winnipeg free press: ferro

sobre ferro:
Consolidated Thompson could double production at Bloom Lake mine: CEO

By: Kristine Owram, THE CANADIAN PRESS

25/01/2010 4:42 PM | Comments: 0

* Print
* E–mail
* Share This
* Report Error

TORONTO - Consolidated Thompson Iron Mines Ltd. (TSX:CLM) is hoping to double production at its brand new Bloom Lake mine, and it wants to begin the expansion process within two years, the company's CEO said Monday.

Bloom Lake, an iron ore mine on the Quebec-Labrador border, is currently ramping up production and should be ready to start shipping ore by the end of the first quarter or the beginning of the second quarter of 2010, president and CEO Richard Quesnel said in an interview with The Canadian Press.

Once it's producing at full capacity, Bloom Lake is expected to produce about 660,000 tonnes of iron ore a month, or eight million tonnes each year. But this could quickly double to 16 million tonnes a year if an expansion is decided to be feasible, helping to quench the seemingly insatiable demand for the metal used to make steel in China and other developing countries.

"We've been able to take a mine here in less than three years from scratch, building it and putting it into production," Quesnel said Monday. "We figure that if we get the green light and it comes in favourable and our board approves, we could be building and expanding within a period of 24 months."

The prospects for Bloom Lake helped make Consolidated Thompson the biggest gainer on the Toronto Stock Exchange in 2009, adding 563 per cent over the course of the year. By comparison, the TSX metals and mining index gained 276 per cent.

Since the beginning of 2010, shares in Consolidated Thompson have gained another 8.4 per cent to close Monday at $7.48.

In a recent research note, RBC Capital Markets analyst Robin Kozar said the miner "provides one of the most compelling growth stories in our iron ore coverage universe" and gives investors "the highest relative (net asset value) leverage to iron ore amongst its peer group."

The gain seen by the miner's shares over the past year is impressive, particularly for a company that didn't have any producing assets until very recently.

Quesnel attributes the rocketing value of Consolidated Thompson's shares to the production potential of Bloom Lake - estimated at more than one billion tonnes of iron ore - and to several other factors that make the company a particularly appealing investment.

Bloom Lake is in an area that has supported mines in the past, and therefore much of the necessary infrastructure, including roads, rail lines and power lines are already in place.

"This is a major plus because you're looking at less than $1 billion to develop those properties, whereas in a greenfield area you'd be looking more at $4 billion or $5 billion," Quesnel said.

Additionally, the fact that Bloom Lake is a brand new mine using the most modern equipment available means its production costs are in the bottom 25 per cent of iron ore mines in the world - between US$25 and $30 a tonne, compared with an average of $45 a tonne globally. This allows Consolidated Thompson to compete with much bigger producers, including Rio Tinto, BHP Billiton and Vale, Quesnel said.

Consolidated Thompson's fundamentals allowed it to secure two metal sales agreements with companies in Asia, where demand for steel has come back more quickly and strongly than in North America and Europe.

Under an agreement with South Korean company SK Networks Co. Ltd., announced in early January, Consolidated Thompson will sell one million tonnes of iron ore concentrate from Bloom Lake annually for 10 years.

And an earlier agreement with Wuhan Iron and Steel (Group) Corp., or WISCO, which operates the third-largest steel mill in China, will see Consolidated Thompson sell half of the ore produced at Bloom Lake to WISCO at market price. Under the agreement, WISCO also bought a 25 per cent stake in Bloom Lake and will have to contribute a quarter of the capital needed for any future expansion of the mine.

Quesnel said the partnership with WISCO has given Consolidated Thompson a "red carpet" into the massive Chinese market, where steel producers are increasingly looking to secure supplies of iron ore.

"WISCO, being a strategic partner, also wants to continue to grow with (Consolidated Thompson), maybe in the form of expansions at the property and other acquisitions that may be out there that would be very accretive to our shareholders," Quesnel said.

In addition, the income from its sales agreements could help Consolidated Thompson accelerate development at its other properties, including Peppler Lake-Lamalee, near Bloom Lake, which is currently undergoing a scoping study, Quesnel said.

Adding to Consolidated Thompson's investor appeal is the price of iron ore, which seems poised for a dramatic increase. Analysts are estimating anywhere between a 10 and a 30 per cent jump in contract prices for the metal due to a burgeoning demand for steel in developing countries.

Morgan Stanley economist Peter Richardson has predicted iron ore demand from China could rise by 6.2 per cent this year, while purchases in the rest of the world could grow by as much as 16 per cent. Patricia Mohr, a commodity market specialist at Scotiabank, has also predicted an increase in negotiated prices in annual contracts for iron ore.

Concerns about supply shortages have sent the spot price for iron ore up from a low in 2009 of US$48 per tonne to around $128 per tonne, while the current contract price is $65 per tonne. Spot prices tend to be indicative of where the contract price is headed, Quesnel said.