With bases in the provinces of Quebec and Newfoundland-Labrador, Canada, New Millennium Iron Ore Corp. (TSX: NML; “NML”) has a 20% stake in a Direct Shipping Ore (DSO) project that is 80% owned and operated by Tata Steel Limited (NSE: TATASTEEL) the 12th largest steel producer in the world, as well as another feasibility-stage iron ore development called the Taconite Project. Both projects sit in the region of the vast Millennium Iron Range (MIR), a 210-kilometre-long magnetic iron ore belt controlled by NML and straddling the Quebec and Newfoundland-Labrador border near the town of Schefferville, Quebec. NML’s vision is to become one of a significant low-cost iron ore producer by 2020.
CEO Robert Patzelt joined NML in January this year, having been headhunted on the merit of his business and legal background in the industrial sector. He spent a large portion of his career working at privately owned manufacturing conglomerate Scotia Investments Ltd., where he ascended over many years from an entry level position to Senior Vice President.
Robert recalls viewing the opportunity to become CEO of NML as “compelling and intriguing”, in spite of the challenging conditions present in the global iron ore market.
“I think what intrigued me most was that there was this fascinating junior mining company with a superior resource that was in the next stages of development; the prospect of its potential was the primary motivator,” he explains.
“The secondary motivator was the amazing staff and the people resources at NML, and what they had done in taking a nascent idea and becoming an exploration company, then a developer, then to having the DSO project well underway and the Taconite project past the feasibility stage. Notwithstanding the misalignment of the capital markets and the commodity markets at the time, it was and is a very exciting time to join this company and that was the promethean force behind that.”
Robert’s first six months in the CEO role haven’t disappointed, with NML going from strength to strength in all its endeavours.
The DSO project
Tata Steel is not only NML’s strategic partner but also its largest shareholder. The steelmaking giant formed the subsidiary Tata Steel Minerals Canada Ltd. (TSMC) in 2010 in order to develop a Canadian project that would mine 58-60% iron ore and upgrade it through a covered processing plant with 4.2 million tonnes per annum (mtpa) capacity. The resulting product would be shipped to Tata Steel Europe’s two blast furnace plants in the UK (at Port Talbot in Wales and Scunthorpe in England) and one in the Netherlands to be used in steel production.
“Although not direct shipping ore in the strictest sense, the saleable product would have an iron content of approximately 65% to meet quality requirements set out by Tata Steel Europe,” Robert explains.
NML contributed 25 DSO deposits from its holdings in the development of TSMC, receiving as consideration a 20% stake in the company, and is keeping a close eye on the DSO Project’s progress. The initial project concept is coming together slower than planned, Robert admits, but over that time has evolved into something “bigger and better”. It now has a supplementary 2mtpa saleable product stream of crushed and screened 62% Fe ore that is being marketed as the construction of the processing plant progresses.
“Initial trial cargoes of the crushed and screened ore were shipped to Tata Steel Europe and China in 2013, and increased shipping of this material is planned for 2014,” says Robert. “Once the processing plant is completed in 2015, the project’s annual capacity will be at 6mtpa.”
Last year TMSC formed a Joint Venture with Labrador Iron Mines, an iron ore miner operating nearby in the Labrador Trough, and acquired a majority interest in the company’s Howse iron ore deposit. “TSMC is expected to realise considerable cost savings in its mining plan due to the proximity of the Howse deposit to TSMC’s operations centre,” Robert explains.
“Furthermore, the addition of the Howse deposit could significantly grow the DSO Project’s size from the original concept.”
For any resources project to succeed, it is essential that the companies developing it cooperate with the native peoples of that area. The DSO Project was no different, leading NML and Tata Steel to forge “excellent relationships” with the MIR region’s First Nations groups.
“Along with the technical and geographical fit between Tata Steel and New Millennium, our companies were brought together by a shared vision and similar values,” Robert remarks.
“Principles such as safety, respect, value, innovation, credibility and community are all in the fabric of our partnership and projects, and have resulted in successful agreements and cooperation with our affected First Nations groups.”
The next 12 months will see the completion and commissioning of the DSO Project’s processing plant, as well as the completion of its complex logistics chain. This requires the ore to be hauled over a system of railways to a stockpiling and ship-loading facility on the Pointe-Noire side of the Port of Sept-Îles in Quebec, where TSMC and NML have invested in a new deep-water, multi-user dock scheduled for completion in the fourth quarter of 2014.
The Taconite Project
NML’s Taconite Project comprises two deposits in the MIR: the LabMag deposit owned 80% by NML and 20% by Naskapi Nation of Kawawachikamach; and the KéMag deposit owned 100% by NML. The project has now undergone a successful feasibility study undertaken and financed jointly by NML and Tata Steel, who has an option on the deposits, which confirmed the project as viable.
“The Taconite Project feasibility study makes a compelling case for a profitable, successful, long-term iron ore operation,” Robert comments. “The favourable geological and mining characteristics of the deposits are manifested in the study’s operating cost estimates, which would place our Taconite Project among the low-cost pellet producers.”
The feasibility study concluded that the LabMag deposit has a Measured and Indicated resource of 4,321 million tonnes at an 18% DTWR cut-off point and an Inferred resource of 1,063. The KéMag deposit has a Measured and Indicated resource of 2,383 million tonnes and an Inferred resource of 1,007. Which deposit would be mined first must still be determined, but each could support a production rate of 22mtpa of concentrate, to produce 17mtpa of pellets and 6mtpa of pellet feed over 39 years’ operation at LabMag and 22 years at KéMag. The production cost per tonne of pellet was estimated at C$52.22 for LabMag and C$51.59 for KéMag.
Three separate scenarios were tested – one for just the LabMag deposit, another for just the KéMag deposit and another for combining the two – and one will be chosen at the time of the investment decision. This will be made once the project has reached bankable status, following the completion of environmental and social approvals.
“We’re progressing the project continually at a number of levels – environmental, engineering and social – to make the project lender-investor ready,” says Robert. “We expect to get the project ready for production within five years.”
While the DSO Project’s production is intended specifically for Tata Steel’s steel-making operations in Europe, the Taconite Project will be able to supply not only Europe, but other major global markets including North America, Asia Pacific and the Middle East.
The bigger picture
Beyond the DSO and Taconite Projects, NML’s MIR holds a significant grouping of NI 43-101 compliant taconite resources that, according to Credit Suisse, contain the third-largest amount of iron of any holdings in the world. While this demonstrates the company’s further capacity for growth and value creation through its other land holdings, Robert asserts that NMI remains focused on its immediate project priorities for the foreseeable future.
So how does the “misalignment of the capital markets and the commodity markets” mentioned by Robert earlier affect NML’s future? The CEO is not worried. He asserts that NML’s commercial advantages are sufficient to overcome the unpropitious market conditions.
“We enjoy a large resource base with superior chemistry that is capable of servicing both the blast furnace and direct-reduced iron-making requirements,” he begins.
“Canada – especially the Labrador Trough out of which we work – has established infrastructure and a workforce that’s experienced in mining and beneficiating and commercialising lower-grade ores. Canada also has a stable political environment, good legal system and long history as a reliable supplier to major iron ore markets. So we’re well positioned to be able to provide high-quality products – ores and concentrates and pellets – to all four corners of the earth.”
Furthermore, Robert believes that Canada – which has a mere 2% share in the global iron ore market currently – has found its niche and is now emerging as a leading supplier of purer, higher-quality iron ore products. NML is therefore entering the market at an ideal time.
“We have a premium product; we’re feeding into a growing pellet market in which demand is increasing while supply tightens; we’re planning to utilise slurry transportation infrastructure that is new to Canadian iron ore, but thoroughly tried and tested and proven to be reliable elsewhere; and we’re ideally located for accessing a wide range of markets,” summarises Robert.
“That is why, notwithstanding current pricing, we remain optimistic. Not only about the future of the iron ore industry, but about our future within it.”