Oil Can resource lifts Champion Minerals

Champion Minerals (CHM-T) is trading higher on news that its 100%-owned Oil Can iron-ore deposit, six km north of its flagship Fire Lake North project in the southern end of the Labrador Trough, contains nearly one billion tonnes of magnetite-rich oxides.   

A maiden resource estimate puts Oil Can’s in-pit optimized inferred resource for the magnetite-rich oxides at a 15% iron cut-off grade at 967 million tonnes grading 33.2% total iron.

That’s nearly four times larger than Adam Low, a mining analyst at Raymond James, says he expected, and “with an above average grade relative to most iron ore projects in the Labrador Trough.”

The deposit consists of both magnetite-rich oxide iron formation and a mixed magnetite-silicate iron formation hosted with five domains separated by possible thrust faults. Inferred resources for the magnetite-rich oxide iron formation total 972 million tonnes grading 33.2% total iron at a 15% cut-off grade, in addition to 924 million tonnes grading 24.1% total iron for the mixed magnetite-silicate iron formation.

Champion Minerals is now evaluating whether it should integrate the resources at Oil Can with those at its Fire Lake North project and create a consolidated project that it believes could one day support annual concentrate production of up to 20 million tonnes of specular hematite sinter feed from Fire Lake North and up to 20 million tonnes of magnetite sinter feed from Oil Can.

Moreover, the company says there is the possibility that it will also consolidate its Bellechasse and Midway properties with Fire Lake North and Oil Can into Consolidated Fire Lake North project, because Bellechasse and Midway are contiguous to the two properties.

“The combination of these projects results in a resource of 3.2 billion tonnes grading 28.7% iron,” Daniel Greenspan, an analyst at Macquarie Equities Research, writes in a client note, adding that the company-wide resource now adds up to more than 4.6 billion tonnes.

“With a growing resource, larger-scale production from the consolidated Fire Lake North project is increasingly likely,” he says. “At this stage, there is limited metallurgical testwork completed at Oil Can, but early results indicate that a relatively coarse grind and magnetic separation could result in the production of a sinter feed concentrate.”

Greenspan has a 12-month target price on the stock of $3.00 per share. Champion Minerals was trading at $1.12 per share within a 52-week range of 72¢-$2.27 at presstime.

Upcoming catalysts for the company include an updated resource estimate for Fire Lake North some time late in the third quarter or early in the fourth quarter, and a feasibility study before the end of the year.

Low of Raymond James expects the company will build one processing line that will handle the predominantly specular-hematite ore from Fire Lake North and a second processing line to beneficiate the predominantly magnetite ore from Oil Can and the residual magnetite tailings from the first line.

He also predicts the mine will start production at the beginning of 2016 at an initial production rate of 10 million tonnes per year of iron ore sinter fines concentrate, which will grow to 17.3 million tonnes a year by 2020. In addition he forecasts a mine life of thirty-three years, up from his previous forecast of 23 years, and a concentrate grade of 65% iron.

Low has a 12-month target price on the stock of $3.15, up from his previous target of $3.00 per share, and has increased Champion’s net asset value from $7.47 to $7.93.

The Consolidated Fire North property is adjacent to and north of ArcelorMittal’s operating Fire Lake mine and 60 km south of Cliffs Natural Resources’ (CLF-N) Bloom Lake mine in northeastern Quebec.