Alderon confident in Kami project economics, sans Wabush pits

VANCOUVER (miningweekly.com) – Maritime Canada-focused project developer Alderon Iron Ore has published details of an updated preliminary economic assessment (PEA) on the Rose deposit of its flagship Kamistiatusset project, located in the high-grade iron-ore rich Labrador Trough of Western Labrador.

The latest PEA is an update on a re-scoped PEA on the Kami project, released in March 2017, which assumed the project would be able to make use of the next-door depleted pit at the Wabush Scully mine, as part of a tailings solution.

However, the company was unable to secure rights to the wabush pit and the current owner has stated its intention to restart the mine. Mining Weekly Online in April reported that chairperson and CEO Mark Morabito did not consider the acquisition of the Wabush pit "life or death" for the project.

“The updated PEA demonstrates that, even without the use of the Wabush Scully mine, the Kami project maintains robust economics. 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," stated Morabito in a press release on Tuesday.

The study was based on a concentrate sales price assumption, derived from the three-year trailing average cost-of-freight benchmark price of $62.40/t grading 62% iron, and adjusted for Kami's higher-grade iron, including the terms under the HBIS Group and Glencore offtake agreements, of $86.23 per dry metric tonne.

The updated PEA demonstrates robust project economics. Based on a production rate of 7.8-million tonnes a year of iron-ore concentrate at a grade of 65.2% iron, the new PEA shows a net present value (NPV) of $1.78-billion, at a cash flow discount rate of 8%. The internal rate of return (IRR) for the project is 25.7%.

This compared with previous economics comprising an NPV of $1.38-billion and an IRR of 23.8%, with a payback period of 3.9 years.

On an after-tax basis, based on the assumption that commercial production would begin 29 months after the start of construction and would continue for 24 years, the updated PEA shows an NPV of $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 project will cost $999.4-million to build, excluding sustaining capital. This is a marginal increase from the previous capex forecast of $897.5-million.

The report was based on in-pit resources of 536.8-million tonnes, with production slated to average 7.8-million tonnes a year.

HIGH-GRADE DEMAND
Morabito is bullish on Kami's iron-ore. 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% iron content), there is already a significant spread to the Platts 62% iron-ore index price, that, on September 1, was pegged at $23.50/t.

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% iron and 62% iron benchmark price has taken a similar course and penalties for lower-grade products have increased.

“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.”