DSO Project

Project Development (February 6, 2012)

Tata Steel Minerals Canada Ltd. website

Portions of the following information are based on assumptions, qualifications and procedures. For more information, please consult our legal page.

Background

NML’s strategy is to develop the DSO Project first because it is a smaller scale project with a relatively low capital cost. The DSO Project will transition NML into an operating company and generate near-term cash flow. The DSO Project is actually a brownfield site where the Iron Ore Company of Canada (IOCC) carried out mining operations from 1954 to 1982, when operations were closed due to difficult global economic conditions and a restructuring of the North American steel industry, which then formed IOCC’s principal ownership. Also, demand for products from the Schefferville mines had fallen off because quality was relatively low at 58-60% Fe. About 250 million tonnes of ore remained in the ground when IOCC ceased operations. NML acquired 25 deposits, some partially developed, containing an estimated 120 million tonnes of historical resources. Various infrastructure installations are available to service the operation, including the town site, airport, hydroelectric power station, access roads, and rail connection to the port of Sept-Iles.

NML’s primary goal is to expedite and develop its giant taconite resources, but Tata Steel, long time operator of iron ore mines in India, preferred to first acquire operating experience in Canada through the DSO Project as a starter before considering the more significant Taconite Project.  Tata Steel signed an agreement with NML on September 24, 2008 providing the option to jointly develop the project, based on the review of a feasibility study NML was to complete. Under the terms of the agreement, Tata Steel would fund up to $300 Million for capital costs and purchase the entire production for the life of the mine. NML completed the feasibility study in February 2010 and the results demonstrated the economic viability of the project. Pilot plant tests confirmed that the ore can be processed to yield high quality products with a minimum Fe of 64.5% and primary impurities (SiO₂+Al₂O₃) less than 4.5%. The capital cost was estimated at $335 million and the IRR was 21% at an assumed price of US$ 64.5/tonne. (For further details refer to NR 10-02).

In September 2010, Tata Steel exercised its option to invest in the DSO Project. A joint operating company was formed for project implementation called Tata Steel Minerals Canada (TSMC). Based on the joint venture agreement between the two companies, Tata Steel owns 80% of TSMC and NML owns 20%. AECOM Technology Corporation (AECOM) of Montreal, Québec, was appointed as an EPCM Contractor to undertake the construction of the project with production anticipated for the second half of 2012. Based on the feasibility study, various technical and engineering details of the project are summarized in the following sections . The supporting NI 43-101 reports are also appended (please refer also to the legal page of this web site).

The DSO Project has been designed to consistently produce high quality products that is expected to meet or exceed customers’ requirements. Sintering tests were undertaken by Tata Steel Europe and the performance was found to be satisfactory. The plant design was optimized to attain high (>80%) recoveries. The design contains several innovative/productive features in order to achieve low operating costs on a sustained basis.

These are:

• Anticipated year round production instead of oversizing the plant for seasonal operations;
• Blending of the ore to ensure consistent feed to the plant and longer economic life of the mine;
• Use of mineral sizers to treat the soft and sticky ore;
• Drying up to 2.5% or lower to prevent freezing during the winter by utilizing waste heat from the diesel generators;
• Overhead storage silos and rapid train loading system to reduce the cycle time.
  

Geology

Historical Exploration and Development

Most of NML’s 22 deposits occur in three areas that were originally discovered by geologists working for Labrador Mining and Exploration Co. Ltd. (LM&E) and Hollinger North Shore Explorations Ltd. (HNS). In 1949, IOCC was formed to develop and mine all the deposits outlined by LME and HNS. IOCC carried out detailed development work on each of the deposits to classify them under measured, indicated and inferred categories. When IOCC ceased its mining operations in 1982, these deposits were left at various stages of development and the claims were allowed to lapse.

Since 2004, NML has staked several blocks of claims to cover the deposits in NL and QC that were previously developed or intended to be developed by IOCC, as well as any other potential sources of DSO. As blocks were acquired, NML initially carried out preliminary field investigations to outline the surface extension of the deposits by locating old drill holes, test pits and trenches.

DSO Deposits

Regional Geology

The DSO property is located on the western side of the Labrador Trough ("the Trough"). The Trough is comprised of a sequence of Proterozoic sedimentary rocks, including iron formation, volcanic rocks and mafic intrusions known as Kaniapiskau Supergroup. The Kaniapiskau Supergroup consists of the Knob Lake Group in the western part of the Trough and includes the Ruth Formation and Sokoman Formation, which are the principal sources of iron ore.

Types of Ore

The DSO deposits occur in NW-SE trending, highly folded and faulted iron formations. The ore is confined to synclinal structures bound by high angle reverse faults to one side. The ore is produced due to the removal of silica/chert by meteoric waters percolating through fracture and fault zones and by secondary enrichment with goethite. In general the average iron content of the DSO has increased to 58.0% from around 30.0% in un-leached iron formation. The DSO ores occur in three main types that can be distinguished by colour:
Blue Ore: This type of ore is derived mainly from cherty oxide facies of the iron formation. It is composed of fine-grained blue hematite with lesser amounts of red hematite, martite, and goethite. The ore may be friable and crumbly or even form hard lumpy ore.
Yellow Ore: This ore referred to as SCIF ore is derived from the silicate-carbonate facies and is composed mainly of goethite, limonite and martite. The ore is generally ocherous in appearance and has a high proportion of very fine grained material.
Red Ore: This ore is composed mainly of earthy red hematite, goethite, alumino silicates (clay) and fine chert. It is derived from the iron rich part of the Ruth slate.

Drilling

Iron Ore Company of Canada (IOCC) carried out drilling operations with varying intensity in several of the 25 deposits. The following table gives details of the drilling carried out by NML since 2008.

Resources

Based on the drilling conducted during the years 2008 & 2009, classified resources were made for five deposits in Area 4 and for five deposits in Area 2 & 3. The following table gives the details:

NML’s DSO Project contains 64.1 million tonnes of Proven and Probable Mineral Reserves at an average grade of 58.8% Fe, 8.1 million tonnes of Measured and Indicated Mineral Resources at an average grade of 58.8% Fe, 7.2 million tonnes of Inferred Resources at an average grade of 56.8% Fe and about 40.0 - 45.0 million tonnes of historical resources that are not currently in compliance with NI 43-101 (see NR 09-03 dated February 11, 2009, NR 09-05 dated March 4, 2009, NR 09-16 dated December 9, 2009 and NR 10-12 dated July 8, 2010). A qualified person has not done sufficient work to classify the historical estimate as current mineral resources or mineral reserves, NML is not treating the historical estimate as current mineral resources or mineral reserves and the historical estimate should not be relied upon.

Airborne Gravity Gradient and Magnetometer Survey

DSO deposits are concentrations of hematite, martite, goethite and minor amounts of magnetite. The contrast of density between the mineralized area and the enclosing host rock is the main factor in outlining potential DSO targets using the gravity method. A strong gravity anomaly with a coinciding weak magnetic response over the iron formation will point to a potential DSO target.

In September 2010, FUGRO Airborne Surveys conducted airborne gravity and magnetometer survey over the DSO properties located in the provinces of Quebec and Newfoundland and Labrador. The survey data was processed and compiled by FUGRO to NML. The geophysical consultant for NML interpreted the data and outlined more than 50 DSO target areas for exploration (see NR-1103). These additional sites could potentially increase the DSO mine life and/or production rates. Additional information will be provided after further investigations of the most promising sites.

MINING OPERATION & SITE INFRASTRUCTURE

Of the 22 deposits in the DSO Project, 10 have been sufficiently drilled to report NI 43-101 compliant resources. Ten deposits were considered in the feasibility study, which demonstrated a mine life of at least 10 years. Mining will consist of open pit operations. At least two pits are expected to be mined simultaneously in order to achieve the blending requirements for the grade, as well as for the ore quality. Management expects that it will be a conventional drill & blast operation with front end loaders and haulage trucks of capacity between 135 to 165 tonnes. Rubber tired front end loader will be used to load the trucks because of the versatility and mobility of these machines. The equipment can be moved with ease to different pits, as necessary, in order to meet the blending requirements.

The stripping ratio is expected to be 1:1 and the expected weight recovery is estimated to be over 80% in the plant. Management estimates that the daily mining rate will be 28,000 tonnes. The mining is expected to be carried out in 10 m high benches. Drilling is expected to be performed with large diameter rotary blast hole drills with sufficient sub-grade to result in smooth bench surfaces. Most of the ore will not require drilling and blasting, because it is soft after leaching and weathering of the rock. However, the waste material and permafrost areas will require some blasting. The explosive is expected to be an emulsion pumped directly into the blast holes by the manufacturer and sequentially detonated to minimize noise and vibration.

NML’s DSO deposits are located within two separate clusters as denoted in the map. The first two years of operation are expected to be carried out in Areas 2 & 3 called the Timmins area. The processing plant and other facilities are expected to be permanently established in the area. This area was part of IOC’s operations and is a brownfield site: some of the pits have already been stripped of waste, there are existing roads around the pits and to Schefferville, and a high quality rail bed exists between the planned plant site and the connecting point to existing rail lines to the Port of Sept-Iles. 

The mining operation will then move to the north in Area 4, which is called the Goodwood area.  This is where the bulk of NML resources are located. A 38 km haul road is expected to be built to transport the ore in trucks to the process plant. Many scenarios were considered for the plant location and method of transport, and the final decision to haulthe ore by truck to a process facility located in Area 3 was determined to be the most economical option. Although Area 4 is a greenfield site, the terrain is relatively flat with minimal water and tree coverage. Only a minimum of facilities will be built in this area to support the mining operations.

The DSO Project is expected to operate year round, 24 hours per day, 7 days per week. Management anticipates taht the workers will be on a schedule of fourteen 12 hour shifts, followed by 14 days off duty. A camp having a capacity of 200 persons will be located near the plant site and will include dining and recreation facilities, as well as a medical dispensary. Because the area lacks sufficient hydro power capacity to service the mine, an adequate diesel generating capacity is expected to be installed to supply the operation. The waste heat from the exhaust will be recuperated during the winter for use by the process plant.  

Processing:
The DSO testing program began in 2008. The objective was to develop an optimum process flowsheet that would achieve the required product grades at acceptable recovery rates. The tests were performed with surface bulk samples from 10 selected deposits, which were collected from excavated trenches. These deposits were chosen on the basis of the mine plan to ensure representativeness of the collected samples. These samples represented all three ore types: blue, yellow and red. Tests were designed to determine their individual metallurgical characteristics. In total, 11 – 10 tonnes of bulk samples were obtained for testing purposes.

A detailed test program was designed to evaluate chemical, physical and metallurgical characteristics of different ore types, as well as at different locations, so that a blending program could be developed to ensure the delivery of feed of consistent quality to the plant. The test results were used to select and design appropriate process equipment to upgrade the ore to the required specifications. Adequate quantities of products were processed, using selected flowsheet options, for metallurgical evaluation by the customer.

The tests were conducted in different independent laboratories as well as facilities operated by equipment/technology suppliers. There has not been much previous testing to upgrade DSO type ores in Canada and the liberation characteristics of the ores are not well documented. NML undertook a very comprehensive test program to develop a basic understanding of the behaviour of the ore during processing and to select beneficiation equipment to efficiently upgrade the ore to the desired product grades. Collaborative efforts between NML, its partner Tata Steel, the labs and suppliers have resulted in a process with low operating costs and a product recovery greater than 80%.

Block Flowsheet of Spiral-Hydroclassifier-WHIMS option

The process plant will comprise of three main sectors for mineral sizing, processing/dewatering and product storage/load-out. The mine trucks will directly feed the mineral sizing station, which will be located near the process plant. The sized ore is expected to be conveyed to a surge bin before being fed to a drum scrubber. The scrubber discharge will be screened into two fractions. The coarse fraction which is expected to be fed to the fine jigs for upgrading and the finer fraction is expected to be pumped to the gravity upgrading circuit consisting of spirals and hydroclassifiers which will produce a final concentrate. Tails are ecpected to be processed in the Wet High Intensity Magnetic Separation (WHIMS) circuit which will recover the fine hematite particles as super fine products.
During the summer operation, the filtered products will be conveyed directly to the designated storage bins in the load-out area. During the winter months, the filter cake moisture is expected to be reduced to prevent freezing of the concentrates in the ore cars. The load-out system was designed to load a 240-car train every two days. Both products are expected to be loaded on the same train at a rate of 4000 t/h. 

Rail & Port
Four different rail links are involved to transport the products from the mines to the port:

1. First is a 20 km railway spur line from the Timmins plant area which connects to the Tshiuetin Rail Transportation line located south of Schefferville. This spur line is expected to be built entirely in Quebec making it a provincially regulated railroad. Management expects that the operation of the trains on this line will be subcontracted to an independent third party. It is anticipated that one ore train will haul the products every second day and bring in materials and supplies required for the operation.
2. When the train reaches the Tshiuetin Rail Transportation Line (TSH), the operation will be taken over by the TSH. TSH will haul from the south of Schefferville to the Emeril siding near Ross Bay Junction, a distance of approximately 205 Km.
3. An exchange yard at Emeril near Ross Bay Junction is expected to be constructed to switch the TSH operated train to a Quebec North Shore and Labrador Railway train (QNS&L) by exchanging the locomotives. This third section is 347 km belongs to QNS&L, and the trains will be operated by QNS&L.
4. The final link is at Arnaud Junction near Sept-Iles. Here, there will be another change of crew and locomotives. This last link belongs to Arnaud Railway, which in turn belongs to Wabush Mines. NML’s train is expected to be hauled to a rotary car dumper at Pointe Noire, a distance of 35 km.

Port Infrastructure
At the Pointe Noire port, a rotary car dumper will unload one gondola car at the rate of 5,000 tonnes/hour. The products are expected to be segregated and stockpiled in different piles by a stacker reclaimer. Products will be reclaimed and conveyed to existing ship loaders located at the wharf owned by the Sept-Iles Port Authority. The wharf can accommodate ocean going vessels with capacities up to 130,000 DWT.

Environment:

The DSO Project used design as a primary means of avoiding its environmental impacts:

• the processing and related structure was located in a “brown field” area that had already been affected by mining activity between the 1950s and the 1980s;
• fish-free abandoned mines will be used to dispose of tailings and process water, thereby avoiding some of the major negative impacts often associated with mining;
• supplies will be brought in and/or exported using an existing railway;
• existing mining roads will be upgraded and used to the extent possible to provide access;
• the existing airport at Schefferville will be used.

Where already impacted areas or existing infrastructure cannot be used, state-of-the-art mitigation techniques will keep impacts to a minimum, and impact and benefit agreements will compensate the affected First Nations for unavoidable impacts.

NML has obtained environmental releases for the first two phases of the DSO Project from the governments of Newfoundland and Labrador and Canada. The environmental assessment of the first phase of the DSO Project in Quebec is at an advanced stage and is progressing smoothly.

Construction Progress:

Following the conclusion of a positive feasibility study, Tata Steel exercised its option to invest in the DSO Project in September, 2010. A joint venture company named Tata Steel Minerals Canada (TSMC) was established to build and operate the mine. TSMC has set up a separate office and staffed by a core group of management and technical personnel. TSMC is assisted by NML’s personnel, which were involved in the feasibility study. As construction progresses, TSMC will start hiring operating and support personnel. 

Potential employees, service suppliers, and equipment suppliers should contact Tata Steel Minerals Canada (http://www.tatasteelcanada.com).

After the formation of the joint venture company, TSMC formally took over the project. AECOM Technology Corporation (AECOM) of Montreal, Québec was appointed as the EPCM Contractor to undertake the construction of the Project. AECOM has started the engineering and procurement of the long delivery items. AECOM is also preparing for the beginning of the construction.

The first field activity involves the installation of a 200 man camp to house the construction crew. Site preparation commenced in August 2011. All modules were assembled in December 2011. The next activity will involve the erection of the covering dome, so that equipment installation can continue during the winter.

NML and Tata Steel are developing a 4.0 Mtpy direct shipping ore (DSO) project through the formation of a joint venture company called Tata Steel Minerals Canada Ltd. The DSO Project is under construction with first production expected during the third quarter of 2012. All of the output will be consumed by Tata Steel’s operations in Europe.

On September 8, 2011, NML's Board of Directors visited the DSO Project site to review the construction progress and formally mark the commencement of site activities.