Iron Ore Grade and the Mine Viability Decision
A company is assessing a hematite iron ore deposit. Drilling gives an average grade of 57% Fe across 40 Mt of indicated resource. Metallurgical test work shows that crushing and gravity separation can raise the product to 62% Fe with 88% iron recovery, at a processing cost of AUD 18 per tonne of ore. Mining cost is AUD 12 per tonne of ore. Current 62% Fe fines sell for USD 95 per tonne, and the exchange rate is AUD 1 = USD 0.65. Transport to port adds AUD 9 per tonne of product. The deposit sits under 15 m of overburden within 3 km of a river used by a local community. The company must decide whether to proceed to a feasibility study.
1. Calculate the approximate margin per tonne of ore processed and judge whether the project is likely viable on these numbers alone.
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Product per tonne of ore: 57% Fe ore upgraded to 62% Fe product. Iron units recovered = 0.57 × 0.88 = 0.5016 t Fe per t ore. At 62% Fe product, product mass = 0.5016 / 0.62 ≈ 0.81 t product per t ore.
Revenue per t ore: 0.81 t × USD 95 = USD 77 ≈ AUD 118 (at 0.65).
Costs per t ore: mining 12 + processing 18 + transport (0.81 × 9 ≈ 7.3) = AUD 37.3.
Margin ≈ AUD 118 − 37 = AUD 81 per tonne of ore.
On these numbers the margin is strongly positive, so the project passes the basic economic screen and a feasibility study is justified. However, the calculation ignores capital cost of the plant, royalties, rehabilitation, and closure liabilities, so it is a screening result, not a viability verdict.
2. Identify the environmental and social factors the feasibility study must address before approval, and explain why economics alone is insufficient.
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Environmental factors:
- Overburden (15 m) must be stripped and stored; acid-generating or dispersive waste rock and tailings need characterisation.
- Tailings from gravity separation require a containment facility and water management.
- Proximity (3 km) to the river raises risks of sediment-laden runoff, changed groundwater levels, and dust deposition.
- Rehabilitation and closure planning, including a bond.
Social factors:
- The river supports a local community; water entitlement, downstream water quality, and cultural values must be assessed.
- Consultation, employment, and traffic/noise impacts.
Why economics is insufficient: a positive margin (about AUD 81/t ore here) says nothing about whether impacts can be mitigated to an acceptable standard or whether the community consents. Approval depends on environmental and social acceptability, and unpriced liabilities (rehabilitation, litigation, licence refusal) can erase the margin. The feasibility study must integrate these into the cost model.