Advanced Explorations drops on feasibility study

Shares of Advanced Explorations (AXI-V) plunged 37% following the results of its feasibility study on the 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 about 8 million tonnes per year, with a longer term regional output target of up to 20 million tonnes per year.

While the study didn’t include what the initial production rate would be expanded to, it did suggest opportunities on how to increase production. 

The initial production rate is based on the zone’s indicated resource of 501 million tonnes grading 26.35% iron. It 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 over 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 pretax net present value (NPV) of US$642 million and an internal rate of return (IRR) of 16%. 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%-98% iron direct reduced nuggets a year. Using a 10% discount rate, it calculated a pretax NPV of US$1.16 billion at US$500 per tonne nugget and US$2.76 billion at US$750 per tonne. The pretax 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 5 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, we are actually measuring up really, really well.”

Prior to signing up with XinXing Pipes Group in 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 iron concentrate in its mills, says Jocaitis.

“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. Meanwhile it’ll examine avenues to lower operating and capital costs. Currently, power accounts for 40% of the project’s operating costs. The study suggests using liquefied natural gas, which costs half the price of Arctic diesel, could save $8 per tonne. It also notes finding a direct ship ore resource at the company’s Tuktu iron project, 60 km north of Roche Bay could lead to higher production rates.

Advanced Explorations closed the day at 19.5¢ on 1.6 million shares traded.