Anglesey Mining plc LSE:AYM
15 November 2012
Labrador Iron Mines Reports Second Quarter Results
Anglesey Mining plc is pleased to announce that its associate
Labrador Iron Mines Holdings Limited (TSX: LIM) today reported its
operating and financial results for the quarter ended September 30, 2012.
Highlights
* LIM demonstrated its mine-to-port operational ability to produce, rail and
sell up to 250,000 tonnes of iron ore product per month from its James mine
since commencing the 2012 operating season.
* LIM mined approximately 962,000 tonnes of ore at a grade of 60.8% iron
("Fe") for the three months ended September 30, 2012, which represents a
40% increase quarter-over-quarter.
* LIM railed approximately 706,000 tonnes of ore to the Port of Sept-Îles
during the quarter. In October, LIM surpassed a major milestone, having
railed over two million tonnes to the Port of Sept-Îles since commencing
mining operations in June 2011.
* LIM sold four shipments of iron ore totalling 648,000 dry tonnes (~700,000
wet tonnes) and reported revenue of $33.0 million FOB Port of Sept-Îles
during the quarter.
* LIM responded quickly to challenging market conditions and the sharp
decline in iron ore spot prices in August 2012, focusing on cost reduction
and cash conservation measures.
* LIM enhanced long-term rail and port access for its iron ore, securing 5
million tonnes of ship loading capacity at the new multi-user dock at the
Port of Sept-Îles and participating with CN Rail on a feasibility study for
the potential development of a new multi-user rail line and terminal
handling facility at the Port of Sept-Îles to serve iron ore companies in
the Labrador Trough.
* LIM completed most of the fieldwork of a successful 2012 exploration season
with approximately 13,500 metres of diamond and reverse circulation (RC)
drilling forecast to be completed, a 35% increase over the planned 10,000
m.
Rod Cooper, President and COO of
Labrador Iron Mines, stated: "LIM's operations generated strong
results quarter-over-quarter, as performance in the mine,
processing facility and rail all ramped up towards the height of
the 2012 operating season. Complementing this has been LIM's
mine-to-port solution, with the demonstrated ability to produce,
rail, ship and sell our iron ore product. However, operational
achievements in the period were overshadowed by challenging market
conditions and, in particular, a precipitous decline in spot iron
ore prices in August. Our operating team has demonstrated
professional discipline and done a commendable job in responding to
these conditions, which necessitated rapid execution of revised
strategies and action plans to reduce costs, conserve cash and
optimize production for the remainder of the 2012 season."
Responding to Challenging Market Conditions and Outlook for
2012
Iron ore spot prices and transaction volumes suffered a sharp
decline in August 2012, with spot
prices dropping 33% during the quarter to below US$90 per tonne on a 62% Fe CFR China basis. As
previously announced, LIM undertook a critical review of its
operating and capital spending for the balance of 2012 and
implemented the following immediate and decisive measures:
* A focus on cost reduction and cash management to prudently manage LIM's
cash resources;
* Utilization of the new dry classifying system to produce sinter and lump
ore only;
* All non-committed capital expenditures, mainly relating to the Silver Yards
wet processing plant and development of the Houston deposits, were deferred
into 2013;
* The 2012 exploration program was reduced to $5.3 million.
* Subsequent to quarter end, a $30 million equity financing was successfully
completed in November.
"Challenging global economic conditions and, specifically, a
reduced demand by Chinese steel producers were the main backdrop
during a quarter overshadowed by a sharp and unexpected drop in
iron ore prices," commented John
Kearney, LIM's Chairman and CEO. "In ensuring we `stay the
course', we made prudent decisions to defer capital expenditures
and scale back production to complete the season in a sustainable
position.
"Despite these challenging market conditions, we successfully
completed the sale of nine shipments thus far in 2012 and
anticipate one more shipment of lump ore before the end of
November. By the end of the 2012 operating season, LIM will have
sold ten shipments totalling 1.7 million wet tonnes (1.6 million
dry tonnes) of iron ore, quadrupling the total tonnes sold in all
of 2011."
"As we wrap up our 2012 operating season, we have demonstrated
that we can mine, transport and sell our iron ore. Furthermore,
with the rebound in spot iron ore prices since mid-September, we
remain confident that prices will be sustainable above US$110 per tonne (62% Fe) on a CFR China basis in
the short to medium term and we remain optimistic about the
fundamentals for long-term iron ore demand in China."
Results of Operations
James Mine
During the quarter ended September 30,
2012, approximately 962,000 tonnes of ore at a grade of
60.8% Fe were mined, representing over a 40% increase in tonnes
mined quarter-over-quarter. For the six months ended September 30, 2012, approximately 1.6 million
tonnes of ore at a grade of 61.5% Fe were mined. In the months of
June through August, the James mine consistently achieved its
planned operating rate of 28,000 tonnes per day (ore and waste),
prior to the previously-announced scale-back in planned production
for the remainder of the season.
Silver Yards
The ore in the James deposits continues to be soft high grade
and lends itself to simple processing. To enhance productivity and
reduce costs, beginning in late August and continuing for the
remainder of 2012, LIM is utilizing its newly-added dry classifying
system exclusively to produce lump and sinter products.
The Phase 3 wet plant expansion was largely complete at the end
of August, with the remaining items being the installation of
electrical equipment and instrumentation work. Completion and
commissioning is now planned for the 2013 operating season. The
expansion is intended to increase plant throughput to 12,000 tonnes
per day and improve weight recovery to above 75%.
Rail and Port
For the three months ended September
30, approximately 706,000 tonnes of iron ore were railed to
the Port of Sept-Îles, bringing the total for the six months ended
September 30 to over 1.2 million
tonnes. Monthly rail volumes have increased almost threefold from
the beginning of the operating season.
During the quarter, LIM announced its participation in the
development of the new multi-user deep water dock at the Port of
Sept-Îles, which will be dedicated exclusively to iron ore
shipments. Under the terms of the agreement with the Port
Authority, LIM has secured an annual capacity of 5 million tonnes
of iron ore with a right to secure additional residual capacity.
The Port expects that construction of the new berth will to be
completed by March 31, 2014.
Also during the quarter, LIM announced its collaboration with CN
on a feasibility study to develop a new, continuous multi-user rail
line to serve iron ore companies in the Labrador Trough. The CN
feasibility study is also evaluating the development of a new
terminal handling facility located at the Port of Sept-Îles, which
would complement the planned development of the new multi-user dock
at the Port.
Sales
During the second quarter, LIM completed the sale of four
cape-size shipments (two shipments of direct rail ore (DRO) and two
shipments of sinter) totalling 648,000 dry tonnes, which were sold
at a weighted average actual realized price (i.e. CFR China spot
price less value-in-use discounts) of approximately US$96 per tonne on a CFR China basis. For these
four shipments, LIM recognized net proceeds of $33.0 million on a FOB Sept-Îles basis after
netting shipping costs and IOC's participation, which includes
product handling, ship loading and sales costs from the CFR China
actual realized price.
As a result of the steep decline in iron ore prices in
August 2012, LIM's three cargo
shipments sold during that month were at net prices (FOB Port of
Sept-Îles) below LIM's cash operating costs per tonne of product
sold.
Subsequent to the end of the quarter, LIM completed the sale of
two additional cape-size shipments of sinter ore for a total of
nine shipments so far in 2012. LIM anticipates its tenth shipment,
scheduled for arrival at the port on November 18, to be a cape-size vessel of
approximately 100,000 tonnes of lump ore. LIM will continue to
report proceeds from its aggregate sales of iron ore on a quarterly
basis.
Value-in-use adjustments
The actual realized price for a shipment of LIM's iron ore is
based on the prevailing spot price in China at the time the cargo is priced,
adjusted for `value-in-use' adjustments based on the cargo's
specifications. The typical market referenced in connection with
sales of LIM's iron ore products is the Platts 62% Fe CFR China
Index, which tracks daily pricing for cargos on a CFR China price
per dry tonne basis, of granular product based on a standard size
and content of iron, moisture, manganese, silica, alumina,
phosphorus and sulphur. To the extent a shipment's cargo deviates
from these specifications, a value-in-use adjustment to the
prevailing normalized spot price may apply.
So far in 2012, LIM has experienced value-in-use adjustments
(i.e. discounts) for its DRO cargos related mainly to the
mixed-size nature of this product, which requires further crushing
and screening by the purchaser before being used in the steelmaking
process. Subsequent to the two DRO shipments sold in the second
quarter, LIM discontinued the sale of its DRO product.
The value-in-use adjustments for LIM's sinter ore shipments were
related to the silica content of the cargos, which was slightly
higher than the standard specification of 4.5% silica. LIM expects
the silica level to be lower in the future when Phase 3 of the wet
processing plant is fully commissioned.
Production and Cash Operating Costs
During the quarter ended September 30,
2012, cash operating costs, including mining, processing,
rail and transportation and site administration expenses, were
approximately $70 per tonne of
product sold (unloaded at the Port). Included in this amount was a
charge equal to approximately $7 per
tonne of product sold during the quarter, representing the full
season's wet processing plant commissioning costs being charged to
the second quarter. This charge was taken because LIM winterized
its wet processing plant in August
2012 and is utilizing its dry screening process for the
remainder of the 2012 operating season. Excluding the above charge,
cash operating costs during the second quarter were approximately
$63 per tonne.
Cash operating costs per tonne of product sold for the 2012
season is expected to be $70 per
tonne, unloaded at the port, including non-recurring charges. LIM's
operating results for the three and six months ended September 30, are outlined in the following
table:
Production for the Quarter and Six Months ended September 30, 2012
(all tonnes are Dry Metric Tonnes) Quarter ended Six Months ended
September 30, 2012 September 30, 2012
Tonnes Grade % Fe Tonnes Grade % Fe
Total Ore Mined 961,737 60.8 1,629,930 61.5
Direct Rail Ore portion 569,789 62.4 1,053,233 62.5
Waste Mined 1,533,211 - 2,902,609 -
Ore Processed 643,715 58.2 771,178 57.8
Lump Ore Produced 62,884 60.5 80,612 60.4
Sinter Fines Produced 508,773 61.1 543,484 61.4
Total Product Railed 706,495 62.2 1,238,824 62.4
Tonnes Product Sold 647,643 62.3 1,134,149 62.7
Port Product ending inventory 282,344 62.1 282,344 62.1
Site Product ending inventory 89,917 60.2 89,917 60.2
ROM Ore ending inventory 432,143 56.2 432,143 56.2
Houston Development
Ongoing drill programs and hydrological and metallurgical
testing of the Houston deposits
continued in 2012 in order to generate the technical information
required for detailed mine planning. As previously announced, all
major capital expenditure programs relating to the development of
Houston have been deferred. LIM is
continuing to process applications for permits and regulatory
approvals required for the construction of mine infrastructure and
related facilities to enable the development and construction at
the Houston deposits.
Commencement of full construction activities for the first, dry
process phase of the Houston Project is now planned for 2013,
subject to market conditions, the availability of financing and the
receipt of the remaining permits, with initial production of
Houston ore targeted for 2014.
Infrastructure costs for the first phase of the Houston project are estimated to be
approximately $37 million, with an
additional approximately $20 million
of mine development costs now planned for 2014. Planning is well
advanced for the second, wet process phase of the project. LIM
plans to evaluate various potential credit facilities and/or
strategic partnerships or off-take arrangements to fund these
Houston development
expenditures.
2012 Exploration Program
As of the end of September 2012,
approximately 9,400 m of RC and core diamond drilling had been
completed in the 2012 exploration program. The 2012 exploration
budget was reduced to $5.3 million
from the $8.6 million originally
budgeted. Although exploration spending has been reduced, the
overall 2012 exploration program is expected to achieve
approximately 13,500 m of drilling (from the planned 10,000 m) as a
result of cost efficiencies and improved productivity.
The drill programs have focused on Houston, Malcolm, James North, the James South
extension and historic stockpiles near Silver Yards. As at the end
of September, 5,600 m of RC drilling had been completed at
Houston, Malcolm and the historic
stockpiles and 3,300 m of diamond drilling had been completed at
Houston and the James South
extension. The main purpose of this drilling is to generate further
technical information for more detailed mine planning of these
deposits. LIM had also completed 500 m of diamond drilling at the
James North deposit for geotechnical purposes.
In addition to this drilling, a bulk sampling program of some of
the historic stockpiles has been initiated with a view to providing
supplemental plant feed to the Silver Yards processing plant. The
final drilling program being carried out this season involves
approximately 1,500 m of diamond drilling on the Elizabeth Lake
taconite target intended to evaluate the potential of this type of
iron-bearing formation.
Iron Ore Market Conditions
Iron ore spot prices suffered a sharp decline in August 2012, dropping 33% from June 30, 2012 to below US$90 per tonne on a 62% Fe CFR China basis in
early September. The sharp decline below US$110, which lasted from August 15 to September 18, was unexpected and was
variously reported as being due to a number of factors that
included de-stocking of plant inventories by Chinese steel mills,
partly due to tighter credit conditions and traders withdrawing
from the spot market, coupled with historically high port
inventories. The Platts Index averaged US$113 for the quarter ended September 30, 2012.
Despite recent volatility, LIM believes the underlying
fundamentals of the iron ore market have not changed. The most
important use of iron ore is as a primary input in steel
production. Global steel production in the first nine months of
calendar 2012 remained strong and in line with the same period in
2011. Global crude steel demand is expected to increase by 4.5% in
2013 according to the World Steel Association. LIM believes that
the plant destocking by Chinese steel producers cannot continue
indefinitely as Chinese steel prices stabilize and buyers return to
the market.
Recent announcements by the Chinese Government of stimulus
spending will support continued growth in demand for steel and iron
ore in China. China's National Development and Reform
Commission is reported to have approved new infrastructure
projects, including highways, subways and airports and other public
works, totalling between 800 billion and one
trillion Yuan over the next several years.
LIM's expectation, which is consistent with consensus research
opinions, is that a recovery in iron ore prices is likely due to
the re-stocking by Chinese steel mills, traders moving back into
the iron ore spot market as well as economic stimulus programs from
China, Europe and the U.S. Towards the end of
September 2012, spot prices had
recovered to approximately US$110 per
tonne on a 62% Fe CFR China basis, as market sentiment shifted in
the Chinese market in response to announced stimulus programs and
to ongoing depletion in inventories at the steel makers'
facilities. Subsequent to September
2012, spot prices have continued to improve, and by early
November have reached approximately US$120 per tonne on a 62% Fe CFR China basis.
Company Outlook
LIM undertook decisive action in September 2012 in response to the drop in spot
iron ore prices. LIM believes that the cost reductions in current
operations, combined with the scale-back in production, the
deferral of capital expenditures and the completion of a
$30 million equity financing in
November 2012 will ensure LIM
completes the 2012 season in a sustainable position to resume
operations in 2013.
By the end of November, LIM will have completed its mining
operations, winding down its processing and rail operations. LIM
expects to complete its shipping season with a tenth shipment in
November.
Resumption of mining operations in April
2013 for the 2013 operating season will depend on a number
of inter-related factors, including LIM being reasonably confident
that the forecast iron ore spot price will continue at levels of
US$110 per tonne (62% Fe) or higher
on a CFR China basis at least for the 2013 operating season. LIM is
currently targeting approximately 2 million tonnes of iron ore
production in 2013.
Second Quarter Financial Review
During the fiscal second quarter ended September 30, 2012, LIM sold four shipments
totalling 648,000 dry tonnes of iron ore and recognized revenue of
$33.0 million (FOB Port of Sept-Îles)
from the sale of these shipments. Revenue for the second quarter
was negatively impacted by a decline of 33% in the spot price of
iron ore (on a CFR China basis, before value-in-use adjustments and
before ocean freight and IOC allocation) during the quarter due to
a number of factors in the seaborne iron ore market that included
de-stocking of plant inventories by Chinese steel mills, traders
withdrawing from the spot market and historically high port
inventories in China.
For the quarter ended September 30,
2012, LIM reported a loss of $31.7
million, or $0.47 per share,
which included a depletion and depreciation charge of $14.4 million or $0.21 per share. The depreciation and depletion
figure represents a period charge, primarily on a
units-of-production basis, of the cost of the James mine (including
capitalized stripping and dewatering), Silver Yards processing
plant, transportation equipment, and infrastructure and site
administration properties associated with the operations of the
James mine operations.
During the quarter, LIM invested approximately $5.8 million in property, plant and equipment,
compared to approximately $25.7
million invested during the same quarter of the previous
year. The $5.8 million invested
during the second quarter consisted mainly of investments in Phase
3 of the Silver Yards processing plant, grid connection
infrastructure and expansion of the mine accommodation camp.
During the second quarter, LIM advanced approximately
$15.4 million in various payments for
its rail and port facilities outlined as follows: $2.5 million to the Tshiuetin (TSH) Railway as a
non-repayable contribution to its capital upgrade program;
$5 million to the Quebec North Shore
and Labrador (QNS&L) Railway
as an installment towards its advance payments required to secure
locomotive and infrastructure capacity; a preliminary installment
of $6.4 million to the Port of
Sept-Îles to secure ship loading capacity of 5 million tonnes per
year in the new multi-user deep water dock; and, $1.5 million to CN to participate in a
feasibility study evaluating the development of a new, continuous
multi-user railway in the Labrador Trough and a new terminal
handling facility located at the Port of Sept-Îles.
At September 30, 2012, LIM had
current assets of $58.2 million,
including inventories with a carrying value of $21.4 million and accounts receivable and prepaid
expenses of $34.5 million. At
September 30, 2012, LIM had a total
of $915,000 in unrestricted cash and
cash equivalents. Current liabilities, consisting of accounts
payable and accrued liabilities, the premium liability recognized
on the issuance of flow-through shares and the current portion of
finance lease obligations and rehabilitation provision, were in
aggregate $60.9 million at
September 30, 2012. LIM had a working
capital deficiency of $2.6 million as
at September 30, 2012. Subsequent to
quarter end, LIM completed an equity financing for gross proceeds
of $30 million.
Members of LIM's senior management team will host a conference
call and webcast today at 11:00 am
(ET) 4.00 pm GMT. You may
participate in the conference call by calling +1 416-641-6104
(local and international). To ensure your participation, please
call five minutes prior to the scheduled start of the call.
This press release should be read in conjunction with LIM's
Management's Discussion and Analysis (MD&A) and unaudited
financial statements for the second quarter ended September 30, 2012, available on LIM's website at
www.labradorironmines.ca, under the "Financials" section, or on
SEDAR (www.sedar.com).
Beginning with the first quarter of fiscal 2013 (April 1, 2012), proceeds from LIM's iron ore
sales have been recognized as revenue in LIM's Statement of
Operations and Comprehensive Income.
All references to `years' in this press release are `calendar
years', unless otherwise indicated. All dollar amounts are stated
in Canadian dollars, unless otherwise noted.
About Labrador Iron Mines Holdings Limited
Labrador Iron Mines (LIM) is Canada's newest iron ore producer with a
portfolio of direct shipping (DSO) iron ore operations and projects
located in the prolific Labrador Trough. Initial production
commenced at the James Mine in June
2011. The first full production season commenced in
April 2012, with nine cape-size
shipments totalling approximately 1,456,000 dry tonnes of iron ore
sold in the seven months ended October 31,
2012.
The James Mine is connected by a direct rail link to the Port of
Sept-Iles, Québec. The project
also benefits from established infrastructure including the town,
airport, hydro power and railway service. Starting with the James
Mine and leading to the development of the expanding Houston flagship project, LIM's objective is
to provide shareholders with long-term value with a plan to
increase production towards 5 million tonnes per year from a
portfolio of 20 iron ore deposits in Labrador and Quebec, all within 50 kilometres of the town
of Schefferville.
LIM is currently the only independently-owned Canadian iron ore
producer listed on the Toronto Stock Exchange and trades under the
symbol LIM. For further information see
www.labradorironmines.ca.
About Anglesey Mining plc
Anglesey now holds 19.7% of Toronto-listed Labrador Iron Mines Holdings
Limited which is producing iron ore from its James deposit, one of
LIM's twenty direct shipping iron ore deposits in western
Labrador and north-eastern
Quebec.
Anglesey is also carrying out development and exploration work
at its 100% owned Parys Mountain zinc-copper-lead deposit in
North Wales, UK.
For further information, please contact:
Bill Hooley, Chief Executive +44 (0)1492 541981;
Ian Cuthbertson, Finance Director +44 (0)1248 361333;
Samantha Harrison / Klara Kaczmarek: RFC Ambrian +44 (0)20 3440 6800;
Emily Fenton / Jos Simson: Tavistock Communications +44 (0)20 7920 3155