Alderon Iron Ore Corp. remains one of the most interesting stories out there. Although the resource sector has taken a beating, Alderon’s team has made impressive strides continuing to move the Kami Iron Ore project closer towards production which, if they stay on track, is slated for Q4 2015. Upcoming catalysts that I believe can keep them continuing along this path of success include securing a second off-take partner and their release from the Environmental Assessment process, both of which I anticipate can happen before the year is over.
It’s no secret that the Chinese, Indian and Japanese steelmakers want to decrease their reliance on imports from their traditional suppliers and diversify their long-term ore sources. In addition, the iron ore sector is expected to remain strong in the coming weeks as Chinese mills continue to rebuild stockpiles to keep up with steel production. Even with slower overall economic expansion, Chinese iron ore demand is still anticipate to continue to grow steadily, including their demand for concentrated ore from the Labrador Trough. Although China has their own abundant supplies of iron ore, the high-grade ore from the Labrador Trough with very low impurities (ie. low silica, phosphorous and alumina) is highly sought after, not only by China but by steelmakers in general.
Earlier this year, Alderon successfully completed a joint venture with Chinese partner, Hebei Iron and Steel Group, China’s largest steelmaker. Hebei invested more than $180 million in Alderon for 19.9% of the Canadian company’s share capital and 25% ownership of the mine. They also committed to fund up to $220 million of capital expenditures not covered by project debt financing. Hebei has also secured 60% of Kami’s total annual output to a maximum of 4.8 million tons of the first 8 million tons of concentrate each year. Since completing the Hebei deal, Alderon has been working hard to secure an additional off-take partner for the remaining 40% of the annual output. I know from speaking with Mark Morabito, Executive Chairman of Alderon, that he has been spending quite a bit of time in Asia the past few months, which leads me to believe that negotiations with various Asian steelmakers are moving along. If I had to guess, I would say that there’s a pretty good chance that Alderon could lock in a second partner before we’re all drinking eggnog. Mark managed to get China’s largest steel company to validate his project during a time when even some of the best deals out there couldn’t secure financings. If anyone can get this project financed and to production, it’s him.
In addition to the announcement of a second off-take partner, I anticipate news regarding the completion of the Environmental Assessment process in the next couple months. Based on Kami’s location, in the middle of a huge iron ore district with several large iron ore operations nearby, I don’t foresee Alderon having any issues in terms of permitting. Once permits are in hand, construction can begin. For anyone who wants exposure to a large, low-cost iron ore asset in a safe and proven district, this is it. Alderon remains the lowest risk iron ore developer in the Labrador Trough, not to mention the one with the strongest path to production.