Northland targets 2013 for first iron ore delivery

Northland Resources (nau-t) is set to launch its flagship Kaunisvaara iron ore project in northern Sweden in early 2013, with 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 municipality of Pajala – is underway. On May 31, it awarded a US$125-million contract to construction and civil engineering firm Peab to build the required surface infrastructure. 

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,” president and CEO Karl-Axel Waplan said in a webcast in early May.

The company says that 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 building costs at US$765 million, and the life-of-mine capital expenditure 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 operational expenditure for concentrate delivered free-on-board at the port of Narvik for the life-of-mine averages to US$58.80 per tonne. 

At Kaunisvaara, the magnetite iron ore deposits Tapuli and Sahavaara would feed a single multi-line processing facility to produce high-grade 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 more difficult locales. 

“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.

Although Pajala may be friendly territory for miners, it is still a “greenfield” area, with no previous mining activity. However, Waplan was quick to point out, the company has already begun building the facilities it needs, and an area nearby in northern Sweden supported iron ore mining 300-400 years ago.  

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

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

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

While the company awaits final permits for Kaunisvaara, it works on a definitive feasibility study for its Hannukainen iron ore-copper-gold project in northern Finland, expecting completion by the end of 2011. 

Hannukainen adds an estimated 2 million tonnes of iron ore concentrate to the company’s total production in 2015 and 2016. 

On news of the Peab contract, Northland shares moved up 22¢ to close at $2.95, within a 52-week trading range of $1.72-$3.50.