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Iron Ore and an emerging miner in the Canadian Indusrty

After watching numerous Iron Ore Mining companies sky rocket, get bought out, or merge (Consolidated Thompson and Baffinland). I went on the hunt for something to take the place of Baffinland. I did not personally buy shares in Baffinland, but hopefully my readers did, I chose the metallurgical coal route with Grande Cache and Western Coal, (I do not own these companies now and feel they are both fully valued). I missed the Baffinland boat, but I am not going to miss the Champion Minerals boat! Iron is a fairly common metal, but finding a deposit that has the potential to be mined can be difficult, that is where I come in. I did some hunting and watched an iron ore company get upgraded recently. That company happened to be Champion Minerals, I dug a little deeper, comparing the deposits size and grade to other existing and planned mines. The results were not spectacular, but rather lukewarm. In this metal super cycle, I guess beggars cannot be choosers.

These days I limit my exposure to mining and oil companies to a maximum of forty percent of my portfolio, but from what I can see the iron ore markets still have a couple more years of gains, although this would not be my first choice for an investment in the mining industry, it will none the less serve a small part of it.

Champion has an 82.5% direct interest in the Fermont Iron Property consisting of 16 strategic iron-rich mineral concessions in the Fermont Iron Ore District of North-Eastern Québec, property’s claim blocks are adjacent or proximal to Consolidated Thompson Iron Mines Ltd.’s properties TSX: CLM and Arcelor Mittal’s properties NYSE: MT. They are all located close to power, roads and rail connecting to ports on Quebec’s northern shore of the St. Lawrence Seaway, jackpot!

Management (3/10)

The current President and CEO of Champion Minerals is Mr. Larsen since 2006. He has over 30 years of experience in the investment industry, specializing in corporate finance and management of junior mining companies. It doesn’t look like they plan to develop this property by alone, with a CEO like Mr. Larsen expect Champion to sell a major share in the property or be bought out by a major Iron Ore miner.

Fire Lake North Deposit (7/10)

Fire Lake North hosts 288.2 million tonnes grading 27.5% Iron at a 15% cut off grade. Champion and Fancamp Exploration Ltd. TSX-V: FNC are currently in an 82.5% / 17.5% joint venture on the Fermont Property. This alone is not too promising considering the current valuation of Champion, but the total current Mineral Resource of all Champion properties is 2113 million tonnes at 27%.  Expect this resource to continue growing with holes like of 123 meters of spectacular hematite rich iron grading at 34.1% Total Iron. For any uninformed mining investors, anything over 30% Iron is considered above average in the iron ore mining industry.

Mining and Permitting in Quebec (9/10)

Quebec is by far one of the most mining friendly areas in the world. The Fire Lake North deposit location is one of the best I have seen so far, located next to existing mines and in a mining friendly province with relaxed mining laws.

Financials (8/10)

The PEA study shows a Net Present Value (NYSE:NPV) of US$ 1.637 billion at a cash flow discount rate of 5% based on an Iron concentrate production rate of 7 million tonnes per year at a grade of 65% Iron. The internal rate of return (NYSE:IRR) for the project is 24.8%. These values are based on a 3 year moving average price of Iron set at US$ 1.25/dry metric tonne unit of Iron equivalent to US $81.38/tonne of concentrate FOB Pointe Noire and a US$ Exchange Rate of 1.1.

 This is all well and good, but how does that compare to other possible Iron Ore properties, for comparison purposes let us look at Baffinland (BIM) buyout. Baffinland has a market capitalization of 515.40 million CAD and a deposit of 1000 mt @ 66.3, which has a value of 0.80 $/t of Fe. Champion has market capitalization of approximately 200 million CAD and a resource of 2113 mt @ 27%, which gives it a value of 0.35 $/t of Fe. With another year of good drilling and continued high demand for Iron Ore from China, a doubling in Champion’s market capitalization would be in order.

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