May 24, 2017 / 11:04 AM / a year ago

Miner thinks small to resurrect big Canadian iron ore mine

    By Susan Taylor
    TORONTO, May 24 (Reuters) - Champion Iron Ltd         
         is thinking small with its plans to bring Quebec's
giant Bloom Lake iron ore mine back to life.
    Chief Executive Michael O'Keeffe intends to slash costs
while cutting millions of tonnes from a planned production
expansion. The strategy runs counter to the traditional economy
of scale formula, which bumps up production for proportional
cost savings.  
    It may prove a prescient approach as iron ore prices pull
back from 30-month highs in February. The recovery sparked signs
of life for a handful of hibernating miners in Canada's
metal-rich Labrador Trough, straddling the provinces of Quebec
and Newfoundland and Labrador, including Champion, Alderon Iron
Ore           and Tata Steel Minerals Canada          .
    Champion is taking a different tack with Bloom Lake than its
previous owner and North America's biggest iron ore producer,
Cliffs Natural Resources        , beginning with the price tag.
    Cliffs paid $4.9 billion for the mine in 2011, near the top
of the market. Later it launched a $1.2 billion expansion to
make the mine viable by doubling output to 16 million tonnes in
a bid to help bring costs down.
    But as prices slumped, Cliffs suspended the money-losing
operation. It sold the mine to Champion for C$10.5 million in
2015, a year when spot prices bottomed at $37 a tonne, from $190
in 2011. 
    O'Keeffe, a former Glencore          executive, believes
other miners looking to buy Bloom Lake made calculations using
Cliff's high-volume blueprint and were spooked by the costs.
    Walking "every inch" of the property, O'Keeffe told Reuters
that he and Champion's chief operating officer David Cataford
looked for ways to reconfigure operations that would squeeze
costs to $50 per tonne of delivered concentrate from over $91.
    Rather than trucking ore in 240-ton trucks for processing,
for example, the mine will use a 3.8 kilometer (2.36 mile)
conveyer belt to move the steelmaking ingredient, Cataford said.
    And instead of trucking some 12 million tonnes of tailings
waste to on-site storage each year, that material will move
through pumps, said Cataford.
    A new recovery process and more efficient equipment, used to
sift through iron particles, will goose recovery rates to 80
percent from 68 percent, explained O'Keeffe, and cut production
costs by some $12 a tonne.
    "We had a view which was quite contrary to everyone else,"
said O'Keeffe: scrapping the growth project underway and
matching costs with the "big guys."
    "What was in everyone's head was the only way to do this is
expand. But your mining costs would have been more, and you'd
have to spend a massive amount of capital," added O'Keeffe, who
may be best known for building Riversdale Mining from a A$7
million ($5.23 million) coal explorer in Mozambique into a
producer that Rio Tinto                 paid nearly A$4 billion
to buy.
    Champion's board has yet to vote on a C$326.8 million mine
restart plan, but the company said in a feasibility study it
intends to be operating by the first quarter of 2018.
    The miner forecasts revenue of C$15 billion over a 21-year
mine life, producing 7.4 million tonnes of concentrate annually.
A lower stripping ratio - the amount of dirt removed to expose
mineable ore - helps squeeze costs to $44.62 per tonne, while
the high-grade concentrate price is seen at $78.40.
    At 66.2 percent iron content, the ore earns a premium above
the industry standard 62 percent.
    Market jitters over rising low-cost global production,
coupled with an oversupply of Chinese steel, have pushed spot
prices down to $63.19 a tonne .IO62-CNO=MB, from $94.86 in
    Clarksons Platou analysts said the consensus price among
Asian steel industry companies they recently polled was $60 per
tonne, though several expect a decline to mid-$50 before a
longer-term climb above $60. Signs of cooling Chinese demand is
another factor at play, with BMI Research recently cutting its
forecasts to $50 from $55 a tonne in 2018.
    Even at prices in the mid-$50s, Champion is comfortable that
it can repay debt and "keep our heads above water," O'Keeffe
said. But he expects demand to skyrocket for Champion's "clean"
concentrate, which will allow Chinese steelmakers to reduce
emissions and pursue high-grade steel production.
    O'Keeffe, who recently announced C$40 million in bridge
financing to restart the mine and a supply deal with Japanese
trading company Sojitz Corp         , acknowledges his opportune
    "Cliffs were on the road to do this, they just ran out of
time and money," O'Keeffe said. "So it's easy for us to come
along and pick up and build all of this and implement a lot of
the changes that Cliffs were already going to do." 

($1 = 1.3378 Australian dollars)
($1 = 1.3521 Canadian dollars)

 (Reporting by Susan Taylor; Editing by Denny Thomas and Edward
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below