Alderon reaches deal with Labrador City

Alderon Iron Ore (TSX: ADV; NYSE-MKT: AXX) is further down the road in its quest to build the Kami iron mine in the Labrador Trough.

The company announced it has secured a deal with the Town of Labrador City in Labrador  for the mine’s development.

It’s a deal that signals support in the community and gives the town more revenue to help it cope with coming growth in the region, as its iron wealth is exploited.

Alderon says the agreement is similar to those signed by other mining companies, as it calls for Alderon to pay the town an annual grant based on operations at Kami — a mine that will be located in the municipal-planning area of the town.

The designation “municipal planning area” refers to an area outside the town limits that is still part of the town’s development plan. So while the town council has full control of development within the area, it doesn’t have the same taxing authority. 

For Alderon, that means it won’t have to pay municipal or other taxes on the mine itself, but only on any related businesses that may stretch over into the town boundaries.

Alderon has a 75% stake in the Kami project, with the other 25% held by Hebei Iron & Steel Group Co. Together the partners hold the asset through the Kami Mine Ltd. Partnership.

The project is within 2.5 km of a road, 15 km from  a rail line and 15.5 km from a hydro-power station. Iron ore concentrate production would be exported from  port facilities in Sept-Îles, Que., the leading iron-ore port in North America.

The Kami project is home to the Rose deposit, which has proven and probable reserves of 668.5 million tonnes grading 29.5% iron.

A feasibility study at Kami contemplates a mine producing 8 million tonnes of concentrate per year at a grade of 65.2% iron, with a net present value (NPV) of US$3.2 billion using an 8% discount rate. The study estimates it would cost US$1.3 billion to build the mine.

With the signing of the city agreement Scotiabank analyst Mark Turner says investors will focus on a second off-take agreement and project financing for Kami.

Turner has Alderon rated as a “sector outperform” with a $3.30 price target, with such bullishness based on a belief that the project has the right characteristics, management team and partner to get built with commercial production on track for 2016. He expects the project will be fully permitted in the first half of 2014.

On Jan. 24 — the day the news was released, but a down day for markets overall — the company’s shares finished the day off 7%, or 13¢, at $1.77 on 330,000 shares traded.