Bill Wagener, the COO of Northland Resources Inc.
(TSX:NAU)(FRANKFURT:NBS)(OSLO:NAUR), is pleased to announce the revised results
of the NI 43-101 compliant Preliminary Economic Assessment ("PEA") of its three
main magnetite projects: Tapuli and Stora Sahavaara in northern Sweden, and
Hannukainen in northern Finland.
Last week, Northland published - and subsequently retracted - the PEA, after a
routine review of a shareholder enquiry related to the model highlighted two
errors; the first relating to the revenue calculations, and the second related
to double-counting of a significant contingency in the mining costs. Over the
last 5 days Northland and Wardell Armstrong International (WAI) have re-worked,
and extensively re-checked the financial model, concluding that the net effect
of the revision on the NPV, IRR and payback of the combined projects is limited
and the projects have retained their robust valuation.
The combined projects deliver an amended Net Present Value at a 10% discount
rate ("NPV10") of EUR 1.114 Billion and Earnings Before Interest and Tax
("EBIT") of EUR 5.085 Billion. The Internal Rate of Return ("IRR") remains
unchanged at 27% and the discounted payback period is 7 years from start of the
development program.
At the project level, the EBIT has increased for Hannukainen, and decreased
slightly for Tapuli and Stora Sahavaara but was not great enough to affect the
overall IRR or NPV. The key economic findings of the individual studies for each
project expressed in Euros (EUR) are:
Tapuli NPV at a 10% discount rate (NPV10) of EUR 116.7 million,
EBIT of EUR 415.1 million and an IRR of 34% with a payback
period of 5 years. Estimated Capital Expenditures
("CAPEX") of EUR 146.6 million for mine development and
construction of the processing facility includes EUR 18.1
million in contingency and EUR 15.8 million in
Engineering, Procurement, Construction Management (EPCM)
costs.
Stora Sahavaara NPV10 of EUR 567.2 million, EBIT of EUR 2.646 Billion and
an IRR of 27% with a payback period of 6 years. Estimated
CAPEX of EUR 258.2 million for mine and processing
facilities and EUR 279.0 million to build a 5 million
tonne per annum ("Mtpa") pelletizing facility includes
EUR 26.0 million in contingency and EUR 24.2 million in
EPCM.
Hannukainen NPV10 of EUR 429.7 million, EBIT of EUR 2.024 Billion and
an IRR of 26% with a payback period of 6 years. Estimated
CAPEX of EUR 276.2 million for mine and processing
facilities and EUR 279.0 million for construction of a
5Mtpa pelletizing facility includes EUR 35.5 million in
contingency and EUR 33.6 million in EPCM.
WAI have reconfirmed that all three projects are robust and strongly positive in
terms of NPV and IRR. The Preliminary Economic Assessment is preliminary in
nature. It includes inferred mineral resources that are considered too
speculative geologically to have economic considerations applied to them that
would enable them to be categorized as mineral reserves. There is no certainty
the preliminary assessment will be realized.
Buck Morrow, the President/CEO of Northland, commented: "I would like to
apologize on behalf of the entire management team for the confusion caused by
last week's retraction. Under the circumstances, we felt it was the only
appropriate course of action. The team has worked very hard this week to resolve
the outstanding issues and I'm very pleased to be able to reiterate the robust
financial models for our three development projects to our shareholders. As we
noted last week, we plan to focus our efforts in three areas; 1) putting Tapuli,
the lowest capital cost and highest IRR project, into production first while
progressing Stora Sahavaara and Hannukainen to development, 2) there is
considerable room to optimize the studies and we will be pushing hard to
evaluate the alternatives identified by the PEA and optimize the project
designs, and 3) our on-going drill programs within the Pajala Shear Zone and
more particularly the drilling at Pellivuoma and Kuervitikko, with the aim of
adding substantial resource tonnes which will be brought into the financial
models down the road."
Copies of the executive summaries provided by WAI, which include the mining
schedules with detailed operating and capital cost estimates, will be posted
shortly on Northland's website at www.northlandresourcesinc.com/s/pea.asp and
the full NI 43-101 engineering report will be posted within 45 days on
www.sedar.com. A conference call hosted by Buck Morrow, President of Northland,
will be scheduled during the week of June 23rd. Call-in details will be
published shortly and will also be available on Northland's website.
Summary of PEA Results
The basic model and financial evaluation for each project is tabulated below.
--------------------------------------------------------------------------
Stora
Item Units Tapuli Sahavaara Hannukainen
--------------------------------------------------------------------------
Total Iron Ore Mined Mt 65.88 101.75 117.55
Average Grade % Fe 28.34 43.32 31.69
Iron Recovered Mt 15.55 36.40 26.08
Copper Recovered Kt - - 179.94
Gold Recovered Koz - - 124.25
Fe Concentrate Produced Mt 22.51 52.68 36.94
Pellets Produced - 54.74 38.52
Gross Revenue Generated EUR M 1,301.0 5,590.0 4,528.0
Cash Operating Costs EUR M 727.8 2,353.0 1,903.0
Mine and Processing Capital Costs EUR M 146.6 258.2 276.2
Pelletizing Capital Cost EUR M - 279.0 279.0
--------------------------------------------------------------------------
EBIT EUR M 415.1 2,646.0 2,024.0
NPV EUR M 116.7 567.2 429.7
IRR % 34 27 26
Pay-back Period (Discounted)(i) Years 5 6 6
--------------------------------------------------------------------------
(i) Note: The undiscounted Pay-back Period from first production for
Tapuli is 3 years, Stora Sahavaara 3 years and Hannukainen 3
years. Inflation was not applied to the cash flow model on
operating costs, capital costs or product pricing. Corporate
income tax applied at a rate of 28% on net income.
Near Term Development Strategy
Tapuli combines low CAPEX, low operating cost, and a production capacity which
fits the existing infrastructure with development timing suited to meet
anticipated market demand. Northland will now focus its permitting and
engineering efforts on developing first production and cash flow from the Tapuli
project. The current plan envisages a development sequence of Tapuli, Stora
Sahavaara then Hannukainen. However, each mine is being treated by management as
a "stand alone" project and the development sequence may change depending on
operational realities including customer requirements for specific products,
terms of off take agreements, permitting, transportation routes and availability
of processing equipment. Tapuli has a low waste to ore stripping ratio (2.27:1)
coupled with favorable mining geometry, simple processing scheme to concentrates
and yearly production rate sized to fit existing infrastructure. These
attributes make Tapuli Northland's first choice for production of concentrates
for pellet producers. Northland's marketing studies indicate a growing demand
for high quality pellet feed and its projects are well positioned to serve these
markets.
Optimization of the PEA
The base case PEA presented here was developed around three discrete and "stand
alone" operations producing 5Mtpa of Direct Reduction ("DR") and 5Mtpa of Blast
Furnace ("BF") pellets and 3Mtpa of pellet feed concentrate. It reflects the
CAPEX, operating costs and infrastructure development necessary to establish
Northland as an independent merchant producer and seller of iron ore products.
Alternatives that are available to enhance the development sequence, reduce the
capital and operating costs and improve the economics include:
- Developing a complementary port at Kalix in Sweden which is a natural deep
water port and will be able to accommodate vessels with a global reach.
- Eliminating the need to construct one or more of the pellet plants by securing
potential customers to take pellet feed instead of pellets, reducing the planned
tonnage of pellet production. This would also eliminate some of the longest lead
time items.
- Optimizing the mining and processing areas. For example, alternative
transportation methods to truck haulage as the pits deepen were not included.
Use of alternative haulage methods could significantly reduce capital and/or
operating costs in the outlying years as strip ratios and volumes increase.
- The use of autogenous mills for the second stage of size reduction, thereby
reducing power consumption, consumables and operating costs. The PEA assumes use
of high pressure grinding rolls for secondary crushing, and ball mills for
grinding.
- Mine life is based on the existing NI 43-101 surface mineable resources. It is
anticipated that systematic exploration of 35 nearby known magnetite occurrences
could extend surface mineable operations.
PEA Background
WAI, in association with GBM Minerals Engineering Ltd ("GBM"), were commissioned
to prepare a PEA of the Tapuli, Stora Sahavaara and Hannukainen iron ore
deposits and to assess the combined infrastructure required to transport the
products to market. The PEA design criteria include:
- Tapuli will produce 3Mtpa of iron ore concentrate commencing in 2009,
initially producing 300Ktpa of High Density Aggregate. Iron ore concentrate
production will begin in 2010 targeting markets in Northern Europe and the
Middle East.
- Stora Sahavaara will produce 1Mtpa of BF pellets in 2012 increasing to 5Mtpa
of pellets in 2013. The target markets for the pellets are the Baltic and
Northern Europe.
- Hannukainen will produce 1Mtpa of DR grade Pellets in 2013 and 5Mtpa of DR
grade pellets from 2014 onwards. The target markets for the pellets are Northern
Africa and the Middle East.
- Mine life must be based on the existing NI 43-101 measured, indicated and
inferred resources. (Northland is systematically exploring at least 35 nearby
known magnetite occurrences. It is anticipated that operation of the processing
facilities will, in the long term, be sustained by the continued exploration and
resource growth.)
- Contract mining will be used at all three projects: no mining equipment
capital was included in the CAPEX. This reduces the upfront capital cost but
increases the per unit operating costs. A 15% surcharge was included to cover
contractor profit, depreciation and equipment purchases.
- The CAPEX assumptions should be conservative: all capital costs assumed by
Northland in the financial model were based on the purchase of new equipment -
there is an opportunity to acquire at least some of the equipment on the used
market to reduce capital costs.
- Each project should be examined on a stand-alone basis.
- All infrastructure CAPEX was identified. Since much of the required
infrastructure will be shared between the three projects, it was assumed that a
third party provider will make the necessary investments and Northland will
compensate for that investment through usage charges. A surcharge of 20% was
added to all infrastructure Operating Costs to address the necessary return on
investment to the infrastructure providers.
Commodity Price Assumptions
Northland commissioned Raw Materials Group to provide base sales price forecasts
out to 2023, incorporating shipping rate forecasts to key iron ore markets which
were provided and confirmed independently. Northland updated the forecast to
reflect 2008 settlements and set a pricing strategy that assumes that it will
sell iron ore on a 'Free On Board' basis, at the port of origin and will be able
to sell its iron ore products at prices competitive to those secured by the
major producers, at the same destination port.
Operating and Capital Expenditure Summaries for the Three Projects
The basic mining and processing operating costs parameters shown below, defined
in the PEA for each of the three projects, are used in the preliminary economic
assessment:
--------------------------------------------------------------------------
Stora
Operating Cost Parameter Units Tapuli Sahavaara Hannukainen
--------------------------------------------------------------------------
First Year Mining Cost(i) EUR/t of ore 4.84 1.92 2.18
mined
Last Year Mining Cost(i) EUR/t of ore 6.51 13.30 9.50
mined
Processing Cost EUR/t of ore 3.17 6.99 5.24
processed
Pelletizing Costs EUR/t of pellets - 6.25 6.05
--------------------------------------------------------------------------
(i) Note: Mining cost varies over the life-of-mine based on the waste to
ore stripping ratio, and includes mining contractor fees. Please
refer to the Executive Summaries for the detailed mining
schedule.
The major items that make up the operating costs for all three mines are
salaries, drilling, blasting, loading and hauling of the ore and waste. A
significant proportion of the cost of these mining related activities is fuel.
Fuel consumption figures were generally supplied by the manufacturers of each
plant item. The fuel cost is assumed to be EUR 0.70 per liter.
The Rail haulage and port handling costs defined by the PEA and used to develop
the FOB costs for the three projects are summarized below:
--------------------------------------------------------------------------
Stora
Operating Cost Units Tapuli Sahavaara Hannukainen
--------------------------------------------------------------------------
Rail Costs to Kemi EUR/t of product 2.98 2.98 -
Rail Costs to Narvik EUR/t of product 1.63 1.63 1.84
Port Handling Costs Narvik EUR/t of product 3.50 3.50 3.50
Port Handling Costs Kemi EUR/t of product 2.50 2.50 -
--------------------------------------------------------------------------
A summary of the CAPEX defined in the study for each project is shown below (all
figures in millions of Euros (EUR M):
-----------------------------------------------------------
Stora
Capital Cost Tapuli Sahavaara Hannukainen
-----------------------------------------------------------
Heavy Aggregate 8.4 - -
Mining 8.7 12.9 11.9
Processing 129.5 245.3 264.3
Pelletizing - 279.0 279.0
-----------------------------------------------------------
Total CAPEX 146.6 537.2 555.2
-----------------------------------------------------------
Tapuli
Resources
Tapuli contains a large resource of open-pittable magnetite. Exploration
drilling has delineated the deposit from near-surface to 300m depth with a true
thickness of between 10m to 200m. The mineralization remains open at depth. A
conceptual mine plan was developed to mine an estimated 65.8Mt of mineralized,
fully diluted, surface mineable material averaging 28.3% Fe within a previously
defined NI 43-101 compliant resource of:
---------------------------------------------------------------------
Resource Category(i) Tonnage Fe % S % P %
---------------------------------------------------------------------
Indicated 54.38 27.68 0.24 0.06
Inferred 47.60 26.27 0.26 0.07
---------------------------------------------------------------------
(i) Note: Using a 15% Fe cut off. See Northland's news release dated
Feb. 11, 2008.
The stripping ratio is 2.27:1 tonnes of waste mined per tonne of ore. The
mineralized material includes dilution and allowances for losses which may occur
when the material is mined and accounts for realistic mining, metallurgical,
economic, marketing, legal, environmental, social and governmental factors.
Mining and Processing Capital and Operating Costs
A conceptual open pit mining schedule was developed using NPV Scheduler(R)
optimized, where possible, to maintain an even head grade and an even stripping
ratio. On average 8.5Mtpa of iron ore is mined to produce 3.0Mtpa of iron ore
concentrate.
The CAPEX for the Tapuli mine and HDA production is EUR 17.1M. The design of
processing plant and facilities, based on conventional crushing, screening,
grinding and low intensity magnetic separation ("LIMS") technology, allows for
production of 3.0Mtpa of iron ore concentrate at a CAPEX of EUR 106.3M. The
Tapuli plant is located on the same site as the Stora Sahavaara processing plant
to enable sharing of facilities and resources between the two operations. Thus
an additional facility CAPEX of EUR 46.4M will be shared between both Tapuli and
Stora Sahavaara.
The Life-of-Mine average direct cash operating cost per tonne of saleable
product, including transport costs and port loading (FOB), is estimated at EUR
29.94 per tonne including HDA production of 1.8M tonnes.
Stora Sahavaara
Resources
Stora Sahavaara contains a large resource of open-pittable magnetite.
Exploration drilling has delineated the deposit from near-surface to more than
300m depth. The mineralization remains open at depth. A conceptual mine plan was
developed to mine an estimated 102Mt of mineralized, fully diluted, surface
mineable, material averaging 43.3% Fe within a previously defined NI 43-101
compliant resource of:
--------------------------------------------------------
Resource Category(i) Tonnes Fe % Cu %
--------------------------------------------------------
Measured 77,063,210 43.32 0.080
Indicated 44,634,770 43.28 0.076
Inferred 23,346,373 41.76 0.051
--------------------------------------------------------
(i) Note: Using a 25% Fe cut off. See Northland's press
release dated May 18, 2006.
The stripping ratio over the life of the open-pit mine averages 5.94:1. The
mineralized material includes dilution and allowances for losses which may occur
when the material is mined and accounts for realistic mining, metallurgical,
economic, marketing, legal, environmental, social and governmental factors.
Mining, Processing and Pelletizing Capital and Operating Costs
A conceptual open pit mining schedule was developed using NPV Scheduler(R)
optimized, where possible, to maintain an even head grade and an even stripping
ratio. On average 9.5Mtpa of iron ore is mined to produce 5.0Mtpa of iron ore
pellets.
The processing plant flowsheet design is based upon conventional crushing,
screening, grinding, LIMS and flotation technology. The CAPEX for the Stora
Sahavaara mine is estimated at EUR 12.9M and processing plant costs are
estimated to be EUR 222.2M. The plant and processing facilities have been
designed to produce 5.0Mtpa of iron ore concentrate which will feed into a
separate pelletizing facility located on-site. The operating costs for the Stora
Sahavaara processing plant are estimated at EUR 6.99 per tonne of ore feed or
EUR 13.14 per tonne of product.
The estimated CAPEX for the design and supply of a 5Mtpa pellet plant is EUR
279.0M and estimated operating costs are EUR 31.3M per year or EUR 6.25 per
tonne of product.
The Life-of-Mine average direct cash operating cost per tonne of saleable
product, including transport costs and port loading (FOB), is estimated at EUR
42.99 per tonne.
Hannukainen
Resources
The Hannukainen deposit contains a large resource of near surface iron ore
amenable to open pit mining. A conceptual mine plan was developed to mine an
estimated 117.5Mt of mineralized, fully diluted, surface mineable, material
averaging 31.7% Fe, 0.16% Cu and 0.07g/t Au within a previously defined NI
43-101 compliant resource of:
---------------------------------------------------------------------
Resource Category(i) Tonnes Fe % Cu % Au g/t
---------------------------------------------------------------------
Measured 53,140,000 35.6 0.25 0.124
Indicated 31,460,000 32.9 0.11 0.043
Inferred 81,630,000 35.7 0.13 0.036
---------------------------------------------------------------------
(i) Note: Using a 15% Fe cut off. See Northland's press release dated
August 23, 2007.
The stripping ratio over the life of the open-pit mine averages 3.93:1. The
mineralized material includes dilution and allowances for losses which may occur
when the material is mined and accounts for realistic mining, metallurgical,
economic, marketing, legal, environmental, social and governmental factors.
Mining, Processing and Pelletizing Capital and Operating Costs
A conceptual open pit mining schedule was developed using NPV Scheduler(R)
optimized, where possible, to maintain an even head grade and an even stripping
ratio. On average 15.8Mtpa of mineralized material is mined to produce 5.0Mtpa
of iron ore pellets.
The processing plant flowsheet design is based upon conventional crushing,
screening, grinding, LIMS and flotation technology. The CAPEX for the
Hannukainen mine is estimated at EUR 11.9M and processing plant costs are
estimated to be EUR 264.3M including the equipment necessary to recover the
copper and gold by-products. The plant and processing facilities have been
designed to produce 5.0Mtpa of iron ore concentrate which will feed into a
separate pelletizing facility located on-site. The operating costs for the
Hannukainen processing plant are estimated at EUR 5.24 per annual tonne of ore
feed or EUR 17.10 per annual tonne of product.
The estimated CAPEX for the design and supply of a 5Mtpa pellet plant is EUR
279.0M and operating costs have been estimated at EUR 30.3M per year or EUR 6.05
/t of product.
The Life-of-Mine average direct cash operating costs per tonne of saleable
product, including transport costs and port loading (FOB), are estimated at EUR
49.40 per tonne - this cost does not include any allowance for by-product
credits.
Rail and Port Options
The PEA for each of the three deposits assumes that a contract transport and
logistics provider will be responsible for building and operating the transport
system. All three deposits are within 20km or less of existing rail
infrastructure and will be using the same transport infrastructure. It is
therefore difficult to proportion capital costs accurately to each of the
deposits, transport operating costs from the Tapuli, Stora Sahavaara and
Hannukainen mine sites to the ports of Kemi and Narvik have been calculated and
then inflated by 20% to provide for this contract logistics company.
The Port of Kemi in Finland is the nearest port to all three operations and is
approximately 235km to the south by Finnish Railways. The state owned port has
an existing bulk handler with a capability of 2Mtpa, which could be increased to
3Mtpa with minimal investment.
The Port of Narvik in Norway is a deep water port located on the north-west
coast of Norway with direct access to the Norwegian Sea and the Atlantic Ocean.
The port is ice free all year round and capable of handling Capesize vessels
with a draft of up to 26m. Narvik port is connected to the heavy-haul rail line
with its 30t axle loading. Narvik has the advantages of good high capacity rail
connection and an ice free port capable of handling the largest size vessels,
removing any economic disadvantage by shipping to Middle East or European steel
producers with smaller vessels.
Qualified Person & NI 43-101 Statements
Qualified Person
Mr. Owen Daniel Mihalop, BSc, MSc, MCSM, Professional Member of the Institute of
Materials, Minerals and Mining and a Chartered Engineer (Registrant No. 569812),
Principal Mining Engineer and Associate Director of Wardell Armstrong
International Ltd., is the principle author and Qualified Person in accordance
with National Instrument 43-101 responsible for the preparation of the report
titled "Preliminary Economic Assessment of the Fennoscandian Iron Ore Mines" and
dated June 2008, Ref WAI/61-0495 and for the three executive summaries of this
report, dated June 2008 titled "Summary of the Preliminary Economic Assessment
of the Hannukainen Iron Ore Deposit, Finland", "Summary of the Preliminary
Economic Assessment of the Tapuli Iron Ore Deposit, Finland", and "Summary of
the Preliminary Economic Assessment of the Stora Sahavaara Iron Ore Deposit,
Finland" upon which this news release is based.
Paul Marsden, VP Metallurgical Development and Operations for Northland, is a
member of the IMMM, a Chartered Engineer and a Chartered Scientist and is the
Qualified Person as defined in NI 43-101 responsible for overseeing the
preparation of this news release. Mr. Marsden has verified that the results
presented here have been accurately summarized from the engineering studies
provided to Northland by its contracting engineers.
Metallurgical Test-Work
Metallurgical test-work on Hannukainen mineralized material was performed by SGS
Lakefield Research Ltd. Test-work was completed on Tapuli magnetite by the
Geological Survey of Finland (GTK) in Outokumpu, Finland and by SGS in Truro,
UK. The majority of the metallurgical test-work for Stora Sahavaara was
completed by SGS in Lakefield, Ontario and a program of Davis tube testing was
completed by Midland Standard Research Laboratories, Minnesota. Northland
commissioned Corus RD&T to perform a preliminary study including basic balling
and induration tests on Stora Sahavaara magnetite. Further test-work is underway
at COREM. GBM used the metallurgical test-work data from all three deposits (see
below) as part of their engineering design in order to determine capital and
operating cost estimates.
Resource Estimates
The Hannukainen resource modeling was completed in a joint effort between Micon
International of Norwich, United Kingdom and Geovista of Lulea, Sweden. Mr. D.K.
Mukhopadhyay, MAusIMM, of Micon served as the independent Qualified Person for
the resource modeling. The Stora Sahavaara resource estimates were prepared by a
third party consultant (Bart Stryhas, PhD Structural Geology); the resource
model and estimates were subsequently reviewed by Chlumsky Armbrust & Meyer LLC
an independent, mineral resource, consulting and engineering group based in
Lakewood, Colorado USA. Thomas Lindholm was the Qualified Person responsible for
the preparation of all sections in the report entitled "NI 43-101 Technical
Report - Tapuli Resource Estimate" for Northland Exploration Sweden AB. Mr. D.K.
Mukhopadhyay, MAusIMM, of Micon, also a Qualified Person as defined in NI
43-101, verified the Tapuli grade interpolation protocol for the resource model
calculation.
About Northland (www.northlandresourcesinc.com)
Northland is a well-structured, debt free junior exploration company with a
portfolio of high quality iron, gold, and base metal exploration projects in
Sweden and Finland.
ON BEHALF OF THE BOARD
Bill Wagener
NORTHLAND RESOURCES INC.
(TSXV:GBM)
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