Profiles: PROSPECTIVE IRON ORE PRODUCERS
Alderon Iron Ore Corp. (TSX: ADV) is a leading iron ore development company in Canada. Its principal property is the Kamistiatusset (Kami) Property, located near the mining towns of Wabush and Labrador City in Western Labrador, not far from open pit mines that currently produce 99.8 per cent of all of the iron ore produced in Canada by Rio Tonto’s Iron Ore Company of Canada, ArcelorMittal, and Cliffs Natural Resources (Wabush Mines and Bloom Lake property). Relative to iron ore produced by major exporting countries, ore produced in this region is characterized as being of high grade and containing few impurities. Kami is in close proximity to a common carrier railway to the port of Sept-Îles, which offers year-round access to global markets.
The Kami Property consists of three zones, namely, North Rose, Rose Central and Mills Lake. The Rose Deposit currently contains an NI 43-101 Mineral Resource estimate of 668.5 million tonnes of proven and probable reserves at 29.5 per cent Fe, and 1.1 billion tonnes of measured and indicated resources (including proven and probable reserves).
In January of 2013, the Rose Deposit was subject to a Feasibility Study BBA Inc., Stantec Consulting Inc., and Watts, Griffis and McQuat Limited, which concluded that based on a project cost of $1.3 billion, an average fob Sept-Îles cost of $42.17 per tonne, a production rate of eight million tonnes per year, and a cfr delivered price of $110/tonne, the project would have a payback of 3.8 years. Permitting is expected to be completed by Q4 of 2013, with mine construction expected to commence immediately thereafter. Initial production is expected by Q4 of 2015.
Alderon will build a facility in Pointe-Noire, Quebec, for receiving, stockpiling and shipping concentrates, and has concluded a 20-year agreement with Port of Sept-Îles to reserve shipping capacity of 8 million tonnes annually. It is anticipated that iron ore will be shipped from Kami via the Quebec North Shore and Labrador Railway, which runs within 15 kilometres of the Kami property.
A formal, comprehensive agreement was executed between Alderon, through The Kami Mine Limited Partnership (“The Kami LP”), and WorleyParsons Canada Services Ltd., effective April 30, 2013, to provide engineering and planning services for the Kami Project. In August of 2013, long-lead items such as autogenous and ball mills were ordered for delivery by the end of 2014.
Alderon’s management consists of executives with decades of senior management experience at Iron Ore Company of Canada, Consolidated Thompson (acquired by Cliffs Natural Resources), and other mining and metals companies.
In consideration of the sale of its resource properties to Alderon, Altius Minerals Corporation acquired 32.9 million shares, representing a 25.26-per-cent ownership interest. Liberty Metals & Mining Holdings purchased 18.8 million shares in earlier years, which earned it a present 14.44-per-cent ownership interest. In March of 2013, Hebei Iron & Steel Group Co., Ltd., China’s largest steel producer and the third largest worldwide, announced that it had completed its initial strategic investment in the Kami iron ore project for an aggregate amount of $182.2 million. Following completion of its investment, Hebei owns 28.9 million shares of Alderon, representing an ownership interest of 19.87 per cent, as well as a 25 per cent direct interest in the Kami project through a 25-per-cent ownership of the Kami Limited Partnership. Alderon owns the remaining 75-per-cent interest in the limited partnership.
In addition to its equity purchase, Hebei entered into an off-take agreement with Alderon whereby Hebei has obliged itself to purchase 60 per cent of Alderon’s actual production annually, up to 4.8 million tonnes, at world prices less a 5-per-cent discount. Majority-owned by the state of China, Hebei’s shares are traded on the Shanghai Stock Exchange. For the year ended December 31, 2012, Hebei generated revenues of US$18.2 billion.
An Environmental Impact Statement was filed on September 25, 2012. The first review and comment period has concluded, and feedback was received in December 2012. Anticipated release is expected by the end of Q3 2013.
As of March 31, 2013, Alderon had total cash on hand of $156.7 million, and current liabilities of $10.3 million. While its cash on hand falls short of the resources to build a mine, Hebei has agreed to use its best efforts to assist in obtaining debt financing for the Kami project from financial institutions, including Chinese banks. Furthermore, Hebei has agreed to co-operate with Alderon in efforts to attract additional off-take partners, which would further underpin securing of additional financing. Hebei is also committed to fund 25 per cent of capital up to $1 billion.