VANCOUVER — Vancouver-based Alderon Iron Ore (ADV-T, AXX-X) has passed another major 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 will unlock further funding from strategic partner Hebei Iron & Steel Group, China’s largest steel producer.
Alderon's study is the first economic model at Kami since a preliminary economic assessment (PEA) was completed in September 2011, and will allow the company to tap roughly US$120 million in project equity under a joint-venture where Hebei holds a 25% stake.
Including a US$61 million up-front 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 original PEA is a much 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$1.27 billion, with an on-site concentrator and related infrastructure carrying a US$585 million price tag. Ore processing will involve a circuit that includes grinding, screening, and gravity and magnetic concentration. Alderon plans to ship its concentrate via the Port of Sept-Iles 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 sales price of roughly US$110 per tonne. Iron ore prices have been on the rebound over the past six months after hitting 52-week lows of roughly 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 very pleased with the results," stated president and CEO Tayfun Eldem following the news, and stressing how the company continues to successfully de-risk 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 toward 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 Québec North Shore & Labrador Railway. Power will be provided to an on-site substation via 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 its construction permits could be issued as early as November 2013. The project would take roughly 24 months to build, with commercial production slated for November 2015.
With feasibility study in hand, Alderon's next step will be securing project financing to cover Kami's development costs. The company intends to utilize a combination of equity and debt to fund its portion of the costs, with Hebei accounting for the remainder. Hebei will 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 maintains 130 million shares outstanding at the time of writing 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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