Logistics Supplement 2010: Minemakers phosphate plans roll on

By Alex Feytis
Published: Tuesday, 26 October 2010

How a 240-km railway is central to developing Australia’s multi-billion phosphate project in the Northern Territories

Any new mining project is directly related to the question of logistics, particularly when it is located in somewhere as vast as Australia.

Among the new projects in the country, Minemakers Ltd, an Australian mining company, plans to mine 9.74m. tonnes of phosphate in the first five years of operations at its Wonarah phosphate project in the Northern Territory of Australia. The first stage, with a production capacity of 500,000 tpa, is expected to start up in H2 2011, before expanding to 3m. tpa in 2012.

The project being located in an unexploited area, one of the main concern of the company is to sort out how it will transport its raw material to the port of Darwin, from where it would mainly been shipped to fertiliser manufacturers in Asia.

Minemakers’ new railway will connect the
Adelaide-to-Darwin railway (pictured) to transport
its phosphate

The Perth-based group has therefore completed a direct shipping ore (DSO) feasibility study of the project, estimating capital expenditure at $215.5m., including a rail transport hub and port facilities in Darwin.

“At this stage DSO production still forms part of our overall development plan. However, this will be reviewed as part of the feasibility for the larger project,” Neville Bergin, Minemakers’ general manager for projects development, told IM.

“A decision on the timing and magnitude of DSO production is likely to be driven by this strategic investors requirements for product,” he added.

In July, Minemakers signed a memorandum of understanding (MOU) with Verte, an Australian registered financial advisory firm with strong connections to Asia. Under the terms of the MOU, Verte will seek strategic Asian investors who will provide equity funding by subscribing for newly issued Minemakers shares at a significant premium to the current share price.

On completion of these, strategic investors will own up to 50% of Minemakers and purchase 100% of the production of Wonarah at market prices.

The same investors will provide funding for the construction of a very large project at Wonarah including a beneficiation plant, phosphoric acid plant, gas pipelines, transport hub at Tennant Creek if required, and storage facilities at the port of Darwin. The company could also add a fertiliser plant and a potentially specialist phosphorus chemical plant in addition to the planned railway to transport the material.

The rail plans

The general idea for Minemakers is to take the shortest route between Wonarah and the Adelaide-to-Darwin railway, a distance of approximately 240 km, to transport its phosphate (see map).

Although the route has still not been surveyed, the company knows that the terrain is generally flat.

“There will undoubtedly have to be some deviation from a straight line to accommodate terrain, outstation communities and sacred sites. However, we do not expect any major engineering obstacles,” Bergin explained.

According to Minemakers, the standard of construction would be technically similar to the existing Adelaide-to-Darwin rail: 23 tonne axle load, 115 km/h maximum operating speed, built using 50kg rail and 2.4 metre concrete sleepers spaced at 720 mm.

The link between Alice Springs and Darwin was constructed between 2001 and 2003. The first freight train arrived in Darwin on 17 January 2004 and the first passenger train (the Ghan) arrived on the 4 February 2004.

The line carries a mixture of freight including bulk commodities such as iron ore, manganese and copper concentrate, containerised freight and passengers.

The survey and engineering assessment having not been completed yet, it is still difficult to put an exact figure on the final cost of the project. But given the flat terrain and the construction specification contemplated, the company expects a cost of between A$1.5m. ($1.46m.) and A$2m. ($1.95)/km, which would bring it to a total of A$360-480m. for the whole railway.

Depending upon which components of the broad conceptual plan are included in the final implemented project, the total cost of the Wonorah project is likely to lie between A$3bn and A$6bn.

Bergin revealed to IM that, if strategic Asian investors will finance the construction, the railway will still be owned by Minemakers. The company would however have to engage a contractor with the appropriate licence to operate the railway on its behalf as Australian law requires a rail operator’s licence to operate a railway. The company would still require a road haulage contractor for the DSO phase of operation.

At the beginning of last year, an arrangement with Australian Transport and Energy Corridor Ltd (ATEC) covered the preparation of a desktop study into the feasibility of building a railway line between Wonarah and the Adelaide to Darwin railway. This study was completed in July 2009.

“Looking at the results from the perspective off a rail operator it did not look like an attractive proposition based on the tonnages then forecast to be produced by Wonarah,” Bergin said.

“However, from the perspective of a miner looking to reduce the cost of haulage overall it was an attractive project, assuming that the capital could be raised to build the railway line. With the recent deal with Verte to bring Asian investors into Minemakers and to fund all of the capital required for a much larger project than previously proposed, the construction of a railway is now very much back on the table,” he added.

The time factor

Minemakers has been working on the Wonarah project for a number of years already and it will still take a minimum of three years before the company can finalise the railway. Originally planned for 2012, it is expected between Q4 2013 and Q1 2014.

“In the short term, the plan is to provide would-be Asian investors with the information that they require in order to complete their due diligence prior to making their investment decision. Once the new investors are on board, then we expect to go through a feasibility study of the enlarged project and this of course will include the railway line,” Bergin explained.

The feasibility study will include a survey of the preferred route, an engineering assessment and costing together with discussions with the Central Land Council (CLC), traditional owners and landowners. In the meantime, Minemakers will submit a Notice of Intent (NOI), which in the Northern Territory triggers the start of an environmental assessment process.

Bergin underlines that the commencement of the survey is unlikely to occur before the strategic Asian investors have concluded their equity investment in Minemakers.

The company plans to use an airborne technique such as Light Detection And Ranging (LiDAR), an optical remote sensing technology that measures properties of scattered light to find range and/or other information of a distant target, to undertake the survey.

Timing depends very much on the availability of suitable survey aircraft. The actual survey can usually be flown in a few days but the data-processing and map production can take several weeks.

The construction of the railway should not be too complicated as the field is quite flat based on the data collected and as the Wonarah mine site is not likely to raise significant environmental issues.

In addition, the company hopes “to build on existing good relationship with the CLC and Traditional Owners at Wonarah to reach an early agreement on an acceptable alignment for the railway”.

But “time is the real challenge with this project,” Bergin said.

Minemakers still has to do a lot of work in terms of survey, engineering assessment, design and costing, environmental survey, assessment and engagement in the environmental assessment process as well as a high degree of consultation with landowners, CLC and Traditional Owners in particular.

Considering experience of similar undertakings in the Northern Territory from other companies, it seems it may take up to three years for the project: two years to get all necessary approvals and consents in place with a further year required for construction.

However, the trigger for the commencement of that process will probably be the completion of the feasibility study that will follow the conclusion of the Verte deal,” Bergin revealed.

Railway v pipeline

According to Minemakers, the rail has some significant cost advantages compared to the road as, in the case of the Wonarah project, a railway would save between $25 and $30/tonne of product delivered from Tennant Creek to Darwin.

The recently completed feasibility study for a direct shipping ore (DSO) operation, estimated the cash cost of DSO at $122/tonne, so a saving of $25-$30/tonne represents a reduction in unit costs of 20%- 25%.

The initial 3m. tpa capacity of the railway has been increased since the beginning of discussions and the project envisaged with the aid of the strategic Asian investors is very much larger than that originally contemplated. Initial production of beneficiated rock is likely to be of the order of 5m. tpa with a capacity to expand to 10m. tpa.

Bergin explained that some or all of this production could be directed into a phosphoric acid plant to be built at the site. The phosphoric acid would then be railed to Darwin either to be shipped to fertiliser producers or converted into fertiliser in Darwin where there are several gas developments that could provide a source of ammonia necessary for the conversion into the diammonium phosphate (DAP) or mono ammonium phosphate (MAP).

Minemakers also considered the pipeline option to transport its phosphate. But while pipelines have low operating costs, the capital costs are still relatively high.

According to the company, a pipeline would cost about 50% to two thirds of the cost of rail. But the pipe diameter ultimately imposes a maximum capacity and they are essentially a single user infrastructure asset, meaning that it would be possible to use it to transport other minerals.

Based on another company’s recent study, the capital cost of a pipeline could be expected to be around A$850,000/km. Operating costs were quoted as being between $2- $4/tonne.

“But both capital and operating costs exclude the cost of the slurry preparation plant at the start of the pipeline and the dewatering plant and water management facilities required at the discharge,” Bergin warned.

In addition, the capacity of a railway can be increased easily, simply by adding more passing loops and it is available for access by other users; subject to payment of access fees, to transport other commodities and cargoes.

An east-west link between Mount Isa in Queensland and Tennant Creek in the Northern Territory has long been mooted. The construction of a Wonarah railway joining with the Adelaide to Darwin railway would provide almost 50% of that connection. That may be sufficient for others to be motivated to complete the link to Mount Isa. That connection would relieve the pressure on the Mount Isa to Townsville line and potentially change the economics of mineral deposits lying within say a 200km to 300km radius of the railway.

Minemakers transport options

Source: Minemakers Ltd

Minemakers open to sharing rail

Neville Bergin, Minemakers’ general manager for projects development, explained to IM how the rail could be used by other mineral producers in the future

IM: What other minerals could use the railway?

Neville Bergin:
There are currently no other producing mines in the Wonarah area. Indeed the area is under explored and the lack of access to rail infrastructure may have been a deciding factor for explorers to spend their exploration dollars elsewhere. But the development of the Wonarah rail link is likely to change this.

IM: Would you consider any deal with Legend which plans to start producing phosphate at Mt Isa from 2013?

The Mount Isa to Townsville railway is understood to be at or near capacity and in need of significant capital injection to upgrade it. Closing that gap of about 300 km between Mount Isa and Wonarah would provide an alternative route for the export of commodities from the Mount Isa region. Our railway would have to be open access; that means anyone else may use it subject to payment of an access fee and compliance with our train pathing schedule.

So assuming that someone else constructs the link to Mount Isa than Legend could indeed use our railway. However, Legend is understood to have already been allocated capacity on the Mount Isa to Townsville railway.

IM: Have you been inspired by another similar project?

In short, the answer is no. Given the remote location of the site we were acutely aware of the costs of various methods of transport and we quickly concluded that a railway was our preferred haulage method. However, it is only the existence of the Adelaide to Darwin railway that makes this a realistic proposition. A demonstration perhaps that infrastructure construction is truly a nation building enterprise through which we are able to realise the economic potential of the country.