Baffinland yields high-grade iron ore

At 600 km north of the Arctic Circle, Baffinland Iron Mines’ (BIM-T, BIMGF-O)Mary River iron ore deposits are what president and chief executive Gord McCreary calls “location challenged.” But it’s fair to say that the high grades make up for that — in spades.

Results from the final 14 holes of the Canadian junior’s 2007 exploration program on Baffin Island in Nunavut reveal that the average grade of the 1,347 metres of core intervals is 66.8%.

“Nobody has got stuff like this, nobody — that’s how unique and special it is,” says the Torontobased McCreary. “These are the best undeveloped iron deposits in the world.”

The standardized grade for iron ore (lump ore, fines and pellets) is about 63.5% and Baffinland’s deposits, at 66%, are above that, he explains.

“We’re outside the top end of the range,” McCreary says, adding that the grades are higher than the 62% to 66% reported by large companies like Brazilian Vale (RIO-N) and Australian producers Rio Tinto (RTP-N, RIO-L) and BHP Billiton (BHP-N, BLT-L).

Highlights from Deposit No. 1, which has a strike length of 2,500 metres and is the most advanced of Mary River’s four deposits, include an interval of 101.6 metres grading 67% iron in hole 139. Hole 123 intersected a total of 135.4 metres of 64.4% iron in two zones, and hole 127 intersected 155.4 metres of 67.5% iron in four zones.

In addition, hole 130 intersected 134.3 metres grading 67.7% iron, and hole 138 cut 20.3 metres of 68.3% iron. Hole 134 cut 155.2 metres of 68.2% iron and hole 128 intersected 116 metres grading 68.6% iron.

Baffinland expects to release a new reserve and resource estimate around Feb. 19, and to file a revised technical report under National Instrument 43-101 in March.

Until then, what investors already know is that Deposit No. 1 hosts an indicated resource of 309 million tonnes averaging 66.1% iron, plus an additional inferred resource of 28 million tonnes grading 65.9% iron, defined within a potential open pit.

Baffinland is currently looking for minority strategic investors.

About 15 companies have signed confidentiality agreements with Baffinland that will enable them to access detailed financial information on the project.

“It’s highly unusual for a junior company to own one hundred per cent of assets like this, so we have to protect ourselves from predators,” McCreary explains. “We want companies who are interested in what we are doing to sign our confidentiality agreements to view our definitive feasibility study in its entirety and to visit the site.”

The proposed Mary River project is expected to produce 18 million tonnes of direct-shipping iron ore per year and operate for at least 34 years. The ore’s primary destination will be steel mills in Europe.

Prices for iron ore have tripled since 2002. McCreary estimates — based on forecasts from iron ore pundits — that the price for fines alone could increase 25% to 50% this year.

Of the 18 million tonnes that will beproduced, the company proposes to send 16 million tonnes to the European market (12 million tonnes of lump ore and 4 million tonnes iron ore fines). Lump ores command about a 27% premium over fines.

The remaining 2 million tonnes will be shipped to other markets, potentially in the Middle East, North America and Asia. Mitsubishi has already inked a deal for the marketing rights of 1 million tonnes for the Asian market.

While McCreary notes that Asia is a growth market and says he wants to nurture opportunities there over the longer term, the region is a “long way away.”

“The European market is closest to us and they’re the ones that need the lump product,” he says. “The availability of lump ore to service the European market is declining and we think we will become the dominant supplier.”

McCreary says the availability of lump ore for Europe has shrunk as countries like Brazil seek to do more value-added processing and export products such as pig iron slab, while companies like BHP and Rio Tinto have their sights set on Asian markets.

Baffinland envisages an open-pit operation at Mary River using conventional truck and shovel technology, and crushing and screening of the iron ore into lump and fines. No additional processing will be required, and therefore no tailings will be generated.

The iron ore will be transported by rail 145 km southwest to Steensby Inlet on the south coast of Baffin Island. On average, four trains will make the journey between the open pit and the port facility each day, 293 days of the year.

At Steensby Inlet, the ore will be loaded onto project-dedicated icestrengthened ore carriers. The company says it may also charter market vessels during the open-water season to supplement its dedicated shipping fleet.

A 250,000-tonne bulk-sample program is now under way.

A previously announced “blue sky study” will be expanded to 30 million tonnes per year from 25 million tonnes, based on the potential exploitation of Deposit Nos. 1, 2 and 3. The conceptual study, which will support long-term strategic planning, will wrap up in the first quarter of 2008.

The multibillion-dollar project isn’t without key challenges, however. These range from its location and transportation issues to metallurgical and resources risks.

“If it was anywhere else on the planet, it would be long since developed into a mine,” says McCreary, a trained mining engineer who also holds an MBA from Queens University. “We have to come up with the technical solutions to de-risk the project.”

Since the project was revived in 2004, the company has raised $217 million and spent more than $150 million on the project.

At the time of its initial seed capital financing in January 2004, shares in the company were worth about 40. In the last 52 trading weeks the stock has reached an all-time high of $5.04.