Anglesey Mining: Shares advance while Labrador Iron Mines nears commercial production

Anglesey Mining’s (LON:AYM) shares advanced nearly 8 percent in early deals this morning, boosted by news of a new technical report on Labrador Iron Mines (TSE:LIM) iron ore projects in Western Labrador and North Eastern Quebec.

This is the latest in a series of announcements that are transforming Anglesey's prospects. The LSE-listed company owns 41 percent stake in LIM, which is developing a number of direct shipping ore (DSO) iron projects in the Schefferville area in Canada. 

LIM plans to start production from the James and Redmond deposits this spring. The mined ore will be processed at the Silver Yards plant – which has just been built.

Specifically commercial production is expected in April, with LIM forecasting shipments of 1.5 million tonnes of ore in 2011, ramping up to 6 million tonnes a year after several years.

Events at LIM’s Schefferville projects have helped transform both Anglesey’s prospects and its share price, which has enjoyed a near four-fold increase since the summer months of 2010. Since late August Anglesey shares are up around 280 percent, rising from 25 pence and peaking at 93.875 earlier this month. 

At 10:00 am Anglesey share were up 6.375 pence, 7.8 percent, changing hands at 88.5 pence a share.

Against the backdrop of stronger equity markets and commodity prices, LIM has made swift progress since it quite literally cleared the barriers that stood in the way of its mine development project – in September it reached an agreement with local First Nations, which led to the removal of barriers that had restricted normal access from the town of Schefferville to adjacent mining properties.

Since then it has been fast tracking development work. This morning’s report was prepared following recent metallurgical testwork and the completion of the construction of the Silver Yards processing plant facility, and the start of the initial mining phase at the James deposit. 

It has also agreed a life-of-mine rail transportation contract with Quebec North Shore and Labrador Railway Company (QNS&L), who will take LIM's iron ore from Emeril Junction in Newfoundland and Labrador to the Port of Sept-Ȋles. In 2010 the port carried 30 million tonnes of iron ore making it Canada’s largest iron ore export port. 

Crucially LIM recently completed a new resource estimate for the Houston deposit – which is slated for mining in 2013 – and the Denault deposit. 

On the 11 February it announced a new 19.4 million NI43-101 compliant measured and indicated resource which was a significant increase over previous estimates. On 4 March 2011 LIM unveiled a new 6.4 million tonne NI43-101 measured and indicated resource estimate for Denault. It also represented a significant increase over the 3.7 million tonne historical estimate for the deposit.

These new resources have enhanced LIM’s plans for the Schefferville project.

LIM has now defined 37 million tonnes of direct shipping hematite iron ore resources across the first four deposits. It also has a further 125 million tons of historical resources on its other properties that were defined by the Iron Ore Company of Canada (IOC).

The report proposes various additions to the Silver Yards plant and discusses a preliminary production schedule for the current resources. It also considers the future development of a further twelve deposits containing historic resources through to the year 2028. 

Recommendations are also made for further exploration on these deposits, as well as other associated work to advance the deposits towards production. 

In Stage One LIM will start mining from the James and Redmond deposits with the ore being processed at Silver Yards. 

Originally the Houston ore was planned to be treated at Silver Yards but in light of the recent Houston resource upgrade the report suggests that a new stand-alone plant is built for Houston and the other nearby deposits. Therefore the Stage Two contemplates the construction of a second plant which will also process ore from Houston. This is expected to start in 2013.

Subsequent stages will see other plants and deposits coming into production further into the future.

So far only the James and Redmond deposits and the Silver Yards plant have permitting – after LIM completed environmental assessments. More environmental assessment and permitting work is required for the other deposits. 

Similarly the detailed mine design and metallurgical testwork has been carried out for James and Redmond, which form the basis for production for the initial years, and further exploration, testwork and design is needed for the other resources. 

The report estimates the additional capital costs for the Silver Yards plant projects to be $3 million in 2011, and about $35 million in 2012. The initial capital cost of the Houston mine project is estimated at $5 million in 2012 and 2013.

It estimates that the new Redmond Plant will cost about $35 million in 2012 and 2013 - based on the actual cost for Silver Yard but with just a single line design. There is an additional $8 to $10 million cost of re-laying a rail line to Redmond. 

Meanwhile average operating costs are estimated at around C$50 per tonne, for the James-Redmond Silver Yards Project. LIM said that 2011 is considered to be a start-up year and initial unit operating costs are expected be about 10 percent higher than average.