The Taconite Project

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

Overview:

The Taconite Project consists of two deposits: the LabMag deposit located in the Province of Newfoundland & Labrador and the KéMag deposit located in the Province of Quebec. In March 2011, NML and Tata Steel signed a binding heads of agreement regarding the development of the project. Tata Steel has an option to develop either one or both properties. If Tata Steel decides to develop only one deposit, NML will be free to develop the other deposit on its own or with some other partner. Both parties are jointly undertaking a feasibility study that is expected to be completed before the end of 2012.

The LabMag deposit, owned 80% by NML and 20% by Naskapi Nation of Kawawachikamach (NNK), was the first deposit acquired by NML. NML started to drill in 2004 and undertook a pre-feasibility study in 2006. In 2004, NML acquired the KéMag deposit based on the initial work IOCC had performed during the 1970s. NML started drilling in 2006 and determined that KéMag is a major taconite orebody. This deposit is 100% owned by NML. A positive pre-feasibility study was completed in 2009.

In October 2008, NML signed a strategic partnership agreement with Tata Steel, initially to develop the DSO Project as a starter project but with the expectation that Tata Steel’s primary interest would be to develop the bigger Taconite Project in order to attain self-sufficiency for its European subsidiary. Tata Steel had an option to conclude a transaction on the LabMag Project until June 2009. Due to the focus on the DSO Project, the option was extended until the end of 2010 to allow for more time for review and KéMag was included to provide Tata Steel with added flexibility. In March 2011, Tata Steel concluded an agreement with NML to undertake a feasibility study prior to making an investment decision on the Taconite Project by the end of Q1, 2013.

Pre-feasibility Study Results:

Independent pre-feasibility studies (PFS) were completed for each of the LabMag & KéMag Projects in order to provide development flexibility. The results of the LabMag and KéMag studies were published in 2006 and 2009 respectively. The two projects involve essentially the same type of ore and the same major project components. This meant that for the more recent KéMag Pre-Feasibility Study, NML was able to make many engineering design improvements to the earlier LabMag Pre-Feasibility Study. This has resulted in an attractive investment opportunity, even though the financial analysis was based on a conservative long-term price of US$ 89.8 per tonne of acid pellet. However, a realistic, longer term price would be in US$ 125/t range. The various criteria and assumptions are summarized below (see also the legal page of this web site):

Production: Annual production is expected to be 22 mtpy, 15 mtpy of pellets and 7 mtpy of pellet feed. Based on the market development work, it was assumed that three types of pellets will be produced: blast furnace (BF) grade acid, BF grade fluxed and direct reduction (DR) grade low silica pellets. DR grade has the most promising growth possibilities and commands a premium over blast furnace grade pellets.

Processing: The conventional taconite flowsheet, which is well proven, will be used for the feasibility study with some improvements. Semi autogenous grinding (SAG) mills are expected to be replaced by more energy efficient high pressure grinding rolls (HPGR). Two large pelletizing machines, each with a capacity of 7.5 mtpy capacity, are expected to be installed. A floatation circuit is also espected to be constructed to reduce the silica level for DR grade pellets.

Concentrating and transportation: 76 mtpy of crude is expected to be mined to produce 22 mtpy of concentrates at the mine site. The power will be available from the James Bay hydro complex. A power transmission line will be built. The fine concentrate (around 90% - 44 µm) is espected to be pumped via a 700 km long slurry pipeline to the Port of Sept-Iles. Slurry transportation is being used in many iron ore projects, located in Brazil, India and Australia, because of its low cost advantage compared to rail transportation. This has the potential to make KéMag the lowest cost pellet producer in North America.

Pelletizing and shipping: A pellet plant is expected to be built at the Pointe Noire dock area. The slurry is expected to be thickened and then stored in agitated tanks to feed to the pellet plant. The concentrate is expected to be upgraded as necessary, for low silica grade and DR grade pellets. The fired pellets are expected to be stockpiled in a storage yard and loaded into ships in a deep water port. It was assumed that a port to load up to 360,000 DWT vessels will be built.

Financial analysis: The capital cost was estimated to be $4.4 billion. At a PFS price of US$90/t for acid pellets, the internal rate of return (IRR) was calculated to be 21% with a payback period of 4 years.

Feasibility Study Progress:

The feasibility study was started in March 2011, following the signing of the Heads of Agreement ("HOA") between NML and Tata Steel. To complete the study, a team has been formed that consists of personnel from both NML and Tata Steel. The feasibility study will take between 18-21 months to complete, with an estimated cost of $50.0 million. Tata Steel will pay 64% of the study costs and NML 36%. An Engineering consultant (study manager) will be appointed with the responsibility to complete a feasibility study to be used to raise debt financing from financial institutions.  

The current status of the study is provided below. This section will be regularly updated to report on the progress of the study.

Flowsheet validation: NML undertook extensive pilot plant testing at the leading labs to develop an efficient and low cost concentrating flowsheet. Between 80 to 100 tonnes of bulk samples were tested for LabMag Block A & B deposits respectively As NML started to develop the KéMag deposit, the test work shifted to SGA Lab located near Gosler, Germany. Between 2007 and 2009, three pilot plant tests were carried out using 4-5 t samples in each case. The objective was to test different ore types and optimize the concentrating flowsheet to reduce operating costs. In addition, a flotation flowsheet has been developed at SGS Lakefield.

The objective of the current test program is to validate the selected flowsheet in conjunction with the Study Manager. 75 tonnes of bulk sample has been collected from the KéMag deposit. Samples are being crushed, assayed and blended at MRC. 25 tonnes of blended sample are expected to be shipped to SGA in Germany. Pilot plant test is expected to begin in November 2011. Similarly, 75 tonnes should be collected from LabMag Block A. Two pilot plant tests will be conducted to test two ore locations and produce sufficient quantities of samples for pelletizing tests.

Configuration of the pelletizing furnace: Pot grate tests were conducted to configure pelletizing circuit and determine the heat balance required to make quality products. Initial tests were conducted in 2006 at COREM in Quebec City and SGA in Germany. Subsequent tests were conducted at SGA during 2007 to 2009. All three types of pellets were produced and quality of products met the stringent specifications required by Western European steelmakers. DR grade pellets were tested by Midrex, the largest DRI plant supplier, and one Middle-Eastern DRI producer. DR grade pellets met the DR furnace’s quality requirements.

The concentrates from the pilot plant are expected to be tested in the pot grate furnace in conjunction with the Study Manager. The tests are expected to be used to validate induration machine design configuration and establish heat and airflow balances. Pellets must meet the quality requirements of the steelmakers and DRI producers.
    
Feasibility Engineering: Leading Engineering Consultants were requested to provide proposals to conduct feasibility level engineering. The Study Manager will be responsible to prepare the final report. The work will start with the design of the mine to the delivery of the pellets to a multi-user deep water port which will be built and operated by the Sept-Iles Port Authorities (SIPA). While the Study Manager will have the overall responsibility, it can form a consortium with qualified specialized companies to design various components of the project.

Environmental Assessment: Selected Environmental Consultants were invited to submit proposals to undertake environmental assessment studies. The studies will encompass the mine site, pipeline route and pellet plant site. The Consultant’s scope will include field data collection, impact assessment, public hearings, liaisons with the Authorities and preparation of the Environmental Impact Statement (EIS). On September 1, 2011, SNC-Lavalin Environment was awarded the work to prepare an EIS. The Consultant will be supported by several specialized sub-contractors. The field work has started and the EIS is expected to be ready to be tabled by November 2012.

LATEST DEVELOPMENT ON TACONITE PROJECT

On December 1st, 2011, NML announced that it engaged the Engineering Consulting company SNC-Lavalin (“Study Manager”), of Montreal, Quebec, to act as the Study Manager for the Taconite Project Feasibility Study, currently being undertaken by NML with Tata Steel. The Study Manager will manage and integrate the work of several specialized subcontractors, which are recognized as renowned experts in their respective fields. This work has already started. The final contract will be negotiated by the end of January 2012.

The Study Manager will be responsible for the preparation of a Feasibility Report to be used for making an investment decision as to the financing and development of the Taconite Project by Tata Steel.

The areas of responsibility for different specialized consultants are summarized as follows:

• Met-Chem Canada Inc., Montreal, Quebec: Mining
• Barr Engineering, Minneapolis, Minnesota: Concentrator and Upgrading Plant
• Brass Engineering, San Ramon, California: Slurry pipeline
• SNC-Lavalin, Montreal, Quebec: Tailings, site infrastructure, electrical transmission and product storage

Pilot plant concentrating and pelletizing tests are being conducted at Studien Gesellschaft für Eisenerz-Aufbereitung (“SGA”) in Germany. A Pelletizing technology supplier is expected to be engaged during the course of the study to design the pelletizing facility.