northland resources - SRK Consulting UK

NORTHLAND
RESOURCES
Northland Resources is a prospective iron-ore mining company
with promising assets in Sweden and Finland. Executive
Chairman, Mr Anders Hvide, talked to Eric Payne about the
company's exemplary management experience and the depth
of the support it has received from both the Swedish and
Finnish governments, as it builds towards production.
WWW.EUROASIAINDUSTRY.COM
62 EUROASIA INDUSTRY
EUROASIA INDUSTRY 63

WWW.EUROASIAINDUSTRY.COM
Mr Anders Hvide
Executive Chairman,
Northland Resources came into
being in 2004, when a company, then
known as North American Gold, changed
its name. Mr Hvide explains: “The company’s
primary listing is on the Toronto
Stock Exchange. It went for IPO on the
Oslo Stock Exchange, under a secondary
listing, in November 2006 – a natural
move, given that all of its assets are in
Scandinavia, Sweden and Finland.
“The history of the company, however,
really dates back to the discovery of a gold
asset in Sweden, where the geological staff
also identified large formations of iron-ore,
running in a north-east direction, from
Sweden into Finland.”
Defined resources
“The company, which had its first
defined resources published in 2006 for
the Sahavaara deposit, continued with the
division of resources for the Hannukainen
deposit, later adding the Tapuli deposit and
finally Pellivuoma,” he continues. “Based on
these deposits, we have done a pre-feasibility
study on the Swedish assets – Tapuli,
Sahavaara and Pellivuoma – with a common
or joint processing facility in co-operation
with Aker Solutions.
“Aker Solutions arrived on an investment
of US$620 million, with an internal rate
of return (IRR) of 21.1 percent. All of the
permits should be in place by summer 2010
– with production slated to begin in 2012 –
for an initial 1.8 million tonnes, going up to
five million tonnes in 2014. The products
that we intend to sell will be pellet feed con-
centrate, as used by pellet producers, feeding
into the steel industry. The operational
expenditure (OPEX) per tonne for the first
10 years, delivered in port (FOB), the pricing
is US$34, which we believe is low, and very
competitive for a premium concentrate
product. We will look to secure financing
from banks and combine this with equity, or
off-take financing, for a total of US$417
million, as it stands right now. The remaining
part of the total US$620 million will be
financed by the project cash flow from
the first two production years.”
Northland Resources, however, believes
that it can reduce this amount further still,
by various means. “Firstly, the governments
of Sweden and Finland are interested in
building a rail link, all the way into the
process centre – a total of 16 kilometres
of rail – that will result in a CAPEX saving
for us of US$50 million,” Mr Hvide remarks.
“We also believe that we can receive more
competitive bidding by the large vendors
during the full feasibility study, as opposed
to a pre-feasibility study when only list prices
are being used, and by leasing some of our
equipment – either Caterpiller or Komatsu.
Building on success throughout
Europe, Asia and the Middle East
Euroasia Construction Magazine (ECM) is the only specialist
construction magazine to cover the entire European, Asian and
Middle Eastern markets. Providing in-depth coverage,
both locally and internationally, ECM is the perfect medium
to promote your company’s services and products to key
decision makers in these dynamic and fast moving markets.
To find out how we can get your company noticed
in the markets that matter call Michael Byrne,
Features Director on 0044 1603 625374
www.cbsmedialtd.com
64 EUROASIA INDUSTRY
EUROASIA INDUSTRY 65

WWW.EUROASIAINDUSTRY.COM
In total, we believe that we can reduce that
of US$620 million total investment figure
by about US$100 million.”
Much of this government support stems
from a desire for more native iron-ore processing
in Northern Europe. Mr Hvide
explains: “LKAB, which is a large, stateowned
company, with two mines in northern
Sweden, produces around 25 million tonnes
of iron-ore annually, and is the largest producer
of iron-ore in Europe,” he notes.
“Everything else – roughly 175 million
tonnes – has to be imported. So that drives
the EU to support efforts to get more mines
into production.”
He continues, “For example, there is a 230
kilometre railway from the port of Kemi in
Finland, that runs almost all the way up to
our projects, which, last year, the Finnish
government committed to upgrade –
bringing it up to three million tonnes
capacity by 2011, by which time we will be
in production. This involves the government
spending €84 million, with the possibility
of further expansion, once we have the first
mine financed.
“In many ways, this is really a joint
industry project between Finland, Sweden
and ourselves. The support that we receive
from them is truly massive, and is undoubtedly
one of the unique benefits of working
in this area of the world,” Mr Hvide emphasises.
“The reason for their support is very
natural, given the payback to them. We are
going to employ 450 people at the mine site
and the processing centre, another 100 on
the rail and maybe 50 in the port. The possibility
of another 600 jobs created is massive
for these small villages, struggling with
people moving away to the cities.”
An expert team
In its pursuit of financing and an effective
mine plan for bringing its assets online,
Northland Resources has turned to some of
the most senior names in the iron-ore mining
and processing industry, employing globally
recognised industry players at both board
level and senior management level. Mr
Hvide tells us: “We have a total of 60 people
employed, of which around 20 are geologists,
25 are engineers and the rest are handling
the organisational side. We have also
recruited some very heavy-weight personnel
on the senior management side, as
well as on the middle management side,
in order to execute the project.
“Our President is Mr Buck Morrow,
former President of Western State Minerals.
He has built seven new mines over the
course of his career and is a very senior engineer
with a lot of management experience.
William Wagener, our COO, latterly
President of ARCO Coal Australia, previously
headed up an operation that produced
20 million tonnes of coal per year. Mr Karl-
Axel Waplan is a previous CEO of the
Lundin Mining Corporation, a company
with five mines and a market capitalisation
of around US$2 billion. He has also worked
for both LKAB and Boliden before he eventually
joined us, bringing with him a vast
experience in iron-ore, copper, and gold.
Mr Aurelian Bukatko, our CFO, has extensive
experience in the steel industry, and
some very useful contacts among our potential
clients. And VP of Exploration, Dr
Vladimir Benes, joined us last year from
Barrick Gold, where he was heading up
all exploration for Barrick in Russia and
Eastern Europe.”
Northland Resources’ boards also consists
of experienced people, with backgrounds
both in industry, as well as finance. “Myself,
I have an investment banking background,”
Mr Hvide tells us. I joined an exploration
company in 1995, and took that public in
Oslo, and was subsequently active in
Greenland, Ghana, the Philippines and
Scandinavia. I then joined Pareto Securities
as MD of Metals and Mining and worked
for eight years – my team raising some US$2
billion of debt-equity over the last five or
six years.
“Mr Stuart Pettifor is an ex-CEO of Corus
Steel; Mr Tuomo Mäkelä, President of
Outokumpu Mining, heads up our physical
mining processes and is very experienced
in geology, processing and mining; and
Mr Birger Solberg, who is Managing Director
of Sibelco’s Nordic mining operation,” he
informs. We also had Mr. Frode Teigen, one
of our largest owners and a previous shipping
executive, joining the board last Spring. In
addition, there are many other very senior
individuals, details about which are available
on our website.”
A strong market
With respect to Northland Resources’ assets
and activities, Mr Hvide tells us: “We have
started a definitive feasibility study on the
Swedish assets, which will be completed by
June 2010 By this time, we hope to have
financing in place, in order to start building
the mines and the process plant in the
second half of 2010 – taking about 18
months to finish everything, this should see
us entering into full production on the
Swedish assets by the first quarter of 2012.”
As far as the Finnish assets are concerned,
Mr Hvide informs us: “Northland Resources
has adopted a very sober approach, following
the fallout of the financial crisis and the stock
market devaluation. Of course, things are
improving, but many of the banks are still
having a hard time funding new clients and
new projects.” He adds: “There is certainly a
lot of interest in financing us coming from
Northern Europe. However, we will not
move to fully develop the Finnish assets until
we either have a partner to develop them
with, or financing in place for the
Swedish assets.”
With this in mind, the trend that
Northland Resources anticipates, based
on market data, is undoubtedly a positive
one. Mr Hvide elaborates: “We believe that
the iron-ore price is likely to increase for at
least the next three to four years. Based on
what BHP is saying, what CRU in London
and also what AME in Australia is saying, we
believe that we will have a very healthy
market until at least 2015. And if China
meets expectations – based on BHP projections,
they are likely to double their iron-ore
capacity up until 2015 – we believe that
market could be very healthy and ongoing
until at least 2020.
“If you listen to CRU, the benchmark
price right now is around US$55 per
tonne, depending on the speciality of
your product. But they don’t believe that
any more capacity is going to be coming
into the market unless we hit US$51 to
US$53 per tonne – delivered in Europe –
which means that with our operation at
US$34, we should be in very good shape,
even if we hit those lower levels. At the
same time, a lot more capacity will be
coming into the market, but all of those
facilities are going to need to build new
railroads, ports, mines and processing
centres. So, we think that is going to keep
the market pretty well balanced in the
coming years. The three dominant players
– Vale, BHP and RioTinto – which control
around 75 percent of the overseas ironore
market, are not going to shoot themselves
in the foot by pouring in
additional capacity.”
The nature of the product that Northland
Resources intends to produce will also
give the company an added advantage
over its competitors. “We will be producing
a very high quality concentrate,
with a 69 percent Fe content, as opposed
to the normal, which is 63 percent – it
will be a very clean product with very few
impurities, low sulphur, aluminium and
silica content,” he advises.
“The future clients for us will probably
be the pellet producers. It could be Corus
in Europe, it could be GIIC (Gulf Industrial
Investment Company) in the Middle
East, or it could be Chinese pellet plants.
We anticipate a lot of demand, given the
very high-grade product that we can offer,
extracted from very stable countries,”
Mr Hvide enthuses.
Forward planning
Although the mine plan itself is still under
development, Northland Resources already
employs a very senior health and safety manager,
Mr Manfred Landvall – for Vice
President of Health and Safety at
Boliden. “We are taking these matters
very seriously indeed,” Mr Hvide remarks.
“Everything that we build has to be up to UN
standards, and Swedish and Finnish standards,
which, as you will be aware, are some
of the strictest standards in the world.
“On the environmental side, we are fortunate
in the sense that we do not have any
specific issues that need to be addressed at
any of our assets. In terms of developing a
more general environmental plan, however,
we have already outlined our operation and
constructed flow-sheets for our planned use
of the roads and the railway, noting input
from local groups, including local government
authorities and NGOs. These NGOs
have been made aware of our scheduling
and piling and, to date, we have no problems
whatsoever with any of them. In fact, they
have all been very supportive; we have got
very good feedback from the commission
that deals with environmental permitting,”
he announces.
With respect to technology and the application
of new technology, Northland
Resources has taken a conservative
approach. “We are not going to be using
any new high-tech methods for producing
our concentrate. Because it is such a heavy
item and heavy process, we, as a comparative
new comer, cannot take that kind of risk. We
will be using the standard equipment that
we know will perform in the very demanding
climatic conditions that we will face – minus
30 degrees in winter, plus 30 degrees in the
summer. The kind of well-proven equipment
that is already being used by the likes of
LKAB, Outokumpu and Boliden,” he says.
Secure supply from a stable region
By way of summing up, Mr Hvide comments:
“Our mines are located in an area
that has a long tradition of mining – LKAB,
Boliden and Outokumpu are all within 200
kilometres of our site; we have ample access
to skilled workers; we have a very experienced
and highly skilled senior management
staff, and good assets with a potentially very
low production cost. I think that sums it up!”
As for the company’s future plans, these
have obviously been outlined in greater detail
throughout the article but, more specifically:
“on the financial side, Northland Resources
plans to try to broaden its shareholder base,
especially into areas outside of Scandinavia,”
Mr Hvide remarks. “We lost some of our
shareholders – from hedge funds, mutual
funds and retail – during the credit crisis,
but we are now making efforts to broaden
our investment base through a larger
number of brokerage houses being active
in the stock.” He adds: “We also need to
re-juvenate the Toronto listing.“Apart
from that,” Mr Hvide concludes, “we
are going to be hiring more people on the
senior management side, as well as on the
middle management side, in order to prepare
ourselves for production – and to
negotiate the final contracts for the
Swedish operation and any potential
partnership agreement for the
Finnish operation.”
66 EUROASIA INDUSTRY
EUROASIA INDUSTRY 67