Positive study for Champion Iron in Labrador Trough

VANCOUVER — A preliminary feasibility study has concluded the East and West iron ore deposits at Champion Iron Mines’ (CHM-T) Consolidated Fire Lake North (CFLN) project could produce 9.3 million tonnes of concentrate grading 66% iron for almost 20 years. But lingering uncertainty over how to move that concentrate to market is hurting project economics and investor confidence.

CFLN is part of Champion’s Fermont property holdings, which cover 750 sq. km in the Quebec portion of the southern end of the Labrador Trough. CFLN is the most advanced of the five iron ore projects within the Fermont portfolio. And it is undoubtedly in iron-mining territory: CFLN sits just north of ArcelorMittal’s (MT-N) Fire Lake mine and 60 km south
of Cliffs Natural Resources’ (CLF-N) Bloom Lake mine.

The project boasts a large resource: 693 million measured-and-indicated tonnes grading 31.5% total iron, plus 522 million inferred tonnes at 30.1% iron. However, the prefeasibility study only considered 465 million proven and probable tonnes contained within an engineered pit.

Those reserves would be sufficient to feed a mine producing 9.3 million tonnes of concentrate grading 66% iron for 20 years. The life-of-mine strip ratio averages 2.7 tonnes of waste for each tonne of ore, though that would decrease if Champion can upgrade the 30 million tonnes of inferred resource within the pit to reserve status, as those tonnes are for now considered waste.

The project as envisioned carries a $3.3-billion pre-tax net present value, using an 8% discount rate, and boasts a 30.9% pre-tax internal rate of return. That would allow Champion to pay back the $1.4-billion capital cost in 3.4 years.

However, the capital cost number cuts out a big chunk of one key cost: a rail connection. The study assumes Champion would have to build a 310-km, project-specific rail connection to Sept-Îles, which would cost $1.3 billion. Of that amount, the study added $200 million in upfront rail costs to the project capital cost, and assumed Champion would finance the rest of the rail project through debt.

To account for the expense of carrying this debt, the study added $9.47 to the cost to produce each tonne of concentrate, which before the rail debt service charge stood at $44.05 per tonne.

Champion was hoping it would not have to build its own rail line and instead could take advantage of a proposed multi-user rail line through northern Quebec. The 800 km line would have run from Sept-Îles to Schefferville, and through to the iron ore deposits of the Labrador Trough.

However, the day after releasing its CFLN study, the company got bad news: Canadian National Railway, (CNR-T, CNR-N) which would have built the rail line, put the project on hold. Montreal-based CN Rail suspended the feasibility study for the line, which had been due out in June, citing too much uncertainty around development of the projects that would use the line.

“The study has been progressing steadily . . . however, the current market realities have resulted in anticipated delays with mine-development projects in and around the Labrador Trough,” CN said in a statement. Those differing mine construction schedules have made it difficult to secure the iron ore volumes needed to support the line in the future.

The railway was to be an important element in the previous Quebec government’s ambitious plan to develop the economy of its northern reaches, and was expected to cost $5 billion.

Without a multi-user line, Champion will have to build its own rail connection to Sept-Îles, which means the assumptions in the prefeasibility study are reasonable. And even though financing a rail line would add a few percent to the project’s operating costs, the economics were still positive, which means Champion can forge ahead. Moreover, the other properties within the company’s Fermont portfolio could contribute resources to be processed through the same facilities and shipped along the same line, reducing the per-tonne cost.

Champion has advanced many aspects of the project to near-development stage. The company secured access to the port at Sept-Îles, is in advanced negotiations for electric power to the site, and has secured permits to build a mine-construction camp. All of these effects will contribute to a full feasibility study due in July.

With CN suspending the multi-user line, the CFLN feasibility study will stick to the prefeasibility plan to build a sole-user line, but Champion hopes the new study will offer a different, equally significant change to the mine plan: doubled production capacity by adding a second concentrator line.

The doubled operation would produce 20 million tonnes of iron concentrate annually. Champion is waiting until it has delineated enough reserves to support the expanded operation for 20 years before committing to the second concentrator. To that end, Champion is advancing an infill drill program aimed at upgrading inferred resources to measured-and-indicated status, which would allow inclusion in a feasibility assessment.

In general, the company seems confident its project has more than enough iron to support a large, long-term mine. Champion’s president and CEO Thomas Larsen says that “Champion’s resource base of over 2.6 billion tonnes within the confines of the Consolidated Fire Lake North project might ultimately support 30 million to 40 million tonnes of iron concentrate production annually.”

It seems investors are not quite so confident. Champion’s share price has fallen steadily over the last year, from a high of $2.27 last February to a new low of 45¢ after news of the prefeasibility study came out. The company has 119 million shares outstanding.