Cons. Thompson Signs Second Offtake Deal For Bloom Lake

VANCOUVER– For those who doubt Asia’s need for iron ore, the story of Consolidated Thompson Iron Mines ‘ (CLM-T) Bloom Lake mine should put those doubts to rest.

Consolidated Thompson already has an Asian partner to develop and run the Bloom Lake mine in eastern Quebec. In March, the company inked a deal that saw Wuhan Iron and Steel (WISCO), one of China’s largest steel producers, pay US$240 million to acquire 29.7 million shares of Consolidated Thompson, representing a 19.9% stake after the share issuance.

The deal also gave WISCO ownership of a quarter of the Bloom Lake mine. In exchange, the Chinese firm committed to buy 25% of the iron ore produced from Bloom Lake over the mine’s life at fair market value, with an option to increase its offtake level to 60%.

Now, Consolidated Thompson has signed up another Asian partner: SK Networks, a subsidiary of the largest Korean conglomerate company SK Group, has committed to buy 1 million tonnes of iron ore annually from Bloom Lake for ten years, at fair market value. The Korean company will also extend a US$50-million credit line to the Canadian company, with a fixed 5% annual interest rate.

It is not clear how much, if any, of the credit facility the company will draw upon, as Consolidated Thompson has not had trouble raising money of late. In September it raised $144.2 million in a private placement, selling 32.8 million shares at $4.40 a piece. And, in April, the company closed a $92.6-million financing, selling 35.7 million shares for $2.60 each.

By the end of September, Consolidated Thompson had spent $400 million building Bloom Lake and the operation, which is expected to cost $630 million in total, is expected to start producing imminently. The high capital costs stem from the need to build not just a mine and mill but also a rail line and a port upgrade.

The mine is expected to produce 8 million tonnes of iron ore annually and generate a 59% pretax internal rate of return. The company expects to repay its investment in less than three years.

The 640-million-tonne iron deposit, which grades roughly 30% iron oxide, should support a mine for 34 years, though considerable expansion potential remains at Bloom Lake.

The company recently increased the indicated resource count at the nearby Lamelee-Peppler project to 935 million tonnes, also grading 30% iron oxide. Lamelee-Peppler is 45 km from Bloom Lake.

Even though news of the offtake agreement with SK did not come out until after markets closed, Consolidated Thompson’s share price still gained 30¢ to close at $7.20. The company has been on a solid upward climb since last January, when a share could be had for $1. The company has 227 million shares outstanding.