Thursday, 11 April 2013

Century Iron Mines poised for recovery as clear development path for production in motion

Century Iron's (TSE:FER) chief executive officer Sandy Chim says a number of factors that are at play will contribute to an expected uptick in the iron ore development company's share price in the near term, most notably being a much stronger position with respect to its iron ore projects in Canada. 
The company has seen management execute a slew of recent share purchases, buying more than a combined $600,000 worth of stock of late, with management now holding 22.8 percent of Century Iron's shares. 
According to filings last week, Chim, interim CFO Chun Wa (Ivan) Wong, and board member Ben Koon (David) Wong each purchased 500,000 shares at a price of 40 cents each in the public market. 
"Management has wanted to buy more shares for some time, but as an exploration company, we're always in the midst of a resource calculation or PEA, or in some financial black-out period, and have not been able to buy," Chim tells Proactive Investors in an interview last Friday. 
"But at the beginning of last week - our last piece of material information was press released, and management increased its share holdings." 
Starting in the fourth quarter of last year, the CEO says that the company's stock was pressured by a tougher iron ore spot market, as well as institutional investors that "needed to get out of the junior space". Those shareholders got out earlier this month, when management and directors, as well as some investors, bought about half the amount that was sold - or about 3.6 million shares. 
The iron ore space has also begun to recover, with spot prices touching as low as US$85 per tonne in the fourth quarter, now moving up to a level of about US$136 per tonne. 
"The underlying fundamentals in the general iron ore sector are much better, which should give us more value. Now that the Century stock overhang is also gone, we expect the shares will return to their normal stabilized condition to reflect the true value of the company," says Chim. 
In the past 12 months, the company's share price has gone from about $1.50 last April 2012 to its current trading price of 56 cents. But this is up from a low of 30 cents in mid-March 2013. 
Aside from the removal of the institutional overhang and the improvement in spot iron ore prices, the rally in its share price is also tied to company-specific reasons. 
In the span of one week starting in late March, Century Iron released preliminary economic assessment results for two its projects, further de-risking its assets. 
"What's different now from the end of last year is that we have published the first direct shipping ore (DSO) resource [at Joyce Lake] and two substantial preliminary economic assessments, giving us a more favourable scenario in terms of value," affirms Chim. 
Indeed, the most recent preliminary economic assessment was for its Joyce Lake DSO project, just days after announcing a similar report for its Duncan Lake property. 
The Joyce Lake NI 43-101 compliant report, based on 100 percent ownership, shows a pre-tax net present value of $94.5 million at an 8 percent discount rate for the property, which is located in the province of Newfoundland and Labrador, near Schefferville, Quebec. 
The internal rate of return was pegged at 35 percent pre-tax, with initial project capex estimated at $96.6 million including contingency, and a projected payback period of just less than three years from production start-up. 
The Joyce Lake DSO deposit is part of the Attikamagen project in which Century has joint ventures with Wuhan Iron & Steel Company (WISCO), the fourth-largest steel producer in China, and Champion Iron Mines (TSE:CHM). 
"This iron ore operation is our low hanging fruit - it has low capex, and is easier to take out and put into production. It also has good tonnage in terms of one single deposit, with 16 million tonnes."
Century's plan is to focus on the "low-hanging fruit", as the CEO calls it, first, with plans to put the mine into production by 2015, generating cash flow so the company can eventually deliver on its multi-billion dollar taconite projects - like its Rainy Lake property in Quebec - which require higher capex and financing. 
Direct shipping ore refers to iron ore that can be shipped directly to a steel furnace, with these mines typically rarer than magnetite-bearing banded iron formations, but considerably cheaper to mine and process as they require less beneficiation due to the higher iron content. 
The company, which is aiming to become a major iron ore producer, is one of the largest iron ore companies in Canada, in terms of number of claims by area. It has 6,493 claims and titles, covering some 198,779 hectares in the provinces of Qu├ębec and Newfoundland & Labrador. It has interests in four iron ore projects, none of which yet generate revenue.
According to a recent Credit Suisse report, Century is the sixth largest iron ore resource company in the world, with BHP Billiton(NYSE:BHP) taking the top spot. 
For the Joyce Lake project, the company published its preliminary economic assessment less than three weeks after the resource estimate was released, setting an optimized path to production and "demonstrating to the market [it] can work very quickly". 
Century also boasts two large backers in WISCO and MinMetals - which together hold almost 30 percent of the company, with WISCO also having an additional 40 percent in the company's assets under separate joint venture agreements. 
This means WISCO is funding Century all the way up to pre-production - or the bankable feasibility study level, allowing the company some flexibility with regards to raising the cash it needs to put its first project - Joyce Lake - into production. 
A bankable feasibility study for Joyce Lake is targeted for the end of this year, giving it between 12-18 months to wait for the market to turn around before raising more cash, Chim figures. 
The iron ore developer has around $40 million of cash in the bank - which the company says is sufficient to take it beyond 2014. It only needs about $60 million of the $100 million total estimated capex for Joyce Lake, with WISCO to pay the remaining balance. 
"We don't need to go the market for survival, and we are looking at non-equity financing alternatives," adds Chim. 
"Our strategy of targeting the DSO project first is very important. It's not practical to raise billions of dollars in the market at this point in time. It is however within reasonable reach to take on ‘bite-sized’ projects affordable from the point of view of our current market capitalization and perhaps even balance sheet.
"We need to start to walk before we can run and train our team to deliver on a small project so they can eventually deliver on Rainy Lake."
He says Rainy Lake is a very large deposit, and can be a part of the long-term solution for China, which imports some 750 million tonnes a year, making it the biggest iron ore market in the world. Indeed, the company already has an off-take contract with China’s WISCO. 
For its multi-billion taconite project, Century is looking at a $5 billion model for 20 million tonnes of production per year, but the target date for first output is still some years away. A preliminary economic assessment at the 16 billon tonne property is slated for the third quarter of this year. 
"We're being realistic, as we're not tied by one single project that will determine the fate of the company. We have a sufficient portfolio of projects to keep us going, allowing us to achieve our long term goals in strides," Chim says. 
In fact, the Joyce Lake project is only a starter for Century's DSO potential, as the company's CEO says there are a "number of targets" along strike from the property to expand production. "It's a short-term production scenario with a long-term sustainable plan," he concludes.

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