Profiles: PROSPECTIVE IRON ORE PRODUCERS
Adriana Resources Inc. (TSX: ADI) owns a number of iron ore mining properties in Quebec and Labrador, as well as an iron ore port development site near Rio de Janeiro in Brazil. Its principal asset consists of a 40-per-cent interest in Lac Otelnuk Mining Ltd. (LOM), owner of the Lac Otelnuk iron ore project, in a Joint Venture with WISCO International Resources Development & Investment Limited. WISCO is part of Wuhan Iron and Steel Group Corp., China’s second-largest steel producer.
Lac Otelnuk
The Lac Otelnuk property is located 170 kilometres north of the town of Schefferville, Quebec, and is presently the largest known iron ore deposit in Canada, with the potential of becoming one of the largest in the world. The deposit is a defined resource of 23.7 billion tonnes grading 29.7 per cent Fe, capable of producing at the rate of 50 million tonnes per annum for a hundred years. Drilling has outlined iron mineralization over a 36-kilometre strike length averaging 100 metres thick and 4 to 6 kilometres wide. Adriana aims to develop an open pit mine and concentrator, as well as a pelletizing plant at the mine site.
Adriana contracted Met-Chem Canada Inc. to produce a Preliminary Economic Assessment of the Otelnuk iron ore property. Met-Chem’s April 2011 report concluded that using a discount rate of 8 per cent, a capital cost of $12.9 billion (including $2.7 billion for construction of a railway), operating costs of $31.07 per tonne fob Sept-Îles, and a selling price of $100/tonne cfr China, the project’s net present value was $15.2 billion, with a payback period of seven years.
Brazilian iron ore port
Adriana has an effective interest of 56.1 per cent in a venture to construct an iron ore port facility approximately 70 kilometres west of Rio de Janeiro, with direct access to an extensive railway and transportation network. The proposed port is intended to provide Brazilian iron producers access to global steel markets and minimize iron ore export bottlenecks in Brazil.
Investors
Following investments made in 2011 and 2012 by WISCO International Resources Development & Investment Limited, WISCO owns 19.9 per cent of Adriana, as well as a 60 per cent direct interest in LOM. Under the terms of the Joint Venture Agreement, WISCO may provide dilution protection to Adriana by providing funding assistance of up to $200 million for a term of up to 12 months in the event that Adriana has difficulty in funding its share of any cash call prior to the achievement of commercial production.
In addition to its equity purchase, WISCO has agreed to use commercial best efforts to assist LOM to obtain project financing for 70 per cent of the development and construction costs for the Lac Otelnuk Project, the size and scope of which will be determined by a bankable Feasibility Study. Adriana and WISCO have agreed to purchase from LOM all the production from the Lac Otelnuk Project at fair market value in proportion to their respective equity interests.
Majority-owned by the state of China, Wuhan Iron and Steel Group Corp.’s shares are traded on the Shanghai Stock Exchange. Its steel production in 2012 exceeded 40 million tonnes, and the company is planning to increase production to 60 million tonnes by 2015.
Financial position
As of March 31, 2013, Adriana had total cash on hand of $46.6 million, and current liabilities of $5.0 million.
Outlook
In February 2013, Adriana awarded a Limited Notice to Proceed Agreement to SNC-Lavalin Inc. Under the Agreement, SNC-Lavalin will review production options, proceed with a metallurgical evaluation, and conduct trade-off studies. A definitive agreement is currently under discussion which, if executed by both parties, would provide for the preparation by SNC-Lavalin of a feasibility study.
Completion of a feasibility study is expected to be completed by Q3 of 2014, as is an environmental and social impact assessment. With permitting expected to be completed by Q4 of 2015, construction could commence early in 2016, enabling production by 2019.