Quebec Innu lift blockade of New Millennium’s iron ore project

The Innu Matimekush-Lake-John First Nation has agreed to remove barricades that were blocking access to New Millennium Capital’s (NML-V) direct shipping ore (DSO) project near Schefferville, Que., since June, and will return to the negotiating table to hammer out a detailed impacts and benefits agreement.

New Millennium negotiated the agreement along with Labrador Iron Mines Holdings (LIM-T) and the Band Council, says Robert Martin, the company’s president and chief executive, adding that New Millennium had been “caught in the middle” of a conflict over land claims between the Quebec Innu and the federal and provincial governments of Newfoundland and Labrador, and Quebec.

The blockade was there because the Quebec Innu “had their rights extinguished several years ago and they wanted that situation changed and were having difficulty getting the attention of government,” he explains in a telephone interview from Montreal. “My understanding is that they felt by putting up a blockade that would affect mining operations they would get the government’s attention.”

The result was that the federal and provincial governments met with the Quebec Innu to address their questions concerning land claims and employment and offered to resolve them, Martin says. “I was told three high-level government officials travelled to Schefferville and met with the Band Council and that was a big change,” he says. “The fact that they went up there and had this meeting. . . was very important to the Quebec Innu.”

Following the reassurances from the government to the local community, New Millennium successfully reached an agreement to end the blockade and get back to work. The joint agreement, approved by members of the community, outlines some of the advance financial contributions New Millennium is making towards local education, health, youth programs, traditional activities and the improvement of a community facility. It also gives free passage to New Millennium’s employees and allows key environmental studies, hydrological studies and airborne gravity and magnetic surveys to resume. These studies ground to a halt when the blockade started in early June.

New Millennium’s DSO project is located in the Labrador Trough in the provinces of Newfoundland and Labrador, and Quebec. According to a feasibility study released earlier this year, New Millennium’s 100%-owned DSO properties will yield a payback in just three years following commercial production, which is expected to start in the third quarter of 2011. The study updated a prefeasibility study completed in February 2009, and was calculated from updated resources based on 2009 drill results.

The DSO project contains 64.1 million tonnes of reserves at an average grade of 58.8% iron. The reserves were calculated based on an iron cutoff grade of 50%. Measured and indicated resources stand at 8.1 million tonnes grading of 58.8% iron, 7.2 million inferred tonnes of 56.8% iron, and roughly 40-45 million tonnes of historical resources that are not in compliance with NI 43-101 standards.

The feasibility study indicated a pretax internal rate of return of 29% on a production assumption of 4 million tonnes per year of sinter fines and super fines products. The net present value discounted at 8% for the project works out to US$418 million before corporate and mining taxes.

DSO is a brownfield project in an historic iron ore producing region of Canada, where from 1954 to 1982, the Iron Ore Company of Canada (IOC) had extensive operations to mine the DSO ores.

Today, New Millennium owns 25 of these DSO deposits, which are located in different areas. Mining will start in Area 3, where the IOC was mining prior to the closure of its Schefferville operations.

Some of the pits were partially mined or stripped and can be restarted with little capital. Most of the infrastructure is already built. A rail bed from the main line already exists. A 28-km rail link from the main line will be built to about 15 km north of Schefferville, where a processing plant, offices, laboratories, maintenance and service facilities will be located.

The feasibility study predicted initial capital costs of US$300 million and working capital of about US$13.5 million. Stripping ratios will vary from mine to mine but will average 1.03 over the life of the mines.

Cash operating costs are estimated at US$30 per tonne of product on board ship at Sept-les. (Transportation and port handling costs make up a large part of the project’s total cash operating costs.)

Calculations of the project’s economics were based on an estimated 10-year mine plan, which includes mining only the current reserves.

Tata Steel of India, the world’s eighth biggest steel company, owns 27.4% of New Millennium and is the company’s largest shareholder and partner.

Tata Steel has an exclusive option to participate in the DSO project, by paying $300 million towards the capital cost of the project and by returning 80% of the funds spent by New Millennium to date on the DSO project. It also has a commitment to take the resulting production for life of mine if the option is exercised, and an exclusive right to negotiate and settle a proposed transaction in respect of the LabMag and KeMag projects, which contain more than 9 billion tonnes of NI 43-101 resources.