I recently spoke with Mark Morabito, Executive Chairman of Alderon Iron Ore Corp.
Q: Mark, you put out a news release yesterday announcing that the construction of the new multi-user dock at the Port of Sept-Îles is on schedule and on budget. Can you please elaborate?
A: Yes, construction of the dock commenced during the first week of October 2012 and is expected to be complete by the end of March 2014. The fact that the port construction is not only on time but also on budget is a testament to the Port’s commitment and competence in this undertaking. The Government of Canada, who invested $55 million in the port expansion, sees the Port of Sept-Îles as a gateway to global markets with this new project strengthening the economy for Labrador and Quebec. Photos showing the port construction progress can be viewed on Alderon’s website.
Q: And how exactly does this news impact Alderon?
A: According to the agreement that Alderon signed with the Sept-Îles Port Authority in July 2012, Alderon has confirmed access to ship up to 8 million metric tonnes of iron ore annually. Alderon’s project timeline sees production commencing in Q4 2015, which is over a year and a half after the anticipated completion of the new multi-user dock. The fact that the construction of the port is on schedule and on budget is extremely good news for us, particularly as we are currently working to secure an additional off-take agreement. Being able to show a potential off-take partner the progress being made with the port expansion is a huge advantage.
Q: In addition to securing port access, Alderon is also in the final stage of securing power, correct? And what about the rail agreement?
A: Yes, earlier this year we announced that Nalcor Energy had confirmed that the anticipated annual requirement of between 60MW and 70MW of power would be available to the Kami Project for its operations. We are in the process now of concluding a comprehensive Power Purchase Agreement and I expect that process will conclude this summer. The last piece of the puzzle is the rail agreement, but one of the biggest advantages of the Kami Project is its proximity to an existing common carrier rail line. The Quebec North Shore and Labrador Railway operates with the legal obligation to accommodate third-party traffic, which means they cannot deny us access and they have to grant us that access at the going rate. The rail line also has ample surplus capacity and runs within 15 km of the Kami Property. I anticipate that we will have the rail agreement signed before the end of the year, but truthfully this could easily wait until we are closer to production.
Q: Do you anticipate any delays in Alderon’s production timeline?
A: Not at this point in time. We filed our Environmental Impact Statement in September 2012 and received the first round of feedback three months later. Based on comments received from the regulators, Alderon’s approach has been referred to as exemplary. We are confident that the environmental assessment release and related approvals will be obtained later this year, which would then allow mine construction to commence. In May we announced that we had entered into an agreement with WorleyParsons naming them the engineering, procurement and construction management contractor for the development of the project. The timeline that has been laid out sees construction completed in the 2nd half of 2015 followed by production shortly thereafter.
Since acquiring the project 3.5 years ago, the Alderon team has successfully built a reputation of delivering on our targets and we don’t plan to stop now. Our goal is to become the next major iron ore producer in the Labrador Trough and we fully intend to achieve this goal.
Q: How does the strategic partnership with Hebei Iron and Steel secure the project’s development timeline?
A: Our partnership with China’s largest steel producer, Hebei Iron and Steel, who have agreed to purchase 60% of our annual production, is a huge milestone for the company and the biggest de-risking event that we have achieved so far. Not only does the company now have the initial capital necessary to begin mine construction but it also strengthens our ability to finance the remainder of the capital through global financial markets, including Chinese banks.
I would also like to mention a second strategic partnership with Liberty Metals and Mining. To date Liberty has invested $49 million into the project making them a 14.5% shareholder. Combined with Hebei’s investment of approximately $182 million, as well as the financial security and project validation that come along with these investments, I believe we are well on our way to successfully developing the Kami Project into a high quality iron ore mine.
Q: Can you comment on the remaining 40% of the annual production still up for grabs?
A: With Hebei committed to purchase 60% of our annual production, we have been focused these past few months on securing a second off-take partner to acquire the remaining 40%. We are currently in discussions with several Asian companies and expect to have the remaining output committed this year.
Q: Lastly, can you talk a little bit about the recent additions to the management team?
A: Probably one of the wisest things I could have done was focus on putting together a team that not only had the knowledge and expertise necessary to take an early-stage project from exploration to development, but also bring in individuals with direct experience in the Labrador Trough. In addition to Tayfun Eldem, President and CEO, Brian Penney, COO, Bernard Potvin, Executive VP Project Delivery, Fay Pittman, General Manager Projects, and two of our directors, Matt Simpson and David Porter, all of who were formerly with the Iron Ore Company of Canada (IOC), we have also added Jim Thompson, Head Iron Ore Process, who spent 16 years with IOC including as the Manager of Processing, Engineering and Development. That’s a total of seven former IOC executives and staff; it’s an incredible collection of experience and industry knowledge!
Another two recent additions to the Alderon team include Allan Polk, Head of Mining, a mining engineer with over 20 years of experience in mine operations and construction projects for open pit mines, and Francois Laurin, CFO, former CFO for Consolidated Thompson which was acquired by Cliffs Natural Resources in 2011 for $4.9 billion. Francois’ addition to the team could not have been timed better considering we are just about to begin the financing and construction phase of the project. His finance experience with large-scale mining projects will be essential as we move forward with our execution plans.
Q: Aside from what has been discussed, is there anything else you would like our readers to know?
Based on conversations that I have had with senior representatives of Hebei, the main points of which Mr. Zejun Tian, President of Hebei International Trade Corp., reconfirmed recently during interviews with Bloomberg and Iron Investing News following the Alderon AGM last month (both of which can be found on Alderon’s website), I believe the need for bulk commodities in China will continue and will sustain demand for iron ore in the years to come. The price of iron ore has held better than most expected in the last several months and is rebounding nicely off its fear induced lows. Ask your readers who they’d rather believe, an analyst who’s never been to China and still has milk on his chin, or Mr. Zejun Tian, the president of Hebei’s international trading unit, who is in charge of iron ore purchases of about 50 million tonnes per year?
Alderon remains the lowest risk iron ore development company in the Labrador Trough and that low risk directly translates into a great investment opportunity.
Thanks Mark!