The engineered pits recover 67% of the current In-pit Optimized Measured and Indicated Resources totalling 691.3 Mt grading 31.5% FeT. The engineered pits limit the inclusion of In-pit Inferred resources to 45.8 Mt which are categorized as waste.
Additional drilling of the 480 Mt grading 30.4% FeT current Inferred Resources within the limits and proximal to the Optimized Pit Shells could provide additional Measured and Indicated resources required to double production capacity and support a second concentrator line that would produce an estimated 20 Mt of concentrate annually for a mine life of 20 years.
Financial Analysis
Compared to the result of the Preliminary Economic Assessment (see press release dated November 21st, 2011) the following main differences in the capital costs of the project are as follows:
-- Rail costs increased from $275.4 million to $1.334 billion, reflecting the estimate for a rail system from the CFLN Project to Point Noire at the Port of Sept-Iles as contained in the 2012 Feasibility Study prepared for Champion by Rail Cantech. However, $200 million of upfront costs in this rail scenario are attributed to Champion and $1.134 billion is financed via construction financing and repaid from project cash flows over a 12 year period.-- Concentrator and site infrastructure cost was increased by $145.9 million to support an increased concentrate production capacity to 10 Mtpa and a dual voltage substation.-- Pointe Noire port facilities cost was increased by $109.8 million after consideration to a more suitable storage location which could be expanded at minimal cost.-- Environmental cost increased by $83.4 million due to a cost underestimation in the PEA.-- All mining equipment is capitalized ($55.4 million) compared to the PEA where the mining equipment was leased.
The addition of these significant cost components clarify the project scope with regards to the project schedule and estimated budget. The financial model illustrates the robust economics of the West and East iron ore deposits on their own merit. With the adjacent resources within the CFLN project boundaries, the mid and long term growth profile of this project are exceptional (refer to Press Release dated January 9th, 2013).
The $US exchange rate is assumed to be at par value with the Canadian dollar. Table 1 provides the Net Present Values calculated at various discounted cash flow rates for the Base Case production scenario of 10 Mtpa of iron concentrate. The financial analysis in the PFS study used a sale price of $115 per tonne of iron concentrate ($/tonne is FOB Sept-Iles) for the first 5 years, and $110 per tonne for years 6 to 20. A sale price of $115 per tonne was used for the Updated PEA.
----------------------------------------------------------------------------Table 1: CFLN West and East Deposits Preliminary Feasibility Results (Pre- Tax)---------------------------------------------------------------------------- Internal Rate of Return (IRR) (8% Discount Rate) 30.9%---------------------------------------------------------------------------- Undiscounted Cash Flow $ 9.0 billion---------------------------------------------------------------------------- Net Present Value @ 5% Discounted Cash Flow $ 4.7 billion---------------------------------------------------------------------------- Net Present Value @ 8% Discounted Cash Flow $ 3.3 billion---------------------------------------------------------------------------- Net Present Value @ 10% Discounted Cash Flow $ 2.6 billion---------------------------------------------------------------------------- Payback Period (8% Discount Rate) 3.4 years----------------------------------------------------------------------------
