Positive Update on Northland's Kaunisvaara Project Confirming the Logistic Solution and a NPV of USD 934 million
(Thomson Reuters ONE) -
Luxembourg, May 18, 2011 NorthlandResources S.A. (TSX: NAU, OSE: NAUR,
Frankfurt: NPK -- "Northland" or "the Company") is pleased to announce a
positive update to the Definitive Feasibility Study ("DFS") on its 100%-owned
Kaunisvaara Project ("the Project") in northern Sweden.
The update includes the results of the DFS on the logistics (the September
27, 2010 DFS press release only provided an estimate at the scoping study level
for the logistics), a revision to the estimated premium for Northland's high
quality, low impurity Fe concentrate, the impact of recent optimisation studies
on engineering costs and operating estimates and revisions to CAPEX including
sustainable capital, using current exchange rates.
"The updated DFS of the Kaunisvaara project shows a doubling of the NPV (Net
Present Value)," said Karl-Axel Waplan, Northland's President and CEO. "This
study also confirms the positive economics, with an increase of return, measured
in IRR, and remaining strong margin in spite of an increase of operational
expenses. The updated market report reflects the new global pricing mechanism
for iron ore qualities, and could be said to present the true market value. The
high-quality pellet feed from Kaunisvaara is forecasted to command a premium of
USD 7 per Fe-unit. In addition, with a focus on what variables Northland can
control, the optimisation of the mining is positively impacting our capex
requirements.
The highlights of the revised DFS include:
* After interest and tax, Net Present Value ("NPV") of USD 934 million using a
discount rate of 8% and an Internal Rate of Return ("IRR") of 24.0%
(compared to the September 2010 DFS: NPV estimate of USD 463 million using a
discount rate of 8% and an IRR of 18.8%)
* Pre-tax and interest, NPV of USD 1,461 million using a discount rate of 8%
and an IRR of 32.0%[1] (compared to the September 2010 DFS: NPV estimate of
USD 774 million and an IRR of 24.7%)
* CAPEX to reach 5 million tonnes ("MT") of USD 765 million with adjustments
for cost optimisation and current exchange rates (compared to USD 694
million in September 2010 DFS)
* Cost optimisation reduced initial CAPEX by USD 14 million
* Currency adjustments increased CAPEX by USD 85 million.
* Life of Mine ("LOM") CAPEX was reduced to USD 892 million from USD 908
million (compared to September 2010 DFS)
* Cost optimisation expected to reduce LOM CAPEX by USD 111 million
* Currency adjustments expected to increase CAPEX by USD 95 million.
* Total OPEX per tonne of concentrate delivered FOB at the port of Narvik for
the LOM is estimated to average USD 58.80 per tonne concentrate (compared to
the September 2010 DFS estimate of USD 53.76 per tonne )
* Mining costs are estimated to be USD 3.50 per tonne lower
* Logistics costs are estimated to be to USD 8 per tonne higher
* Independent market analyst, Raw Materials Group ("RMG"), have now included
an estimated premium for the Northland pellet feed of USD 7 per Fe-unit
[1] Northland's estimate of IRR and NPV before tax and interest are consistent
in all material respects with the equivalent pre-tax estimates derived by SRK
and presented in the NI 43-101 report.
Conference Call
Northland will host tomorrow, Thursday, May 19, 2011, webcast presentation and
conference call to discuss the update of Kaunisvaara Definitive Feasibility
Study. The presentation is scheduled to begin at 5.00 pm Central European Time
/ 11.00 am Eastern Daylight Time and will be chaired by Karl-Axel Waplan, Chief
Executive Officer and Shane Williams, Vice President Projects.
A link to the live audio webcast of the conference call, together with
supporting presentation slides, will be available on the corporate website,
www.northland.eu.
Please call about five minutes before the advertised starting time to access the
conference call.
Call-in details:
USA/Canada: +1 866 458 40 87
UK: +44 (0)20 3043 2436
Sweden: +46 (0)8 505 598 53
Norway: +47 215 111 88
Improved Transparency on Product Quality and Grade
Over the past years, the new global pricing mechanism for iron ore, which is
largely based on spot pricing and indices instead of benchmark pricing, has
become a much more reliable indicator of the true market value for various
product qualities. Real-time, third party quotes from Platts (IODEX), the Steel
Index (TSI) and Metal Bulletin (MBIO) currently provide the market and investors
with greatly improved transparency on the premium for high grade/low impurity
products, like the Kaunisvaara pellet feed.
Northland has long been convinced that the market will highly value the high Fe-
content (69%) and low levels of impurities (e.g. 1.1% SiO(2) and 0.2% Al(2)O(3))
in it's concentrate. This has been supported by Raw Materials Group ("RMG")
whose May 2, 2011 report, estimated the premium to be USD 7 per Fe-unit. The
revised estimate results in a higher FOB prices than in the September 2010 DFS
(USD 137 per tonne, compared to USD 101 per tonne) using the same base
assumptions about the overall market and shipping costs.
"In the case of Northland Resources, given the information at hand it is most
reasonable that the Northland material will command a premium in the market and
that this will be in the same size as other high grade iron ore products", said
Magnus Ericsson, Senior Partner of RMG.
Optimisation Work Reduces Expected Mining Cost
Since completing the DFS study in September 2010, Northland has optimised
operating and engineering costs which has resulted in a 27% decrease in the
expected total mining cost over the LOM and a 22% reduction in expected cost per
tonne of ore.
Optimisation studies identified some low-margin/high-stripping ore which could
be excluded from the production schedule and improve economics. By removing
approximately 11.2Mt of ore from the mine plan, Northland could reduce waste
rock production by nearly 154Mt and overburden removal by 2.6Mm(3). Decreasing
waste production has several positive effects including lower CAPEX (less
equipment to purchase) and lower direct costs (for items such as explosives,
fuel, etc.) The optimisation has reduced the CAPEX over the LOM with USD 88
million and the OPEX over the LOM has been reduced by USD 352 million.
Furthermore, during the ongoing negotiations with Caterpillar for the truck
fleet, an additional cost savings of USD 25 million was identified due to the
use of certified rebuilds.
DFS on Logistics
In the September 2010 DFS, the logistic costs were only presented at a scoping
study level. Since that time, Northland and the Swedish Transport
Administration have signed a Letter Of Intent on co-financing and an Agreement
on cooperation covering the comprehensive transport solution, in other words,
how the iron ore concentrate will be transported from the Kaunisvaara process
plant to the port of Narvik, Norway (see also press release March 26, 2011).
The updated study has confirmed the viability of the plan presented in the
September 2010 DFS. The logistics includes
* Trucking from Kaunisvaara to Svappavaara (150 km). The anticipated truck
size is 105 tonnes gross (compared to 170 tonnes trucks in September 2010
DFS). The anticipated size is based on an evaluation of existing
dispensation as well as a thorough consideration of the expected outcome of
the joint studies and work with the Swedish Transport Association will
produce.
* Trans-loading from truck to rail in Svappavaara with a new terminal
* Rail using 100 tonne rail cars on the already existing rail line between
Svappavaara and Narvik (226 km)
* A new terminal and berth in Narvik port with the capacity to load Cape Size
vessels.
The plan is to create a joint venture company ("JV") with the responsibility for
the whole logistical chain, i.e. from the process plant at Kaunisvaara to the
loading on vessels in Narvik port. Northland will be one of the partners in the
JV.
JV Logistics
Northland is in negotiations with 3-4 prospective partners for the planned JV
with the objective of having a Letter of Intention signed during the summer and
the JV being operational during the second half of 2011. The JV would take full
responsibility for the whole logistical chain and all necessary agreements.
The total CAPEX for the logistic investment to handle 5 Mtpa of concentrate is
estimated at SEK 1,177 million/USD 145 million and will be funded through debt
to equity. Discussions have begun with a number of banks experienced in
financing such infrastructure investments. Northland is in negotiations with
Narvik port regarding the lease and rent of necessary facilities in the port
area. And these discussions are expected to be finalised before mid-summer. The
production of a proto type rail car has started as well as all necessary
planning and design work to ensure that the time line for the logistics is met
(shipments to start early in 2013).
The investment costs for the logistics have been included as OPEX in the updated
model, with the exception of USD 15 million which is Northland's equity
participation in the JV.
+---------------------------------+---------------------+----------------------+
| | September 2010 DFS,|Updated logistics DFS,|
| | scoping study level|presented May 18, 2011|
+---------------------------------+---------------------+----------------------+
|Cost category |USD/tonne concentrate| USD/tonne concentrate|
+---------------------------------+---------------------+----------------------+
|Cost of CAPEX charged by the JV | 0.0| 3.1|
|to | | |
|Northland | | |
+---------------------------------+---------------------+----------------------+
|Trucking | 10.4| 15.6|
+---------------------------------+---------------------+----------------------+
|Rail | 2.7| 4.9|
+---------------------------------+---------------------+----------------------+
|Port | 4.4| 1.5|
+---------------------------------+---------------------+----------------------+
|Contingency, 5% | 0.9| 1.3|
+---------------------------------+---------------------+----------------------+
|Total | 18.36| 26.37*|
+---------------------------------+---------------------+----------------------+
* Including 3% margin on all numbers pre-contingency
FX
The OPEX and the CAPEX in the September 2010 DFS used an exchange rate of 8.125
SEK/USD. Since then the SEK has strengthened considerably against the USD. To
reflect this, 2/3 of the CAPEX in SEK has been adjusted using a new rate of
6.40 SEK/USD and 1/3 at 6.95 SEK/USD which was the exchange rate at the time of
the equity offering in December 2010. The impact of these FX changes is USD 85
million.
OPEX
The revised total OPEX for the LOM operation is estimated to be USD 58.80
(including 5% contingency) per tonne of concentrate (dry) delivered Free on
Board ("FOB") to the Port of Narvik, Norway. This compares to USD 53.76 per
tonne in the September 2010 DFS. A comparison of the current and previous DFS
estimates is shown in table below:
+--------------------------+-----------------------+------------------------+
| | September 2010 DFS | Updated logistics DFS, |
| | | presented May 18, 2011 |
+--------------------------+-----------------------+------------------------+
| Cost category | USD/tonne concentrate | USD/tonne concentrate |
+--------------------------+-----------------------+------------------------+
| Mining | 21.12 | 17.64 |
+--------------------------+-----------------------+------------------------+
| Process | 12.31 | 12.60 |
+--------------------------+-----------------------+------------------------+
| General & Administration | 1.36 | 1.45 |
+--------------------------+-----------------------+------------------------+
| Transportation | 18.36 | 26.37 |
+--------------------------+-----------------------+------------------------+
| Royalties | 0.26 | 0.36 |
+--------------------------+-----------------------+------------------------+
| Other | 0.35 | 0.38 |
+--------------------------+-----------------------+------------------------+
| Total | 53.76 | 58.80 |
+--------------------------+-----------------------+------------------------+
As shown above, the increase in the OPEX is largely a result of an increase in
transportation costs to Narvik, partially offset by lower mining costs.
CAPEX
The revised CAPEX in order to reach 5 Mtpa capacity (end 2014) has been
estimated at USD 765 million, adjusted for revised exchange rates and a 10%
contingency. This compares to an initial CAPEX estimate in the DFS of USD 694
million. The increase is to be referred to the change in FX.
CAPEX for the LOM is estimated at USD 892 million, including sustainable capital
adjusted for the revised exchange rate and a 10% contingency. This number
compares with the original DFS estimate of USD 908 million (including a 10%
contingency). A comparison to the current and previous CAPEX estimate is shown
in the table below.
+----------------------+---------------+-----------------+---------------------+
|USD million, |CAPEX September| Updated CAPEX| Updated CAPEX|
| | 2010 DFS|with optimization| with FX|
|incl 10% contingency | | benefits| adjustment[1](|
| | | | )and optimization|
| | | | benefits|
+----------------------+---------------+-----------------+---------------------+
|Area Breakdown | End 2014| End 2014| End 2014|
+----------------------+---------------+-----------------+---------------------+
|Mines - dikes, mobile | | | |
|mining | | | |
|equipment | 139| 136| 148|
+----------------------+---------------+-----------------+---------------------+
|Mines - crushing | | | |
|stations and | | | |
|conveyors | 58| 55| 58|
+----------------------+---------------+-----------------+---------------------+
|Plant - | | | |
|stream Sahavaara | 122| 115| 125|
+----------------------+---------------+-----------------+---------------------+
|Plant - stream Tapuli | 174| 147| 163|
+----------------------+---------------+-----------------+---------------------+
|Tailings and | | | |
|water ponds / lines | 34| 34| 43|
+----------------------+---------------+-----------------+---------------------+
|Power supply | 15| 13| 16|
+----------------------+---------------+-----------------+---------------------+
|Filtration plant / | | | |
|common equipment | | | |
|and infrastructure | 91| 108| 127|
+----------------------+---------------+-----------------+---------------------+
|Owners cost | 57| 57| 70|
+----------------------+---------------+-----------------+---------------------+
|Closure cost | 4| 0| 0|
+----------------------+---------------+-----------------+---------------------+
|Logistics | 0| 15| 15|
+----------------------+---------------+-----------------+---------------------+
|Total | 694| 680| 765|
+----------------------+---------------+-----------------+---------------------+
[1] CAPEX adjusted - 2/3 using a new rate of 6.40 SEK/USD and 1/3 at 6.95
SEK/USD
Audit of the New Model
As part of the NI 43-101 process, SRK Consulting (UK) Limited ("SRK") has
audited the updated capital and operating cost estimates for the Kaunisvaara
Project. SRK's estimates for IRR and NPV before tax and interest presented in
the NI 43-101 are consistent in all material respects with the pre-tax estimates
derived by Northland and presented in the DFS. ( )()
A complete NI 43-101 compliant DFS report will be filed on SEDAR on
www.sedar.com and on Northland's website www.northland.eu within 45 days.
Previous information on the Kaunisvaara DFS was published in the September
27, 2010 press release and in the October 6, 2010 technical report.
Northlandis a development-stage mining company with a portfolio of iron ore
projects in northern Sweden and Finland. The Company's Kaunisvaara Project will
exploit magnetite iron ore deposits, feeding a single, multi-line processing
facility in Sweden. The process yields a very high-grade, high-quality magnetite
iron concentrate. The Company is also preparing a Definitive Feasibility Study
for the Hannukainen Iron Ore Copper Gold Project in northern Finland.
ON BEHALF OF THE BOARD
"Karl-Axel Waplan"
Karl-Axel Waplan
President and Chief Executive Officer
Northland Resources S.A.
Raw Materials Group
Magnus Ericsson
SRK Consulting
Howard Baker
CAUTION REGARDING FORWARD-LOOKING INFORMATION
This press release contains forward-looking information within the meaning of
securities laws. Except for statements of historical fact relating to the
Company, certain information contained herein constitutes ''forward-looking
information'' under Canadian securities legislation. Forward-looking information
includes, but is not limited to, statements with respect to mineral reserve and
resource estimates; the ability to realise estimated mineral reserves and to
convert mineral resources into mineral reserves; terms and costs of future
exploration; mineralisation projections; receipt of all necessary approvals; the
parameters and assumptions underlying the mineral resource estimates and iron
ore prices. Generally, forward-looking information can be identified by the use
of forward-looking terminology such as ''plans'', ''expects'' or ''does not
expect'', ''is expected'', ''budget'', ''scheduled'', ''estimates'',
''forecasts'', ''intends'', ''anticipates'' or ''does not anticipate'', or
''believes'', or variations of such words and phrases or statements that certain
actions, events or results ''may'', ''could'', ''would'', ''might'' or ''will be
taken'', ''occur'' or ''be achieved''. Forward-looking statements are based on
the opinions and estimates of management as of the date such statements are
made. Estimates regarding the mineral resources, as outlined above and in the
technical report, have been based on knowledge of company management and the
knowledge and experience of third party experts. Forward-looking information is
subject to known and unknown risks, uncertainties and other factors that may
cause the actual results, level of activity, performance or achievements of
Northland Resources S.A. to be materially different from those expressed or
implied by such forward-looking information. Although management of Northland
Resources S.A. has attempted to identify important factors that could cause
actual results to differ materially from those contained in forward-looking
information, there may be other factors that cause results not to be as
anticipated, estimated or intended. There can be no assurance that such
statements will prove to be accurate, as actual results and future events could
differ materially from those anticipated in such statements. Accordingly,
readers should not place undue reliance on forward-looking information.
Northland Resources S.A. does not undertake to update any forward-looking
information, except in accordance with applicable securities laws.
For more information please contact:
Karl-Axel Waplan, President & CEO: +46 705 104 239
Anders Hvide, Executive Chairman: +47 92 88 98 58
Eva Kaijser, CFO: +46 709 32 09 01
Anders Antonsson, Vice President Investor Relations: +46 709 994 970
Marguerite Manshreck-Head, Investor Relations, Canada: +1 647 224 7882
Patrick Foster, Director Finance, UK: +1 44 208 940 3311
Or visit our website at:www.northland.eu.
This information is subject of the disclosure requirements acc. to §5-12 vphl
(Norwegian Securities Trading Act)
The complete press release (including picture) can be downloaded from the
following link:
Press release:
http://hugin.info/137015/R/1516725/453032.pdf
This announcement is distributed by Thomson Reuters on behalf of
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(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Northland Resources S.A. via Thomson Reuters ONE
[HUG#1516725]
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