Chairman’s statement and management report – November 2010
We are pleased to report that during the half year ended 30 September 2010 and up to date, excellent progress has been made with the ongoing development of Labrador Iron Mines’ (LIM’s) iron ore projects in Western Labrador and Quebec, currently the group’s main activity. Since on-site construction commenced in early September 2010, the rate of advance indicates that the plant and accommodation camp for the first phase of Stage 1 are on track to be substantially completed by the end of calendar 2010; mining and production activities are planned to commence in April 2011.
Labrador Iron Ore
Labrador Iron Mines, the group’s 41% owned Toronto Stock Exchange listed associate, is advancing its Schefferville direct shipping iron ore project towards production. LIM had respected and did not try to cross the barrier that had been erected in June 2010 which had restricted normal access from the town of Schefferville to LIM’s properties in Western Labrador and caused delays in the exploration and development of the projects. Following an agreement in early September with the Innu Matimekush–Lac John to remove the barriers, construction and installation work is being carried out on site.
Mine site preparation at the James Mine has commenced with the development of the haul road, clearing and grubbing of the entire mining site and exposing the ore body. Development of the first production bench in the mine will follow. Some small ore stock piles have been moved to Silver Yards and, together with the first ore mined from the bench development, will be stockpiled ahead of the primary crusher ready for feed to the processing plant at the commencement of production.
Construction of the beneficiation plant and associated facilities has progressed well since early September. All the piers for the conveyors have been installed, including those for the radial stackers and the secondary crusher, and most of the conveyor structures are in place. The steel structure for the secondary screens tower has been completed and the chutes, stairs and flooring for the transfer tower are all installed. All the major items of processing equipment have been installed, and the dome roof structure is being assembled at site and is expected to be installed shortly. This will enable installation of the piping, electrical and other work to be carried out during periods of poor winter weather.
The accommodation camp at Bean Lake has also progressed rapidly, is currently almost complete and should be available for use over the winter.
In September 2010 LIM entered into an Impact Benefits Agreement (IBA) with the Naskapi Nation of Kawawachikamach. Discussions continue with the Innu Matimekush-Lac John and with the Innu Takuaikan Uashat Mak Mani-Utenam towards concluding Impact Benefits Agreements. LIM has committed to negotiate in good faith and to respect the rights of the Innu, however, it should be emphasized that no formal IBA or other agreements have yet been signed between LIM and either Innu Uashat or Innu Matimekush and several outstanding issues remain to be resolved.
In the six months ended 30 September 2010 LIM made significant progress in its permitting activities with the Government of Newfoundland and Labrador and has now received from the Government of Newfoundland and Labrador all major permits that are required to advance the first phase of Stage 1 of its Schefferville Projects in Labrador through construction and into mining operations.
The 2010 summer exploration programme has been completed with 4,500 metres of drilling and 1,400 metres of trenching achieved at the Denault, Ruth 8, and Houston properties. Drilling at Houston has indicated some extensions to the resource and these, together with Denault results, will be incorporated into revised resource estimates when assay results are received.
As a result of recent progress, LIM believes it is on track to substantially complete construction of the processing plant and accommodation camp by the end of December and to commence production activities in April 2011. The target is production of about 2 million tonnes of iron ore in 2011, which assumes completion of construction, plant commissioning and a satisfactory start-up of mining operations in the second quarter of calendar 2011.
We continue to believe that there is a significant value in the group’s 100% owned Parys Mountain zinc/copper/lead property and although the current management focus is on Labrador we are continuing to talk with interested parties in our efforts to realise that value for shareholders.
The loss for the six month period was £756,132 (2009 – £368,100), which included an exchange rate loss on cash held in Canadian dollars of £149,974 (2009 – nil) and the group’s share of the loss in Labrador, largely comprising administration expenses, of £407,016 (2009 – £226,880). Development expenses capitalised in respect of Parys Mountain amounted to £27,827 (2009 – £52,245). The group has no revenues from the operation of its properties. At the period end the group had cash in treasury of £2.4 million and LIM had in excess of Canadian $35 million (£21 million).
Recently there has been a strengthening in the price of iron ore, with prices reaching over US$160 per tonne (62% iron sinter fines CFR Chinese ports). Shipping rates from eastern North America to China in cape-size vessels is currently around $40 per tonne giving an indicated effective FOB price of around US$120 per tonne. The traditional annual benchmark pricing mechanism for iron ore has now been more or less abandoned with more and more iron ore being traded against a prior one month spot average determination.
The level of demand in China for all commodities, and in particular iron ore remains strong. Analysts’ consensus seems to suggest price forecasts at or above current levels well into 2011, although some weakening in prices is possible. Worldwide iron ore demand is expected to continue to grow through 2012, continuously driven by China, while demand in Europe for iron and steel appears to be flat, but with some small increase forecast for 2011. These forecasts should work positively for LIM with first sales of lump ore and sinter fines expected towards the end of the second calendar quarter of 2011 into what appears will be a positive iron ore market.
The investment in Labrador Iron is the company’s major asset. We believe that the commencement of production and ore sales by LIM will be a major milestone and that it will bring to the attention of the market the significant under valuation of Anglesey’s shares.
John F Kearney
25 November 2010
The full text of the half yearly report and financial statements is available here.