Northland targets 2013 for first iron ore delivery

Northland Resources (NAU-T) is set to get its flagship Kaunisvaara iron ore project in northern Sweden off the ground in early 2013, with full production of 5 million tonnes of iron ore concentrate per year expected by 2014.

The company says site work at the project, which is 100 km north of the Arctic Circle, in the city of Pajala, is underway. On May 31, it awarded a US$125-million contract to construction and civil engineering firm, Peab, to build the surface infrastructure required for the project.

Peab would be responsible for constructing crusher stations, conveyor tunnels, stockpile buildings, mill foundations, and a processing plant by late 2012.

“The Kaunisvaara project is on track, that means that the dykes we plan to do, the roads we plan to do, as well as the pumping of water from the bog, have all been done in accordance to plan,” said president and CEO Karl-Axel Waplan in an earlier webcast on the project in May.

The company says based on the updated May feasibility study prepared by Jacobs, the wholly-owned project is “technically feasible and financially positive.”

The updated study, including data from optimization studies on engineering costs and operating estimates, pegged the cost to build the mine at US$765 million, and the life-of-mine capex at US$892 million, including sustaining costs, for a 19-year operation.

The mine would have an after-tax net present value (NPV) of US$934 million, using an 8% discount rate, and a 24% after-tax internal rate of return (IRR), compared to the 2010 after-tax NPV of US$463-million and IRR of 18.8%, at the same discount rate. 

Total OPEX for concentrate delivered free-on-board at the port of Narvik for the life-of-mine averages out at US$58.80 per tonne.

At Kaunisvaara, the magnetite iron ore deposits, Tapuli and Sahavaara, would feed a single multiline processing facility to produce a “high-grade, high-quality” iron ore concentrate.

The concentrate grades 69% iron and has low levels of impurities, which gives the company an edge in the market, said Waplan, explaining that the global trend for new  iron ore deposits show lower grades, higher impurities, and are developed in more demanding environments.

“We are in a politically safe area, with a very strong and good situation for mine operators,” he remarked, adding the region is generally positive towards mining.

Demand for iron ore is increasing in China, and other Asian countries, as well as in India, said Waplan, adding the company expects to get a better price for its high-grade concentrate compared to the standard concentrate grading 62% iron.

Although the Pajala region may be welcoming to miners, it is still a “greenfield” area, with no previous mining. That said, Waplan was quick to point out, the company has started building all the facilities it would need, and that an area nearby first saw iron ore mining 300-400 years ago.  

For Kaunisvaara, the miner last year signed offtake agreements with Standard Bank, Tata Steel and Stemcor, boasting that it has sold its entire production in long-term agreements.

More specifically, Standard Bank signed up for delivery of up to 3 million tonnes per year of iron ore pellet feed for at least eight years, and both Tata Steel and Stemcor agreed to buy 1 million tonnes of iron concentrate per year for seven and eight years, respectively.

The company has mining permits for the project, but is waiting for environmental permits.

Northland is also working on the definitive feasibility study for its Hannukainen iron ore-copper-gold project in northern Finland, which is expected to be done by late 2011, and would add about 2 million tonnes of iron ore concentrate to the company’s total production in 2015-16.

On news of the Peab contract, Northland shares moved up 22¢ to close at $2.95 on 643,000 shares traded.

The company has a 52-week trading range of $1.72-$3.50.