Seeing a strong premium for higher-quality iron ore as a long-term market reality, Alderon Iron Ore Corp. will try to tap backers for funding to build the Kami iron ore project in Newfoundland and Labrador with estimated capital expenditure of US$900.7 million.
"We're about to appoint a financial adviser and test the market again," Alderon President and CEO Tayfun Eldem said in an interview.
Alderon hit pause on the project in 2014, citing tough iron ore markets, but began to gear up again in late 2017 with improvements in iron ore prices.
Eldem cited the premium product Kami could produce as a key feature of the project's potential profitability. In recent years, iron ore prices have increasingly bifurcated with higher grades fetching a premium. Eldem, who was COO at Rio Tinto's nearby IOC iron ore mine, said that in the long term, he expects the stronger premium for higher-grade to remain in place.
"While I expect the spreads to fluctuate over time, largely driven by steel margins and product requirements of the mills, the fundamental underpinnings of that shift, which can be found in China's drive to curb pollution through structural changes as well as supply-side reforms, are not going to go away," Eldem said. "Once you make a commitment to clean up pollution, it would be suicide to go back and say, 'We're going to relax that and allow pollution.'"
Kami, which is less than 50 kilometers south of the IOC operation, holds proven and probable reserves of 517.2 million tonnes grading 28.8% total iron. According to a September 2018 feasibility study, the ore would be mined and upgraded to a 65.2% concentrate in an operation producing an average 7.8 million tonnes per year of concentrate.
Alderon pegged Kami's operating costs at US$30.72/t of concentrate over the life of the mine and estimated an after-tax net present value of US$866 million, discounted at 8%. The project is "shovel ready" with major permits in place, Eldem said.
The company plans to look at hybrid financial instruments and may also bring another strategic partner on board. As part of its bid to source funding, Alderon recently signed a memorandum of understanding with Schneider Electric SE that covers possible help with finding financial backers.
Eldem said HBIS Group Co. Ltd. had also confirmed that it remained committed to the project. HBIS Group, previously known as Hebei Iron and Steel, has an 18.7% stake in the company as well as a 25% interest in the property and an off-take agreement.
"Once we have a line of sight on financing," Alderon will kick development of Kami into high gear, the chief executive said.