Century Iron Mines lays out two mine plans

VANCOUVER – Century Iron Mines (FER-T) has a portfolio full of projects, a fair pile of cash, backing from not one but two Chinese partners, and a plan to become a mid-sized iron ore producer within the next few years.

In the last week Century advanced that plan notably, releasing preliminary economic assessments (PEAs) for two of its properties: the small, direct-shipping-ore Joyce Lake project and the large, pellet-producing Duncan Lake project.

Century holds a host of projects, most of which lie along the Labrador Trough. The projects fall within three groups. The Sunny Lake project is at the north end of the trough and includes the Full Moon deposit, home to 7.3 billion indicated tonnes grading 30.18% iron and 8.7 billion inferred tonnes averaging 29.9% iron. Roughly 100 km to the southeast is Attikamagen, a property that encompasses the Joyce Lake and Hayot deposits. And 75 m south of Attikamagen are a set of early-stage projects that Century acquired from Altuis Minerals (ALS-T). Finally there’s Duncan Lake, which is located several hundred kilometers to the west.

Century’s projects cover a wide size range, as evidenced by the two markedly different PEAs. Joyce Lake carries a net present value of $94.5 million; Duncan Lake’s NPV came in at $4.1 billion. Joyce Lake would operate for four years; Duncan Lake for 20. Those differences, however, simply mean the two projects fit into different slots in Century’s long-term development plan.

That plan is progressive. Century wants to start small by getting a project like Joyce Lake into production before developing a mid-sized operation and then, down the road, embarking on a major build like Duncan Lake.

Joyce Lake certainly seems like a good starting point. It is relatively small, for an iron ore project, and since its resource is amenable to direct shipping it is also pretty straightforward. At the planned operation iron ore would be mined, crushed, and screened before being transported by truck and train to the Port of Sept-Iles and loaded onto ships.

Simple means inexpensive, which is why Joyce Lake sits at the top of Century’s list of development projects. Total capital costs at Joyce Lake are estimated at just $96.6 million, an investment that would bring to life an operation producing two million tonnes of iron ore lump and sinter fines a year for four years.

Lump iron ore would constitute 35% of the output from Joyce Lake; the other 65% would be sinter fines. On average, it would cost $62.80 to produce each tonne of iron ore.

Using a price of US$108 per tonne for lump iron ore, US$93 per tonne for sinter fines iron ore, and an 8% discount rate, Joyce Lake carries a $94.5 million pretax net present value (NPV). The project is expected to generate a 35% pretax internal rate of return (IRR), which would enable capital payback in 2.9 years.

Century owns 56% of Joyce Lake; Champion Iron Mines (CHM-T) holds the other 44% of the encompassing Attikamagen property. The property sits on the western margin of the Labrador Trough, a sequence of sedimentary rocks including iron formations, volcanic rocks, and mafic intrusions. Joyce Lake itself is in Labrador, though the land package of which it is a part actually straddles the Labrador-Quebec border.

There is no road into Joyce Lake and, at present, no plan to build one. The mine would operate year round, with ore stockpiled through the summer months. In the winter, ore would be hauled by truck along an ice bridge stretching across the Iron Arm Bay in Lake Attikamagen. Less than 30 km from the mine trucks would reach a rail loop and transfer their loads into rail cars.

That’s Joyce Lake: inexpensive, straightforward, and sole owned. A few days after releasing the results of that PEA, Century announced the results of a second preliminary economic assessment. The second PEA considered the company’s much larger Duncan Lake project, which is a joint venture with major Chinese steel producer Wuhan Iron & Steel Company (WISCO). WISCO holds a 35% stake in Duncan Lake.

Duncan Lake is a bit of an outlier amongst Century’s projects as the only project not located along the Labrador Trough. Instead, Duncan Lake is part of the La Grande greenstone belt in the James Bay region of Quebec. The property 50 km south of the town of Radisson and approximately 130 km for the east coast of James Bay.

There are six defined deposits at Duncan Lake, though the PEA only considered mining deposits three and four. Economically-constrained pits at those two deposits contain a total of 800 million tonnes of mineable resource, enough to support an operation producing 12 million tonnes of pellets each year for 20 years.

To produce all those pellets, the Duncan Lake operation would mine 41 million tonnes of resource grading 24.8% iron each year. The ore would be crushed and then fed into one of three concentrator process lines. In the concentrator the crushed ore would be ground and concentrated via magnetic separation twice and then thickened, to produce a concentrate carrying 67.6% iron and 5% silicon dioxide.

Rather than build a pellet plant near the project, the PEA planned for a 135-km long pipeline to transport the concentrate from Duncan Lake to the shore of James Bay, near the port at Stromness  Island. The pellet plant would turn the concentrate into pellets containing 66.3% iron and 5.1% silicon dioxide.

James Bay is covered in ice eight months of the year, during which time pellets would be stockpile. Each year’s full complement of pellets would then be shipped out during the annual four-month ice-free period. The port near Stromness Island was selected for precisely this reason: it has sufficient water depths to accommodate cape-size vessels, which would enable Century to ship 12 million tonnes of annual pellet production in those four summer months.

The PEA assumed 70% of the output from Duncan Lake would head to China, with the other 30% sent to Europe. An independent consultant recommended that Century use US$169 per tonne in the study as the long-term selling price estimate for Duncan Lake pellets. That price compares favourably with the expected operating cost at Duncan Lake, which came in at $59.17 per tonne.

Duncan Lake needs to offer a good margin like that, as the project will not be cheap to build. The PEA estimated capital costs at $3.8 billion. The pellet plant alone would cost $1.1 billion.

The project carries a pretax NPV of $4.1 billion, using an 8% discount rate. It would be expected to generate a 20.1% pretax IRR, which would repay capital costs in 4.2 years.  

At the end of 2012 Century had $44 million in the bank. The company has 95 million shares outstanding, 105 million fully diluted, but only 16% of those shares are free trading. Founding shareholders and management hold 54% of Century’s stock and have entered into voluntary lock-up agreements. WISCO holds another 25% of Century’s outstanding count, while China Minmetals owns 5%.

However, a limited free-trading float has not prevented the company’s share price from sliding. A year ago Century shares were worth $2. Today the shares traded near 33¢.