Alderon Iron Ore satisfies all conditions for Kami

Alderon Iron Ore (TSX: ADV; NYSE-MKT: AXX) has signed a benefits agreement with the province of Newfoundland and Labrador and received surface and mining leases for its joint-venture Kami project, which green-lights construction.

Alderon Iron owns 75% of the project, with China’s largest steelmaker Hebei Iron & Steel Group Co. holding the remaining 25%.  

Describing the achievement as a “milestone” and “significant de-risking” event, Colin Healey of Haywood Securities said the news “may aid in facilitating the process of finalizing a financing solution for Kami.” 

Mike Plaster of Salman Partners noted the benefits agreement is a positive development because “it gives the provincial government some skin in the game.” The agreement sets out long-term benefits for the people of Newfoundland and Labrador, “infusing billions of dollars into the provincial economy and creating direct employment for 800 workers at the peak of construction and 400 during the operations phase,” the company’s CEO Tayfun Eldem outlined in a press release.  

Alderon “has met all the conditions for release from both the federal and provincial environmental assessment processes,” Healey outlined in his research note to clients, estimating that, based on his model, the company will start construction in late 2014 and reach commercial production in the second half of 2016.

Alderon, he added, has “an enviable list of partners and major shareholders,” which include Altius Minerals (TSX: ALS; US-OTC: ATUSF), with 25.3% common equity and a 3% gross sales royalty on Kami; Hebei Iron & Steel, which in addition to owning 25% of the joint-venture project, also holds 19.9% common equity in the company; and Liberty Metals & Mining, which holds 14.4% of common equity.  

On May 29 the company scored another coup by appointing two heavy hitters to its board: Ian Ashby, former president of iron ore at BHP Billiton; and Adrian Loader, former president and CEO of Shell Canada. “Their acceptance to join the Alderon board should be read as a huge stamp of approval and provides even more credibility to this capable management,” David Talbot of Dundee Capital Markets commented in a research note. “Both know how to run operating companies, and Mr. Ashby in particular likely has pull with iron-ore end-users.”

A feasibility study completed in January 2013 estimates capital costs of US$42.17 per tonne concentrate, excluding sustaining capital of US$1.3 billion and operating costs (loading into ships at Sept-Îles, Que.).

Kami is situated next to the mining towns of Wabush and Labrador City in Western Labrador, and surrounded by four producing iron mines. It is also near a rail line leading to a deep-sea port.

In April Alderon began preliminary work for the Pointe-Noire Terminal facility at the Port of Sept-Îles, Que., which will be the product-handling facility for the Kami project. The facility will be built for receiving, unloading, stockpiling and reclaiming concentrate for ship loading, and consist of a railcar unloading stub track, a single rotary car dumper, a concentrate storage yard with stacker-reclaimer and interconnecting conveyor systems.

Progress on the multi-user dock by the Port of Sept-Îles is progressing, with construction scheduled to wrap up mid-year. The new dock will provide ship-loading services for Kami of up to 8 million tonnes of iron ore a year, as per an agreement with the Port of Sept-Îles.

Based on the feasibility study, Alderon plans to kick-off commercial production at a rate of 8 million tonnes a year at 65.2% iron, and 30-year mine life.

Kami’s measured resources stand at 1.1 billion tonnes grading 29.6% iron, with an inferred resource of 447.8 million tonnes grading 29.5%.

As of March 31, Alderon Iron held $76 million in cash, $22 million in debt and $86 million in working capital, according to figures from Haywood Securities.

Over the last year on the Toronto Stock Exchange, the company has traded within a range of 88¢ to $2.13 per share. At press time its shares traded at $1.59. The junior exploration company has 130 million shares outstanding and 155 million shares fully diluted.