Jackie Przybylowski, an analyst at Desjardins Capital Markets, has axed her price target on New Millennium Iron to 40¢ from 70¢ previously, noting the company’s management hinted at possible financing needs and delays in its project pipeline during the recent annual shareholders’ meeting.
Przybylowski says that New Millennium’s main asset — its 20% interest in the direct-shipping ore (DSO) project near Schefferville, Que. — would likely cost more than the estimated $560 million to build. The iron ore project is being developed by Tata Steel Minerals Canada, an entity held 80–20 by Indian steelmaking giant Tata Steel and New Millennium.
The junior’s management has “indicated that the project’s cost was under review, and we expect a new assessment will be in line with our [$633-million] estimate,” Przybylowski said in a note to clients. She estimates New Millennium would have to contribute $20 million as its share to fund the escalating costs at the DSO project.
“We note the company’s partner Tata Steel has not yet made a cash call, but we anticipate that New Millennium will be required to contribute its proportionate share of costs around the time construction is completed [by year-end],” she continued.
Przybylowski suggests the junior could raise the amount with an equity raise or project financing through its partner or a third party. New Millennium could also dilute its 20% stake in the project.
The analyst pointed out that New Millennium’s Taconite project — comprising the two large, near-surface iron-ore deposits, LabMag and KeMag — still requires, in her opinion, several years of work before Tata Steel can make a “positive investment decision.” The work involves meeting investment criteria that includes picking which deposit to develop, completing an environmental approval process and finalizing a financing framework.
In March 2011, Tata Steel signed a binding heads of agreement for developing the Taconite project in the Labrador Trough. It has an option to develop either deposit, or both. Tata Steel has helped finance the project’s feasibility study.
New Millennium’s management told investors at the meeting that the feasibility study on the deposits did “not trigger the four-month investment decision deadline for Tata Steel,” Przybylowski said in the note.
Given the uncertainty around Tata Steel’s partnership and the deposits’ development, which is estimated to cost more than $7 billion each, the analyst has removed the Taconite project from her net asset value estimate. In the near-term, she expects New Millennium will need to raise $20 million to cover the cost overruns at the DSO project.
Przybylowski has a 40¢ target and rates the stock as “hold–speculative.”
New Millennium closed June 26 up 4% at 36¢ per share, and has a $65.2-million market capitalization. Since the start of the year, its shares have lost 45% in value.
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