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6 September 2012
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Labrador Iron Mines Operations Update and Outlook
· 1.2 million tonnes of iron ore sold in year to date
· Capital programs deferred in weak iron ore market
Anglesey Mining’s 26% owned associate Labrador Iron Mines Holdings
Limited (TSX: LIM) today provides an update on its Schefferville Area
iron ore mining operations and guidance on capital spending programs
for the balance of 2012.
August Operational Highlights
· Three shipments of iron ore sold in August totalling ~520,000
wet tonnes.
· Year to date, LIM has sold seven shipments totalling 1.2
million wet tonnes of iron ore.
· In August, 275,000 wet tonnes were railed to the Port of
Sept-Îles bringing the year to date total rail volume to 1.1 million
wet tonnes.
· Construction of the Phase 3 expansion of the Silver Yards
process plant substantially completed, with all civil, structural and
mechanical works essentially in place.
· LIM remains on track to meet its sales target of 2 million
tonnes of iron ore in 2012.
Iron Ore Sales and Market Conditions
In August, LIM sold three cape-size shipments totalling ~520,000 wet
tonnes of iron ore in challenging market conditions.
Iron ore spot prices suffered a sharp decline in August, dropping more
than 20% in the past four weeks to US$90 per tonne on a 62% Fe CFR
China basis.
Port inventories in China remain very high, with Chinese
steel mills liquidating inventories and traders withdrawing from the
spot market.
It has been reported that some cargos offered for sale
have been withdrawn and sales by some companies have had prices
re-negotiated.
Non-standard or off-spec products, including LIMs
direct rail ore (“DRO”), have been difficult to sell, resulting in
delays and/or lower than expected prices.
Currently, LIM’s iron ore is re-sold by the Iron Ore Company of Canada
(“IOC”) through the Rio Tinto marketing organization on the Chinese
spot market.
LIM’s association and arrangements with IOC and Rio Tinto
enabled the placement and sale of LIM iron ore, which otherwise might
have been difficult.
The sale of LIM iron ore in August was made under
provisional pricing arrangements and subject to final settlement, which
occurs approximately one month after the ship has departed the Port.
The aggregate realized price of the three shipments sold under these
arrangements, consistent with forward swap pricing for September, is
expected to average about $30 – 40 per tonne less than LIM’s Q1
realized price of $122 per tonne on a CFR China basis.
Market commentators are speculating that the current iron ore spot
price is at or near a bottom, as the current spot price is below the
assumed marginal cost of domestic Chinese production and is currently
creating an unsustainable spread between domestic and imported iron ore
prices.
LIM continues to believe, in line with market consensus, that a
recovery in iron ore prices is likely as Chinese steel mills restock
and anticipates prices recovering to higher levels later in the year.
Going forward, LIM plans to produce only standard sinter fines and lump
and will continue to work closely with IOC and Rio Tinto to monitor
market conditions to seek to achieve the most favourable sales outcomes
under difficult market conditions.
2012 Capital Spending
In response to challenging market conditions and the sharp decline in
spot iron ore prices, LIM has undertaken a critical review of its
capital spending for the balance of 2012 and has implemented the
following measures:
· All capital expenditure programs relating to the Silver Yards
processing plant and development of the Houston deposits have been
deferred;
· The 2012 exploration program has been reduced to $5 million
from the original budget of $8.6 million;
· About $52 million of planned capital investment has been
deferred into 2013 in order to prudently manage LIM’s cash resources
and requirements.
LIM’s original 2012 budget for its capital investment programs totalled
approximately $112 million, of which $54 million has been spent or
committed to date and $6 million has been permanently cancelled.
Capital expenditure programs relating to the Silver Yards processing
plant have been suspended.
Construction of the Phase 3 expansion of the
process plant is substantially complete, with the main remaining items
being the installation of electrical equipment and instrumentation
work.
Commissioning of the Phase 3 plant is now planned for April and
May 2013 as part of the seasonal start-up.
Connection to the hydro grid power has also been deferred and is now
planned for completion in time for the plant start-up in spring 2013.
LIM has completed the expansion of the Bean Lake accommodation camp,
which has been doubled in size and is now operating with 140 rooms,
with no further capital investment required on the camp.
John Kearney, Chairman and CEO, commented: “During this period of
weakness and uncertainty in the iron ore market, it is essential that
we remain disciplined in our cash management and capital spending
programs and reduce operating costs.
Consequently, consistent with
announcements made by major iron ore companies, we have suspended some
capital investment programs and deferred others in order to focus our
resources on maximizing production in the short-term.
This decision
reflects a disciplined and pragmatic approach as we weather the current
challenging market conditions.”
James Mine and Silver Yards
The James mine operated at a rate of 28,000 tonnes per day (ore and
waste) during August.
The ore in the James deposits continues to be
soft and higher grade and lends itself to simple processing that does
not require washing.
Consequently, for the balance of 2012, LIM plans
to utilize its new lower cost dry classifying system to produce lump
and sinter and will not use the higher cost wet processing plant, which
is now being winterised.
The dry process stream has a design capacity
of 1,000 tonnes per hour (20,000 tonnes per day) with a mass yield
approaching 100%.
The James ore continues to be generally free digging, not requiring the
use of explosives, and the higher grade experienced in the upper
benches of the mine continues to be encountered as the mine gets deeper
and accesses the lower levels.
As previously reported, the bulk density
of the James ore is lower than originally anticipated resulting in most
of the deposit being of a higher grade but lower tonnage than predicted
by the geological model.
This also results in a lower strip ratio and
less waste being moved in the James mine pit, and lower operating
costs, in turn reducing the environmental footprint.
“Despite the many operational achievements to date, our current second
quarter is being impacted by the rapid drop in spot iron ore prices”
commented Rod Cooper, LIM’s President and COO.
“We have been quick to
respond and adjustments have been made with revised strategies in the
pit, process plant and rail transport to optimize production at the
lowest possible cost.”
LIM remains on track to meet its 2012 sales target of 2 million tonnes
of iron ore at a cash operating cost of $60 – $65 per tonne unloaded at
the Port and, subject to market conditions, plans for the sale of five
or six more cape-size shipments over the next four months before the
seasonal shut down in November.
All remaining sales during 2012 are
planned to be sinter fine and lump products.
Houston Development
All major capital expenditure programs relating to the development of
the Houston deposits have been deferred.
LIM will continue 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.
Ongoing drill
programs and hydrological and metallurgical testing will be continued
in 2012 in order to generate technical information required for
detailed mine planning.
Commencement of full construction activities at Houston is now planned
for 2013, subject to continuous assessment of market conditions and
receipt of the remaining permits, with initial production of Houston
ore targeted for the first half of 2014.
The delay in the development of Houston is currently expected to result
in LIM’s production target for 2013 being revised to a level similar to
2012, at about 2 million tonnes of iron ore, rather than the expanded 3
million tonnes previously anticipated.
However, when in production, Houston is expected to more than double
LIM’s current iron ore production and will represent LIM’s main
expansion project in future years.
Exploration
The 2012 exploration budget has been reduced to $5 million from the
$8.6 million originally budgeted.
As of the end of August,
approximately 4,000 metres (“m”) of reverse circulation (“RC”) and
diamond drilling has been completed.
Although exploration spending has
been reduced, the overall 2012 exploration program is still expected to
achieve more than 10,000 m of drilling as a result of cost efficiencies
and improved productivity.
For the remainder of 2012 the exploration program will focus on the
following drilling priorities: James South Extension (core); Stockpiles
(RC); Taconite (core): James Main and South – Metallurgical (core):
Houston (geotechnical, core and RC).
About Labrador Iron Mines Holdings Limited
Labrador Iron Mines is Canada’s newest iron ore producer.
It owns a
portfolio of direct shipping iron ore operations and projects located
in the prolific Labrador Trough.
The first full production season
commenced in April 2012 with a sales target of 2 million tonnes of iron
ore for the 2012 year.
LIM is focused on a strategic and robust growth plan arising from its
portfolio of 20 iron ore deposits in Labrador and Quebec, all within 50
kilometres of the town of Schefferville.
The James Mine is connected by
a direct rail link to the Port of Sept-Iles, Québec.
The area 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,
the objective is to provide shareholders with long-term value as
production and sales ramp up towards 5 million tonnes per year.
LIM is currently the only independently-owned Canadian iron ore
producer listed on the Toronto Stock Exchange and trades under the
symbol LIM.
About Anglesey Mining plc
Anglesey holds 26% of Toronto-listed Labrador Iron Mines Holdings
Limited which is now producing iron ore from its James deposit, one of
LIMs 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
where there is estimated to be a total historical resource in excess of
7 million tonnes at over 9% combined copper, lead and zinc.
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)2076 344700;
Emily Fenton / Jos Simson: Tavistock Communications +44 (0)20 7920
3155
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