Advanced Explorations drops on feasibility study

Shares of Advanced Explorations (AXI-V) plunged 37% following the results of a feasibility study of its Roche Bay iron project on the Melville Peninsula in Nunavut.

The study, completed on the project’s C-zone, envisions an operation initially producing 5.5 million tonnes of iron concentrate.
Earlier this year, the company announced it would expand the scope of its development scenario to support a potential start-up of 8 million tonnes per year, with a longer-term regional output target of up to 20 million tonnes per year.

While the Toronto-based junior is still looking at the possibility of growing annual output to 8 million tonnes, it says the initial production rate in the feasibility study was based on the zone’s indicated resources of 501 million tonnes grading 26.35% iron. The zone has another 66 million tonnes at 26.37% iron in inferred, which was not included.

The study indicates the operation could produce iron concentrate grading 66%, with the potential of producing higher-grade concentrate grading more than 68%.

The cost to build the project is pegged at US$1.37 billion, which includes a 10% contingency. Operating costs per tonne of iron concentrate were estimated at US$49.

Using an 8% discount rate and a long-term iron concentrate price of US$104 per tonne, the project has a pre-tax net present value (NPV) of US$642 million and an internal rate of return (IRR) of 16%. The mine life is set at 15 years.

In comparison, the company’s 2009 preliminary economic assessment (PEA) sketched a 50-year project producing 1 million tonnes of 96% to 98% iron direct-reduced nuggets a year. Using a 10% discount rate, it calculated a pre-tax NPV of US$1.16 billion at US$500 per tonne nugget, and US$2.76 billion at US$750 per tonne. The pre-tax IRR was forecast to be 24.4% at US$500 per tonne nugget, and 39.5% at US$750 per tonne nugget.

Start-up capital was calculated at US$1.11 billion, with payback expected within five years.

While the PEA was preliminary in nature and considered inferred resources, the company’s manager of investor relations, Nadine Jocaitis, says the current feasibility is in-line with expectations.

“If you compare our numbers with other feasibility studies in the iron space or producers right now,” she says, “we are actually measuring up really, really well.”

Prior to signing up with a Xinxing Pipes Group subsidiary in September 2010, the company was looking to produce iron nuggets from the concentrate. However, its Chinese partner, which is also an end-user, wanted to get the project started quickly so it could use the concentrate in its mills, Jocaitis says.

“So we are doing concentrate production as a start-up, but we are still looking at the iron-nugget scenario. But we would probably add that later on, once the mine is in production.”

The company anticipates pre-stripping the mine in 2015.