- Published: 18 May 2011
- Written by Editor
Positive Update on Northland's Kaunisvaara Project Confirming the Logistic Solution and a NPV of USD 934 Million
Northland Resources S.A. (Toronto:NAU)(Frankfurt:NPK.F) ("Northland" or "the Company") is pleased to announce a positive update to the Definitive Feasibility Study ("DFS") on its 100%-owned Kaunisvaara Project ("the Project") in northern Sweden.
The update includes the results of the DFS on the logistics (the September 27, 2010 DFS press release only provided an estimate at the scoping study level for the logistics), a revision to the estimated premium for Northland's high quality, low impurity Fe concentrate, the impact of recent optimisation studies on engineering costs and operating estimates and revisions to CAPEX including sustainable capital, using current exchange rates.
"The updated DFS of the Kaunisvaara project shows a doubling of the NPV (Net Present Value)," said Karl-Axel Waplan, Northland's President and CEO. "This study also confirms the positive economics, with an increase of return, measured in IRR, and remaining strong margin in spite of an increase of operational expenses. The updated market report reflects the new global pricing mechanism for iron ore qualities, and could be said to present the true market value. The high-quality pellet feed from Kaunisvaara is forecasted to command a premium of USD 7 per Fe-unit. In addition, with a focus on what variables Northland can control, the optimisation of the mining is positively impacting our capex requirements.
The highlights of the revised DFS include:
-- After interest and tax, Net Present Value ("NPV") of USD 934 million using a discount rate of 8% and an Internal Rate of Return ("IRR") of 24.0% (compared to the September 2010 DFS: NPV estimate of USD 463 million using a discount rate of 8% and an IRR of 18.8%) -- Pre-tax and interest, NPV of USD 1,461 million using a discount rate of 8% and an IRR of 32.0%(1) (compared to the September 2010 DFS: NPV estimate of USD 774 million and an IRR of 24.7%) -- CAPEX to reach 5 million tonnes ("MT") of USD 765 million with adjustments for cost optimisation and current exchange rates (compared to USD 694 million in September 2010 DFS) -- Cost optimisation reduced initial CAPEX by USD 14 million -- Currency adjustments increased CAPEX by USD 85 million. -- Life of Mine ("LOM") CAPEX was reduced to USD 892 million from USD 908 million (compared to September 2010 DFS) -- Cost optimisation expected to reduce LOM CAPEX by USD 111 million -- Currency adjustments expected to increase CAPEX by USD 95 million. -- Total OPEX per tonne of concentrate delivered FOB at the port of Narvik for the LOM is estimated to average USD 58.80 per tonne concentrate (compared to the September 2010 DFS estimate of USD 53.76 per tonne) -- Mining costs are estimated to be USD 3.50 per tonne lower -- Logistics costs are estimated to be to USD 8 per tonne higher -- Independent market analyst, Raw Materials Group ("RMG"), have now included an estimated premium for the Northland pellet feed of USD 7 per Fe-unit
(1) Northland's estimate of IRR and NPV before tax and interest are consistent in all material respects with the equivalent pre-tax estimates derived by SRK and presented in the NI 43-101 report.
Conference Call
Northland will host tomorrow, Thursday, May 19, 2011, webcast presentation and conference call to discuss the update of Kaunisvaara Definitive Feasibility Study. The presentation is scheduled to begin at 5.00 pm Central European Time / 11.00 am Eastern Daylight Time and will be chaired by Karl-Axel Waplan, Chief Executive Officer and Shane Williams, Vice President Projects.
A link to the live audio webcast of the conference call, together with supporting presentation slides, will be available on the corporate website, www.northland.eu. Please call about five minutes before the advertised starting time to access the conference call.
Call-in details: USA/Canada: +1 866 458 40 87 UK: +44 (0)20 3043 2436 Sweden: +46 (0)8 505 598 53 Norway: +47 215 111 88
Improved Transparency on Product Quality and Grade
Over the past years, the new global pricing mechanism for iron ore, which is largely based on spot pricing and indices instead of benchmark pricing, has become a much more reliable indicator of the true market value for various product qualities. Real-time, third party quotes from Platts (IODEX), the Steel Index (TSI) and Metal Bulletin (MBIO) currently provide the market and investors with greatly improved transparency on the premium for high grade/low impurity products, like the Kaunisvaara pellet feed.
Northland has long been convinced that the market will highly value the high Fe-content (69%) and low levels of impurities (e.g. 1.1% SiO2 and 0.2% Al2O3) in its concentrate. This has been supported by Raw Materials Group ("RMG") whose May 2, 2011 report, estimated the premium to be USD 7 per Fe-unit. The revised estimate results in a higher FOB prices than in the September 2010 DFS (USD 137 per tonne, compared to USD 101 per tonne) using the same base assumptions about the overall market and shipping costs.
"In the case of Northland Resources, given the information at hand it is most reasonable that the Northland material will command a premium in the market and that this will be in the same size as other high grade iron ore products", said Magnus Ericsson, Senior Partner of RMG.
Optimisation Work Reduces Expected Mining Cost
Since completing the DFS study in September 2010, Northland has optimised operating and engineering costs which has resulted in a 27% decrease in the expected total mining cost over the LOM and a 22% reduction in expected cost per tonne of ore.
Optimisation studies identified some low-margin/high-stripping ore which could be excluded from the production schedule and improve economics. By removing approximately 11.2Mt of ore from the mine plan, Northland could reduce waste rock production by nearly 154Mt and overburden removal by 2.6Mm3. Decreasing waste production has several positive effects including lower CAPEX (less equipment to purchase) and lower direct costs (for items such as explosives, fuel, etc.) The optimisation has reduced the CAPEX over the LOM with USD 88 million and the OPEX over the LOM has been reduced by USD 352 million.
Furthermore, during the ongoing negotiations with Caterpillar for the truck fleet, an additional cost savings of USD 25 million was identified due to the use of certified rebuilds.
DFS on Logistics
In the September 2010 DFS, the logistic costs were only presented at a scoping study level. Since that time, Northland and the Swedish Transport Administration have signed a Letter Of Intent on co-financing and an Agreement on cooperation covering the comprehensive transport solution, in other words, how the iron ore concentrate will be transported from the Kaunisvaara process plant to the port of Narvik, Norway (see also press release March 26, 2011).
A map of the Transportation Route is available at the following address: http://media3.marketwire.com/docs/Transportation_Route.jpg.
The updated study has confirmed the viability of the plan presented in the September 2010 DFS. The logistics includes
-- Trucking from Kaunisvaara to Svappavaara (150 km). The anticipated truck size is 105 tonnes gross (compared to 170 tonnes trucks in September 2010 DFS). The anticipated size is based on an evaluation of existing dispensation as well as a thorough consideration of the expected outcome of the joint studies and work with the Swedish Transport Association will produce. -- Trans-loading from truck to rail in Svappavaara with a new terminal -- Rail using 100 tonne rail cars on the already existing rail line between Svappavaara and Narvik (226 km) -- A new terminal and berth in Narvik port with the capacity to load Cape Size vessels.
The plan is to create a joint venture company ("JV") with the responsibility for the whole logistical chain, i.e. from the process plant at Kaunisvaara to the loading on vessels in Narvik port. Northland will be one of the partners in the JV.
JV Logistics
Northland is in negotiations with 3-4 prospective partners for the planned JV with the objective of having a Letter of Intention signed during the summer and the JV being operational during the second half of 2011. The JV would take full responsibility for the whole logistical chain and all necessary agreements.
The total CAPEX for the logistic investment to handle 5 Mtpa of concentrate is estimated at SEK 1,177 million/USD 145 million and will be funded through debt to equity. Discussions have begun with a number of banks experienced in financing such infrastructure investments. Northland is in negotiations with Narvik port regarding the lease and rent of necessary facilities in the port area. And these discussions are expected to be finalised before mid-summer. The production of a proto type rail car has started as well as all necessary planning and design work to ensure that the time line for the logistics is met (shipments to start early in 2013).
The investment costs for the logistics have been included as OPEX in the updated model, with the exception of USD 15 million which is Northland's equity participation in the JV.
-------------------------------------------------------------------------- September 2010 DFS, Updated logistics DFS, scoping study level presented May 18, 2011 -------------------------------------------------------------------------- Cost category USD/tonne concentrate USD/tonne concentrate -------------------------------------------------------------------------- Cost of CAPEX charged by the JV to Northland 0.0 3.1 -------------------------------------------------------------------------- Trucking 10.4 15.6 -------------------------------------------------------------------------- Rail 2.7 4.9 -------------------------------------------------------------------------- Port 4.4 1.5 -------------------------------------------------------------------------- Contingency, 5% 0.9 1.3 -------------------------------------------------------------------------- Total 18.36 26.37(i) -------------------------------------------------------------------------- (i) Including 3% margin on all numbers pre-contingency
FX
The OPEX and the CAPEX in the September 2010 DFS used an exchange rate of 8.125 SEK/USD. Since then the SEK has strengthened considerably against the USD. To reflect this, 2/3 of the CAPEX in SEK has been adjusted using a new rate of 6.40 SEK/USD and 1/3 at 6.95 SEK/USD which was the exchange rate at the time of the equity offering in December 2010. The impact of these FX changes is USD 85 million.
OPEX
The revised total OPEX for the LOM operation is estimated to be USD 58.80 (including 5% contingency) per tonne of concentrate (dry) delivered Free on Board ("FOB") to the Port of Narvik, Norway. This compares to USD 53.76 per tonne in the September 2010 DFS. A comparison of the current and previous DFS estimates is shown in table below:
-------------------------------------------------------------------------- Updated logistics DFS, September 2010 DFS presented May 18, 2011 -------------------------------------------------------------------------- Cost category USD/tonne concentrate USD/tonne concentrate -------------------------------------------------------------------------- Mining 21.12 17.64 -------------------------------------------------------------------------- Process 12.31 12.60 -------------------------------------------------------------------------- General & Administration 1.36 1.45 -------------------------------------------------------------------------- Transportation 18.36 26.37 -------------------------------------------------------------------------- Royalties 0.26 0.36 -------------------------------------------------------------------------- Other 0.35 0.38 -------------------------------------------------------------------------- Total 53.76 58.80 --------------------------------------------------------------------------
As shown above, the increase in the OPEX is largely a result of an increase in transportation costs to Narvik, partially offset by lower mining costs.
CAPEX
The revised CAPEX in order to reach 5 Mtpa capacity (end 2014) has been estimated at USD 765 million, adjusted for revised exchange rates and a 10% contingency. This compares to an initial CAPEX estimate in the DFS of USD 694 million. The increase is to be referred to the change in FX.
CAPEX for the LOM is estimated at USD 892 million, including sustainable capital adjusted for the revised exchange rate and a 10% contingency. This number compares with the original DFS estimate of USD 908 million (including a 10% contingency). A comparison to the current and previous CAPEX estimate is shown in the table below.
-------------------------------------------------------------------------- Updated CAPEX with Updated CAPEX with FX USD million, incl CAPEX September optimization adjustment(1) and 10% contingency 2010 DFS benefits optimization benefits -------------------------------------------------------------------------- Area Breakdown End 2014 End 2014 End 2014 -------------------------------------------------------------------------- Mines - dikes, mobile mining equipment 139 136 148 -------------------------------------------------------------------------- Mines - crushing stations and conveyors 58 55 58 -------------------------------------------------------------------------- Plant - stream Sahavaara 122 115 125 -------------------------------------------------------------------------- Plant - stream Tapuli 174 147 163 -------------------------------------------------------------------------- Tailings and water ponds / lines 34 34 43 -------------------------------------------------------------------------- Power supply 15 13 16 -------------------------------------------------------------------------- Filtration plant / common equipment and infrastructure 91 108 127 -------------------------------------------------------------------------- Owners cost 57 57 70 -------------------------------------------------------------------------- Closure cost 4 0 0 -------------------------------------------------------------------------- Logistics 0 15 15 -------------------------------------------------------------------------- Total 694 680 765 --------------------------------------------------------------------------
(1) CAPEX adjusted - 2/3 using a new rate of 6.40 SEK/USD and 1/3 at 6.95 SEK/USD
Audit of the New Model
As part of the NI 43-101 process, SRK Consulting (UK) Limited ("SRK") has audited the updated capital and operating cost estimates for the Kaunisvaara Project. SRK's estimates for IRR and NPV before tax and interest presented in the NI 43-101 are consistent in all material respects with the pre-tax estimates derived by Northland and presented in the DFS.
A complete NI 43-101 compliant DFS report will be filed on SEDAR on www.sedar.com and on Northland's website www.northland.eu within 45 days.
Previous information on the Kaunisvaara DFS was published in the September 27, 2010 press release and in the October 6, 2010 technical report.
Northland is a development-stage mining company with a portfolio of iron ore projects in northern Sweden and Finland. The Company's Kaunisvaara Project will exploit magnetite iron ore deposits, feeding a single, multi-line processing facility in Sweden. The process yields a very high-grade, high-quality magnetite iron concentrate. The Company is also preparing a Definitive Feasibility Study for the Hannukainen Iron Ore Copper Gold Project in northern Finland.
ON BEHALF OF THE BOARD
Karl-Axel Waplan, President and Chief Executive Officer
Northland Resources S.A.
Raw Materials Group, Magnus Ericsson
SRK Consulting, Howard Baker
CAUTION REGARDING FORWARD-LOOKING INFORMATION
This press release contains forward-looking information within the meaning of securities laws. Except for statements of historical fact relating to the Company, certain information contained herein constitutes "forward-looking information" under Canadian securities legislation. Forward-looking information includes, but is not limited to, statements with respect to mineral reserve and resource estimates; the ability to realise estimated mineral reserves and to convert mineral resources into mineral reserves; terms and costs of future exploration; mineralisation projections; receipt of all necessary approvals; the parameters and assumptions underlying the mineral resource estimates and iron ore prices. Generally, forward-looking information can be identified by the use of forward-looking terminology 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 statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Estimates regarding the mineral resources, as outlined above and in the technical report, have been based on knowledge of company management and the knowledge and experience of third party experts. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Northland Resources S.A. to be materially different from those expressed or implied by such forward-looking information. Although management of Northland Resources S.A. has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. Northland Resources S.A. does not undertake to update any forward-looking information, except in accordance with applicable securities laws.
Contacts
Karl-Axel Waplan
Northland Resources S.A.
President & CEO
+46 705 104 239
Anders Hvide
Northland Resources S.A.
Executive Chairman
+47 92 88 98 58
Eva Kaijser
Northland Resources S.A.
CFO
+46 709 32 09 01
Anders Antonsson
Northland Resources S.A.
Vice President Investor Relations
+46 709 994 970
Marguerite Manshreck-Head
Northland Resources S.A.
Investor Relations, Canada
+1 647 224 7882
Patrick Foster
Northland Resources S.A.
Director Finance, UK
+1 44 208 940 3311
