Mount Gibson Iron (ASX:MGX) ticking over, for now

• Mount Gibson Iron (MGX) is still ticking over, but increasing restrictions on travel and operations are anticipated to slow things down
• The company’s Koolan Island project in the Kimberley seems to be the hardest-hit so far
• While operations are ongoing, the company has had to apply for special travel exemptions for its essential workers
• The company says it has worked with the relevant authorities to ensure its workforce is able to travel and following the best procedures
• With even stricter measures to be introduced tomorrow, it remains to be seen exactly how those restrictions will impact Mount Gibson’s operations
• As a result of costly COVID-19 restrictions, and a production slowdown due to cyclones, the company has withdrawn its guidance for FY2020
• The company says it expects to release its March quarter activities report in mid-April and will provide further updates as appropriate
• Mount Gibson is up slightly in early trade today, posting a 4.3 per cent rise to 72.5 cents a share

Mount Gibson Iron (MGX) is still ticking over at its three WA facilities, but increasing restrictions on travel and operations are anticipated to slow things down in the near future.

Koolan runnings

The company’s Koolan Island project in the Kimberley seems to be the hardest-hit so far. There are already strict controls on movement and procedures, with further limits coming in from April 1 and additional interstate travel restrictions anticipated.

While operations are ongoing, the company has had to apply for special travel exemptions for its essential workers under provisions of the Biosecurity Act 2015. The company says it has worked with the relevant authorities to ensure its workforce is both able to travel, and following the best procedures to protect remote and indigenous communities in the Kimberley region.

With even stricter measures to be introduced tomorrow, it remains to be seen exactly how those restrictions will impact Mount Gibson’s operations. It is believed a ‘no exceptions’ interstate travel ban may come into play, which would knock out around 10 per cent of Mount Gibson’s workforce. The company says it is working with its personnel to respond to these changes. Until the mining industry itself is deemed non-essential, Mount Gibson’s operations will continue, albeit at a slower pace and with appropriate distancing protocols in place.

Guidance withdrawn

Mount Gibson cites two main reasons for withdrawing its guidance for the remainder of the 2020 financial year: the COVID-19 pandemic and a mining slow-down due to cyclones in the northwest.

Several cyclones dumped enormous amounts of water across the Pilbara and Kimberley over the past few months. There has been an according effect on the Koolan site’s operations. However, the month of March has seen an uptick in production with the end of the cyclone season.

Coupled with the cyclone interruptions has been a reduction in output due to waste stripping requirements. While this requirement slowed down the March quarter and will impact some future production, the impact over time will diminish as the required waste stripping ratio significantly reduces from next year.

The production slowdown has put the brakes on the company’s projected figures for the financial year. Even with increased production through the June quarter, Mount Gibson still predicts a shortfall, so it has withdrawn its guidance. Given the increasingly tight constraints on its operations due to COVID-19, costs are also expected to be higher.

The double whammy of slowed production and increased costs isn’t a total disaster for Mount Gibson though – its mid-west operations are continuing relatively unscathed (pending further travel restrictions) and the high-grade ore coming out of Koolan Island is always in demand. So far all offtake partners have honoured existing agreements, and the company’s balance sheet remains strong.

There are even plans to expedite the construction of an airstrip on Koolan Island which could land jet flights directly on-site as another means of mitigating COVID-19 risks.

All in all, Mount Gibson has its ducks in a row. Given the difficulty in predicting the future though, it remains to be seen how increased travel restrictions and tightening workplace protocols affect operations. The company says it expects to release its March quarter activities report in mid-April and will provide further updates as appropriate.

Mount Gibson is up slightly in early trade today, posting a 4.3 per cent rise to 72.5 cents a share as at 10:40 am AEDT.