Vancouver-based Alderon Iron Ore (ADV-T, AXX-X) has passed another milestone in a quest to put its Kamistiatusset (Kami) iron ore project in western Labrador into production by the end of 2015. On Jan. 9, the company announced the results of a feasibility study that would unlock further funding from strategic partner Hebei Iron & Steel, China’s largest steel producer.
Alderon’s study is the first economic model at Kami since a September 2011 preliminary economic assessment (PEA), and would allow the company to tap US$120 million in project equity under a joint-venture, where Hebei holds a 25% stake.
Including a US$61-million upfront investment, the Chinese firm will have contributed a total of US$180 million to the project for a 19.9% equity stake in Alderon, along with its ownership in the Kami project.
Alderon has focused on Kami’s Rose Central and Rose North deposits, with pit optimization resulting in proven and probable reserves totalling 669 million tonnes grading 29.5% iron at a 15% iron cut-off. Additional measured and indicated resources at the nearby Mills Lake deposit were not considered in the study, and total 181 million tonnes grading 29.8%.
A major change from Alderon’s PEA is a larger resource base, which doubles Kami’s mine life to 30 years. Annual production assumptions remain relatively unchanged at 8 million tonnes at an average grade of 65.2% iron.
Total capital expenditures have risen to US$1.3 billion, with an on-site concentrator and related infrastructure carrying a US$585-million price tag. Ore processing would involve a circuit that includes grinding, screening and gravity and magnetic concentration. Alderon plans to ship its concentrate using the Port of Sept-Îles in Pointe-Noire, Que.
Kami’s updated economics carry a US$3.24-billion net present value with a 29.3% internal rate of return at an 8% discount rate. Alderon has assumed an average concentrate sale price of US$110 per tonne. Iron ore prices have been on the rebound over the past six months after hitting 52-week lows of US$84 per tonne in September. Spot prices have recently approached the US$150-per-tonne range.
“The completion of the [study] is a major milestone in Alderon’s development, and we are pleased with the results,” president and CEO Tayfun Eldem said following the news, stressing that the company is de-risking the Kami project. “The study demonstrates robust economics and the results meet all of the threshold criteria under our agreements with Hebei. Our schedule anticipates receipt of permits near the end of 2013, and construction to follow immediately.”
Alderon has confirmed its port access and intends to install rail infrastructure to connect Kami to the Quebec North Shore and Labrador Railway. Power would be provided to an on-site substation using a 315-kilovolt transmission line, which is being installed by Nalcor Energy.
Kami’s environmental impact statement was submitted in September 2011, and Alderon expects that construction permits could be issued as early as November 2013. The project would take 24 months to build, with commercial production slated for November 2015.
With a feasibility study in-hand, Alderon’s next step would be securing project financing to cover Kami’s development costs. The company intends to fund its costs with equity and debt, with Hebei accounting for the remainder. Hebei would also purchase 60% of Kami’s annual production to a maximum of 4.8 million tonnes.
Alderon reported US$45 million in cash and equivalents to end the third quarter, and maintained 130 million shares outstanding at press time for a $274-million market capitalization. The company has enjoyed a surge in iron ore markets to start the year, with its shares up 23%, or 40¢ during 2013 trading, en route to a $2.11 press-time close.
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