation to sustainably produce 5.35 million tonnes per annum (Mtpa) of high purity sodium chloride (NaCl) salt and 140 thousand tonnes per annum (ktpa) of sulphate of potash (SOP or K₂SO₄) fertiliser and supply the growing chemical and agricultural industries over an operating life of at least 60 years.

Figure 1:  Mardie Project Layout

Salt is one of the most widely used substances on earth, with over 10,000 direct and indirect uses. It has a large and mature market with approximately 335Mtpa consumed globally. SOP is a premium fertiliser containing essential macro-nutrients (potassium and sulphur) for plant growth. It accounts for approximately 10% of the global potash market of 70Mtpa.

Mardie will be the first major salt project developed in Australia in two decades and the only Australian operation to produce commercially saleable salt and SOP. It will be the largest salt operation in Australia, and with the potential expansion into newly acquired tenements (not included in the optimisation), it can become one of the largest evaporative operations globally.

Production of a high value by-product from waste seawater adds downstream processing credentials to the Project, which aligns with the Western Australian Government’s long-standing objective for the resources industry to include secondary processing in project planning.

In addition to these circular economy benefits, the Project has strong environmental credentials with an independent KPMG study finding that 99% of Mardie’s energy requirement is in the evaporation process which will be derived from natural sun and wind energy.

BCI has developed strong relationships with the traditional owner groups of the Mardie Salt and Potash Project, the Yaburara and Mardudhunera People, with a native title agreement and port indigenous land use agreement in place. The company has a strong focus on indigenous employment and training and a commitment to utilising traditional owner contractors.

Project Description

The primary project components are below:

• Nine large evaporation ponds
• Salt crystallisers and salt wash plant
• KTMS crystallisers and SOP plant
• Port facilities
• Supporting infrastructure

The production concept involves a time-proven and low risk process. Seawater is pumped from the ocean into the first evaporation pond and progressively concentrated via natural sun and wind evaporation energy through a series of nine evaporation ponds over an eighteen-month period. Upon reaching NaCl saturation point in Pond 9, concentrated brine is transferred to the salt crystallisers where salt precipitates in solid form. The remaining brine liquid (bitterns) is drained from the salt crystallisers and raw salt is then harvested and purified in a two-stage counter-current wash plant to produce 5.35Mtpa salt with >99.5% NaCl content.

Figure 2:  Salt Wash Plant

A unique attribute of Mardie compared with WA’s five existing salt producers is that it will also produce SOP as a by-product. Bitterns from the salt crystallisers, which are deficient in sodium but rich in potassium and magnesium, are pumped to the SOP crystallisers where kainite-type mixed salts (KTMS) form. Approximately 1.1Mtpa of KTMS is harvested and converted to 140ktpa of granular SOP product with >52% K₂O in a chemical flotation processing plant.

Figure 3: SOP Processing Plant

Final salt and SOP products will be exported from a purpose-built port facility at the Mardie site. A range of port options have been studied and a transhipment facility together with a 2.4km jetty and 4.4km dredged navigation channel to open waters best satisfies the marine environment and product volumes to be exported by BCI. The jetty has been designed to withstand a 1-in 500-year extreme weather event. The navigation channel will accommodate a 12,000 deadweight tonnes (dwt) self-propelled and self-unloading transhipment vessel (TSV).

Salt product will be conveyed from salt stockpiles to the jetty head and loaded onto the TSV at a rate of 3,000 tonnes per hour (tph). SOP will be transported by truck from a SOP storage shed to a receival hopper, conveyed to the jetty head and loaded onto the TSV at a 700tph rate. The TSV will transport product 15 nautical miles (28km) offshore to ocean-going vessels (OGVs) at anchor.

Figure 4: Port and Transhipper

BCI is planning to ship salt to customers in OGVs ranging from Supramax (50,000dwt) to Capesize (160,000 dwt). The use of larger vessels will reduce overall freight costs materially compared with other WA salt operations with berth constraints. SOP can be shipped by either small vessels or together with salt shipments, where the products have customers with a common or nearby port.

A Final Investment Decision was made for the Mardie Project in October 2021 and main construction commenced in early 2022.   

With attractive financial returns over many decades and expansion potential from the new tenements, development of the Mardie Project should result in considerable long-term value and dividends being created for shareholders.