New Millennium Iron Corporation (OTCPK:NWLNF) is a junior iron ore miner with both construction phase and feasibility stage projects located in the heart of Canada's Labrador Trough. Founded in 2003, the company's stated mission is the expeditious development of the Millennium Range, a 210 km iron belt that is comparable to Minnesota's Mesabi Range, see picture below. This article will aim to give readers a historical background on the development of the company from its inception, as well as provide a Net Asset Valuation of the company's core properties: a construction phase project called the DSO, and two feasibility stage projects titled LabMag and KeMag respectively. It is my hope that the reader will clearly see that New Millennium offers investors significant value above its current market valuation of around $1.70 Canadian (closing price on 11/4/2011).
Millennium Iron Range: source nmliron.com
In 1960 a young geologist working for the Iron Ore Company of Canada "IOCC" was on an expedition near Howells Lake approximately 30 km's North West of Schefferville, Canada. Mr. Martin was searching for a high concentrate iron called hematite that the IOCC could directly ship out, which is often referred to as DSO. Instead Mr. Martin found a huge ore body of low quality iron known as taconite. While taconite has a low iron content relative to hematite the material can be beneficated in order to produce a high quality iron product that is often superior to hematite. At the time of LabMag's discovery taconite was cost prohibitive to produce, so Mr. Martin was forced to make a mental note of the deposit and move on. For more on the history of Mr. Martin and New Millennium, please see this 2009 article published in the international Resource Journal.
Four decades later, Mr. Martin teamed up with a group of seasoned iron ore executive to form the LabMag Mining Corporation, which went public the following year as New Millennium Capital Corporation. The initial focus of the fledgling corporation was to develop the large taconite body Mr. Martin discovered in 1960 which is known today as the LabMag deposit. For a more nuanced discussion of iron ore readers can refer to an article I wrote this past April titled "The Important Factors to Consider When Investing in Iron Ore".
Illustration of LabMag Deposit Courtesy of NMLiron.com
By 2005 New Millennium had drilled the vast majority of the LabMag deposit, and had made the strategic decision to stake a large group of claims covering a 210 kilometer stretch which they referred to as the Millennium Range. In addition to the LabMag deposit, the Millennium Range included 28 DSO deposits with over 125 Million Tonnes "MT" of historical Reserves, the KeMag deposit which was thought to be the Northern extension of LabMag, and a whole host of other prospective deposits that made up the rest of the Millennium Range. Amazingly, LabMag, KeMag and the 28 DSO deposits only make up 10% of the Millennium Range, please see this link for a discussion of the staking.
In addition to further developing their LabMag deposit, from 2005 to 2008 New Millennium focused on developing two other projects, the DSO and KeMag, more on this later.
Strategic Partner Tata Steel
Tata Steel (OTC:TATLY) is one of the ten largest steel producers in the world with operations in Asia, Africa, Australia, North America, and Europe. In 2007 Tata acquired European steel maker Corus in order to gain a presence in Europe, particularly in the United Kingdom and the Netherlands. Eventually Tata renamed Corus Tata Steel Europe in order to fully integrate the firm into its world wide operations. Tata Steel Europe makes a wide variety of steel products including tubular materials for the oil and gas industry, rail lines for European rail roads, and a variety of other value added steel products. What left Tata Steel Europe vulnerable was the fact that they had no captive resources for steel making like iron ore, or coking coal.
Recently due to a surge in iron ore prices steel companies around the world have been looking to vertically integrate in order to reduce their dependence on the seaborne iron ore markets which are currently dominated by Australia's BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RIO), as well as Brazil's Vale (NYSE:VALE), collectively known as "The Big 3". Together the Big 3 account for approximately 75% of the seaborne iron ore market and have effectively formed a cartel similar to OPEC in order to push iron ore prices higher for steel makers. For more on this topic please refer to an article I wrote this past February titled "Stocks to Benefit from an Iron Ore Bull Market". In short the Big 3 have forced steel makers around the world to move from an annual contract based system where steel manufacturers lock in a price for a full year, towards a quarterly contract based system. This change, which may seem minor has had large implications for the seaborne iron ore market and for steel makers world wide.
Looking to wean themselves from their dependence on the big 3 Tata Steel Europe formed a joint venture partnership with New Millennium in order to help reduce or potentially eliminate their dependence on the seaborne iron ore markets for their European Operations. Tata went on to eventually take a 27% ownership stake in NML and placed 3 Tata Steel executives on NML's board of directors. Additionally, Tata formed a binding agreements to help develop NML's DSO project as well as the LabMag and KeMag projects. The Indian based steel firms strategic investment in New Millennium illustrates that Tata feels NML is uniquely suited to meet the needs felt that NML was an ideal partner to help meet the iron ore needs of Tata Steel Europe which currenty produces about 20MT of steel annually requiring approximately 30 MT of iron ore. Below I'll describe each of the projects in detail as well as provide the reader with a discounted cash flow valuations for these projects as a function of iron ore prices.
Image from WN.COM
New Millennium's Balance Sheet
Before discussing New Millennium's construction phase and feasibility stage projects I would like the reader to first look at NML's current balance sheet. As the reader can clearly see New Millennium has no debt, and minimal liabilities. In fact current and long term assets provide enough working capital to sustain operations for multiple years.
DSO Deposits: A Construction Phase Project With Production Scheduled by Q4 of 2012
As previously stated New Millennium's DSO project was staked in 2005 with 28 DSO deposits, but eventually was winnowed down to 25 after NML signed an asset exchange with nearby Labrador Iron Mines (lbrmf.pk). in order to sign a rail tariff agreement in 2009. For more details on this exchange please see this link for more details.
In the Fall of 2010 New Millennium signed a binding agreement with Tata Steel where Tata would own 80% of the net profits of the DSO in exchange for providing $300 Million of financing to construct the infrastructure required to develop a DSO plant that operates year round. According to the most recent feasibility study the plant is scheduled to mine 5MT of hematite, and produce 4.2MT of 64.5% Fe Sinter Fines and Super Fines. The project has a total of 79.4MT of proven, probable, measured, indicated, and inferred reserves which gives the DSO a projected life of mine of 15.88 years. Of course the mine life can be extended if NML converts the 40-45 MT of historical DSO reserves it has, or if NML chooses to drill and exlpore the 50 new and 100% owned DSO anomalies they found this past January following a magnetometer survey done on their land holdings, see this link for more details. Furthermore, according to the agreement Tata will purchase all of the DSO production at the world price, and will reimburse NML for 80% of their DSO costs to date. In the balance sheet chart above this is referred to as "DSO Exploration and Evaluation Credits Held for Sale". Readers can review a News Release of the binding agreement here.
NML DSO Foundation Stone: source nmliron.com
The DSO project is currently under construction and according to NML will be ready for production by Q4 of 2012. Readers can view pictures and videos of the construction at nmliron.com.
DSO Deposit Map: source nmliron.com
Below I've provided the reader with a detailed cash flow model for the DSO project as a function of iron ore prices. All assumptions are taken from the DSO feasibility report filed on Sedar this past February. In Addition to the cash flow model below, I've also provided a discounted cash flow model for the DSO project using both a 8% and 10% discount rate as a function of iron ore prices. All charts and graphs presented in the article have been crated by the author.
The KeMag Deposit: A Feasibility Stage Project
New Millennium's KeMag deposit was first drilled in 2006, and was again drilled in 2007, see an illustration of the drill map below. Results from the drill program revealed a sizable taconite resource of 3.4 Billion Tonnes "BT" at an average grade of 31.3% Fe with low levels of Silica and other impurities. According to the deposits pre-feasibility report NML would aim to mine 76 Million Tonnes "MT" in order to produce 22MT of iron ore in the form of 10MT of blast furnace pellets at an average grade of 66.4%Fe, 5MT of direct reduced pellets at an average grade of 67.5%, and 7MT of concentrate at 69.7% Fe. Additionally, NML has decided to pursue shipping the 22MT of iron ore via a slurry pipeline that would be shipped out of Sept-Iles Quebec. Importantly, the slurry pipeline will allow NML to reduce their transportation costs by nearly $15 a tonne relative to rail costs, this cost savings would help make New Millennium one of the lowest cost producers of iron ore in the world. Given the attractiveness of the KeMag deposit, it's not a surprise that Tata Steel is interested in bringing the project to production stage as quickly as possible.
This past March, Tata signed a Binding Heads of Agreement to spend $50 million dollars on a feasibility study that would take approximately 20 months to complete. At the completion of the feasibility study Tata will have 4 months to decide to participate in bringing the project to production. If Tata does decide to invest in KeMag, Tata will arrange financing of up to $4.68 Billion dollars to bring the KeMag deposit to production phase. In return New Millennium will receive a free carry on 20% of the financing, and will have the opportunity to buy an additional 16% interest in the project. Additionally if Tata brings in a second party to help with financing, NML has the right of first refusal and can purchase an additional 4% of the project. The Bindings Heads of Agreement also encompasses the LabMag deposit, for further information on the agreement please see the news release.
KeMag Deposit: source nmliron.com
Below I've included a cash flow model for the KeMag deposit as a function of varying iron ore prices. I've also included a discounted cash flow model with Net Present Value figures using discount rates of 8% and 10% respectively.
The LabMag Deposit: An Additional Feasibility Stage Project
The LabMag deposit has a total of 5.7BT of proven, probable, measured, indicated and inferred resources at an average grade of 29.5%. According to the 2006 LabMag pre-feasibility report NML plans to mine 52.6 MT of taconite a year in order to produce 15 MT of flux and acid iron pellets at 66.8% Fe and 65.5% Fe respectively. Similar to KeMag NML plans to use a pipeline to ship their iron products to Sept-Iles and then off to Tata Steel's Europe. The LabMag deposit also falls under Binding Heads of Agreement discussed previously. Below I've included a cash flow model for the LabMag deposit as a function varying iron ore prices. I've also included a discounted cash flow model with net Present Value figures using discount rates of 8% and 10% respectively.
Cumulative Net Asset Value of New Millennium's Construction Phase and Feasibility Stage Projects
As the reader can see the cumulative Net Asset Value of New Millennium's advanced projects is quite compelling. New Millennium's strong working capital position, combined with near term production from the company's DSO project make NML--in the author's opinion--a safe bet at the company's current market valuation of $1.70 Canadian (closing price on 11/4/2011). In addition to the advanced projects previously discussed, NML has the potential to begin developing other mega taconite and DSO projects along the Millennium Range, see the most recent investor presentation for further details. The confluence of a strong balance sheet, near term profitability from NML's advanced DSO and taconite projects, as well as the potential to develop additional value from other targets on the Millennium Range make New Millennium a stock that's hard to ignore. I would like to leave the reader with the following charts and graphs that illustrate the cumulative net asset value of NML's three advanced projects. Also, please keep in mind that these projects only represent ten percent of the explored iron anomalies on the Millennium Range. I encourage readers to leave questions and comments below, thank you for reading.
Disclosure: I am long NWLNF.PK.