Labrador Iron Mines. Staying the Course: Canada s New Iron Ore Producer

Transcription

1 Labrador Iron Mines Staying the Course: Canada s New Iron Ore Producer LIM Annual & Special Meeting, September 13, 2012 John Kearney, Chairman and CEO

2 Forward Looking Information Labrador Iron Mines Holdings Limited ( LIM ) has prepared this presentation for information purposes only. The information contained herein was prepared by management on a best efforts basis and is believed to be accurate. It contains forwardlooking statements about the Company's plans for the mining, development and exploration of its properties. Forward-looking information may include reserve and resource estimates, estimates of future production, unit costs, costs of capital projects and timing of commencement of operations, and is based on current expectations that involve a number of business risks and uncertainties. Factors that could cause actual results to differ materially from any forward-looking statement include, but are not limited to, failure to establish estimated resources and reserves the grade and recovery of ore which is mined varying from estimates, capital and operating costs varying significantly from estimates, delays in obtaining or failures to obtain required governmental, environmental or other project approvals, delays in the development of projects, changes in exchange rates, fluctuations in commodity prices, inflation and other factors. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from expected results. There can be no assurance that the Company will be successful in any agreement with any First Nations groups who may assert aboriginal rights or may have a claim which affects the Company s properties or may be impacted by the Schefferville Projects. Shareholders and prospective investors should be aware that these statements are subject to known and unknown risks uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. Shareholders are cautioned not to place undue reliance on forward-looking information. By its nature, forwardlooking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and various future events will not occur. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking information whether as a result of new information, future events or other such factors which affect this information, except as required by law. 2

3 The LIM Objective Since the launch of LIM s IPO in December 2007, our objective has been to bring our Schefferville projects into production as quickly as possible at the lowest capital cost and to become Canada s newest iron ore producer 3

4 The LIM Approach Our approach has been: To build a portfolio of direct shipping iron ore deposits To commence operations with modest CAPEX using existing infrastructure To develop future expansions in stages funded from cash flow in order to maximize value to shareholders 4

5 Image: Historic Schefferville Deposit Our Journey: Identifying the Opportunity The Labrador Trough

6 We identified the opportunity Labrador Trough: most prolific iron ore region in Canada Labrador Trough stretches 1,500 km through Labrador and Quebec (100 km wide) 99% of Canada s current production: ~40 million tonnes annually In continuous production since million tons produced in Schefferville LIM is the first iron ore producer in Schefferville in 30 years and currently the only DSO producer in Canada 6

7 We identified the opportunity Modern day iron ore rush Labrador Iron Mines Region undergoing major expansions potential double in five years Other major producers:» IOC (Rio Tinto)» QCM (ArcelorMittal)» Bloom Lake (Cliffs) Existing rail and port infrastructure Politically stable: support of Governments and First Nations Products known to the market Steel companies:» Wuhan Iron & Steel (Wisco)» Hubei Metals» China Minerals» Prosperity Group» Tata Steel Experienced operators, suppliers and labour force 7

8 We identified the opportunity Canada set to become major global iron ore player by

9 LIM Portfolio Today Eclipse (northwest not shown on map) North Zone 20 DSO Deposits Trough 1 45 Mt 57 Fe% NI M&I Resources 1 From five DSO deposits (James, Redmond, Denault, Fleming 9 Lance Ridge Wollett Central Zones North Central South Central Knob Lake and Houston) 121 Mt 57 Fe% Historic Resources 2 South Zone 1 NI compliant resource as at Mar 31, 12 3 Historical resource identified by IOC prior to 1983 were not prepared in accordance with NI

10 Image: Aerial of Silver Yards, James and surrounding areas Our Journey: Mine-to-port solution De-risking the project

11 LIM Fast Track to Production Advanced From Construction to Sustainable Production in Only 10 Months Dec 2007: Closed IPO : Two year environmental and permitting First full season at James Mine Commercial production achieved : Mine and plant construction June 2011: Initial production Achieved initial sustainable production with minimal capital expenditures 11

12 LIM IBA with First Nations Social licence to operate Local employment Training programs Business opportunities Environmental protection Community engagement Date July 2008 Sep 2010 June 2011 Feb 2012 First Nations Innu Nation of Labrador (left) Naskapi Nation of Kawawachikamach (2 nd from left) Innu Nation Matimekush-Lac John (2 nd from right) Innu of Uashat (right) 12

13 Mine-to-port solution Rail agreements in place Genesee & Wyoming locomotive lease operator TSH Rail to Emeril Junction in Labrador: 235 km QNS&L Railway to Port of Sept-Îles: 360 km Four train sets in operation Centre Ferro maintenance facility 13

14 LIM s Strategic Partners 14

15 Image: James Mine Our Journey: Commencing Initial Production Achieving results

16 LIM Achievements in First Two Seasons of Production YTD 1 Sales 411,987 wet tonnes sold 1.2 million wet tonnes sold Rail 599,467 wet tonnes railed 1.1 million wet tonnes railed Shipments 3 shipments sold 7 shipments sold for the period April 1 to August 31, Original target, subject to revision and market conditions 16

17 James Mine 17

18 James Mine 18

19 James Mine 19

20 Silver Yards Wet Process Plant 20

21 Silver Yards Wet Process Plant Silver Yards Wet Process Plant 21

22 Silver Yards Wet Process Plant 22

23 Silver Yards Dry Process Stream 23

24 Silver Yards Dry Process Stream Silver Yards Dry Process Stream 24

25 Bean Lake Accommodation Camp (expansion complete) 25

26 Bean Lake Accommodation Bean Camp Lake Accommodation (expansion complete) Camp 26

27 Bean Lake Accommodation Camp (expansion complete) Centre Ferro Maintenance Facility 27

28 LIM Recent Highlights 2012 YTD Operational Progress Update April May Commenced commercial production Full-scale operations commences at James Mine First train departs Silver Yards Increased train capacity with four trains sets at 120 cars each (~10,000 tonnes/train) Silver Yards process plant re-starts First 2012 shipment sold to China June Launched 2012 exploration program July August Camp accommodation expansion to twice the capacity Installed dry crush/screen system at Silver Yards Plant Year-to-date total of 7 shipments of LIM iron ore sold (1M+ wet tonnes) and railed over one million tonnes to the Port of Sept-Îles 28

29 Early start to 2012 season 29

30 First shipment of LIM iron ore in

31 1,000,000 tonnes railed to Port of Sept-Îles 31

32 Image: Houston Deposit Staying the Course LIM Today + Iron Ore Price Environment

33 LIM s August 2012 Operations Update Iron ore spot prices decreased more than 20% during August to below US$90/tonne (62% Fe CFR China basis)» Realized price of three shipments expected to average $30-$40/tonne less than Q1 realized price of $122 per tonne (CFR China basis) Sold three shipments totaling ~520,000 wet tonnes of iron ore in challenging market conditions $120 $110 $100 $90 $80 Down 20%+ In August, 275,000 wet tonnes were railed to the Port of Sept-Îles At August 31, LIM was on track to meet its sales target of 2.0 million tonnes of iron ore in 2012» Expected cash operating cost of $60-$65 per tonne unloaded at the port LIM will monitor market to achieve most favourable sales outcomes 33

34 LIM s Decisive Response to Market Conditions 1 Focus on cost reduction and cash conservation due to sharp decline in iron ore prices Utilize new lower cost dry classifying system to produce lump and sinter Production may be scaled back due to market conditions» Revised target 1.7 million 2.0 million tonnes DRO production discontinued; wet processing suspended Original $112 million 2012 capex program has been adjusted ~$52 million of planned capex have been deferred into 2013; all capex programs for Silver Yards processing plant and Houston development deferred» Commissioning of Phase 3 plant is planned for spring 2013» Commencement of full construction activities at Houston now planned for 2013, subject to market conditions» $6 million has been permanently cancelled 2012 exploration program reduced to $5 million from original budget of $8.6 million Deferring capital spending to prudently manage cash resources and requirements 1 Forecasts herein subject to permitting, planning, design and financing. 34

35 Mine-to-Port Solution 2011 & 2012 IOC Sales Agreement 2012 Ore sale agreement LIM + IOC advantage Renewed 2011 agreement with Iron Ore Company of Canada ( IOC ; majority owned by Rio Tinto):» 100% of 2012 production sold to IOC Use of ore handling facilities at Port of Sept-Îles Access to cape size ocean vessels (170,000 dwt) Rio Tinto targeted customers Counterparty and shipping risk mitigated Product re-sold in China based on spot less ocean freight and IOC participation for handling, loading and sales costs In 2011 and 2012 YTD, a total of 1.6 million tonnes of LIM iron ore has been sold to Chinese steel mills and customers 35

36 Iron Ore Price Environment $250 $200 $150 $100 $50 $0 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Iron Ore Spot Price - 62% Fe CFR Tianjin Port (US$/tonne) Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 China Import Iron Ore Fines 62% Spot Price (US$/ tonne) $ Week High = US$180/ tonne $175 $ Week Average = US$137/ tonne $125 $ Week Low = US$87/ tonne $75 $50 $25 $0 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 36

37 Iron Ore Plant Inventories Iron Ore Plant Inventories (Days of Use) and China Import Fines 62% Fe Iron Ore Spot Prices (US$/tonne) Source: Macquarie Research 37

38 Iron Ore Supply Curve Supply Curve for Iron Ore Fines Supplied to the Chinese Market 3 CIF Cost China (US$/ tonne) $200 $150 $100 $50 $ Volume (million tonnes) Production - Marginal Cost Below Current Spot Prices Production - Marginal Cost Above Current Spot Prices Current China Import Iron Ore Price (CFR Tianjin Port) 1. Source: Bloomberg 2. Measured as the spread between the China Import Iron Ore 62% Fe Spot Price (CFR Tianjin) and the domestic China Iron Ore Spot Price (Hebei/Tangshan hub) 3. Source: Macquarie Research 38

39 Key Factors Supporting a Recovery in Iron Ore Prices in the Short-Term Recent destocking by Chinese steel producers cannot continue indefinitely as Chinese steel prices stabilize and buyers return to the market» Iron ore and steel inventories have steadily declined since Q Current Chinese import prices are well below marginal cost of Chinese production» Global price of iron ore has natural floor around marginal cost of Chinese domestic production, which most analysts put at roughly US$120/tonne Material supply side responses from international producers» Prolonged period of iron ore spot prices of US$90-US$100/tonne is expected to result in material decrease in international iron ore production and a deferral of capital investment in new projects and mine expansions Spread between domestic and import iron ore prices have widened by approximately 20% since beginning of August 1» Expected to result in a material increase in import prices as this arbitrage is exploited Recent news flow supports improved Chinese steel and iron ore demand later in 2012» Improving loan growth figures, rail stimulus and targeted city specific development packages Multiple factors point to a material near-term rebound in iron ore prices 1 Source: Bloomberg. Measured as the spread between the China Import Iron Ore 62% Fe Spot Price (CFR Tianjin) and the domestic China Iron Ore Spot Price (Hebei/Tangshan hub) 39

40 Research Views on the Current Iron Ore Price Environment iron ore prices are bottoming and could move higher due to an end of distressed selling, idling of high-cost Chinese mines, and improving Chinese steel demand on seasonal and cyclical factors. Our house view for 2013 is $155/t, nearly 40% above the current spot. (August 16, 2012) We remain comfortable with our view that by the end of the year, fundamentals will see iron ore prices back to cost support levels of US$ /t CFR China. (August 1, 2012) Iron Ore Spot Price vs. Consensus Research Forecast 1 (62% Fe CFR China, US$/tonne) $95 $36/tonne margin $131 $143 $152 $140 With iron ore pricing below its 90th percentile marginal cost curve, we believe that pricing has limited downside from current levels We see Chinese destocking as likely to slow If Chinese steel output stays at 720mtpa, we would expect prices in the $ /t range. (August 14, 2012) We expect iron ore prices to increase from spot levels as Chinese GDP growth continues to recover. (July 26, 2012) Current Spot Q Q Based on Bloomberg consensus research estimates Research analysts believe that current iron ore spot price is at or near bottom and expect recovery in near-term 40

41 LIM Superior Leverage to Iron Ore Prices Historical Iron Ore Recovery 1 LIM s Share Price Leverage to Iron Ore Market 1 China Import Iron Ore Fines 62% Fe Spot Price - (CFR Tianjin Port) - US$/tonne $250 $200 $150 $100 $50 $0 Mar % Increase March 09 Feb 11 Period High = US$191.90/tonne Period Low = US$59.10/tonne May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 LIM Share Price (C$/share) $16 $14 $12 $10 $8 $6 $4 $2 $0 Mar-09 May-09 20x Increase Period High = C$14.32/share Period Low = C$0.62/share Jul-09 Sep-09 Nov-09 Jan-10 90% correlation between rising iron ore price and LIM s share price Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 LIM offers superior leverage to the recovery in iron ore prices 1 Shown for the two year period from March 1, 2009 to February 28,

42 LIM Leverage to Iron Ore Prices China Iron Ore Fines 62% Fe Spot Price vs LIM Share Price During 2009 to 2011 Iron Ore Recovery $250 Iron Ore Spot Price 151% Increase Period High = US$191.90/tonne $200 Period Low = US$59.10/tonne 1 Shown for the two year period from March 1, 2009 to February 28, 2011 China Import Iron Ore Fines 6 2 % Fe Spot Price - (CFR Tianjin Port) - US$ / tonne $150 $100 $50 $0 LIM Share Price 20x Increase Period High = C$14.32/share Period Low = C$0.62/share 90% correlation between rising iron ore price and LIM s share price $16.00 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 Mar-09 May-09 Jul-09 LIM Share Price (C$) Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 China Import Iron Ore 62% Spot Price (US$/ tonne) LIM Share Price (C$) LIM leverage to the recovery in iron ore prices 42

43 Image: Houston Deposit Our Journey: Future Pipeline Building for a Stronger Tomorrow: Stage 1 & 2

44 LIM Stage 1 James + Surrounding Deposits near Silver Yards plants Quebec Labrador 6 smaller satellite deposits within ~15 km radius of James / Silver Yards 21 MT Resources 5 MT historical resources ~10 MT stockpiles (historical)» Crushed >50% Fe» Potential to convert to resources» 2012: bulk sample at Silver Yards Plant Objective: 5 Years of 2.0 MT of Annual Iron Ore Production 3 10 MT of Saleable Iron Ore from the James Mine and Surrounding Deposits 1 NI compliant resource as at Mar 31, Historical resource identified by IOC prior to 1983 were not prepared in accordance with NI Subject to detailed engineering, design, environmental assessment and permitting 44

45 LIM Stage 2 Houston Flagship Deposit: Future Production Growth Large, open resource 15+ year mine-life +2.0MT of annual production Key Resource Development Project 23 million tonnes M+I at 57.2% Fe million tonnes Inferred at 56.5% Fe 1 ( compliant)» More than double the historical resource 1 Good Progress Upside Environmental Assessment Houston 1 & 2 complete Access road tree clearing completed Infill drilling (summer) Metallurgical testing ongoing Continuing to process applications for permits and regulatory approvals Houston Deposit remains open along strike Nearby Malcolm Deposit (Quebec) extension: historical 2.9 Mt resource 2 1 As at March 31, 2012; See Technical Reports filed on SEDAR. 2 Historical resource identified by IOC prior to 1983 were not prepared in accordance with NI

46 LIM Stage 2 Potential for 2.5 MTPY of Production Over a +15 Year Mine Life Potential to more than double current production New dedicated rail siding In-pit crushing and screening Consistent high quality iron ore product Establishes long-term relationship with steelmakers Commencement of full construction activities planned for 2013, subject to market conditions Malcolm 1 As at March 31, 2012; See Technical Reports filed on SEDAR. 2 Historical resource identified by IOC prior to 1983 were not prepared in accordance with NI

47 Mine-to-Port Solution Options for Long-Term Port Capacity Participation in development of new multi-user dock with an initial loading capacity of 50 Mtpa iron ore at Port of Sept-Îles:» 5 Mt capacity reserved; right for additional capacity» Government of Canada to contribute $55 million of estimated $220 million CAPEX» LIM would benefit from its first-mover advantage as the only current producer Expected completion: March 31, 2014 Port Strategies» New multi-user dock Pointe Noire» IOC» Potential multi-user rail terminal (CN) Dredging began in summer of 2012 Ship loader RFP issued 47

48 Dredging commenced for new multi-user dock at Port of Sept-Îles 48

49 LIM Shipping Advantage Deep sea port on Atlantic seaboard» Access to European, Asian and North American markets Shipping advantage to North American and European markets» Shorter distance relative to other primary iron ore regions Western Europe (Rotterdam) 5,000 km Current access to key Asian markets through IOC (Rio Tinto) agreement Eastern Europe (Constantza) China (Tianjin) 6,100 km 22,000 km» Use of cape-size vessels» Lower counter-party risk 49

50 LIM Portfolio Today Proven track record of resource conversion More than doubled resources (historical to NI ) Current 45 million NI resources Exploration: 5,800 m (89 holes) of diamond and RC drilling achieved 2012 YTD 50 1 NI compliant resource as at Mar 31, Historical resource identified by IOC prior to 1983 were not prepared in accordance with NI

51 LIM Canada s newest iron ore producer Current operation with sustainable production of 2.0 million tonnes per year of iron ore Superior leverage to the recovery in the iron ore spot price Production growth: potential to double production with Houston Project Exploration value: Numerous targets to extend mine-life NI Resource 45 MM tonnes 1 Additional historical resource 121 MM tonnes 2 LIM infrastructure: direct rail link to port, processing plants, roads, airstrip and hydro power Experience and Expertise: Diversified/strengthened team with greater understanding of operations Current production with superior leverage to iron ore prices 1 NI compliant resource as at March 31, Historical resource identified by IOC prior to 1983 were not prepared in accordance with NI