Hannukainen - KaunisvaaraAbout Hannukainen & Satellites - DFS, annual volume, port,ownership of HK, DR quality, first production
The Definite Feasibility Study for Hannukainen & Satellites isexpected to be published lately in Q4’11. I expect it to be based on an annualproduction of iron ore concentrate of 3 mill. tonnes (wet metric tonnes)compared to 2 mill. tonnes in the PEA.
I expect it to be based on a larger reserve base than the resource baseincluded in the DCF in the PEA from May 2010. Maybe the during some months willbe published an updated NI 43-101 resource calculation for Hannukainen &Satellites (as Kuervitikko and Cu-Rautuvaara) with an expanded resource basecompared to the current NI 43-101. The satellites is expected to contain about23 % Fe in situ and attractive grades of copper and gold credits. Fe in situ inthe resource included in the DCF in the PEA is 35.7% (and 75 mill. tonnes ofIOCG resources), and about 30 % Fe in situ in an additional resource of about35 mill. tonnes of IOCG in Hannukainen so HK will be totalling 110 mill.tonnes.
I also expect Hannukainen & Satellites to be developed and builtfor production 100 % owned by NAU and thereby no partners involved as owners.
The permitting process is expected to take some time in Finland, andcommencement of mining is be expected in Q4’14 and first sale in Q1’15.
Iron ore concentrate from Hannukainen & Satellites (at least 69 %Fe and maybe 70 % Fe, slightly higher content of impurities and lower content of MgO compared to Kaunisvaara)seems suitable also for sale as iron ore concentrate for production of DirectReduction Iron where there are potential customers in North Africa and MiddleEast (MENA) which are markets of rapidly growing total volumes per year. DRiron ore was paid with a premium of about 10% over Blast Furnace (BF) iron oreaccording to the old benchmark price system. It’s expected a premium on a CFRcustomer level for DR iron ore concentrate compared to BF iron ore concentratealso going forward, and the premium possibly will exceed the extra seabornefreight costs to the DR customers located in MENA compared to freight costs toEuropean customers interested in BF iron ore concentrate (sold as pellet feedand sinter feed).
Narvik will be the port for Kaunisvaara. No question about that. Thereisn't any real alternative. Regarding Hannukainen & Satellites it still isan open question which port will be chosen. Alternatives for HK are Narvik(Capesize dry bulkers), Kokkola (Panamax dry bulkers) or maybe Kemi (Handysizedry bulkers). I use Narvik as port for HK in my base case DCF calculation, butI feel Kokkola may be a real alternative as there already is a rail line allthe way from Kolari to Kokkola (distance more than 500 km), and as the infrastructureat the port of Kokkola almost is in place today. In the Kemi alternativerelatively large investments is required. The Narvik alternative will implysome large scale advantages because Narvik will be the port for the Kaunisvaaraproduction.
About Kaunisvaara - DFS, CapEx, OpEx
NAU has indicated that they have indicated potential for substantialreductions in the CapEx for Kaunisvaara compared to the DFS, and they also haveindicated some potential for savings in the OpEx compared to the DFS (which canbe a partly buffer against eventual cost increases regarding logistics in thecoming DFS for logistics). During the coming month much of the contracts forrealizing construction of the Kaunisvaara project is expected to be finalized.Much of the potential for the savings in the CapEx is due to lower negotiatedcontract prices than estimated in the DFS as the DFS was based on notnegotiated first offers from the vendors. In such some of the risk forexceeding the budget for CapEx is substantially reduced. There still is riskregarding the CapEx, for example regarding eventual larger mass volumes thanestimated regarding ground works. Many of the analysts have increased theirestimate for CapEx due to foreign exchange rate matters, and NAU's indicatedsavings are welcomed as there then will be room for eventual overshooting inother parts of the CapEx without substantially overshooting the the analystscurrent total CapEx estimate for the Kaunisvaara project.
DFS for logistics is awaited late in Q1'11 or early in Q2'11. DFS forPellivuoma maybe will be here at the end of Q3'11 or in Q4'11.
About geographical distribution of sales
I expect the entire production from Kaunisvaara and Hannukainen to besold to Europe and MENA. I suppose the analysts still have about 1/2 of theproduction sold to the Far East in their value calculations. Sooner or later Iexpect them to adjust their calculations in a positive way by moving the FarEast volumes back to Europa and Mena – and thereby substantially reducing theseaborne freight costs and increase their DCF value of NAU.