Cons. Thompson Gets Chinese Partner

VANCOUVER — Consolidated Thompson Iron Mines (CLM-T) has found itself a partner to develop and run the Bloom Lake iron mine in eastern Quebec.

Wuhan Iron and Steel (WISCO), one of China’s largest steel producers, is paying US$240 million to acquire 29.7 million shares of Cons. Thompson, a 19.9% stake after the share issuance.

But the deal goes far beyond a stake in the company. WISCO will also own a quarter of the Bloom Lake mine, by way of a 25% stake in a company to be incorporated to run the mine.

In exchange for that, WISCO has committed to buy 25% of the iron ore produced at Bloom Lake over the mine’s life at fair market value. And WISCO has an option to increase its offtake level to 60%.

The purchasing right applies not only to initial production from Bloom Lake but also to future expansion at Bloom Lake and Cons. Thompson’s nearby Lamelee and Peppler Lake projects.

“This is a win-win deal,” says Richard Quesnel, Cons. Thompson’s president and CEO. “We have a key strategic investor coming to join us, giving us a very good partner, and with this last financing we have the capital we need to complete development at Bloom Lake.”

The deal is still subject to regulatory approval. The partners hope to sign a definitive agreement by early May.

Cons. Thompson has already spent $225 million at Bloom Lake and the company has $135 million in the bank. But total capital costs come in at $628 million — $486 million for the mine and mill, the rest for a rail line and port upgrade — so Cons. Thompson was in need of further funding.

“Consolidated Thompson is now on the path to be in production by the end of this year,” said Stan Bharti, a company director, during a conference call. And with a strong Chinese partner, Bharti and Quesnel say the company is better positioned to expand Bloom Lake production to 16 million tonnes per year, up from the 8 million tonnes currently targeted.

The company recently updated its Bloom Lake development plans. The key change was an increase in annual production; plans now call for the mine to produce 8 million tonnes each year instead of 7 million. The extra million tonnes of output is expected to add some US$80 million to the mine’s annual revenue.

On paper, the project should produce a 58.9% pretax internal rate of return and it carries a net present value of US$2.35 billion, using a 10% discount rate. Each year, the project would produce US$360 million in undiscounted pretax cash flow. The company expects to pay back its investment in 2.6 years.

Over the first five years, Cons. Thompson expects to spend US$24.18 to produce each tonne of iron in concentrate; over the 20-year mine life production costs average US$24.76 per tonne concentrate. The concentrate will grade 66.5% iron.

In August, Cons. Thompson signed a rail transportation agreement with Quebec North Shore and Labrador Railway confirming that iron ore concentrate from Bloom Lake will be carried on QNS&L railcars from the Wabush Lake junction in Labrador to the Sept-les junction in Quebec, a distance of 500 km.

Cons. Thompson paid $51.5 million pursuant to the terms of the agreement, which are confidential.

To get iron ore concentrate to the Wabush Lake junction, the company is building a 31-km rail spur line. The Newfoundland & Labrador government approved the environmental assessment process for the spur line in October and groundwork has begun.

Cons. Thompson released a new resource estimate for Bloom Lake in March, incorporating three new zones of mineralization. The new zones add 189.2 million indicated tonnes grading 27.94% iron and 47.2 million inferred tonnes averaging 29.32% iron.

The project as a whole now hosts 827 million tonnes of ore grading 29.3% iron as measured and indicated resources, including 580 million tonnes of proven and probable reserves grading 30% iron. Inferred resources add 83 million tonnes grading 30% iron.

And considerable expansion potential still remains at Bloom Lake, not to mention the potential to add ore from Cons. Thompson’s nearby Lamelee deposit. Quesnel says he think Lamelee could host more than a billion tonnes of iron ore, a target the company will work to prove up.

On news of the WISCO deal, Cons. Thompson’s share price gained 31¢ to close at $2.60. The company has a 52-week trading range of 81¢ to $10.21, and 120 million shares outstanding.