Northland Resources S.A.
TSX : NAU
FRANKFURT : NBS
OSLO STOCK EXCHANGE : NAUR

Northland Resources S.A.

September 27, 2010 00:30 ET

Northland Receives Positive DFS on Kaunisvaara Project

LUXEMBOURG, LUXEMBOURG--(Marketwire - Sept. 27, 2010) - Northland Resources S.A. (TSX:NAU)(FRANKFURT:NBS)(OSLO:NAUR) ("Northland" or "the Company") is pleased to announce the positive outcome of the Definitive Feasibility Study ("DFS") on its 100%-owned Kaunisvaara Project ("the Project") in northern Sweden which exploits the Company's Tapuli and Sahavaara magnetite iron ore deposits and the Kaunisvaara mill.

"We are very pleased to have reached another important milestone with the delivery of the definitive feasibility study. It has confirmed previous work and our belief that Kaunisvaara is a robust project. The plan now is to move into the execution phase which will include building up the organizational structure for construction and production, starting major work at the mine site and securing some of the long-lead items," said Karl-Axel Waplan, Northland's President and CEO.

The Highlights of the DFS: 

  • After interest and tax1, Net Present Value ("NPV") of MUSD 463 using a discount rate of 8% and an Internal Rate of Return ("IRR") of 18.8%.
  • A payback period of 4.9 years from the first production of concentrate from the Project.
  • Mining operations to commence in the fourth quarter of 2012, and first iron ore concentrate production forecast for early 2013 at roughly 1.5 million tonnes per annum ("Mtpa"), increasing to 5 Mtpa by 2014.
  • Total OPEX /tonne ("t") concentrate delivered FOB at the port of Narvik, Norway, is estimated to average USD 54/t concentrate for the Life of Mine ("LOM") and to average USD 52/t over the first 10 years of operation inclusive of a 5% contingency (but excluding royalty).
  • Production of a high-value magnetite pellet feed concentrate (69% Fe) forecast to generate a premium price to standard hematite sinter products and to have a very low level of impurities.
  • Initial CAPEX in order to reach 5 Mtpa of concentrate capacity is MUSD 694. The CAPEX figure includes a 10% contingency. Maximum negative cash is expected to be approximately MUSD 583 as the initial CAPEX is planned to be partially funded by cash flow.
  • A LOM of 19 years, based on NI 43-101 defined reserves which could increase following the completion of an evaluation of the Pellivuoma deposit.
  • Proven and Probable reserves at Tapuli and Sahavaara totalling 176 million tonnes ("Mt") of ore grading 32.53% Fe.
  • The DFS is based on regular year-round shipments from the deep-water, ice-free port of Narvik, Norway, and the Company is expected to utilize Cape-Size vessels for customers outside Europe.
  • Tapuli mine and the Kaunisvaara mill are fully permitted; Sahavaara exploitation permit is expected soon.
1  This is based on Northland's estimate of IRR and NPV before tax and interest which are consistent in all material respects with the equivalent pre-tax estimates derived by SRK and presented in the NI 43-101 report.

As part of the NI 43-101 process, SRK Consulting (UK) Limited (SRK) has audited the Resource and Reserve statements and the 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. The following press release presents extracts from the DFS.

A complete NI 43-101 compliant DFS report will be filed on SEDAR on www.sedar.com.

DFS Overview

The DFS for the Kaunisvaara Project includes the Tapuli and Sahavaara magnetite iron ore deposits. They will provide feed to a single, multi-line processing facility in Sweden. The Pellivuoma deposit will be included in the DFS once a DFS has been completed. This is expected to occur in the first half of 2011. 

The DFS was led by Aker Solutions which was responsible for overall study management and coordination. Aker Solutions was supported by a number of specialist service groups and sub-consultants. (See table below).

Study Management & Coordination   Aker Solutions
Geology and Resources   SRK Consulting (UK) Limited
Mine Scheduling / Reserves   SRK Consulting (UK) Limited
Processing Plant   Aker Solutions
Metallurgical Processing   Bo Arvidson Consulting
Infrastructure   Pöyry
Capital Cost Estimate Compilation   Aker Solutions
Operating Cost Estimate Compilation   Aker Solutions
Market Studies   Raw Materials Group
Evaluation of Kaunisvaara Concentrate in
Pelletizing and Iron Making
 
Dr. Lawrence Hooey
Environmental Report   ERM Consulting
Financial Analysis   An international accounting firm
Transportation of magnetite product   In-House (Northland)

Conference Call

Northland will host an interactive webcast presentation and conference call to discuss the Kaunisvaara Definitive Feasibility Study at 17:00 Central European Time (CET) or 11:00 Eastern Daylight Time (EDT) on Monday, September 27, 2010. The call will be chaired by Anders Hvide, Chairman and Karl-Axel Waplan, Chief Executive Officer.

Dial-In:

  • USA/CA: +1 866 458 40 87
  • Sweden: +46 (0)8 505 598 53
  • UK: +44 (0)203 043 24 36
  • Norway +47 215 111 88

A live audio webcast of the conference call, together with supporting presentation slides, will be available on our website at www.northland.eu.

DFS Results in Detail

Capital and operating cost estimates were compiled by Aker Solutions based on information provided by all consultants. This formed the basis for the financial analysis included in the NI 43-101 technical report. 

CAPEX
The initial CAPEX in order to reach 5 Mtpa capacity (2014) has been estimated at MUSD 694 including a 10% contingency. Maximum negative cash is expected to be approximately MUSD 583 as the initial CAPEX is planned to be partially funded by cash flow.

This compares to an initial CAPEX estimate in the Preliminary Economic Assessment ("PEA") for Tapuli and Sahavaara of MUSD 617.1.

CAPEX for the Life of Mine (19 years) is estimated at MUSD 908, including sustaining capital and a 10% contingency. This number compares with the PEA estimate of MUSD 968 (including a 15% contingency).

DFS CAPEX Details

Area   5 Mt CapacityCAPEX 2014 (MUSD)
Mines, dikes, mobile mining equipment   139
Mines – crushing stations & conveyors   58
Plant – stream Sahavaara   122
Plant – stream Tapuli   175
Tailings & water ponds/lines   34
Power supply   15
Filtration plant/common equipment & infrastructure   91
Owners cost   57
Closure cost   3
Total   694

OPEX

Total OPEX during the first 10 years of operation has been estimated to average USD 52 (including 5% contingency) per tonne of concentrate (dry) delivered Free on Board ("FOB") to the Port of Narvik, Norway. The LOM average operating cost is USD 54 per tonne. This is based on a transportation solution from the Kaunisvaara process facility in Sweden where concentrate will be trucked to Svappavaara, Sweden, and railed on existing railway to the deep-water ice-free port of Narvik, Norway, for export. The costs associated with the logistics solution are at PEA study level. All transportation costs are classified as operating costs. Operators that have contracts with Northland will be responsible for the required investment in equipment.

The decision to ship via Narvik has opened up the possibility for larger seaborne vessels which is expected to have an overall positive impact on the margins compared to the Kemi port solution in the PEA.

The move to Narvik results in a substantially higher FOB net-back price as a result of reduced shipping costs, generating an improved margin of around USD 7 per tonne compared to using the Port of Kemi, Finland, based on a weighted volume of sales to Europe and the Far East.

The increase in the OPEX from the PEA estimate of USD 38 per tonne to the DFS estimate of USD 54 per tonne is largely a result of an increase in transportation costs to Narvik, and an under-statement of the costs for the transportation on the Finnish rail as well as at the port of Kemi. There has also been an increase in mining costs as a result of a clearer definition of the Sahavaara reserves which resulted in a substantial increase in the amount of waste rock to be mined as compared to the PEA.

During the years 2015 to 2026, the concentrate production will be approximately 5 Mtpa, and will then gradually drop off during the remaining 4 years. Northland is planning to finalize a DFS on the Pellivuoma deposit in 2011. The addition of Pellivuoma is expected to be phased into the production schedule in order to maintain a production of around 5 Mtpa from Kaunisvaara. This has the potential to add 4 to 5 years, depending upon the results of the DFS for Pellivuoma.

Product Pricing & Marketing

Northland has taken a conservative approach to product pricing. Raw Materials Group of Sweden ("RMG") provided the price forecast. Our Base Case in the DFS was based on their high price scenario for Carajas pellet feed delivered to markets in Asia, North Africa and Europe. Even their high price scenario should be considered very robust and conservative since they assumed that the market will be balanced long-term, as opposed to other analysts, who are assuming that supply will have difficulties keeping up with the growing demand.

Northland believes that it will produce a product with additional value in use ("VIU"). The Kaunisvaara concentrate is a high-grade magnetite pellet feed, grading 69% Fe with low impurities (0.046% Sulphur, 1.10% Silica, 0.18% Alumina, 0.04% Phosphor, 2.65% Magnesium Oxide).The main advantages include:

  • Ready ground for use in pelletizing. No additional material preparation such as dry grinding is necessary.
  • Energy from the magnetite oxidation lowers the pellet plant fuel consumption.
  • Low silica and alumina lead to lower flux additions and lower energy consumption in electric arc and blast furnace ironmaking.
  • High MgO content replaces other fluxes used in pelletizing and ironmaking.
  • Low in harmful trace impurities including K, Na, P and V.
  • Significant reduction in CO2 emissions by replacing fluxes and energy.

RMG believes that all these factors could generate a potential VIU of 6.9 US cents per dry metric tonne unit ("US c/dmtu").

In addition, the Kaunisvaara concentrate will have a lower shipping cost per iron unit because of the higher iron content and the lower moisture.

The chart below provides a comparison of RMG's long-term price forecast for iron ore concentrate used in the DFS and an estimate of the Chinese marginal production cost, which can be considered as a floor in iron ore pricing service.

Recent analyses presented at the 5th EU Iron Ore Insight Conference indicate that the FOB cash cost for the Chinese iron ore production, representing the top end of the global cost curve, will during the next 4 – 5 years reach 140 USD/dmt for a 62% Fe product, corresponding to an FOB price Narvik of about 156 c/dmtu, excluding any VIU-premium. That cost shall be considered the floor below which the price cannot fall without affecting the global supply negatively.

To view the DFS Price Forecast, please click on the following link: http://media3.marketwire.com/docs/n926.pdf

Sensitivity Analysis

Based on the RMG high price forecast, Northland applied these numbers to a financial model which included financing and taxes. This is defined as the Base Case Scenario.

  • The Project has a potential NPV of MUSD 463 at a discount rate of 8% and an IRR of 18.8%, based on cash flows after interest and tax.
  • The potential NPV before interest and taxes is MUSD 774 and the IRR is 24.7%.
  • The payback period is expected to be 4.9 years from the first production of concentrate from the Project.
  • The financial model is based on an USD:SEK exchange rate of 1:8.125, unchanged from the PEA.

The following sensitivity analysis which is after interest and taxes has been run using an 8% discount rate, while keeping all other variables in the Base Case the same.

    NPV M USD   IRR %   Max Cash Req M USD   Payback years
Base Case   463   18.8   583   4.9
Increase Price 10%   661   22.4   561   4.4
Decrease Price 10%   265   14.8   608   5.8
Increase CAPEX 10%   400   16.8   661   5.4
Decrease CAPEX 10%   535   21.6   504   4.5
Increase OPEX 10%   345   16.4   599   5.4
Decrease OPEX 10%   581   21.1   568   4.6
Increase USD vs. SEK 10%   589   21.9   530   4.5
Decrease USD vs. SEK 10%   311   15.3   646   5.7

Permitting

The Swedish-Finnish Border River Commission has approved the environmental permit for the Tapuli mine and the Kaunisvaara mill (see press release August 20, 2010).

An Exploitation Concession application for the Sahavaara deposit was filed with the Chief Mine Inspector in November 2009. The application is in the final stages of the approval process. Subject to its approval, an Environmental Permit Application for Sahavaara, which contemplates an open pit operation and ore treatment at the Kaunisvaara mill, will be filed at the Environmental Court in Sweden.

An Exploitation Concession application for Pellivuoma will be completed as soon as sufficient information on the mineral resource is available. The Pellivuoma area is included in a comprehensive environmental baseline study, covering the entire Kaunisvaara area. This should allow for a quick-start of the environmental application process. It is assumed that Pellivuoma ore will be processed in the Kaunisvaara mill.

The Kaunisvaara area is subject to a proposal from the Swedish Geological Survey as being of "national interest for mineral production". This is expected to facilitate the permitting process.

Resources and Reserves

The Mineral Resource Statement generated by SRK (see press release April 16, 2010) has been restricted to all classified material falling within an optimized pit shell at Tapuli and Sahavaara, using a metal price of 110 US¢/dmtu for magnetite concentrate.

Domain   Resource Category   Tonnes (Mt)   FE Total %   S %   SIO2 %   MGO %   AL2O3 %   CAO %   P %   MN %
TAPULI   Measured   52.8   27.02   0.23   25.31   17.90   2.10   6.31   0.07   0.08
Indicated   54.6   25.04   0.24   28.63   17.05   2.05   8.72   0.05   0.11
Meas+Ind   107.4   26.01   0.23   26.99   17.47   2.08   7.53   0.06   0.09
Inferred   24.7   24.58   0.23   28.53   17.75   2.00   7.80   0.06   0.10
SAHAVAARA   Measured   30.2   42.96   2.66   14.85   14.43   1.32   1.61   0.07   0.10
Indicated   56.6   38.14   1.55   20.08   14.73   1.32   4.02   0.05   0.12
Meas+Ind   86.8   39.82   1.93   18.26   14.63   1.32   3.18   0.06   0.11
Inferred   34.7   37.28   1.44   20.99   15.21   1.20   4.13   0.04   0.11
TOTAL   Measured   83.0   32.82   1.11   21.50   16.64   1.82   4.60   0.07   0.09
Indicated   111.2   31.71   0.91   24.28   15.87   1.68   6.33   0.05   0.12
Meas+Ind   194.2   32.18   0.99   23.09   16.20   1.74   5.59   0.06   0.10
Inferred   59.4   32.00   0.94   24.13   16.27   1.53   5.66   0.05   0.11

As a direct result of the DFS design work, a Mineral Reserve statement has been generated by SRK for the project based on the above Mineral Resource Statement, utilizing only the material reported as Measured and Indicated Mineral Resources. The operating costs assumed for the optimization are based on discussions between Northland and SRK with metallurgical recoveries predicted by laboratory test work.

Engineered pit designs were developed from optimised shells and the following reserve table was generated. 

Proven and Probable Mineral Reserves for Tapuli and Sahavaara

DEPOSIT   RESERVE CLASSIFICATION   TONNES   Fe Grade (%)
TAPULI   Proven   52Mt   27.04
Probable   49Mt   25.11
SAHAVAARA   Proven   30Mt   42.96
Probable   45Mt   40.01
Total Proven   82Mt   32.86
Total Probable   94Mt   32.24
Total   176Mt   32.53

SRK's resource and reserve statements are presented in accordance with the definitions and guidelines of the CIM Standards for reporting Mineral Resources and Reserves (the CIM Code).

Mining at Tapuli is expected to consist of a conventional shovel and truck open pit operation, moving approximately 35 million tonnes of ore and waste per year at peak production. Crusher feed will be hauled to the pit rim, crushed and transported by conveyor to the processing plant.

The Sahavaara open pit is located 4 km to the south of Tapuli. Mining is expected to consist of a conventional shovel and truck open pit operation, moving approximately 44Mt of ore and waste per year at peak production. Crusher feed will be hauled to the pit rim, crushed and then transported by conveyor to the processing plant.

Mineral Processing for Tapuli, Sahavaara and Pellivuoma

Process development work in several campaigns has been conducted on all the resources by the Northland staff and consultants and the resulting process flow sheets have been confirmed by pilot plant programmes. The two Kaunisvaara process lines are engineered based on verified scale up procedures to make the processing simple, reliable and flexible to accommodate feed ore variability. The requirement to minimize the operation cost (and hence optimization of the overall cost per tonne product), resulted in very few comminution stages.

The processes are based on primary crushing at the mine sites and transport by overland conveyors to the Kaunisvaara beneficiation plant, which includes the primary grinding plant using Autogenous or Semi-Autogenous Grinding mills. The first separation stage consists of wet cobbing (with low-intensity magnetic separators ("LIMS"), which are expected to reject a substantial portion as a waste material with minimal loss of iron units. The cobbing magnetic concentrate is then ground by stirred mills to a size suitable for final stage magnetic separation, again using LIMS.

The Tapuli ore will not require further processing to achieve the high-grade concentrate, which will be dewatered by pressure filtration and readied for transportation by road to the rail head. After thickening to recover process water, the tailings slurry will be combined with the cobbing paste and tailings from other ore processing and this pumped to a tailings disposal area.

In order to achieve the concentrate target quality, the feed from Sahavaara requires further upgrading by removing sulphide minerals using flotation techniques. The concentrate will be initially dewatered and further upgraded by a final LIMS stage. Final dewatering will be done by pressure filtration after blending of the concentrate with the Tapuli product. The combined product, which is ready for pelletizing by customers without further grinding, will be transported by road to the rail head at Svappavaara. Waste material processing is the same as for Tapuli. The waste management area will ultimately be covered by essentially inert material.

Infrastructure and Logistics

Transport costs for the iron ore concentrate from the mine to the end customer are crucial to the feasibility of the project. Therefore Northland, in cooperation with Swedish, Norwegian and Finnish transport authorities, has spent a lot of effort in finding the best possible transport solution. Since the PEA was published in September 2009, new findings have showed that shipping from Narvik is a more cost-efficient alternative than shipping from Kemi port. Narvik is a deep-water port with ice-free conditions for large Cape-Size vessels (above 150,000 dwt) compared to Kemi which can only handle Handy-Max vessels of 55,000 dwt.

The current logistics option includes:

  • Truck transportation from Kaunisvaara to Svappavaara for reloading to railway wagons
  • Rail transportation from Svappavaara to Narvik on the railway track 'Malmbanan' – currently used for iron ore transport by other operations in the region
  • Use the Fagernes terminal in Narvik as a temporary solution (5-6 years) and the Company is working with the Municipality to find a long-term terminal solution

At present, the costs associated with the logistics, such as road, trucking and shipping from Kaunisvaara to Narvik, have not been completed at the DFS level of accuracy, and work is ongoing to confirm the estimated costs presented above.

Financing

Northland is actively seeking financing which is likely to be some combination of equity and debt, financing from off-takers and equipment lease facility.

The DFS technical report will be filed on SEDAR (www.sedar.com) and Northland's website www.northland.eu within 45 days.

ON BEHALF OF THE BOARD

Karl-Axel Waplan, President and Chief Executive Officer

Northland Resources S.A.

Aker Solutions

Mike Butler, MIMMM, Associate Director

SRK Consulting

Howard Baker

Duncan Pratt

Bo Arvidson Consulting

Bo Arvidson

Pöyry 

Per Lundström

Raw Materials Group

Magnus Ericsson

ERM Consulting

Wayne Holden

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 realize estimated mineral reserves and to convert mineral resources into mineral reserves; terms and costs of future exploration; mineralization 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.

Contact Information

  • Northland Resources S.A.
    Karl-Axel Waplan
    President & CEO
    +46 705 104 239
    or
    Northland Resources S.A.
    Anders Hvide
    Executive Chairman
    +47 92 88 98 58
    or
    Northland Resources S.A.
    Eva Kaijser
    CFO
    +46 709 32 09 01
    or
    Northland Resources S.A.
    Marguerite Manshreck-Head
    Investor Relations, Canada
    +1 647 224 7882
    www.northland.eu