Conceptual in nature

The ongoing battle between West Australian iron ore hopefuls Murchison Metals and Midwest Corp has thrown up an interesting concept – the reserves you'd like to have to meet the production targets you need to have to justify the value the market is placing on you.

At the centre of the protracted and fiery $1 billion battle between the companies are arguments about the quality and volume of the reserves the companies control. Midwest, with the help of technical consultants AMC, has launched an assault on its bidders' flagship project at Jack Hills in WA.

Today Murchison struck back with a detailed defence of the project and the methodology it has used to assess the resource potential of the project.

Murchison has previously disclosed a Joint Ore Reserves Committee-compliant resource at Jack Hills of 97 million tonnes. Midwest has estimated that resource at 128 million tonnes.

Murchison, however, has said its target is to expand production from Jack Hills to 25 million tonnes pa over 15 years, which implies aggregate production of 375 million tonnes over the life of the mine. Murchison is careful to qualify the production and aggregate production numbers as "targeted".

It should be said that both companies use the concept of targeted production. Murchison says the concept is relevant to assist the market to assess the potential scale of a project which may be developed. It says a bankable feasibility study will examine whether the ore reserves exist to expand production from Jack Hills to 25 million tonnes pa over 15 years.

It also says the resource potential of the project is considered to provide a basis for its aggregate production target. That potential would typically be gauged "largely by reference to the aggregate quantity of exploration targets in the Jack Hills project areas". The potential quantity and grade assigned to an exploration target is "conceptual in nature" as there hasn't been sufficient exploration to define a mineral resource, it says.

In other words, Murchison is extrapolating 375 million tonnes of production over 15 years on the basis of some interesting rock formations or seismic anomalies and the number of holes it drills (as opposed to what it has found) when it has, at this point, a JORC-compliant resource of only 97 million tonnes.

Setting production targets and mine lives before establishing the resource to support them is somewhat back-to-front – it's like saying: "If only we had this resource we'd be bigger than BHP."

There must be some sort of iron ore boom going on in the West…