Interim Report January – September 2015

Significant events during the third quarter of 2015

  • Paul Marsden was appointed new acting Managing Director, succeeding Christer Lindqvist who left the company
  • Decision was taken to proceed with further metallurgical testing
  •  A new major owner was introduced – Garden Growth Industries AB

Third quarter, 1 July – 30 September 2015

  • Income amounted to SEK 0 million (0)
  • Loss for the period amounted to SEK -2.6 million (-8.4)
  • The investments during the period July – September amounted to SEK 0.7 million (9.3)
  • Basic earnings per share were SEK -0.17 (-0.73)

Interim period, 1 January – 30 September 2015

  • Income amounted to SEK 0 million (0)
  • Loss for the period amounted to SEK -10.7 million (-19.5)
  • Investments during the period January – September amounted to SEK 9.5 million (15.3)
  • Basic earnings per share were SEK -0.74 (-1.69)
  • Cash and cash equivalents on 30 September 2015 amounted to SEK 1.1 million (0.1)

Significant events after the period end

  • An extra general meeting decided on a directed issue to convert bridge loans amounting to SEK 3.1 million into shares and a rights issue of up to SEK 21.8 million.
  • Ryan Huff elected as new member of the board.
  • Test enrichment on a pilot scale of about 10 tonnes of crude ore from Blötberget by SGA in Germany began in November. 

Comments from the Managing Director

Advancing the value of the project during difficult market conditions

The iron ore mining and steel industries continue to suffer in the global economy dominated by the belief that China’s economy is slowing down. The last 2-3 months has seen some of the volatility of the iron ore prices (indices) reduced with prices settling down in the mid $50’s for 62%Fe products. The demand for global bulk iron ore is not growing as fast as predicted as a result of reduced steel output growth from China, closures of steel plants for environmental reasons and a general slowdown in the global economies.

This environment has led to the closure of a number of operating iron ore mines and steel companies. It is clear that these companies have not been able to compete at these lower commodity prices. In the case of the iron ore mines it is clear that many of them were financed in the boom period and did not optimise their development to a level where they could survive a significant downturn in the market. This is primarily because there was often a rush to reach production as soon as possible and before the project was thoroughly studied. As a consequence optimisation could only be achieved once the mine was in production and in many instances this proved to be a fatal decision – subsequently many operations and developments in Africa, N America, S America and Australia have now closed or are not viable. It is true to say, also, that some of these mines were always going to be high cost operations, often through high capital charges and borrowing costs.

The big mine operators are all slashing their cash operating costs (OPEX) and trying to restructure debts in order to compete and maintain margins. A significant amount of the cash costs are now associated with personnel fixed costs, compared with say fuel etc. NIO recognises that in order to have a viable project we have to demonstrate that the Ludvika projects can start with an efficient low cost operation and survive in a “bear” market with low commodity prices. Hence this next phase of our project is to improve the process operations, looking at increasing the recovery of Fe units to the concentrate and improving the quality even further by the removal to ultralow levels of certain impurities. This is to ensure that NIO not only avoids penalties but actually attracts premium pricing where possible.

High quality product is the differentiator

This view is reinforced by our discussions with buyers and analysts of iron ore from around the world, where many believe quality is key to securing long term off-take agreements with discerning customers who are prepared to pay a premium to secure this supply. NIO will continue to target off-take agreements with companies that can provide a combination of the largest possible margin and long-term purchases from NIO. Notwithstanding that NIO is also seeking long term investors to help secure the future of the developments in Ludvika area.

What I would like to emphasise is that Nordic Iron Ore is not looking to compete in the “mass” low quality iron ore market that we read about in the news all the time.

Around 90% of the market in traded iron ore is in products with (relatively) low iron content (55-63%Fe). The internationally traded iron ore market is dominated by the big suppliers in Australia and Brazil – trading into Asia – and China in particular. Vale, the largest iron ore supplier has recognised that they are losing their margins competing with Australia in the lower Fe content ores and so have stated that they are trying to move their product up the quality ladder (i.e. 63-66%Fe), so as to maintain customers and provide a better value product, largely unavailable in Australia.

NIO on the other hand is looking to sell into a much more niche market where the high grade iron ore products are 66-70%Fe content. Nordic Iron Ore is expected to produce two different products: (magnetite (concentrate up to 70% Fe content) and hematite (66-67.5%Fe content) or a blend of the two. For these products there are very few competitors who can consistently provide iron ores of  equally high quality. LKAB in Sweden does have some similar products, but produced in very limited quantities. These products are usually purchased by the following industries:

  • Iron ore pelletisers (making feed for blast furnaces or direct reduced iron furnaces)
  • Steel companies for blending in with sinter fines to elevate the iron content
  • Specialist steel or iron powder producers
  • Specialist industries, magnet producers, heavy media, chemical industries

The last two are low volume buyers, but the pelletisers and steel companies will buy in volumes way beyond the capacity envisaged by Nordic Iron Ore.

High quality iron market supply is limited to a few suppliers primarily located in Europe, Brazil, Russia, Ukraine and
N America. Many of these producers are linked to local steel companies and as a consequence are suppliers tied to their local market. Buyers in Asia, in particular, find it increasingly difficult to find suppliers who can maintain a quality product and supply the volumes necessary. Analysts are now beginning to recognise that whilst there is currently a small oversupply in the market, going forward there will be a deficit of supply vs demand.

Iron Ore Pricing

The iron ore pricing on the spot market is indicated by several indices, predominantly operated by Platts, SGX or Metal Bulletin. The original spot market originated with Indian iron ore exports to China and from this two indices appeared at 62%Fe and 63.5%Fe. Since the early days numerous indices are operated at iron ore content 55-63.5%Fe. As can be seen this does not cover the higher qualities of iron ore, which was then dealt with as a small premium over the lower quality ores. However in recognition of the need for a proper pricing mechanism the indices for 65%Fe and 66%Fe have been introduced to recognise the premiums to be paid for the higher iron content, but also in an effort to include premiums or penalties based on levels of other elements, such as silica or alumina, as well as sulphur and phosphorus. These changes and developments in the iron ore market are welcome and should aid NIO in its efforts to secure a good price for their products in an expanding market for high quality iron ores.

The immediate future of NIO has been secured by the recent introduction of a new major owner, Garden Growth Industries. I would also like to thank other major existing shareholders for their faith in the current development plans of NIO by their further support by securing loans and participation in the imminent issue. This is hugely positive for the company and demonstrates that they are looking towards the long-term development of NIO’s projects in Ludvika. Continued improvement in the development of the projects is hoped to increase the value of the company and attract further investors.

At the moment the market is sending mixed messages regarding the iron ore price; but there is also a consensus amongst traders and analysts that iron ore prices are likely to creep upwards during 2018, with more rapid increases expected around 2019/20. Furthermore, and importantly for NIO, high quality iron ores will start to be treated as a higher value product, demanding differentiating premiums than those currently afforded, as supply starts to fall behind demand.

Paul Marsden

Managing Director, Nordic Iron Ore AB


For further information please contact:

Paul Marsden Managing Director
tel: 46 240 883 05

paul.marsden@nordicironore.se

Nordic Iron Ore Group is a mining company with the ambition to revive and develop the iron ore production of Ludvika Mines in Blötberget and Håksberg. The company also intends to expand its mineral resources, and upgrade them to ore reserves, primarily through exploration and other studies of the connecting Väsman field. For more information, see www.nordicironore.se.

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