What’s your background and what attracted you most to Oceanic Iron Ore?
I was most recently Executive VP of Operations at Goldbrook Ventures. Prior to Goldbrook, I was VP Operations at Jien Canada Mining’s Nunavik Nickel Project and Operations Manager at Baffinland Iron Mines Corp.
Oceanic Iron Ore’s (TSX: V.FEO, Stock Forum) location on the coast makes us the most compelling development stage iron ore story in the world. This is because we require no rail and can load product directly on to a ship resulting in lowest quartile projected operating costs of any of our peers globally. My recent assignments are all relevant in respect of northern projects, northern shipping, and northern iron development and have provided significant insight into recognizing the distinct advantages associated with Oceanic’s coastal deposits and best approach to its development.
What differentiates Oceanic the most amongst its peers?
Our location on the coast and lowest quartile projected operating costs is our most meaningful differentiator. This presents us with a development execution and timeline that is fully independent of third party infrastructure and / or other industry partnerships. We are in control of all of the associated infrastructure requirements and as a consequence are in control of the timeline from construction to production.
We have a massive asset with over 1.5 billion tonnes supporting a 30 year plus mine life, which at full capacity, post expansion, will be among the largest operating mines in North America. The grade, chemistry, and metallurgy are excellent, which will result in high demand from steel producers all around the world.
In your recent financing you announced you’ve engaged CapitalAsia as a strategic advisor in respect of strategic partnering initiatives focused on China. What is the significance of this? Did they also participate in the offering?
The significance of engaging CapitalAsia as a strategic advisor is this gains access by Oceanic to their network in China. Because CapitalAsia also has a presence in North America there is a fundamental comprehension of what it takes to get a deal done from our perspective and theirs. The objective is for CapitalAsia to bridge access for Oceanic to the obvious parties that will have an interest in a project with our distinct attributes.
Sino-Canada Natural Resources Fund has invested $3 million. The Sino-Canada Natural Resources Fund was set up with a specific mandate to invest across the natural resource sector in Canada and they have specifically targeted high growth potential natural resource companies. Sino-Canada’s investment in Oceanic Iron Ore validates Hopes Advance as a world class project and demonstrates confidence on their part in the potential to reach a deal with a strategic partner to the benefit of all Oceanic shareholders.
“Oceanic Engages CapitalAsia Investment Holdings Group as a Strategic Advisor and Announces Financing” http://oceanicironore.com/_resources/news/nr_05_21_2013.pdf
Are you in discussions with any strategic partners?
Yes, and the effort has intensified since we concluded the CapitalAsia advisory arrangement. At the time we announced the arrangement with CapitalAsia I was in China and they were assisting us with a number of meetings there with several steelmakers and banks over a two week period. Engaging a strategic partner or partners is the next significant catalyst in unlocking value for the Company. Economic activity and the signing of strategic deals for projects like ours slowed considerably as the administration in China was transitioning in late 2012 and early 2013. We’ve detected a pick-up in interest since the new leadership was established and with the additional support of CapitalAsia.
In addition to the CapitalAsia deal, two recent events have had a positive impact on the progression of this objective; first is the completion, last fall, of our pre-feasibility study complete with full metallurgical test work and pilot plant; and second is the completion of the leadership change in China. While our efforts are not entirely confined to China, obviously Chinese enterprises are a significant target recognizing China’s global dominance in steel production.
Having spent a couple of weeks in China very recently what are your observations and how do they fit with the views regarding China’s growth slowing and the demand for iron ore going forward?
China is a very interesting country and it has come a long way in transforming both economically and socially. I visited about 10 major cities in a number of provinces and it’s clear that the country’s urbanization efforts are continuing. In many cities when you look out over the horizon you see overhead cranes perched in every direction. All of those cranes are lifting steel and concrete. In Wuhan I estimated several hundred in an area of about 10 square kilometers. Other major cities are similar.
We know that China’s progress to urbanization is only a little more than half completed. We also know that there have been inflationary pressures in the country and that the central government is attempting to manage the effects of inflation. As a consequence recognizing that costs, and particularly labor costs, are increasing it seems logical that China will attempt to complete its urbanization program sooner than later, so that the associated costs are minimized. The need for further urbanization is supported by the distribution of labor in the country. While the distribution has shifted, 40% of China’s workforce is still employed in the agricultural sector. This percentage should decrease to about 10% as additional technology is added to improve the productivity of China’s agricultural output. As a consequence this means more people moving to urban areas and becoming employed in other sectors – manufacturing, technology, finance, etc. and therefore expanded housing and infrastructure all requiring steel.
Beyond this, as the country’s GDP continues to grow the standard of living will continue to improve and the steel industry will transform from steel produced primarily for infrastructure to steel produced for consumer goods. This steel requires higher quality and that is where the demand for iron ore of the quality of Hopes Advance becomes very interesting. I think demand will continue to increase and demand for products like ours will increase at a higher rate than others.
I think however that Chinese companies, both state owned and private enterprises, will be more systematic and deliberate in their future resource sector investments. They will be seeking out high quality, low cost, assets that offer strategic benefit to the country. These will include iron ore, copper and other base metals, platinum group metals, potash and uranium. I also think there will be growing demand for gold recognizing Chinese investors are fixed on hard assets and currency. Hopes Advance qualifies well as a project that meets these criteria in the iron ore sector and also offers diversification from the traditional supply sources that China views as advantageous.
What are Oceanic’s most appealing qualities from a strategic partners’ perspective?
Our location on the coast resulting and the lowest projected operating costs among current producers and development stage companies in Canada, as well as being located in a safe jurisdiction in Canada, where there is abundant supply of water, skilled labor, and a full network of service providers focused on the mining sector is extremely important as is the product quality, size, and scale, of the asset and experience, depth, and track record of the management team in executing projects and operating large scale mining projects and companies.
What else is the company working on to accelerate the process of securing a strategic partner?
We recently concluded a Product Value In Use Marketing Study that confirmed the high grade of the Hopes Advance product at 66.6% Fe versus the 62% Fe benchmark. An estimated 10% premium can be anticipated due the product’s high quality and low impurities.
The Marketing Study has broadened the Company’s strategic understanding of the market for its future Hopes Advance iron ore products and projects that steel producers in China, Korea, Japan and Taiwan, would all benefit considerably from the product’s superior chemistry. In particular it focused on how high quality iron products from the Hopes Advance project might blend with current steel manufacturers feed sources to enhance steel quality and blast furnace results.
“Product Value in Use Marketing Study Confirms High Value and Marketability of Hopes Advance Iron Products” http://oceanicironore.com/_resources/news/nr_2013_04_25.pdf
In addition, we are currently conducting Product and Shipping Optimization Studies, that supplement earlier work done in these areas and further refine how we approach product attributes, increase our understanding of end users and logistics as we move closer to production.
The Product Optimization Study will further enhance the Company’s understanding of the full range of process and product capabilities for the Hopes Advance Project helping to ensure a broad base for future off-take product agreements, including the maximization of potential premiums and the optimization of the Company’s targeting of potential future end user markets and potential development partners.
The Shipping Optimization Study supplements AMEC’s previous report from September 2011, which concluded the Company’s plan to ship year round to both Asia and Europe is feasible. The Optimization Study will evaluate the optimal transshipment approach for future product deliveries to the Asian market and will refine views on transshipment location, logistics and the incremental costs associated with repositioning cargo from dedicated ice class vessels to market vessels at the transshipment location
The Product and Shipping Optimization studies are being carried out by third party firms and will be completed and be made available to us in Q2 and Q3 of 2013 and will form integral pieces of our bankable feasibility study.
Has CN Rail’s decision to suspend the construction of the proposed rail line and terminal handling facility helped highlight Oceanic’s location on the coast and “no rail” advantage?
Absolutely. CN Rail’s decision is effectively an endorsement of what we’ve been saying all along that our “no rail” advantage means we control our own destiny and do not need to rely on third party infrastructure like many of our peers. Certainly our recent meetings in China would indicate that potential partners are recognizing that the current infrastructure further south in the Labrador Trough has limited capacity and that there are advantages in being self-contained.
Is the environmental assessment work going according to plan?
Yes. We continue with the environmental assessment work and have made continued progress. This is an essential element of the project and, assuming our strategic partnering and project financing objectives are met as we currently anticipate, the project permitting is a critical path element for the project and therefore we continue to maintain it as a high priority.
What impact do the proposed changes to Quebec’s Mining Tax Regime have on the Hopes Advance project economics?
The Company undertook a preliminary evaluation of the announced changes to the Quebec mining tax regime and concluded the proposed changes do not materially affect the economics of its Hopes Advance project, based on the assumptions made in the Company’s Pre-feasibility Study released last fall.
The Company’s assessment, based on the proposed regime, after applying the additional tax credits associated with processing, suggests that the after tax project Net Present Value (8%) will decrease by approximately 2.7% or $86 million to $3.1 billion, and the resulting decrease of the project’s Internal Rate of Return is estimated at 0.2%.
Recognizing the robust economics of the project this announcement really has no impact on our plans for developing the project and certainly is not material. As indicated it is important to recognize that Canada, politically, is a very stable geographical region and on balance remains an attractive location to invest in major resource projects.
When do you anticipate the completion of your feasibility study?
The delivery of the final feasibility study, as we currently see it, will have a relationship with the timing of the strategic partnering agreement. While we have started into the work we anticipate the future strategic partner contributing to the cost for its completion and delivery. This approach is being taken in order to minimize the dilutive effects of an equity placement on existing shareholders given the current state of the equity markets as well as allow input into key parameters of the Hopes Advance Project from a potential strategic partner. We will however maintain all options open and will continue to evaluate the best approach as we move forward given the fluid nature of both the capital markets and our efforts with strategic partnering.
Overall, you sound optimistic about the development prospects for Hopes Advance.
Yes, we are very optimistic. The team has been working hard at unlocking the significant value associated with Hopes Advance. We are focused on the delivery of the next value catalyst, we’ve engaged capable advisors, we are seeing direct interest for investment with Chinese based funds, we retain our loyal shareholder base, and we will continue to be relentless in our pursuit of a capable strategic partner and advancing this best in class project to construction and production.
Disclosure: Oceanic Iron Ore is a Stockhouse client.