Northland on time and on budget"October 11, 2011
Construction At Northland’s Kaunisvaara Iron Ore Project In Sweden Remains On Time And On Budget
By Alastair Ford
“We are on time, and on budget”, says Patrick Foster, finance director at Northland Resources. “And that’s not just since we started construction, but since the budget was put to the board two and a half years ago.” He’s talking about development work at Northland’s Kaunisvaara iron ore project in northern Sweden, where the steel frame for the main building is currently being put together - the latest stage in what’s been a carefully planned build. Work will continue throughout the winter and on into the New Year.
Come next summer the company should be in a position to take delivery of the heavy machinery associated with an iron ore mining operation like Kaunisvaara. There will then, says Patrick, be a period of cold testing in November and December, ready for production to commence in the first quarter of 2013. And by the end of 2013 the plan is that production will already be running at an annualised 2.5 million wet metric tonnes of iron ore concentrate. “You can almost see the end of the race”, says Patrick. “But not quite.”
So what challenges remain? “Well, we’ve still got to build it”, says Patrick. “We’ve got to get the logistics chain all functioning.” The build is ongoing, and the arrival of the steel girders on site is only the latest development in a frenetic programme of work that’s been underway since contractors first broke ground in December of last year. Anyone interested in an up-to-the-minute view of developments can see for themselves on the Kaunisvaara webcam on the company’s website.
Logistics is another matter. Northland won’t be handling the logistics itself. After all, says Patrick: “we are not logistics people, we are miners”. But as with any iron ore operation, the key to making money lies less in the way the ore is dug up than in the way it is taken to market. Logistics is key. To that end, US logistics specialist Savage Services has been appointed to manage the delivery of the Kaunisvaara iron ore all the way from the mine onto the ships that will be moored, ready and waiting, at the Norwegian port of Narvik.
Along the way the ore will be transported by rail, through mountains, and by truck, but if that sounds like a complicated affair, it’s worth bearing a couple of things in mind. First, this ore is not in a politically suspect jurisdiction like West Africa. It’s in the heart of Europe, and as Patrick points out, Europe imports 180 million tonnes of iron ore per year. The company may find customers around the world, but it may find them, too, right on its very doorstep.
Second, although Kaunisvaara lies 100 kilometres north of the Arctic Circle, it’s not actually that complicated an undertaking either to mine, or to transport ore through the region. The mine won’t work 365 days a year, concedes Patrick, but it will work about 350. “If you get to minus 40”, he says, “you do shut down. But that’s only because of wear and tear to the trucks”. What’s more, that railway line – the one that runs over the Scandinavian Mountains and into Norway - has never closed for more than five days in a row, and that’s in nearly a hundred years of operation.
Third, Savage, and subcontractors Peab and Grieg Logistics, are among the best in the business. “It’s essential to get this thing done properly”, explains Patrick. “People want to invest into our logistics chain, because it’ll be a very substantial money maker for a considerable length of time.” Too true, but it also needs to look robust enough to attract in the rest of the US$765 million that Northland needs to get the Kaunisvaara operation up and running. And, at a time when less robust operations are struggling to secure funding, Patrick has no doubts that Kaunisvaara will make it over the line. In no small part will that be thanks to the quality work put in by its logistics people. “It really does emphasise what a correct decision it was from management to focus on quality partners”, he says.
“All financings”, Patrick continues, “at the present time are under some strain. But we are confident that we will get the project financed within the time frame required”. In the immediate term, certainly, there are no worries. “We had a very successful equity issue just over a year ago”, explains Patrick. But looking ahead, Northland can present a robust and straightforward operation to potential financiers, and one that stacks up as far as costs are concerned too. After all, it’s worth remembering that if the market for finance is difficult at the moment, the market for iron ore is pretty robust. What’s more, if the company is staying within the parameters of the capital costs, as laid down two and a half years ago, it’s also sticking to the projected operating costs of US$58.80 per tonne, in spite of the inflationary pressures at large in the wider world. That’s because much of the Kaunisvaara power will come from hydro or nuclear sources, and because there’s a downward pressure on wages as economic activity in other sectors in Scandinavia remains stagnant.
“The fundamentals for the iron ore business remain extremely strong”, says Patrick, and the margins at Kaunisvaara certainly stack up well in the context of the current US$175 spot price for 62% CFR fines. Demand from China continues to suck in supply, and BHP Billiton is now talking about new mine production costing in the region of US$200 per annual tonne capacity. With that upside on the table, and in such uncertain times as these, a proposition like Kaunisvaara will be extremely difficult for anyone to turn down."
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