17 February 2010 LSE:AYM
This has been a very positive period for the company and for its 50% owned subsidiary Labrador Iron Mines (LIM).
Most recently, on 12 February 2010, LIM signed an agreement with the Sept-Īles Port Authority for the use of the Pointe-Noire facilities at the port to ship LIM's iron ore products. LIM has agreed a base fee schedule with the Port Authority regarding wharfage fees for iron ore loading for LIM's shipping operations beginning in mid 2010. LIM is currently in negotiations with port operators regarding rail transportation, storage, reclaim and ship-loading of its iron ore products.
Other highlights for LIM include the decision on 12 February by the Newfoundland government to release the first phase of the Schefferville project from the Environmental Assessment process and the acquisition in late December of an additional 50 million tons of historical resources.
The share prices of both Labrador Iron and of Anglesey Mining have responded positively to the news.
During the period LIM completed a series of transactions that resulted in a substantial increase in its mineral properties and in the historic resource base that it now has available for future exploitation. The first of these involved the swap of a number of mineral assets with New Millennium Capital Corporation announced in October 2009 followed by the acquisition of a large package of mineral properties in the Schefferville area in the Province of Quebec announced on 17 December 2009.
LIM holds interests in Mineral Rights Licenses issued by the Department of Natural Resources, Province of Newfoundland and Labrador, covering approximately 9,875 hectares. These Licenses are held subject to a royalty of 3% of the selling price FOB port of iron ore produced and shipped from the properties.
In addition, LIM's wholly owned subsidiary, Schefferville Mines Inc ("SMI") now holds interests in 218 Mining Rights issued by the Ministry of Natural Resources, Province of Quebec, covering approximately 9,014 hectares. In addition SMI holds an exclusive operating interest in a mining lease covering 23 parcels totalling about 2,816 hectares. These rights and interest are held subject to a royalty of C$2 per tonne of iron ore produced from the properties.
At 31 December 2009, LIM had C$20.7 (£12.4) million in cash and cash equivalents and is in sound financial condition to carry out its planned programs to move its direct shipping iron ore Schefferville Project in Western Labrador into production.
On the James and Redmond deposits in Labrador, LIM has confirmed an NI 43-101 compliant indicated resource of 11 million tonnes. The remaining eighteen deposits, excluding James and Redmond, have a historical resource estimated to be approximately 134 million tons of direct shipping iron ore, based on work carried out by the IOC prior to the closure of its Schefferville operations in 1984. The historic estimate was prepared according to the standards used by IOC and, while still considered relevant, is not compliant with National Instrument 43-101 ("NI 43-101").
The plans for the Schefferville Projects envision the mining of the deposits in four stages, the first stage of which will be undertaken in three phases, comprising the deposits closest to existing infrastructure. The first phase of Stage 1 will involve mining of the James and Redmond deposits and, the second phase the Houston and Knob Lake deposits all in Labrador.
During the mining of the Stage 1 deposits, planning will be undertaken for the future operation of the more distant deposits in Stages 2, 3 and 4. As currently envisioned Stage 2 will comprise the Howse and adjacent deposits which are relatively close to existing infrastructure. The Astray and Sawyer deposits in Labrador (Stage 3), located approximately 50-65 km southeast of Schefferville, do not currently have road access but can be reached by float plane or by helicopter. The Kivivic deposit in Labrador and some of the recently acquired deposits in Quebec are located between 40 and 70 km to the northwest of Schefferville and may eventually become Stage 4 but will require substantial infrastructure and building of road access.
LIM plans to bring the resources on these other deposits into a compliant status sequentially in line with its intended phases of production, commencing with the remaining deposits in Stage 1. LIM also intends to carry out additional exploration including drilling and trenching on these deposits in line with recommendations from its consultants.
The plan for the first phase of the Schefferville Projects envisages initial production from James and Redmond, two brownfield deposits with low strip ratios on which initial mining or development activities had been undertaken by IOC, using contractors, followed by beneficiation using simple washing and screening. Mining and processing operations will be conducted for eight months per year, from April to November at an anticipated initial mining rate of 6,000 tonnes per day.
The in situ ore is estimated to contain around 56% to 58% iron and it is expected that the beneficiation process will enhance the product grade to around 65% iron and remove unwanted material. Two products will be produced, namely coarse lump ore and a finer sinter feed. Approximately one-quarter of the product will be lump ore. These products will be transported by the existing railroad systems to the port of Sept-Īles on the St Lawrence River for onward shipping, most likely to steel mills in Europe or Asia. The whole operation will utilize well proven, relatively basic technology and closely reflect that previously carried out by the Iron Ore Company of Canada in the same general location for almost thirty years from 1954 to 1982.
Throughout the period LIM made steady progress in advancing the Schefferville Area Labrador Project towards production with ongoing active programs, including drilling, metallurgical testing, environmental permitting and marketing.
Assuming the relevant permits and licenses are issued during the first quarter of calendar 2010, LIM is currently planning, subject to on-going reviews of future iron ore prices, to commence initial site construction during the spring of 2010. This program, if achieved, will enable LIM to install and test its processing and transport facilities ahead of commercial production planned for the summer of 2010.
A program of reverse circulation drilling commenced at the beginning of June 2009 and was completed at the end of October. The deposits tested comprise the four deposits planned to be mined in the Stage 1 plan, being James, Redmond, Knob Lake and Houston, together with some limited drilling on the more distant Stage 2 Howse deposit.
Metallurgical testwork continued during 2009 aimed at improving expected recovery levels from all size fractions of mined material while maintaining high iron and low impurity levels in the final product.
Testwork on the properties of the lump and fines was carried out at SGA, an independent laboratory in Germany. The results and report from that testwork on the James South lump ore sample indicate a high iron content of 66.98% with favourably low content of non-ferrous metals. SGA concluded that the lump ore represents a high quality lump ore grade which will be well accepted on the European market. The results and report from that testwork on the James South sinter fines indicate an iron content of 67.23% with favourably low content of deleterious metals. SGA concluded that the high iron content and low gangue determine the high quality of this ore, and that the fines, will be well accepted in the European market.
On 5 November 2009, the Minister of Environment and Conservation announced that the review of LIM's Environmental Impact Statement for the first phase of Stage 1 comprising the James and Redmond deposits had been completed. The Minister confirmed that the EIS complies with the Environmental Protection Act and requires no further work under the Provincial environmental assessment process. On 12 February 2010, the Minister advised that the Government has released the Schefferville Area Iron Ore Mine (the first phase of the Project) from Environmental Assessment subject to terms and conditions which the LIM believes are all achievable within the planned operating parameters .
Subsequent phases and stages of the Project will be subject to further environmental assessments.
LIM will be required to prepare an Environmental Protection Plan and submit it to the Minister of Environment and Conservation and receive the Minister's approval for the Plan prior to the start of construction. The Environmental Protection Plan will address caribou monitoring and mitigation in the vicinity of the Project, process effluent treatment and monitoring procedures, settling pond design and operation for storm water and pit dewatering discharges.
LIM will also be required to enter into a Memorandum of Understanding with the Department of Environment and Conservation for the installation of a real time water quality/quantity monitoring network, prior to the start of construction, to monitor water quality and quantity.
LIM will submit the applications and the various required Plans for the necessary operating permits, licenses and regulatory approvals. Assuming these permits, licenses and approvals are issued during the first quarter of calendar 2010, it is planned to commence initial site construction during the spring of 2010, ahead of the commencement of commercial production, which, subject to timely receipt of all permits and licences, is currently scheduled for the middle of calendar 2010.
The first major construction activity will be the laying of the 2.5 mile rail spur from the Sept-Īles Schefferville main line to the Silver Yards area where it is planned to install the beneficiation plant. The majority of the rail hardware is now being assembled offsite into track panels to permit speedy installation in the spring. It is expected that this spur line will be complete by the end of April.
Once the spur line is complete a new accommodation camp will be brought to site and assembled. At the same time it is expected that a mining contractor will be mobilised to site to commence mining activities including stockpiling of iron ore ahead of the crusher pad. Tender documents have been sent to qualified contractors for the mining and beneficiation contracts and receipt of these tenders is awaited. A contract has been let for camp catering.
All of the major long lead items of the beneficiation plant have been ordered and a number of these items have now been delivered. The remaining items of the beneficiation plant are expected to be delivered by April and will be pre-assembled prior to transport to site for final assembly. This should then permit the beneficiation facilities to be commissioned in sufficient time to meet the mid 2010 production schedule.
Once the plant is assembled and dry run, stockpiled ore will be fed to the plant to allow commissioning to take place. As soon as a steady state condition has been reached saleable product of both lump ore and sinter fines will be produced. These will then be loaded into leased rail cars that will be transported to a port facility in Sept-Īles. This first train is expected to run during the third quarter of 2010.
Mining and processing operations will be conducted for eight months per year, from April to November, using conventional open pit mining methods, employing drilling and blasting operations, at an anticipated initial rate of 6,000 tonnes per day. The initial processing rate will be 3,000 tonnes per day over a period of approximately 212 days per year.
Subject to timely issue of permits and approvals and completion of the work plans, LIM expects to produce between 0.5 and 1.0 million tonnes of product during the 2010 season to the end of November 2010. It is anticipated that production will increase to 2.0 million tonnes for the eight month season in 2011.
On 12 February 2010 LIM signed an agreement with the Sept-Īles Port Authority for the use of the Pointe-Noire facilities at the port to ship LIM's iron ore products. LIM agreed a base fee schedule with the Port Authority regarding wharfage fees for iron ore loading for LIM's shipping operations beginning in mid 2010.
A deep water port, situated 650 kilometres down river from Quebec City on the North Shore of the Gulf of St. Lawrence on the Atlantic Ocean, the Port of Sept-Iles is a large natural harbour, more than 80 metres in depth, which is open to navigation year round. The port is an international marine hub, at the heart of the main maritime routes between North America, Europe and Asia, and nearly 80% of its merchandise traffic, mostly iron ore, is destined for international markets.
The port of Sept-Īles is the most important port for the shipment of iron ore in North America, serving the Quebec and Labrador mining industry. Each year nearly 23 million tonnes of merchandise is handled, comprised mainly of iron ore.
LIM is currently in negotiations with port operators regarding rail transportation, storage, reclaim and ship-loading of its iron ore products. LIM has not yet concluded agreements with the relevant rail companies or port operators for the transportation and handling of planned production of iron ore in 2010. Agreements have not yet been concluded with the relevant rail companies for the transportation and handling of the planned production of iron ore in 2010.
In October 2009, LIM signed a Rail Co-operation Agreement with New Millennium Capital Corp. ("NML") regarding the reconstruction of the "Timmins Extension" rail spur line which will run from the TSH Railroad main rail line near Schefferville, a distance of approximately 2.5 miles to LIM's planned processing centre at Silver Yards and on a further approximately 13 miles to NML's planned processing centre at the Timmins mining area.
The Rail Co-operation Agreement provides the framework under which both LIM and NML have agreed to co-operate in the development of the transportation facilities for their direct shipping iron ore (DSO) projects in the Schefferville area and which will enable each company to rebuild the necessary rail infrastructure in their respective operating areas, including the construction of passing tracks and sidings in common areas.
The Timmins Extension rail line will be laid on a 16 mile long existing rail bed that extends from Mile 353 on the TSH main line to the Timmins train turning circle. The Timmins Extension spur line, which passes from Labrador into Quebec and back into Labrador, was previously used for iron ore mining operations. The rails and ties were removed when the previous mining operations ceased in 1982 but the rail bed itself remains in place. Reconstruction of the Timmins Extension will require only the laying of new rails and ties and replacement of some ballast.
Each of LIM and NML will enter into the requisite agreements with third parties to design and construct their respective portions of the Timmins Extension to standards required to transport the iron ore to be extracted from their DSO deposits. LIM intends to commence construction on the first 2.5 miles connecting to LIM's Silver Yards planned processing area immediately upon the issue of the necessary permits.
Under the Rail Co-operation Agreement the parties jointly agree to apply to Government authorities for all required rights of way and/or surface rights and for the grant to each party of the rights on a specific portion of the Timmins Extension, along with rights of access to, construction on and use of such specific portions as are mutually granted by one party to the other party.
The parties have agreed to negotiate and enter into a Rail Operating Agreement which will provide the terms of access to and use of the Timmins Extension and the tariff to be paid by each party with respect to its use of the portion of rail line for which the other party holds the rights of way and have also agreed to collaborate to determine the most expedient means to refurbish the TSH Railway main line to standards required to carry out the transportation of minerals extracted from the DSO deposits.
Marketing discussions have continued with potential end users and samples have been dispatched to a number of steel mills. These discussions have indicated an encouraging level of interest in the LIM products based on the metallurgical test results and analysis of the samples supplied. The indicated high iron grades and the low level of impurities are important and should ensure that LIM will be able to market both its lump ore and its sinter fines products.
In addition to the European interest there is significant Chinese interest in seeking iron ore from Eastern Canada. The growing Chinese demand for iron ore, coupled with the slower than expected development in new iron ore mines closer to China, has begun to make Eastern Canada a viable source for this market. Discussions continue with a number of Chinese customers and importers as well as a number of European producers.
For 2010 LIM anticipates that it will sell all its production into the spot market and will utilize the services of a trading company for this process. LIM has not yet concluded any agreements for the sale of any iron ore to be produced in 2010.
The viability of the Schefferville Project is dependent on the sale price of iron ore.
High demand for iron ore in recent years has been driven primarily by China and south-east Asia. This demand effectively raised the price of iron ore "fines" from around US$42 per tonne FOB in 2005, to about US$50 per tonne FOB in 2006, US$55 per tonne FOB in 2007, and about US$95 per tonne FOB in 2008. Lump ore has traditionally commanded about a 25% premium to fine ore.
During the last calendar quarter of 2008 and the first quarter of 2009, associated with the downturn in most major economies, there was a considerable degree of weakness in the world-wide steel industry with a number of major steel producers announcing significant production cut-backs and redundancy programs. This downturn was particularly severe in Europe and North America and resulted in a decline in the spot iron ore prices from the record high prices achieved in 2008.
During the 2009 benchmark price negotiations Rio Tinto settled with a number of Japanese and Korean steel mills at a fines benchmark price of approximately US$65 per tonne, representing a reduction of around 33% from 2008 levels. Negotiations with the Chinese industry represented by the China Iron & Steel Association failed to agree on a 2009 benchmark price and China effectively bought iron ore at the Rio Tinto benchmark price.
The future of iron ore pricing will be dependent on both the rate of recovery of world-wide economies and the extent to which current and planned new production capacity has been closed or deferred, and on the speed with which this closed and deferred production can be brought back on stream.
It is reported that the major iron ore suppliers and Baosteel, representing the Chinese industry, have now commenced negotiations over the 2010 price and that Rio Tinto and BHP are asking for a 40% increase in the contract price while the Chinese mills are unwilling to accept an increase of more than 30%. Industry commentators are forecasting that the 2010 benchmark, if eventually set, will be at a level of between 25% and 40% higher than the US$65 per tonne settled by Rio Tinto with Japanese and Korean steel mills in 2009. This would represent a sinter fines price of between US$80/tonne and US$90/ tonne for 63% Fe fines.
There has been some strengthening of spot iron ore prices in January 2010 though these have weakened slightly in early February as the impact of the potential Chinese credit restrictions are being assimilated. Nevertheless demand particularly from China continues to grow but may be somewhat muted during the Chinese Spring Holidays.
In December 2009, LIM's wholly owned subsidiary Schefferville Mines Inc ("SMI"), acquired from Hollinger North Shore Exploration Inc. ("Hollinger"), subject to the approval of the Government of Quebec, a 100% exclusive operating interest in the remaining properties which are part of the original Mining Lease dated February 9, 1953, issued to Hollinger by the Minister of Mines of the Province of Quebec under a Special Act of the Quebec Parliament enacted in 1946 entitled "An Act to promote mining and industrial development within New Quebec", as amended by Quebec Mining Lease #14366 dated June 11, 1962 and registered on April 26, 1972.
The iron ore properties are part of the former operations carried on, under a sub-lease from Hollinger, by the Iron Ore Company of Canada in the Schefferville region between 1954 and 1982 and comprise interests in a number of separate deposits identified and partially developed by IOC, which collectively contain an estimated historical resource (non NI 43-101 compliant) of approximately 50 million tons of direct shipping iron ore (DSO).
Two of these iron ore properties, estimated to contain a combined historical resource of about 5 million tons of iron ore, are located close to existing infrastructure near the town of Schefferville and close to LIM's planned Stage One DSO mining operations in Western Labrador.
Another two of the properties, estimated to contain a combined historical resource of approximately 10 million tons of iron ore, are located approximately 20 kilometres northwest of the town of Schefferville, with existing road access, and may form an expansion of LIM's Stage Two operations.
Two more properties, estimated to contain a historical resource of approximately 30 million and 5 million tons of iron ore, respectively, are located approximately 35 kilometres north of LIM's Kivivic Property and could potentially form the basis for a new Stage Four operation. These properties are relatively remote and do not have any road access or other infrastructure.
The 1953 Hollinger Mining Lease, as amended, remains valid under its current term to 2013 and in accordance with and subject to its provisions and the provisions of the Act is renewable for a further twenty years to 2033. The lease covers areas aggregating approximately 2,800 hectares and includes fourteen separate properties some of which contain all or parts of various known mineral deposits. SMI has the option to take a Sublease of the properties from Hollinger, subject to the approval of the Government of Quebec.
The Operating License and/or Sublease from Hollinger to SMI, has been granted (subject to the approval of the Lieutenant-Governor in Council of the Province of Quebec) subject to the reservation of a Royalty payable by SMI to Hollinger in Trust in the amount of $2.00 (Two Canadian Dollars) per tonne of iron ore shipped from any Hollinger property or deposit, such royalty to be payable FOB Port of Sept- Īles, which Royalty is to be distributed by Hollinger to the shareholders of Hollinger pursuant to pre-existing agreements.
The Operating License and/or Sublease from Hollinger has been granted subject to all existing registered liens directly related to the Hollinger properties. SMI has agreed to assume the obligation to settle or purchase these liabilities, and has the right to manage and defend any claims or disputes, provided that any payments made by SMI in settlement of such liabilities in excess of CAN $1.5 million will be deemed as advance payments and credited against the Royalty otherwise payable to Hollinger.
In a second transaction, SMI acquired from Fonteneau Resources Inc. seventeen separate mining claims covering a total of approximately 800 hectares in the Province of Quebec, some of which adjoin parts of the Hollinger land package, and are considered prospective for DSO. The properties are subject to a royalty of $2.00 per tonne of iron ore payable FOB from the Port of Sept Īles. LIM made advance royalty payments totalling $2 million which will be credited against any future royalty payments on any of these properties.
SMI also entered into an Exploration and Development Agreement on ninety seven other mining claims in Quebec, totalling approximately 2,500 hectares, which are considered prospective for exploration for iron ore. These claims are located approximately 100 kilometres north of Schefferville, within the Labrador Trough, and are considered to have high regional exploration potential for iron ore. These remote properties have no road access or other infrastructure. Limited historical information is available on these properties.
Under the Exploration and Development Agreement SMI made a payment of $250,000 on signing, with further payments of $250,000 payable on June 30, 2010 and $500,000 payable on each of December 31, 2010, June 30, 2011 and December 31, 2011, provided that SMI may prepay any of the above amounts at any time at its sole discretion. SMI is obligated to maintain the properties in good standing through December 31, 2011 and to carry out minimum programs of reconnaissance and exploration on the properties. These claims are also subject to a royalty of $2.00 per tonne of iron ore and 3% of any other minerals payable FOB Port.
In two separate transactions completed in the quarter ended December 2009 approximately 4,200 hectares in mineral claims were acquired, located partly in Labrador and partly in Quebec, giving LIM a very large land package in the vicinity of the town of Schefferville on which a number of manganese deposits have been identified. In addition, these manganese properties also contain some historical DSO resources.
These claims were acquired in part from MRB & Associates and in part from Fonteneau Resources Inc. and are subject to a royalty of 3% of the FOB value of manganese ore and $2.00 per ton of iron ore shipped from the Port of Sept-Īles. LIM made payments totalling $200,000 for the acquisition of technical data and to cover 2009 assessment work.
Scientific and technical information disclosed herein has been prepared under the supervision of Terence N. McKillen, P. Geo., Executive Vice President and a Director of LIM, LIM's Qualified Person under NI 43-101.
During the period Parys Mountain was kept on care and maintenance with limited site activity. However proposals for further drilling and related work are in the process of formulation and there is also continuing third party interest in the project. The group continues to view Parys Mountain as a valuable asset which should benefit from improved prices and market outlook for copper, zinc and lead, the main products of the projected operation.
The immediate and medium-term outlook for the minerals industry remains somewhat more positive than previously. There has been a strengthening in the world-wide steel industry during the last nine months as western countries come slowly out of recession and with continuing growth in Chinese demand. Industry analysts are forecasting an increase in 2010 benchmark iron ore prices of between 25% and 40% over the 2009 prices. Nevertheless it is by no means certain that there will not be some set-backs in the overall recovery process.
The directors' believe that the long-term fundamentals of the iron ore market will remain generally strong for most of the expected life of the LIM's planned operations. This view is based upon several factors including an expected continuation of Chinese, Korean and Japanese demand. Iron ore prices are expected to become more robust once global demand is confirmed and returns to more stable levels. For 2010 and beyond the future of iron ore pricing will be dependent on the rate of recovery of the world economy. We remain of the view that for 2010, the first year of planned commercial production from the Schefferville Projects, and beyond, iron ore prices will continue to increase, before stabilizing around 2012 to 2013.
The encouraging progress being made in Labrador and the recognition by the market of the extent of the cash flows which should ensue from the commencement of iron ore mining, should result in the group growing its assets and share price over the next two years at least. Following the recent release of phase 1 environmental assessments, we can now see a clear route through to production, one which we have been planning for the past two years.
We expect Labrador to be very active in the short term and we plan to allocate more resources to try to ensure that Parys Mountain is also contributing to shareholder value.
Anglesey Mining plc is a UK based company listed on the London Stock Exchange with a 50% interest in a 150 million ton iron ore project in Labrador and Quebec, Canada, which is under active development towards mining production in 2010. The company also holds the Parys Mountain base metals project with a historical resource of 7.7 million tonnes at 9.3% combined copper, lead and zinc in Anglesey, UK.
For further information:
Bill Hooley, Chief Executive +(44) 1492 541981
Ian Cuthbertson, Finance Director +(44) 1248 361333