Consolidated Thompson reaches key milestones in Quebec

In late July Consolidated Thompson Iron Mines (CLM-T) shipped the first iron ore concentrate to its Chinese strategic partner in Wuhan from the Montreal-based company’s Bloom Lake mine on the south end of the Labrador Trough, an area spanning northeastern Quebec and Western Newfoundland and Labrador.

The shipment of 165,000 tonnes of iron ore concentrate from the port of Sept-Iles in eastern Quebec to China’s third-largest steel producer, Wuhan Iron & Steel Company, or Wisco, marked one of several milestones for the company this year. Others include the commissioning of the Lake Bloom mine and a decision by the board of directors to try to double production at the mine from 8 million tonnes of concentrate a year by the end of 2010 to 16 million tonnes by the end of 2012, at a cost of about US$525 million.

The feasibility study, released in May, indicated that Bloom Lake could produce an additional 8 million tonnes of 66.5% concentrate a year starting in the third quarter of 2012. The study also outlined a payback of 1.9 years; total life-of-mine operating costs of US$31.08 per tonne of concentrate; a pre-tax internal rate of return (IRR) of 50.7% (using US$1.203 per iron unit equivalent to revenue of US$80 per tonne of concentrate); and a pre-tax net present value (NPV) at a 10% discount rate of US$1.94 billion.

Consolidated Thompson has ordered a second autogenous mill and believes funding over the two-year construction period will not be a concern given that Wisco has “already indicated its interest in acquiring additional off-take from the expansion project.” Wisco holds 19.9% of CLM’s outstanding shares and has a 25% stake in the Bloom Lake project specifically.

Bloom Lake is an open-pit mine about 400 km north of Sept-Iles and about 10 km north of the Mount-Wright iron ore operation of Arcelor Mittal Mines Canada, a wholly owned subsidiary of steel giant ArcelorMittal (MT-N).

The first shipment to Wisco “marks the final milestone in a short three-year period,” management stated in a July 27press release, “during which CLM put in place the key building blocks – mine site preparation and infrastructure, rail car and heavy equipment leasing, equity and debt financing, off-take agreements with Asian customers, construction and servicing of a 31-km railway link and a modern lay-down area for iron ore handling in the Port of Sept-Iles.”

The start-up of mining operations at Lake Bloom in the three months ended June 30 coincided with a second quarter net loss of $28.25 million or 12¢ per share. At the end of the quarter Consolidated Thompson held $60.1 million in cash.

In Toronto, Consolidated Thompson is trading at $7.96 per share. Over the last year the company has traded in a range of $4.14-$10.32 per share and has about 232.1 million shares outstanding.