Mr. John Kearney reports
LABRADOR IRON MINES REPORTS FISCAL YEAR-END RESULTS AND PROVIDES 2014 UPDATE
Labrador Iron Mines Holdings Ltd. today released its operating and audited financial results for
the fiscal year ended March 31, 2014, and provided an update on plans
for its 2014 season.
Unless otherwise noted, all references to years in this news release
are calendar years
and all tonnes are stated in dry tonnes.
Highlights:
- LIM completed its third operating season in December, 2013, and achieved
its sales target of approximately 1.7 million wet tonnes (approximately 1.6 million
dry tonnes) of iron ore in 10 cape-size ocean shipments. LIM
recognized net revenue from mining operations of $85.9-million for
fiscal 2014.
- LIM's sales volumes during the 2013 operating season were achieved at
the expense of product quality, which impacted revenues and resulted in
a large net loss reported for fiscal 2014.
- For the fiscal year ended March 31, 2014, LIM reported a net loss of
$105.2-million or 83 cents per share, which included a depletion and
depreciation charge of $33.6-million or 27 cents per share.
- LIM entered into a joint venture with Tata Steel Minerals Canada
for the exploration and development of LIM's Howse deposit.
LIM sold a 51-per-cent interest in Howse to TSMC for $30-million and completed
approximately 2,760 metres of drilling on Howse in 2013.
- A feasibility study and an environmental impact study for the Howse
project are on schedule for completion by the end of 2014.
- LIM successfully completed its 2013 exploration program, achieving over
12,000 metres of diamond and reverse circulation drilling.
- The focus of LIM's 2014 activities will be the development of the
Houston mine, and, subject to completion of financing, LIM plans to be
in a position to begin production from Houston in 2015.
Update on the 2014 operating season
"While LIM achieved its sales target of a total of approximately 1.7
million wet metric tonnes of iron ore for the 2013 operating season,
this was achieved at the expense of product quality as mining went
deeper in the James mine open pit, and both the grade and consistency of
the ore began to fall," commented John Kearney, chairman and chief executive officer.
"These ore quality problems in 2013, together with significant capital
invested during that year, put considerable strain on LIM's cash
resources, and LIM now needs new external investment to enable the
company to continue operations, to bring the bigger and long-life
Houston project into production, and to meet its corporate and
administrative expenses."
Rod Cooper, president and chief operating officer, added: "LIM is currently not planning for any mining or processing
activity in 2014, which is planned instead to be a development year for the company. For the balance of 2014, we are focusing on developing our
flagship Houston mine and, subject to completion of financing and
negotiation of major contracts, we are working to be in a position to
begin mining production from Houston in April, 2015."
LIM has not restarted mine operating activities for the 2014 operating
season, due to a combination of the prevailing low price of iron ore in
2014 to date, which would almost certainly have resulted in operating
losses; an assessment of the economics of the remaining resources of
the James mine and other stage 1 deposits at current iron ore prices;
and a strategic shift in corporate focus toward establishing a lower-cost operating framework and completing development of LIM's flagship
stage 2 Houston mine, while concurrently negotiating the commercial
terms of major contracts and seeking additional capital investment and
working capital.
As part of its plan to establish a lower-cost operating framework and
substantially reduce operating costs, LIM is seeking to negotiate
revised commercial terms with its major contractors and suppliers.
Operating cost-saving initiatives have been achieved with respect to
mining equipment rates, fuel procurement, aviation services,
hydroelectric power, exploration costs, winter cost management, railcar leasing rates, human resources and manpower, and corporate and
administration costs. LIM has implemented major reductions in staff
levels and compensation across the organization, and directors' fees
have been waived. All non-essential capital expenditure has been
deferred, and no significant exploration activity is planned for 2014
outside of exploration at the Howse joint venture that is already
financed by TSMC.
LIM's stage 1 deposits and related infrastructure, including the wet
processing plant, are being maintained in standby condition for the
time being, which will allow for a potential restart of stage 1
production when economic conditions improve. It is expected that the
Silver Yards dry plant will be used for all processing activity of
Houston ore in 2015, with the wet plant recommissioned to process
plant feed from Houston in future years.
LIM believes that the required financing can be raised and, in
conjunction with major stakeholders, is currently considering various
financing opportunities and is engaged in discussions and negotiations
of draft term sheets with certain commodity traders, financial
institutions and others regarding proposals for financing. Subject to
completing these financings, the company believes it will have
sufficient working capital to continue to operate over the next year.
In the meantime, and pending completion of financing, LIM will endeavour
to prudently manage its cash resources in order to ensure the integrity
of its properties and to meet all regulatory requirements.
However, there are no assurances that LIM will be successful in
obtaining any required financing, or in obtaining financing on a timely
basis or on reasonable or acceptable terms, and, as part of this
process, LIM is continually evaluating the current situation with
respect to the current price of iron ore and the timing and risk
associated with potential financing proposals. If LIM is unable to
obtain adequate additional financing on a timely basis, the company
would be required to curtail all operations and development activities.
Fiscal 2014 operations summary
Mining, processing and rail
LIM completed its third operating year in December, 2013. Ore was
extracted primarily from the James mine (approximately 1.6 million tonnes), with a
smaller portion extracted from the Redmond mine (approximately 205,000 tonnes) and
the Ferriman stockpiles (approximately 176,000 tonnes) for an aggregate of 1.9 million tonnes of ore mined and 2.0 million tonnes of waste removed
during the year.
The iron grade of ore mined during the 2013 operating season was lower
than in previous years. Mining activity at James was from deep in the
pit, exhibited a lower in situ iron grade and contained a greater
fines component than previously experienced. High clay content in the
Redmond material caused clogging in the wet processing plant during the
late summer months, resulting in poor recovery levels. Plant feed from
the Ferriman stockpiles was known to be lower grade, but responded well
to wet processing.
Processing activities continued until mid-November. A total of 2.5 million tonnes of plant feed was processed and screened during the 2013
operating season, producing an aggregate of 1.5 million tonnes of lump
and sinter iron ore. The product recovery rate of 63 per cent was below the
combined design plant recovery rate for the wet and dry plants of
approximately 75 per cent, which was attributable to a higher-than-anticipated
amount of fines in the James plant feed extracted from deep in the pit,
the high clay content of the Redmond plant feed and underperformance of
the new WHIMS (wet high-intensity magnetic separator).
LIM achieved a record annual volume of rail haulage in 2013, railing
approximately 1.5 million tonnes of iron ore to the port of Sept-Iles
until the end of November. Rotary dumper compatible ore gondolas were
utilized during 2013, which allowed for longer train sets and enabled
efficient unloading at the port.
Iron ore sales
LIM achieved its 2013 sales target of 1.7 million wet tonnes (approximately 1.6
million dry tonnes) of iron ore in 10 cape-size ocean shipments, the
same number of shipments sold during the previous operating season. The
10th and final shipment of the operating season departed the port of
Sept-Iles in early December. During fiscal 2014, LIM's shipments were
sold to the Iron Ore Company of Canada at a provisional
weighted-average actual realized price (that is, CFR China spot price less
marketing discounts and value-in-use adjustments) of approximately
$100 (U.S.) per tonne on a CFR China basis. LIM recognized net revenue of
$85.9-million during the fiscal year after netting shipping costs and
IOC's participation from the CFR China actual realized price for these
shipments.
LIM's product sales during the 2013 season experienced value-in-use
deductions related to silica content, iron content and sizing
specifications, which deviated from benchmark standards.
Of the 10 shipments, three shipments were sold as a standard grade
(approximately 62 per cent iron) sinter product, three shipments were sold as a lower grade
(approximately 58 per cent iron) sinter product, one shipment was sold as a standard grade
(approximately 62 per cent iron) lump product, and three shipments were sold as split cargos of
lower-grade sinter product, standard-grade sinter product and standard-grade lump product. The discount between the Platts 62 per cent Fe iron ore
price and the Platts 58 per cent Fe iron ore price widened during the fiscal
year to a differential of about $18 (U.S.) per tonne from about $10 (U.S.) per
tonne at the beginning of the fiscal year, reportedly as a result of
large volumes of lower-grade iron ore arriving in China from Australia
and Brazil.
Iron ore prices have dropped sharply in 2014 year to date, with a
decline of over 30 per cent to below $90 (U.S.) per tonne CFR China in mid-June, the
lowest level since the third quarter of 2012.
The company's operating results for the fiscal years ended March 31,
2014, and 2013 are summarized in the table. All tonnes shown are dry tonnes.
Fiscal year ended March 31,
2014 2013
Tonnes Grade (Fe) Tonnes Grade (Fe)
Total ore mined 1,945,708 56.2% 1,828,398 61.3%
Waste mined 2,022,498 - 3,215,985 -
Ore processed and screened 2,469,491 55.0% 954,813 58.2%
Lump ore produced 213,598 57.2% 98,693 61.2%
Sinter fines produced 1,330,979 59.9% 693,173 61.4%
Total product railed 1,546,134 59.2% 1,492,960 62.3%
Total product sold 1,606,566 59.3% 1,559,620 62.5%
Port product inventory - - 111,009 60.9%
Cumulative inventory adjustment (1) (50,577) 56.0% - -
Site product inventory 1,995 55.6% 3,551 58.4%
Site run-of-mine ore inventory 263,361 54.0% 446,975 56.2%
(1) Cumulative inventory adjustment represents product lost in the normal course
during train unloading, port handling and ship loading since 2011.
March, 2014, year-end financial results
For the fiscal year ended March 31, 2014, LIM recognized net revenue
from mining operations of $85.9-million on sales of 1.6 million dry
tonnes of iron ore in 10 shipments completed during the year.
The decrease in net revenue (2013 -- $95.7-million) is attributable to
higher value-in-use penalties resulting from the lower grades mined and
sold, higher marketing discounts, and higher ocean freight costs,
notwithstanding a marginally higher volume of sales and a modestly
higher average CFR China spot price of iron ore. LIM's net revenue is
recognized net of deduction of value-in-use adjustments, marketing
discounts, ocean freight and IOC's participation.
For the fiscal year ended March 31, 2014, LIM reported a net loss of
$105.2-million, or 83 cents per share, which included a depletion and
depreciation charge of $33.6-million, or 27 cents per share. The increase
in the depletion and depreciation charge in fiscal 2014 (2013 -- $29.7-million or 36 cents per share) was due to higher mining volumes and an
acceleration in the depletion rate for the James mine.
Operating costs per tonne during the 2013 operating season were
unsustainably high, due partly to production volumes, but largely to
the commercial terms of certain major contracts.
Processing costs in fiscal 2014 increased to $36.5-million (2013 -- $16.5-million), primarily a function of the 2.5 times increase in ore
processed and screened, from approximately 955,000 tonnes to nearly 2.5
million tonnes in the respective fiscal years.
Rail and transportation costs of $57.1-million in fiscal 2014 were
reasonably consistent (2013 -- $60.9-million), reflecting slightly higher
rail volumes during the current fiscal year, offset by lower railcar
rental costs.
During fiscal 2014, LIM invested approximately $16.4-million in
property, plant and equipment (2013 -- $32.0-million), related mainly to
the completion of phase 3 of the Silver Yards wet processing plant,
completion of grid power connection at Silver Yards and completion of
phase 1 enhancement work on the rail siding at Silver Yards. The
reduction year over year represents a concerted effort to limit capital
expenditures to only essential capital projects.
As at March 31, 2014, LIM had current assets of $16.5-million, including
inventories with a carrying value of $2.1-million and accounts
receivable and prepaid expenses of $4.1-million. At March 31, 2014, LIM
had $7.5-million in unrestricted cash and cash equivalents, an
additional $2.8-million in current restricted cash and $4.2-million in
non-current restricted cash.
Current liabilities, consisting of accounts payable and accrued
liabilities, finance lease obligations, and rehabilitation provisions,
were in aggregate $25.2-million at March 31, 2014.
At March 31, 2014, the company had an ending working capital deficit of
$8.7-million. LIM had no current or long-term bank debt at March 31,
2014; however, the company had a long-term deferred revenue liability
of $22.1-million.
Development of the Houston mine
The Houston project is planned to form the core of LIM's operations for
at least the next 10 years. Subject to completion of financing, the
focus of LIM's 2014 activities will be the development of the Houston
mine. LIM plans to be in a position to begin production from Houston in
April, 2015.
The Houston deposits have an average in situ grade of approximately 57 per cent iron that is expected to be upgradable to a 60-per-cent- to 62-per-cent-iron product. In
addition, the Houston ore is harder than James and will result in the
production of a larger proportion of lump product. The Houston-Malcolm
deposits are expected to produce consistent saleable product of about two
to three million tonnes per year for a 10- to 15-year mine life.
In response to lower iron ore prices and in order to reduce upfront
capital, LIM has revised its initial development plan for Houston and
now plans, at least for the initial year of Houston production, to haul
Houston ore to the Silver Yards processing and rail loading facilities,
with processing by on-site dry screening only for several years. This
revised plan will reduce the initial capital cost of Houston by
deferring the originally proposed new plant. Subject to successful
completion of financing, the major development work planned for 2014
will be the construction of a new haulage road, approximately eight
kilometres long, to connect Houston to the current road to
Silver Yards close to the Redmond mine. The overall one-way haulage
distance from Houston to Silver Yards is approximately 20 kilometres.
LIM also plans to construct a new rail siding near the Houston mine.
When the rail siding is completed, high-grade Houston ore would be
processed by on-site dry crushing and screening and loaded directly
onto railcars at the planned new rail siding near the Houston site.
Construction of the rail siding is currently planned to be completed in
the second half of the 2015 operating season.
Development of the Houston project is subject to the availability of
financing. LIM is negotiating additional off-take-related financing
arrangements and other potential financing structures to finance the
planned first-phase Houston development and related transportation
expenditures.
Joint venture with Tata Steel Minerals Canada and exploration program
update
During the 2013 operating season, 2,760 metres were drilled in 21 holes, and
geotechnical and geo-hydrology field studies were initiated at the Howse
project. The drilling program was suspended during the winter and is
resuming in the summer in order to maximize the collection of technical
data under the current budget. A further 3,500 m of exploration
drilling is planned for summer 2014. The objective of the Howse drill
program is to convert the historical resources to National Instrument 43-101-compliant
mineral resources and to collect metallurgical, geotechnical,
hydrogeological and hydrology information to complete a feasibility
study in 2014. TSMC advises that the NI 43-101 resource estimate,
feasibility study and environmental impact study, all designed to
support a production decision, are on schedule for completion by the
end of 2014. Project registration notices for the Howse project were
submitted to the provincial and federal governments. The federal
government has referred the project for environmental assessment, and
environmental impact statement guidelines were issued in June,
2014.
Originally as part of LIM's planned stage 3, the howse deposit was
expected to be developed by about 2020. The joint venture with TSMC is
expected to expedite the start of production to 2016 and should also
result in significant cost savings and synergies due to the proximity
of the Howse deposit to TSMC's year-round Timmins processing plant.
Along with drilling at Howse, LIM successfully completed its 2013
exploration program, achieving just over 12,000 m of diamond and
reverse circulation drilling.
The diamond drilling programs focused on the Houston 1, 2 and 3
deposits; the Howse project; the Gill mine; Redmond 5; and the Bean
Lake deposits. A reverse circulation rig was used to carry out some
detailed test work on the Ferriman stockpiles.
SUMMARY OF NI 43-101 MINERAL RESOURCE ESTIMATES (1)
As at March 31,
2014 Classification Tonnes (x 1,000) Fe (%) SiO2 (%) Mn (%)
Deposits Measured 36,680 57.1 11.9 1.2
Indicated 18,112 56.2 12.6 1.0
Total measured 54,792 56.8 12.1 1.1
and indicated
Total inferred 4,770 55.7 13.6 1.4
Stockpiles Total indicated 3,545 49.1 23.4 0.8
Total inferred 2,896 48.8 24.5 0.7
As at June 15,
2013
Elizabeth taconite Total inferred 620,000 31.8 42.1 0.9
(1) See technical reports filed on SEDAR.
As at March 31, 2014, LIM had National Instrument 43-101-compliant measured and indicated
mineral resources of approximately 54.8 million tonnes at an average
grade of 56.8 per cent Fe and an inferred resource of 4.8 million tonnes at an
average grade of 55.7 per cent Fe on the Schefferville projects. In addition,
LIM holds previously mined stockpiles with an NI 43-101-compliant
indicated mineral resource of approximately 3.5 million tonnes at an
average grade of 49.1 per cent Fe and an inferred resource of approximately 2.9
million tonnes at an average grade of 48.8 per cent Fe. These stockpiles are
located within 15 kilometres of Silver Yards and form part of LIM's stage 1
deposits.
LIM's Schefferville projects comprise 20 different iron ore deposits,
which were part of the original IOC direct shipping operations
conducted from 1954 to 1982 and formed part of the 250 million tonnes
of historical reserves and resources previously identified by IOC. The
company holds approximately 108 million tonnes in historical resources
previously identified by IOC.
LIM also holds an NI 43-101-compliant inferred mineral resource estimate
for the Elizabeth taconite project (as at June 15, 2013) of 620 million
tonnes at an average grade of 31.8 per cent Fe. Taconites require upgrading
through a concentrator, involving a major capital investment to produce
a saleable iron ore product.
A feasibility study has not been conducted on any of the Schefferville
projects, and the company's decision to undertake commercial production
has not been based upon a feasibility study of mineral reserves
demonstrating economic and technical viability. Resources, unlike
reserves, do not have demonstrated economic viability.
Iron ore market conditions
The spot price of iron ore (CFR China 62 per cent Fe basis, prior to any
value-in-use adjustments) averaged approximately $131 (U.S.) per tonne
during the 2013 operating season, an improvement over an average of
$125 (U.S.) per tonne during the 2012 operating season. However, since
January, 2014, the price of iron ore has fallen steadily in the Chinese
market, and the benchmark prices for 62 per cent Fe iron ore declined to below
$90 (U.S.) per tonne in June, 2014. Iron ore exports from Australia to China
increased significantly in 2014, helping to push benchmark prices to
the lowest levels since 2012 and contributed to a growing global
surplus.
The immediate market outlook for iron ore is somewhat uncertain. Chinese
steel mills and traders are being pressed to sell inventories as banks
demand loan repayments by June 30 during the half-year loan settlement
period. Increased supply and lower prices will force the closure of
higher-cost domestic Chinese producers. However, Chinese iron steel
production continues to increase, and China will need to import more
iron ore to replace the shutdown domestic production, which should help
iron ore price stability. For budgeting purposes, LIM has assumed an
average price of $100 (U.S.) per tonne during 2014 (during which no sales
are anticipated) and 2015. LIM is anticipating a foreign exchange rate
of 90 U.S. cents per Canadian dollar for budget purposes.
This news release should be read in conjunction with LIM's management's
discussion and analysis and audited financial statements for the
year ended March 31, 2014, available on the company's website under the financials section or on SEDAR.
LIM will not be holding a conference call for the quarter and year ended
March 31, 2014. LIM is currently negotiating certain financing
opportunities and revised terms with its major contractors. Discussions
and negotiations with various parties are continuing. Subject to
completion of these negotiations, the company will provide further
updates at that time. LIM has also filed its annual information form and National Instrument 43-101
technical report, which include the resource estimates disclosed in
this news release, all of which are available on SEDAR.
Qualified person
The current resource estimates for LIM's Schefferville projects,
including stockpiles, disclosed in this news release were prepared by
Maxime Dupere, PGeo, of SGS Canada Inc., who is a qualified person and
independent of the company within the meaning of NI 43-101.
The current resource estimate for LIM's Elizabeth taconite project
disclosed in this news release has been prepared by George Wahl,
PGeo, GH Wahl & Associates Consulting, who is a qualified person and
independent of the company within the meaning of NI 43-101.
We seek Safe Harbor.
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