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James Duade
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I started investing several years ago after being Inspired by the works of Benjamin Graham and the shareholder letters of Warren Buffett. My investment ideas are generally guided by Mr. Graham's margin of safety principle, and are adapted to a variety of different market sectors.
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  • In Times of Economic Uncertainty It's Important to Remember the Lessons of Mr. Market
    Is Mr. Market Your Servant or Your Master?

    You don't have to be a clinical psychologist to figure out that the stock market often suffers from bipolar disorder.  To come to this conclusion all you have to do is look at this week's chart of the Dow.  Given the tremendous volatility that we've seen over the past week, I think it's a good idea to revisit Benjamin Graham's metaphor for the rapid mood swings that plague the Dow, Mr. Market.

           For those unfamiliar with Mr. Market let me briefly explain. As Benjamin Graham described him Mr. Market is a strange fellow prone to bouts of horrible depression and intense mania.  Everyday, depending on his mood, he will quote a price for your stocks.  On days when he is in a good mood he may offer a significant premium over what you think you're stocks are worth, and conversely on days when he is depressed he will ask for a significant discount.  The unfortunate thing about Mr. Market's is that you never know what his mood will be on a given day.  However, unless you are in a position where you must sell, you can simply dismiss Mr. Market's asking price.  After all, he is there to serve you, whether you choose to do business with him is up to you.  For more on Mr. Market visit the following link

         Of course, the trick to dealing with Mr. Market's bipolar mood swings is to know the value of  your stocks.  This puts control in your hands, not in Mr. Market's.  For instance, Mr. Market can give you a low ball offer one day, which you can refuse, and offer you an extremely generous quote the next, which you can accept.  Knowing the value of the business you own is the difficult part though, which is why Mr. Market can often fool us with his manic depressive swings.  Below are two obvious, but often neglected tips that investors should remember when managing their portfolio

    View Yourself as an Owner of the Company, Because You Are  

    The first obvious tip is to recognize that when you buy stock, you are buying a percentage of that company, and are by definition a part owner. Does this mean that you can call a board meeting whenever you feel like it, of course not, but it does mean that you have a responsibility to keep up to date with the company's business.  Too often investors get lazy and neglect doing their homework.  They may forget to read SEC filings, or lose interest in keeping up with data germane to the business.  Sometimes investors forget that being an owner means continuously studying the business they ownIf you want to avoid the emotions of Mr. Market you have to take the time to study the minutiae of the organization, and to figure out what key metrics will drive value creation in the future.  If there is something you don't understand in these filings, investors should be proactive and take the matter into their own hands by calling investor relations or writing a letter to management.  Keeping up to date with all of the details of a publicly traded company can be an onerous task, but if you want to be impervious to Mr. Market's mood swings its a requirement.

    Know What Your Businesses are Worth

    You don't need to be a hedge fund manager to create a valuation  or earnings model.  Conversely you can't just pick number out of thin air. Unfortunately for the retail investorcreating a valuation or earnings model can be an arduous task that requires data mining from SEC files and other source documents, as well as making significant assumptions which should be justified with data and benchmarking.  Many analysts will use either a discounted cash flow model,  a price to earnings model, or price to book value among others.  Each of these valuation techniques are appropriate in different circumstances, and it's a good idea to often use them in conjunction when evaluating the value of the business you own.  The good news is that In creating these models investors will gain a strong appreciation for what drives the profit margins of the company, and what key variables they should pay special attention to in future earnings reports.  Again, knowing the value of the businesses you're invested in is not a simple task, but it's an essential one if you want to know how far off Mr. Markets quotes are from reality.


    In summation, the best way to avoid the swings of Mr. Market is to roll your sleeves up and put in the time and effort required to stay on top of your investments. As Benjamin Graham's metaphor teaches us, knowing the value of your business allows an investor to keep his emotions in check.  If you can successfully do this, then you will neutralize your emotions, and objectively be able to buy or sell based on value and not on panic or mania.  This way you can take advantage of MrMarket's quotes instead of being held hostage by them.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I am effectively long the S&P 500 index through a mutual fund that aims to track the performance of the index.
    Tags: DIA, SPY
    Aug 12 9:26 AM | Link | Comment!
  • Palladon Ventures: Poised for a Good 2011, and a Great 2012

    Palladon Ventures ( is a Canadian firm with an interest in several mining projects in Utah and Nevada.  The largest project is a storied iron mine located in Cedar City Utah that has reserves of over 170 million tons, making it the largest (and one of the only) iron ore reserves in the Western United States.  The mine, called the Iron Mountain project, would potentially produce 2 million tons of 67.5% concentrated grade iron ore pellets per year for potentially a 40-50 year stretch.  Palladon has already secured rail and ship contracts, and has also found a buyer of at least  1.2 million tons of previously mined run-of-mill ore.  The purchaser is none other than China's largest steel manufacturer, Hebei Iron and Steel.  If Palladon can meet its goal of shipping up to 2 million tons per year starting in 2012, then net earnings could potentially exceed Palladon's current share price of $1.15 (share price as of close of market on 2/25/10).   This article will look at the history of the Iron Mountain Mine, the recent developments surrounding Palladon Ventures and CML Metals, and will conclude with a discussion on valuation and risk.  

    Brief History: 1849 - 2004

    Iron Mountain is located in the South West corner of Utah close to Cedar City, see the map below. The mine was first discovered by Mormon pioneers in 1849, and was used for commercial production for several years till significant discoveries in the Mesabi region of Minnesota flooded the market with a more economically viable iron material.  The Iron Mountain project sat idle until the early 1900's when a renewed interest in base materials like iron ore for construction projects occurred.  In 1923 the mine was reopened, and produced over 4 million tons until it shuttered again in 1942.  After a short mothball period, the plant was reopened during World War II, and produced over 60 million tons before closing again in 1961.  During this phase, the plant sold the majority of it's iron ore to a steel plant built in Provo Utah, that was subsidized by the U.S. Government.  The steel plant was eventually jointly owned and operated by Geneva Steel and U.S. Steel (NYSE:X).  
           From 1962 to 1995, the Iron Mountain project mined and shipped approximately 9 million tons that was mostly purchased by the steel plant in Provo.  By 1987, U.S. Steel sold it's ownership stake in the plant to Geneva, and Geneva also acquired the rights to the Iron Mountain project around the same time.  Also, of note during this period from 1987-1995 is that the Gilbert Development company became the Iron Mountain mine operator.  After 1995, the steel company saw major headwinds, and eventually after a series of bankruptcies finally shut down operations for good and filed Chapter 11 in 2002.  In the bankruptcy filing the Iron Mountain project was spun off as a separate company called IOM, which was eventually purchased in full by Palladon Ventures.


    Brief History: 2005-2009

    Palladon Ventures led by CEO John Cutler acquired the Iron Mountain property with the hopes of making the iron pit a viable business again.  Palladon felt that they could bring the pit back on line by 2006, and potentially sell 1 million tons a year of mined iron ore there after.  Palladon had again enlisted the Gilbert Development Company to help run the operations of the mine.  Unfortunately, despite Palladon's best efforts macro economic headwinds and difficulty with logistics hampered the company from being able to sell their iron ore. 
          Palladon's plan in 2006 was to sell 12.9 million tons of stock piled 40.2% grade iron ore to customers abroad at a rate of 1 million tons a year.  Gilbert Development would be in charge of trucking the ore to a rail road spur that connected to Cedar City's rail road station.  Upon arriving at Cedar City, the ore would then be shipped by Union Pacific to a port on the West Coast.  Once at the port the iron ore would be stored in a warehouse, and then would be loaded onto ships owned by China Kingdom International, and sent off to a Chinese steel firm.  In order to make this plan work, the company had to build the railroad spur, strike a deal with Union Pacific and China Kingdom International in order to secure carriage, secure a port in California, and make sure to find a customer willing to purchase the low grade iron ore.  Additionally, Palladon had to do further diligence on it's iron ore properties.  In order to get all of this done, Palladon took on a great amount of debt at a high interest rate.  
                                 Palladon Logo
    (Source: Palladon Ventures)
          Luxor Capital Group stepped in and provided the capital for Palladon to continue with its plan.  Palladon was able to build the necessary Rail Road Spur, and was able to negotiate with Union Pacific to secure rail road cars and transportation of freight.   Palladon was even able to find a port in Oakland, where China International Kingdom would ship the iron ore to a customer in Asia.   Unfortunately, production got pushed back, and then the 2007 and 2008 financial crisis occurred.  Production got pushed even further back, till finally in 2009 the company was able to set up a contract with Hebei to purchase a modest amount of iron ore.  Then at the last minute, the port of Oakland said that it could not provide a location to store the iron ore.  Without storage facilities at the port the deal fell through.  
           The fallout from this reshaped the company. Palladon scrambled to come up with a new plan, and asked SRK consulting group to help them come up with a plan (see links below for SRK's recommendations).  The plan recommended that Palladon take on even greater debt to construct an iron ore concentrator as well as a Direct Reduced Iron plant.  This plan also fell through.  Luxor grew impatient, and eventually took charge and asked Palladon to hand over the reins of the company.  In the wake of the debt restructuring A new joint partnership was formed called Comstock Mountain Lion Metals, or CML Metals for short.  The partnership allowed Palladon's debt to be retired in exchange for a 78.7% stake in CML.  Dale Gilbert of Gilbert Development became the CEO of CML Metals, and Palladon was relegated to a 21.3% stake in CML.  John Cutler and one other staff member were allowed to remain on at Palladon, but all other corporate officers were asked to leave.  After the reorganization Palladon had two employees, no debt, and a cash burn rate of approximately $30,000 a month.  
           After taking control of the company CML wanted to change direction, but only slightly.  CML's  plan was to build an iron ore concentrator on site to take advantage of the large deposits of taconite at Iron Mountain, however CML had no interest in building the DRI plant.  Similar to the 2006 plan, CML was hoping to improve the logistics, and sell the concentrated iron ore to the Asian market. The concentrator would cost about $65 million, but would potentially allow CML to ship out 2 million tons of iron ore a year.  Before CML would buy and build the concentrator, they would first have to prove that they could follow through with the shipping logistics. 

    Current Events: 2010 - Present

    In the first quarter of 2010 CML Metals signed a two year agreement with China Kingdom International to ship 600 thousand tons a year of the stockpiled iron ore to China's largest steel company, Hebei Iron and Steel. The stockpiled iron ore is referred to as run-of-mine ore that is a lower quality iron ore with an average grade of 40%. Because of the low quality of the ore, and the previous difficulty with logistics the iron ore was scheduled to be sold at a reduced rate for the first 6 months, and then the price could be renegotiated every 6 months thereafter till the contract expired.  Akin to the previous plan in 2006, the iron ore was scheduled to be shipped out  from Cedar City via the Union Pacific to California's Port Richmond.  After a few shipments in the fall of 2010 CML looked to expand their search for additional ports that could handle over 100,00 tons of ore a month.  Since the port of Richmond can only handle boats with a maximum capacity of 55,000 tons, CML sought out the Port of Stockton.  In contrast to Richmond, Stockton can load ships up to 80,000 tons.  As of the winter of 2011, Stockton seems to be CML Metals primary shipping choice, and the Port of Richmond will serve as a backup.
            According to Palladon's Q3 report CML shipped their first 50,000 tons of iron ore from the Port of Richmond In September. To date, approximately 250,000 tons have been shipped out from port Richmond, making CML and Palladon by proxy profitable for the first time.  Additional shipments will most likely be sent out from the Port of Stockton, as CML has indicated that it would like to ship 100,000 or more tons of iron ore a month.    

      (Source:, cargo vessel at Port of Stockton)

           Regarding train carriage, according to Mike Root on, 4 sets of trains a week will be leaving Cedar City as of February, 2011.  Each set will have 75 rail cars that can hold 130 tons each.  If there are no hiccups in production or shipping then CML will have the ability to sell 10,500 tons per train set, 42,000 tons a week, and 2,184,000 tons a year. You can find Mr. Root's discussion here:  Since ships at the Port of Stockton can be loaded to a maximum capacity of 80,000 tons, CML will need to load a ship every two weeks with iron ore to meet their 2 million ton per annum goal.  Fortunately, the port of Stockton has a daily vessel log that tracks the ship and cargo coming in and out of the port.  Again, since CML runs the only iron mine in the Western United States, any ship carrying iron ore can be attributed to CML.  You can find the daily vessel log here:
    Unfortunately, the Port of Richmond does not have a daily vessel log.  
    (Source: Union Pacific, edited by James Duade)

    On January, 31st 2011 CML Metals announced the closing of the first of a two tranche loan from Credit Suisse to help finance the construction of the iron ore concentrator.  The first tranche is a $20 million dollar loan, and the second tranche will be $25 million.  For it's part Palladon raised $5.9 million dollars by issuing 84.9 million shares at a price of .0696 and, CML Metals raised $20 million from its stake holders. The second tranche of $25 million will be released to CML upon a successful engineering report done by an independent consultant.  CML and Palladon hope to close the second tranche in Q2 of 2011, and have the concentrator up and running by Q1 2012.  According to regulatory filings construction of the concentrator has already begun.  Lastly, on February 7th of this past year Palladon followed through with a scheduled 10 for 1 reverse share split.  This resulted in the number of outstanding shares being reduced to 27,395,556.  
    Iron Mountain Reserves

    According to a compilation of historic reserve studies, CML has approximately 172 Million tons of iron ore (see chart below for more details).  The iron ore that is currently being shipped out to China is run-of-mill (NYSEARCA:ROM) ore that was stock piled from previous mining operations.  There are approximately 12.9 million tons of the stockpiled ROM, which has an average grade of 40% iron.  Because of the low iron concentration, CML has turned it's attention to the Comstock and Mountain Lion pits, which have taconite deposits with 51% iron content, and can easily be processed with a concentrator to form 67.5% iron ore pellets.   
    (Source: Palladon Ventures, edited by James Duade)

    The Comstock and Mountain Lion deposits (CML in the chart below) have approximately 20 million tons of ore that will be processed and shipped out to China at a rate of 2 million tons per year.  Furthermore, CML metals and Palladon have the rights to the Rex and A/B area deposits as well, which have reserves of approximately 111 million tons and 18 million tons respectively.  The Rex and A/B deposits are all within a few miles of each other, which would allow CML Metals and Palladon to process the raw ore all at the same facility located near the Comstock Mountain Lion deposit.

    (Source: September 2009 SRK Presentation for Palladon)

    According to the 2009 SRK consultant presentation.  The group estimated that the total cost per ton of iron ore would be approximately, $55.32.  Please see the image below for the cost breakdown per ton mined. 

    SRK Consulting Cost Per Ton Estimate
    (Source: 2009 SRK Consulting Report for Paladon)

    Valuation Assumptions

    The valuation analysis below assumes that the concentrator will be built, and that CML Metals will be able to ship out 2 million tons from Cedar City.  I also assumed that the cost per ton would be $60 using a slight inflation from SRK's 2009 report, and that it would cost CML approximately $30 per ton to ship the ore concentrate from Cedar City to Port Stockton.  Lastly, I used several price per ton projections from $100 to $225 spaced at $25 increments to allow the reader to judge how profitable Palladon may be if the concentrator is built and ready for production in 2012.
    The yellow highlighted line indicates approximately where the current spot price of 63.5% iron ore is according to Platts ($191 at the close of market on 2/25/11).  Given that Palladon plans on selling 67.5% iron ore pellets, a $175 per ton estimate represents a modest discount to the current spot price.  

    NPV of Comstock Mountain Lion Deposit 
    A Net Present Value analysis was conducted in order to examine the potential value of the Comstock Mountain Lion deposit (CML deposit).  The CML deposit according to the recent SRK reports has 32.23 million tons of iron ore, which will eventually be mined and processed at a rate of 2 million tons per year as a 67.5% iron concentrate.  A valuation matrix below looks at the NPV of the CML deposit using different prices of iron ore at $25 increments ranging from $125 - $225 per ton.  
           The valuation makes several assumptions, first of which is that Palladon will be able to ship 2 MTPY of iron ore, and sell that ore at the world price.  The second assumption is that Palladon will retain it's 18.62% interest in CML Metals, and that Palladon will not further dilute it's shareholders.  It was also assumed that Palladon's net profit interest in CML would be reduced by 10% for administrative costs.  Additionally, it was assumed that the life of the CML  deposit would be 16.1 years.  Lastly the potential cash flow was discounted at three different rates: 8%, 10%, and 12%.    
    It should be noted that these NPV figures assume that no cash flow is being reinvested, and that its just being passed on to the shareholder.  As has been stated, CML Metals and Palladon have several other deposits with over 100 million tons of iron ore that could be concentrated.  Clearly the company has several other opportunities to pursue with its profits, which would also increase the earning potential of CML Metals and Palladon. 

    Potential M&A Target, or Future Royalty Company?

    As you can see in the valuation above, it's very possible for 2012 earnings to exceed the current share price of around $1.15.  It is the author's opinion that one of two paths will be taken by Palladon.  Either Palladon will be acquired by an Asian steel company, or Palladon will turn into a royalty company.  Due to Palladon's lean corporate structure (just 2 employees!), it's the authors opinion that the likelihood of one of these two scenarios occurring is very high.  
           In a previous article on iron ore I discussed how steel companies, particularly Chinese steel companies are being squeezed by iron ore miners.  This is occurring for a multitude of reasons, but mostly because the Chinese steel market is fractured, and the iron mining industry is consolidated to 3 major players who own over 75% market share.  Since Palladon already has a relationship with a Chinese steel firm, it may not be a stretch to imagine that Hebei, or another firm would like to purchase the mines.  CML Metals would be attractive to a Chinese steel firm because they could essentially purchase the iron ore at cost, saving them the difference between the cost and the spot price of the iron ore.  Which as of 2/25/11 was over a $90 margin!  
          It is also possible that CML may be taken over by another mining firm, like a BHP, Rio, or Vale.  I think this possibility is less likely, as the mining firm may ask Gilbert Development to hand over the mining operations.  Since this would impact Gilbert Development negatively, and the CEO of CML is Dale Gilbert, I think this scenario will not occur.
          If CML Metals and Luxor do not find a buyer, then the other alternative is that Palladon will remain a 21.3% owner in CML Metals.  As the 21.3% owner, they will receive a windfall of cash every quarter (see the above valuation) with no real growth opportunities, or ability to pursue growth for that matter.  In this scenario the most likely outcome would be for Palladon to become a defacto royalty company handing out probably 80-90% of their earnings.  If this were to occur, then Palladon would prove to be a very attractive revenue stream.  

    While the above valuations look compelling, they do make assumptions that may not come true.  For instance, worldwide iron ore demand could potentially decrease from current levels, which would undermine Palladon's future profitability.  Additionally, it is possible that Credit Suisse may not extend the second tranche of capital to CML Metals and Palladon.  If this were to occur, it would greatly impact the ability for CML and Palladon to make a profit, as they would only have the 12 million tons of low grade iron ore left to ship, and be forced to find another creditor or further dilute shareholders.  Furthermore, issues with supply chain could occur.  For instance, problems could occur at a Port, the Rail Line could be damaged due to a force majeure, or the concentrator could have mechanical issues which would temporarily curtail production rates.  
           It should also be noted that Palladon is a micro cap stock that trades on the Canadian Venture Exchange, and also as an ADR on the Pink Sheets.  In both cases each issue is somewhat illiquid, and investors should be aware that margins between ask and bid spreads can at times be wide.  It is not uncommon for spreads to be .02-.05 so please proceed with caution.  Lastly, management may potentially have difficulty securing customers for their iron ore resulting in material impacts to profitability.  It is the authors opinion that these risks are minimal, but should still be considered before taking a position in Palladon Ventures.  

    Palladon Ventures represents a unique opportunity for investors to increase their exposure to the iron ore industry.  If Palladon and CML Metals can finish the completion of their 2 Million Ton per annum iron ore concentrator while iron ore prices remain in their current trading range than Palladon will prove to be a wonderful investment.  Since CML Metals has seemingly fixed the supply chain issues and has secured a buyer for the ore, the company now has a margin of safety that it did not have before.  It is the author's opinion that CML Metals will likely sell their mining properties to an Asian firm before the company can realize its true value.  If this were to occur, its very likely that Palladon will receive several dollars a share as a buyout.  If a buyout doesn't occur, then Palladon will most likely prove to be a tremendous revenue stream for its investors.  Either way, owners of Palladon are likely to see a good return on their investment from the company's current market valuation.  As always, investors should gauge their own risk tolerance, and do their own due diligence before taking a position in Palladon.  If you have any questions or comments please feel free to post them below.             

    Further Reading:
    Chinese Miners Urged to Boost Overseas Investment

    Palladon's 2010 Q3 Financials and Managment Discussion

    SRK's 2009 Presentation to Palladon

    SRK's 2009 Report for Palladon

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I am long Palladon Ventures through its ADR PllVF.PK
    Feb 21 5:17 PM | Link | 14 Comments
  • New Millennium Capital: North America's Emerging Iron Ore Company


     With iron ore prices above $180 a ton steel makers are coming under pressure to vertically integrate so that they won’t be squeezed by their suppliers.  In the past few weeks Cliffs Natural Resources (NYSE:CLF) and Arcelormittal (NYSE:MT) have both purchased Iron ore companies in Canada, and this trend looks like it will likely continue as long as iron ore prices remain high.  This article looks at a Canadian iron ore company with two of the world’s largest undeveloped iron ore reserves.  After a brief history of the organization and its founder, the company’s 3 key projects are discussed, and three valuation matrices are provided for the consideration of the reader. These matrices are compelling, as they indicate a much higher share price than where the company currently trades (2/7/2011 closing price of $3.50, and market cap over $500 million US dollars).  I’ve concluded the article with a discussion of the potential risks inherent in this investment, as well as a list of further reading that is suggested if investors are interested in pursuing a position in the company.


    In 1960 a young geologist named Robert Martin was on an expedition in the Northern Canadian Wilderness.  He was looking for iron ore that could be directly shipped, which is commonly referred to as DSO, but only found a magnetic mineral called taconite.  The taconite was an interesting find but wasn't commercially viable at the time, and Mr. Martin had to walk away from the find.  What he didn't know was that he had discovered one of the world's largest iron ore deposits.  The LabMag, which sits on a string of deposits referred to as the Millennium Range which is Canada’s equivalent of the Mesabi Range in the United States.  
              Mr. Martin went on to become CEO of the Iron Ore Company of Canada (IOCC) in the 1970’s.  Eventually DSO iron ore became harder to come by, and the iron industry was willing to embrace taconite ore.  When this occurred Mr. Martin quickly remembered his discovery in 1960, and he attempted to get the IOCC involved in a project at the LabMag deposit.  There the IOCC under Martin found 2 Billion tons of iron ore reserves.  The project never bore fruit, mostly because of a steel glut in the 1980’s.  Unfortunately, Martin had to walk away again.
                                          Image from
              In 2002, the LabMag property was to go up for sale.  Martin decided to strike, and quickly started New Millennium Capital (NML, NWLNF.PK).  New Millennium was able to raise the capital necessary to purchase the LabMag site, and also was able to purchase another key deposit on the Millennium Range called KeMag.  Additionally, Martin and his team purchased over 20 mines in the Quebec region that had DSO quality ore.  All in all Martin scored up to 9 Billion tons of proven and probable iron ore reserves, enough to produce 26 million tons of iron ore a year for over 100 years.  For a more detailed discussion please read the article on Mr. Martin provided in the further reading section below.

    New Millennium’s Projects 

    Now that he had the properties, Martin had to get to the business of actually making these sites viable.  Between 2006 and 2009 he used his remaining capital to conduct pre-feasibility studies on the three sites.  The DSO was determined to be the easiest to get up and running, and the LabMag and KeMag would hopefully follow shortly there after.  The DSO would be composed of 4 separate areas, with approximately 27 mines being distributed among these areas.  The DSO would have upwards of 100 million tons of reserves that would be mined over a 15-20 year period, with an average rate of production of 4 million tons per year.  Areas 2 and 3 would be developed first, while area 4 would come on line shortly there after.  Scroll over the image to enlarge.
        New Millennium Projects

                                   Image from

              The LabMag project is approximately 30km long by 2km wide, and is located on the extreme western outpost of the Labrador trough.  The property contains mostly taconite, but some hematitite is present.  New Millennium owns 80% of this property, and the other 20% is owned by the Naskapi Nation of Kawawachikamach.  The KeMag project is also located in the Western trough of Labrador and also mostly contains magnetite ore.  The KeMag property, unlike the LabMag is owned 100% by New Millennium.  I’ve posted links to New Millennium’s pre-feasibility reports for both projects in the suggested reading section below.
              The LabMag and KeMag projects together are estimated to have approximately 9 Billion tons of proven, probable, and inferred reserves.  Both sites were determined to be able to produce upwards of 21 million tons of ore per year.  The increased production would force the company to rethink how it would ship it’s ore to processing and shipping facilities.  The solution they came up with was to create two pipelines that would take the ore South towards Pointe-Noire Quebec, where it could be pelletized and then shipped off to customers.  The two pipelines would take approximately 18 months to install, and cost several billion dollars to create.  Once the pipes are up and running it would allow New Millennium to potentially have the lowest cost per ton in the world.    
              The ore mined from these sites will be processed by a crushing facility on site.  From the crusher it will then be ground finer, and a series of magnets will separate the ore from the waste.  The iron ore will then be fed directly into a pipeline that has a slurry mix to prevent freezing.  In the case of the KeMag site the ore will be sent via a 750km pipeline to facilities at Pointe-Noire, Quebec.  The LabMag site will ship the ore via a 230km pipeline to Emeril, near Ross Junction, where the material will be processed and then sent via the QNSL railway to Pointe-Noire.  At Pointe-Noire the final product will be shipped off to New Millennium’s customers mainly in North America, Europe, and the Middle East.  Discussion of the details of the pipeline and supply chain can be found in the pre-feasibility studies I mentioned earlier.  I’ve included both prefeasibility studies in the further reading section below.    

    Sea Change in the Iron Ore Markets

    In 2010 a sea change occurred in the iron ore industry.  Iron ore is the world’s second largest commodity market behind crude oil, and for over 100 years the pricing mechanism for ore was set by annual seaborne contracts between the major ore producers and their customers.  The annual contracts gave some stability to the market as steel production is generally based off of long term construction projects.  Steel makers prefer to have a set price so that they can figure out what they can charge their customers.  This worked out well for steel producers and steel customers, but the iron ore producers felt slighted.  In 2010, the iron ore miners forced steel producers to agree to change from an annual pricing mechanism towards a quarterly pricing mechanism.
              The impact of this change was monumental.  Iron ore prices skyrocketed, and steel producers were forced to take higher prices from their suppliers and decrease their margins.  The likely reason for the price increase is complicated, but essentially boils down to three factors: emerging market demand, weak dollar policy, and increased liquidity in the iron ore markets resulting in the creation of financial products and a more robust spot market.  For a more detailed description of this change, please see the article below on iron ore resurgence.
                                           Image from

    Tata Steel

    Feeling squeezed by suppliers many steel producers have attempted to vertically integrate their companies by purchasing their own supply of iron ore.  In 2008, one of the world’s top ten steel producers took an interest in New Millennium’s bountiful ore deposits.  The company, Tata Steel (, was utilizing most of its own iron ore mines to satiate their domestic Indian steel markets.  Tata needed to find more ore in order to ease the production needs of its newly acquired European steel company Corus.  Corus, a London based steel firm historically produces approximately 23 million tons of steel per year, which requires 30 million tons of iron ore.  Tata saw in New Millennium the future supplier of its European ore needs, as Point-Noire is ideally located to ship to Europe.   
                                             Image from
              From 2008 to 2010 Tata gradually eased into a 27% ownership stake of New Millennium, and put three of their executives on New Millennium’s board.  Eventually, they made a big move in September of this past year.  Tata decided to get the ball rolling by signing a deal for the DSO project.  The deal indicated that New Millennium would have 80% of their costs reimbursed to them, and would be given an 20% ownership stake in the profits of the project.  Conversely, TaTa would take an 80% stake in the project and agreed to purchase 100% of the annual production of the project at a rate of 4 million tons per year. Additionally, Tata would invest $300 million dollars in order to expedite the production, which is now expected to start in the middle of 2012 Importantly, Tata agreed to purchase all of the ore at the market price.  This meant that Tata would pay the spot price, and not a contract price like North American competitor Cliffs Natural Resources pays (CLF).  Of course, this also means that if the price of iron ore takes a dive, the company would be exposed. 
              New Millennium has given exclusive rights to TaTa to participate in both the LabMag and KeMag projects.  Tata has expressed an interest in pursuing these projects, and has till February 28th of this year to become a partner in both.  These three projects together would produce approximately 48 million tons per year (43.6 million would be attributed to New Millennium because they own an 80% stake in LabMag) which would mostly go to Corus in order to satisfy its 30 million ton a year need.  As a show of good faith Tata recently paid New Millennium $600,000 dollars to continue its LabMag and KeMag operations.  Additionally, Tata is set to raise approximately $800 million dollars of capital through an IPO.  According to an Indian news source the majority of this money has been earmarked to help its supply chain for Corus.  If we read between the lines it sounds as if Tata will follow through with it’s investment in New Millennium. I’ve included the article I’ve referenced in the further reading section below.

    Recent Developments

    On January 31st, 2011 New Millennium announced that a recent magnetometer survey of the companies properties identified a greater number of potential DSO and Taconite deposits than were previously identified (see link:  This report identifies up to 50 DSO targets, where before only 27 were identified.  Additionally, the report also identifies up to 10 additional large taconite targets that are comparable to the LabMag and KeMag deposits discussed in the article.  New Millennium still needs to do further drilling to verify these additional reserves, but at the moment the results of the magnetometer survey look very promising, and will probably more than double the total potential reserves that the company currently has.  In encourage curious investors to review the recent press release, and to also study the graphic supplement outlining the probably new DSO and taconite targets ( see link here:
           On the 3rd of February, New Millennium also announced that they successfully raised 55 million dollars by selling 15,714,286 shares through Jennings Capital and Credit Suisse.  The shares were sold at an average price of Canadian  $3.50.  Proceeds from the shares will be used to help get the taconite projects online quickly.  The additional shares give New Millennium a market cap of approximately $575 million as of February, 7th.  The new share total equals 164,466,559 undiluted, and a fully diluted share total of 175,922,559.  You can read the press release on the share offering here (


    As I mentioned earlier, the company has three large projects: the DSO, the LabMag, and the KeMag. The DSO should produce approximately 4 million tons a year for a 15 plus year period based on reserve totals before the recent magnetometer survey. Tata has an 80% stake in the project, but has agreed to purchase 100% of the ore at the market price (currently around $187 according to Platts on 2/7/2011).  Below I’ve put together a valuation matrix looking at New Millennium’s potential earnings based on an annual production of 4 million tons per year, and iron ore sold at $50 price increments.  Furthermore, I’ve included several price to earnings multiples in order to look at what the stock price might look like once New Millennium starts producing from the DSO in 2012.  It should be noted that earnings represent a 20% interest in the production after a $25 cost per ton has been deducted.  For instance, at a market price of $175, New Millennium and Tata will receive $150 of margin, and New Millennium will receive 20% of that $150.  Lastly, the highlighted yellow line indicates approximately what the current market price for a ton of iron ore is.  All the valuations use a fully diluted share number of 175,922,559, which includes the recent share offering done on February, 3rd of this year. 

    If we include the Lab Mag and KeMag projects, then the valuations become a good deal richer.  The LabMag and KeMag have several billion tons of deposits and could yield upwards of 44 million tons per year as indicated in slide 17 of the recent investor presentation (see the further reading list below).  These projects will probably take 4 to 5 years before production starts, and the details have not been finalized.  Still, it is interesting to look at what the potential earnings may look like if these projects are given the go ahead.  I present two charts below.  The first chart looks at what production will look like if the mines are run at ½ their possible production rate.  The second chart looks at what the valuation might look like if production is run at maximum capacity.  Both charts take into account that New Millennium has an 80% interest in the LabMag site.  Additionally, it was assumed that cost per ton would be $25, and that a similar deal would be struck with Tata (e.g., that New Millennium would have a 20% stake in these projects).  If anyone has a question about these valuations please leave me a comment below.  By the way, as a point of reference Cliffs Natural Resources ships approximately 35-40 million tons per year, at a price around $60-$80 a ton and trades at a P/E of around 16.  It should also be noted that these matrices do not include the potential of the new taconite targets which could hold a great deal more reserves.  


    As with any investment New Millennium also has risks.  For instance, the valuation projections I provided assume that the LabMag and KeMag projects will be completed within a 5 or 6 year period.  While it looks as if this assumption is reasonable, it is not a certainty.  Additionally, other significant risks include a further dilution of shares by New Millennium in order to help raise capital to for its future projects.  Furthermore, demand for iron ore could decrease causing New Millennium's revenue stream to decrease substantially.  It is the opinion of the author that iron ore will not fall substantially, but it is very possible it could.  Lastly, American investors must proceed with caution if they are to purchase shares of New Millennium, as the companies ADR trades on the Pink Sheets.  Any pink sheet investment is somewhat illiquid, and investors should carefully determine what their bid and ask prices are before taking a position.  As always, it is recommended that investors do their own due diligence and gauge their own risk tolerance before taking a position in this or any other investment.     


    New Millennium Capital is poised to become one of the largest iron ore producers in North America within the next decade.  Their emerging partnership with Tata Steel and the new iron ore pricing structure are very favorable indicators for the future of the company.  It is the opinion of the author that New Millennium could be the investment of a lifetime if three factors occur.  The first factor is that all three projects will have to be green lit without any significant headwinds (the DSO is scheduled to start in 2012).  The second factor is that iron ore prices will need to remain stable around $100 - $200 a ton over the course of the next 10 years.  The third and last factor is that New Millennium will have to strike a similar deal with Tata regarding the LabMag and KeMag deposits without further diluting shareholders.  If these three factors can occur then it’s very possible to see potential share prices appreciate well above 1000% where they currently trade within 5 to 10 years.     

    Further Reading, for the over achievers among us:

    Excellent discussion on the resurgence of iron ore prices 

    New Millennium Website:

    August 2009 Article on Robert Martin and New Millennium

    LabMag August 2006 Pre-feasibility Study

    KeMag March 2009 Pre-feasibility Study

    Recent Investor Presentation Given by New Millennium in December of 2010:

    Tata Steel to Raise Capital:

    Arcelormittal Acquires Canadian Iron Ore Company in December 2010: 

    Cliffs Acquires a Canadian Iron Ore Company in January 2011:

    Iron Ore Primer from Wikipedia:

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I am long New Millennium Capital through its ADR (
    Jan 16 6:51 PM | Link | 8 Comments
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