Alderon Releases Updated Preliminary Economic Assessment
VANCOUVER, British Columbia, Nov.07, 2017(GLOBE NEWSWIRE) -- Alderon Iron Ore Corp. (TSX:IRON) ("Alderon" or the "Company") is pleased to announce that it has received the results of the updated preliminary economic assessment ("Updated PEA") on the Rose Deposit of the Kamistiatusset ("Kami") Iron Ore Project in Western Labrador. The Updated PEA is an update to a re-scoped preliminary economic assessment on the Kami Project that was issued on March 14, 2017 (the "March 2017 PEA").The March 2017 PEA was prepared based on a plan to use the depleted pit at the Wabush Scully Mine as part of a tailings solution for the Kami Project. The Wabush Scully Mine was recently acquired by a third party who has stated its intention to re-open the mine. As a result, the Updated PEA has been prepared to remove the components related to the Wabush Scully Mine.
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"The Updated PEA demonstrates that, even without the use of the Wabush Scully Mine, the Kami Project maintains robust economics," stated Mark Morabito, Chairman and CEO of Alderon."The use of the depleted pit at the Wabush Scully Mine was just one of several cost saving strategies identified as part of the re-scope of the Kami Project. Furthermore, the marketability and payability for high-grade and low impurity iron ore, like the concentrate that will be produced from the Kami Project, continues to improve. Stricter environmental regulation has driven demand for the premium product, like what will be produced from the Kami Project, as it allows end users to improve productivity, reduce costs and meet more stringent environmental standards."
In particular, China's bid to reduce emissions is seeing an increase in domestic steel mills switching to high-grade iron ore products with fewer impurities. For the type of iron ore concentrate that the Kami Project will produce (in the order of 65% Fe), there is already a significant spread to the Platts 62% iron ore index price, that, on September 1, 2017, was pegged at US$23.50 per tonne. This spread has widened over the last 18 months and prices for high-grade ore are expected to continue to increase as environmental regulation becomes more stringent. At the same time, the spread between the 58% Fe and 62% Fe benchmark price has taken a similar course and penalties for lower grade products have increased.
Highlights of the Updated PEA include:
| NPV at 8% discount rate | US$ | 1,781 M | |
| IRR | 25.7 % | ||
| Total Estimated Capital Cost (excluding sustaining capital) | US$ | 999.4 M | |
| Average Estimated Operating Costs (loaded in ship Port of Sept-??les) | US$/dmt | 29.94 | |
| CFR Concentrate Sales Price Forecast - based on three year trailing average CFR benchmark price of $62.40/T @ 62% iron adjusted for Kami Fe grade, and HBIS Group and Glencore agreement terms | US$/dmt | CFR 86.23 (FOB 72.23) | |
| Estimated Mine Life | 24 years | ||
| Final Product Iron Grade (%Fe) | 65.2% | ||
| Measured and Indicated Resource of the Rose Deposit (COG=15%, 29.6% Total Iron) | 1093.2 Mt | ||
| In-pit Resources (COG=15%, 28.6% Total Iron, 3.8% Dilution, 2.8% Loss) | 536.8 Mt | ||
| Annual Production Rate (average life of mine, post ramp-up year) | 7.8 Mtpa | ||
| Construction Period (incl. pre-operational verification and handover to operations) | 29 months | ||
| Projected Years to Payback | 3.7 |
All of the planned production from the Kami Project has been pre-sold under the terms of off-take agreements with HBIS Group Co., Ltd. (formerly Hebei Iron & Steel Group Co., Ltd.) ("HBIS") and a subsidiary of Glencore plc. The FOB concentrate sales price used in the financial analysis in the updated PEA was calculated based on the terms of these off-take agreements. Further details regarding the concentrate sale price are set out below in this news release.
The Updated PEA was completed by BBA Inc. ("BBA") located in Montreal, Quebec, Gemtec Limited ("Gemtec") located in St. John's, Newfoundland & Labrador and Watts, Griffis and McOuat Limited ("WGM") located in Toronto, Ontario, and is effective as of November 7, 2017. The technical report (the "Report") summarizing the results of the Updated PEA and prepared in accordance with National Instrument ("NI") 43-101 will be filed on SEDAR and Alderon's website within 45 days of this news release. The results of the Updated PEA are based on 100% ownership of the Kami Project. The Kami Project is held through The Kami Mine Limited Partnership ("Kami LP"), as to 75% by Alderon and 25% by HBIS. In addition, the results of the Updated PEA disclosed in this press release are expressed in USD and pre-tax (except where otherwise indicated).
The present study is qualified as a Preliminary Economic Assessment. As such, NI 43-101 guidelines do not permit the disclosure of mineral reserves. Although NI 43-101 allows the use of inferred resources to be included in an economic analysis for an Updated PEA, as long as the appropriate cautionary language is used to qualify such an analysis, Alderon and BBA have chosen not to include inferred resources in the economic analysis of this present Updated PEA and thus include only resources that have been classified as measured and indicated.
The Updated PEA demonstrates robust project economics.Based on a production rate of 7.8 million tonnes per year of iron ore concentrate at a grade of 65.2% iron, the Updated PEA shows a Net Present Value ("NPV") of US$1,781 million at a cash flow discount rate of 8%.The internal rate of return ("IRR") for the project is 25.7%. The level of accuracy of the Updated PEA is considered to be +/-30% and an exchange rate of $1.00CDN = US$0.77 was used.
On a post-tax basis, the Updated PEA shows a NPV of US$941 million at a cash flow discount rate of 8%.The post-tax IRR for the project is 19.3% and the payback period is 4.5 years. The post-tax analysis is based on a number of assumptions which will be fully set out in the Report.
Financial Analysis
Based on the assumption that commercial production would begin 29 months after the start of construction and would continue for 24 years, the following results were obtained:
| IRR | 25.7% | |
| Payback | 3.7 years | |
| Discount Rate 0% | US$ | NPV (Million $) 5,896 |
| 5% | US$ | 2,744 |
| 8% | US$ | 1,781 |
| 10% | US$ | 1,340 |
Total capital expenditures are estimated at US$999.4 million. The updated PEA capital cost estimate is based on an EPC (Engineering, Procurement and Construction) project execution strategy. The EPC portion of the total capital costs is estimated at $948.8M. This was developed in collaboration with Duro Felguera (DF), which is a potential provider of EPC services to the project should Kami LP decide to proceed with this project execution strategy. The capital cost estimate excludes closure costs and sustaining capital, which are expected to be in the order of $39.5 million and $367.5 million respectively for the life of the project. These costs are included in the financial analysis for the project.
| Summary of Estimated Initial Capital Costs (Million US$) | ||
| Mine (Including Pre-Stripping) | M$ | 135.4 |
| Mineral Processing | M$ | 254.1 |
| Site Infrastructure and Utilities | M$ | 312.8 |
| General EPC Costs | M$ | 246.5 |
| TOTAL EPC COSTS | M$ | 948.8 |
| Pre-Operational Capitalized Costs | M$ | 19.6 |
| Owner's Costs | M$ | 31.0 |
| TOTAL | M$ | 999.4 |
The Updated PEA assumes a Concentrate CFR selling price of US$86.23/tonne. This price was calculated at a reference date of September 1, 2017, using the 3-year trailing average price of US$62.40/tonne for the Platts IODEX 62% Fe, CFR North China, adding the spot Fe premium of US$25.07/tonne and applying the discounts and premiums allowed by the Hebei and Glencore agreements. The final price of concentrate loaded in ship (FOB) at Port of Sept-??les assumed in the financial analysis is US$72.23/tonne. The final price is determined after applying shipping costs estimate at US$14/tonne. Shipping costs were estimated based on a study performed by a reputed company retained by the Kami LP.
Average life-of-mine ("LOM") operating costs, including annual costs for leasing of equipment (purchase value of US$161.2million), are estimated at US$29.94/tonne of concentrate. During the life of the project, items of leased equipment are replaced as they reach the end of their service life and these replacement costs are capitalized and reflected as part of the sustaining capital expenditures.Average LOM operating costs are based on the following:
| Estimated Average LOM Operating Costs (US$/t Dry Concentrate) | ||
| Mining (including mining equipment leasing costs) | $ | 10.79 |
| Mineral Processing | $ | 5.40 |
| General Site | $ | 0.50 |
| General Administration | $ | 2.26 |
| Environmental & Tailings Management | $ | 0.39 |
| Rail Transportation and Port Services (including railcar leasing costs) | $ | 10.60 |
| TOTAL | $ | 29.94 |
Comparison to March 2017 PEA
This present Updated PEA replaces the March 2017 PEA as the current technical report on the Kami Project. The March 2017 PEA incorporated the use of the depleted pit at Wabush Scully Mine and certain related infrastructure. The Update PEA removes the components related to the Wabush Scully Mine and reverts to a stand-alone tailings management facility that will be constructed at the Kami Project.
The results of the March 2017 PEA Study are presented for comparative purposes with the results of the Updated PEA in the table below (pre-tax and in USD). In order to provide a direct comparison to the March 2017 PEA, the table below presents the results of the Updated PEA using the same iron ore concentrate sales price that was used in the March 2017 PEA.
| Updated PEA(1) | March 2017 PEA | Variance | |||
| NPV at 8% discount rate | US$ | 1,288 M | 1,377 M | -6.5 | % |
| IRR | 21.1 % | 23.8 % | -11.3 | % | |
| Total Initial Capital Cost | US$ | 999.4 M | 897.5 M | +11.4 | % |
| Total Sustaining Capital Cost | US$ | 367.5 M | 254.6 M | +44.3 | % |
| Average Estimated Operating Costs (loaded in ship Port of Sept-??les) | US$ | 29.94 | 31.08 | -3.7 | % |
| Estimated Mine Life | 24 years | 24 years | - | ||
| Final Product Iron Grade (%Fe) | 65.2% | 65.2% | - | ||
| Measured and Indicated Resource of the Rose Deposit (COG=15%, 29.6% Total Iron) | 1093.2 Mt | 1093.2 Mt | - | ||
| Annual Production Rate (average life of mine, post ramp-up year) | 7.8 Mtpa | 7.8 Mtpa | - | ||
| Construction Period | 29 months | 29 months | - | ||
| Projected Years to Payback | 4.5 | 3.9 | |||
(1) These results use an FOB Concentrate Sales Price of US$65.30 and are presented for comparative purposes only.
The main difference in the results between the March 2017 PEA and the Updated PEA, when analyzed using the same FOB selling price, is an increase in initial and sustaining capital costs as a result of removal of the components related to the Wabush Scully Mine.
Mineral Resources
The mineral resources are reported in accordance with NI 43-101 and Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards for Mineral Resources and their Guidelines.
The mineral resource estimate for the Kami Project is set out below. WGM was retained to audit an in-house estimate completed by Alderon. Mr. Michael Kociumbas, P.Geo. with independent firm, WGM, is a Qualified Person as defined by NI 43-101 and is responsible for reviewing and approving this mineral resource estimate and the QA/QC associated with the estimate. Mr. Kociumbas has verified, reviewed and approved the technical data contained in this news release and underlying sampling, analytical and test data. The mineral resource estimate has been prepared using a 15% Total Fe cut-off grade, and is effective December 17, 2012.
| Zone | Category | Tonnes (Million) | TFe% | magFe% | hmFe% | |||
| Rose Central | Measured | 249.9 | 29.4 | 17.6 | 8.1 | |||
| Indicated | 294.5 | 28.5 | 17.7 | 5.9 | ||||
| Total M&I | 544.4 | 28.9 | 17.7 | 6.9 | ||||
| Inferred | 160.7 | 28.9 | 16.9 | 7.1 | ||||
| Rose North | Measured | 236.3 | 30.3 | 13.0 | 14.7 | |||
| Indicated | 312.5 | 30.5 | 11.8 | 17.1 | ||||
| Total M&I | 548.8 | 30.4 | 12.3 | 16.1 | ||||
| Inferred | 287.1 | 29.8 | 12.5 | 15.5 | ||||
| Mills Lake | Measured | 50.7 | 30.5 | 21.5 | 7.0 | |||
| Indicated | 130.6 | 29.5 | 20.9 | 3.9 | ||||
| Total M&I | 181.3 | 29.8 | 21.1 | 4.8 | ||||
| Inferred | 74.8 | 29.3 | 20.3 | 2.7 |
The mineral resource estimate for the Kami Project was completed in GemcomTM using block sizes of 15 m x 15 m x 14 m for Rose Central and Rose North and 5 m x 20 m x 5 m for Mills Lake and is based on results from 209 diamond drillholes at Rose Central and Rose North (170 holes) and Mills Lake (39 holes) zones totaling 62,247 m. These holes were drilled within the iron mineralization for approximately 2,000 m of strike length and a range of 200 to 400 m of width for Rose Central and Rose North. The holes were drilled on section lines that were spaced 100 m apart for both deposits in the main area of mineralization. For the geological modelling, 3-D bounding boxes defining the maximum extents of the Rose and Mills Lake deposit areas were created. The boxes extended approximately 200 m along strike from the outermost drillholes in each area. Mineralized boundaries extended up to a maximum of about 400 m on the ends of the zones and at depth where there was no/little drillhole information, but only if the interpretation was supported by drillhole intersections on adjacent cross sections or by solid geological inference.
In-Pit Resources
Only the measured and indicated mineral resources within the Rose Deposit, which consists of the Rose Central and the Rose North deposits, have been considered in the Updated PEA. The mineral resources within the Mills Lake Deposit, and the inferred mineral resources within the Rose Deposit, have not been considered in the economic analysis of this Updated PEA.
The mineral resources included within the Updated PEA mine plan ("In-Pit Mineral Resources") for the Rose Deposit, which consider the pit design parameters and include mining dilution and losses, total 536.8 Mt with an average grade of 28.6% TFe. The total stripping is estimated at 698.5 Mt, which includes 128.5 Mt of overburden and which results in a stripping ratio of 1.3 to 1. The In?EUR'Pit Mineral Resources consider a cut?EUR'off grade of 15% TFe. The table below presents a summary of the In?EUR'Pit Mineral Resources as estimated by BBA.
| Material | Tonnes (Millions) | TFe% | WREC% | MTFe | MAG% | Mn% |
| Measured | 399.9 | 28.9 | 34.6 | 15.2 | 21.0 | 1.19 |
| Indicated | 136.9 | 27.9 | 31.9 | 11.8 | 16.2 | 1.08 |
| Total | 536.8 | 28.6 | 33.9 | 14.3 | 19.8 | 1.17 |
| Waste Rock | 570.0 | |||||
| Overburden | 128.5 | |||||
| Total Stripping | 698.5 | |||||
| Strip Ratio | 1.3 | |||||
Project Summary
The major infrastructure required to support the Kami project, as developed in the updated PEA is based on the following:
- Mining of the Rose open pit and adjacent crushing plant at the Kami mine area;
- Crushed ore conveyed from the crusher to the crushed ore stockpile, ahead of the concentrator, to the east of the Waldorf crossing;
- Tailings disposed of in the designated area on the Kami property, in the same location which was identified during the 2012 FS;
- Concentrate load-out located at the new Kami rail loop, connecting to the QNS&L main rail line by way of an new connecting railwayconstructed as part of the Project;
- Rail transportation of concentrate from the Kami rail loop to the common port terminal facilities in Sept-Iles Quebec (Pointe Noire, owned and operated by a third party);
- Shiploading services provided by Port of Sept-Iles.
In this updated PEA it is assumed that labor requirements for mining and processing operations will be sourced from Labrador West residents.
The updated PEA brings the Project back to the Kami Property with a concept largely based on the detailed engineering advanced by the Kami LP in 2014, with some design optimizations made by DF. The following approach was taken in order to develop the conceptual site plan:
- BBA's mining group developed the updated Rose Pit shell footprint based on the WGM 2012 resource estimate and block model and updated economic parameters. For the present updated PEA, there has been no change to the pit footprint compared to the March 2017 PEA.
- Waste rock and overburden stockpile locations and footprints are the same as in the 2012 FS. Their height profiles have been adjusted based on the revised quantities determined in the mining study.
- The Kami mine site and crusher area infrastructure design was based on the layout developed during detailed engineering;
- The Kami concentrator footprint is based on the process equipment layout developed during detailed engineering.
Concerning electric power supply, it is assumed that the power will be supplied to the project by a new power transmission line based on the power agreement between Nalcor and Kami LP.
Project Schedule
A project schedule has been established that starts at the point where construction financing is in place, detailed engineering has been completed, and permits have been obtained such that construction can commence:
| Major Milestones | Month |
| Permit to Start Construction Available | M0 |
| Start Construction | M0 |
| First Concrete | M8 |
| First Structural Steel at Concentrator | M12 |
| Construction Completed | M26 |
| POV Completed | M27 |
| Full Handover to Operations | M29 |
Prior to construction commencing the Company intends to complete a feasibility study for the updated Project, re-assemble the owner's team, award an EPCM or EPC contract, resume detailed engineering, and have construction financing in place. This process could take several months to complete once it is commenced.
Technical Report and Qualified Person
A NI 43-101 Technical Report will be filed on SEDAR and on Alderon's website within 45 days of the date of this news release.The Report will consist of a summary of the Updated PEA. The Report is being prepared under the supervision of Mr. Angelo Grandillo, P.Eng, of BBA, a Qualified Person as defined by NI 43-101, with contributions from Gemtec and WGM. Mr. Grandillo is a Qualified Person as defined by NI 43-101 and Mr. Grandillo is independent of Alderon.Mr. Grandillo has reviewed and approved the technical information contained in this news release, with the exception of the mineral resource estimate which was reviewed and approved by WGM as noted above.Mr. Grandillo has verified all the data underlying the technical information disclosed in this news release.
About Alderon
Alderon is a leading iron ore development company in Canada.The Kami Project, owned 75% by Alderon and 25% by HBIS Group Co. Ltd. (formerly Hebei Iron & Steel Group Co. Ltd.) ("HBIS") through The Kami Mine Limited Partnership, is located within Canada's premier iron ore district and is surrounded by two producing iron ore mines. Its port handling facilities are located in Sept-??les, the leading iron ore port in North America. HBIS is Alderon's strategic partner in the development of the Kami Project and China's second largest steel producer.
For more information on Alderon, please visit our website at www.alderonironore.com.
ALDERON IRON ORE CORP.
On behalf of the Board
"Mark J Morabito"
Chairman & CEO
Alderon is part of the King & Bay group of companies. King & Bay is a merchant bank that specializes in identifying, funding, developing and supporting growth opportunities in the resource, aviation, and technology sectors.
For further information please call:
Fiona Grant Leydier (NATIONAL Equicom)
1-416-848-9851
fgrantleydier@national.ca
info@alderonironore.com
Cautionary Note Regarding Forward-Looking Information
This press release contains "forward-looking information" within the meaning of the U.S. Private Securities Litigation Reform Act and Canadian securities laws concerning anticipated developments and events that may occur in the future. Forward-looking information contained in this press release include, but are not limited to, statements with respect to (i) the details of the re-scoping of the Kami Project including potential capital and operating cost savings, (ii) the estimation of mineral resources; (iii) the market and future price of iron ore and related products; (iv) the negotiation and conclusion of infrastructure contracts; (v) expected infrastructure requirements; (vi) the use of the multi-user terminal facility at the Port of Sept-??les; and (vii) the results of the Updated PEA including statements about future production, future operating and capital costs, the projected IRR, NPV, payback period, construction timelines and production timelines for the Kami Project.
In certain cases, forward-looking information can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved" suggesting future outcomes, or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. Forward-looking information contained in this press release is based on certain factors and assumptions regarding, among other things, receipt of governmental and other approvals,the estimation of mineral resources, the realization of resource estimates, iron ore and other metal prices, the timing and amount of future development expenditures, the estimation of initial and sustaining capital requirements, the estimation of labour and operating costs, the availability of necessary financing and materials to continue to explore and develop the Kami Project in the short and long-term, the progress of exploration and development activities, the ability of the Company to use the multi-user terminal facility at the Port of Sept-??les, the receipt of necessary regulatory approvals, the estimation of insurance coverage, assumptions with respect to currency fluctuations and exchange rates, environmental risks, title disputes or claims, and other similar matters. While the Company considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.
Forward looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information. Such factors include risks inherent in the exploration and development of mineral deposits, including risks relating to changes in project parameters as plans continue to be redefined including the possibility that mining operations may not commence at the Kami Project, risks relating to variations in mineral resources, grade or recovery rates resulting from current exploration and development activities, risks relating to the ability to access rail transportation, sources of power and port facilities, risks relating to changes in iron ore prices and the worldwide demand for and supply of iron ore and related products, risks related to increased competition in the market for iron ore and related products and in the mining industry generally, risks related to current global financial conditions, uncertainties inherent in the estimation of mineral resources, access and supply risks, reliance on key personnel, operational risks inherent in the conduct of mining activities, including the risk of accidents, labour disputes, increases in capital and operating costs and the risk of delays or increased costs that might be encountered during the development process, regulatory risks, including risks relating to the acquisition of the necessary licences and permits, financing, capitalization and liquidity risks, including the risk that the financing necessary to fund the exploration and development activities at the Kami Project may not be available on satisfactory terms, or at all, risks related to disputes concerning property titles and interest, risks related to disputes with Aboriginal groups, risks related to insufficient capacity being available for the Company to access the multi-user terminal facility at the Port of Sept-??les, environmental risks and the additional risks identified in the "Risk Factors" section of the Company's Annual Information Form for the most recently completed financial year, or other reports and filings with applicable Canadian securities regulators. Accordingly, readers should not place undue reliance on forward-looking information. The forward-looking information is made as of the date of this press release. Except as required by applicable securities laws, the Company does not undertake any obligation to publicly update or revise any forward-looking information.