Gordon Toll plans to ride the next iron ore boom

Iron ore’s price bounce this week might be encouraging, but the trends are erratic and the ferrous road looks no easier for emerging or small producers.

Given this, Criterion’s shell-likes pricked up when Gordon Toll explained his plans to build the world’s fifth-biggest iron ore producer — and the biggest magnetite miner with mooted output of 100 million tonnes — in South Australia.

Are you serious? How can this one fly when the low-cost Pilbara majors can ramp up output at the flick of a switch, with smaller near-producers also poised to surf a recovery?

But Toll has more street cred than the average bear. He chaired Fortescue when he and Andrew Forrest were greeted with John McEnroe’s catchcry in many an investment bank’s boardroom. And Toll is mulling a future iron ore/steel boom, not the current cycle.

Toll heads Magnetite Mines (MGT, 3.9c), which owns the Mawson Project in South Australia’s eponymous iron ore province. Mawson hosts a 4 billion tonne resource of magnetite iron, which is richer than the Pilbara’s hematite iron and increasingly a preferred input for Chinese blast furnaces.

The project has won the loosely worded support of two non-exclusive offtake partners, Ningbo Iron and Steel and Sinosteel (one of Rio’s Pilbara partners). One or both might invest in the project as well.

Costed at $4 billion for initial output of 25 million tonnes per annum, the project involves building a 275km slurry pipe to transport the iron fines to a floating port — and straight on to the boats to China without touching land.

Oddly, Magnetite needs a “fair poultice’’ of dough — $20 million or more — to fund a pre-feasibility study. Toll hopes Chinese interests might chip in and he’s dusting off his old Middle Kingdom contact book.

Toll contends that rather than being glutted with the stuff, Chinese mills are “racing around like chooks with their heads cut off’’ looking for magnetite.

Toll is scathing of explorers who have not lasted the distance in a given commodity, a non-too-subtle reference to the 200 or so companies that have suddenly discovered lithium.

“Your typical juniors fold the tent when times get tough and look for something else on the periodic table,’’ he says. “If you do that, you are not there when the next upswing comes.’’

Toll contends the economics would be “compelling” at today’s prices, especially with an expected 15 per cent quality premium. Meanwhile, Citi this week slightly lifted its iron ore projections for the current year to $US49 a tonne, but expects next year’s price to settle at $US42 a tonne.