Northland Receives Positive DFS on Hannukainen IOCG Project

Luxembourg, March 24, 2014 – Northland Resources S.A. (OSE: NAUR, Frankfurt: NPK, Nasdaq OMX/First North: NAURo – together with its subsidiaries “Northland”, “NRSA” or the “Company”) is pleased to announce the positive outcome of the Definitive Feasibility Study (“DFS”) on its 100%-owned Hannukainen Iron Oxide Copper Gold Project (the “Project”) in northern Finland.

Comment from the acting CEO

“We are pleased to report the Definitive Feasibility Study (DFS) for the Hannukainen project, which supports our belief in the underlying quality and value of the project. Construction and operational permits will be issued based on the designs included in the DFS.

However, to strengthen our financial position and to focus on our operations in Kaunisvaara, we have engaged KPMG Corporate Finance as financial advisor to review the strategic alternatives for Hannukainen including a potential sale of the project.”

Peter Pernlöf, acting CEO

Highlights of the DFS

• In total, the Project has a joint open pit and underground combined Measured and Indicated Resource of 187 Mt grading 30.04% Fe Total, 0.18% Cu and 114 ppb Au. In addition, there is a total of 63 Mt grading 32.05% Fe Total, 0.15% Cu and 47 ppb Au in the Inferred category.
• The mineable tonnages (proven and probable mineral reserve) from the engineered pit design are a total of 114.8 Mt grading at 30.5% Fe, 0.185% Cu, 0.112 g/t Au and 2.4% S. This gives a LOM of 17 years at the planned ore production of 6.5 Mtpa.
• The final products are a very high quality magnetite iron ore concentrate (70% Fe) and a copper concentrate (>25% Cu) with gold credits (7 g/tonne of Cu concentrate).
• The properties of the iron ore concentrate makes it most suitable for the production of iron ore pellets, both pellets for use in blast furnaces (BF-pellets) and for use in DRI production (DR-pellets). It will also be most suitable for sinter production due to its high Fe content and its low level of impurities.
• Logistics of the Project is based on railroad transportation of iron concentrate from Hannukainen to the Port of Kokkola, Finland, and on regular year round shipments of iron concentrate from the Port of Kokkola. Company is expected to use Panamax vessels and not fully laden Capesize vessels during the ice-free period of the year and smaller vessels during the winter season.
• Initial Capex in order to reach 2 Mtpa of Fe concentrate capacity is 641 MUSD. Capex over the life of mine is estimated 810 MUSD, including owners cost and a 10% contingency.
• Total Opex /tonne (“t”) Fe concentrate delivered FOB at the port of Kokkola, Finland, is estimated to average USD 88.2/t concentrate for the Life of Mine (“LOM”) and to Cash Cost adjusted for bi-products Cu/Au Concentrate is estimated to USD 49.9/t for the Life of Mine, including a 5% contingency.
• Based on cash-flows pre-tax and interest[1] the project has Net Present Value (“NPV”) of 383 MUSD at a discount rate of 8% and an IRR of 16.45%.
• The payback period is expected to be 5 years from the first production of concentrate from the Project.
• Permitting processes of the Hannukainen IOCG Project are on-going.

As part of the technical process, SRK Consulting (UK) Limited (SRK) has audited the Resource and Reserve statements and the capital and operating cost estimates for the Hannukainen IOCG Project. SRK’s estimates for IRR and NPV before tax and interest presented in the technical report are consistent in all material respects with the pre-tax estimates derived by Northland and presented in the DFS. The following press release presents extracts from the DFS.

A complete Technical Report will be filed on SEDAR on www.sedar.com. The complete Technical Report details the extent of the study, the assumptions made in analysing the data provided, the risks inherent in such projects and remaining work necessary to validate the project feasibility. Interested parties are encouraged to read the entire report.

DFS Overview

The DFS for the Hannukainen IOCG Project includes Hannukainen and Kuervitikko Iron Oxide Copper Gold deposits. They will provide feed to the planned Hannukainen Processing Plant in Kolari, northern Finland

The DFS was led by Northland. Jacobs UK Ltd (Jacobs) was responsible for overall coordination and compilation of the work completed by a number of specialist service groups and sub-consultants, whose limited areas of responsibility for the DFS were as follows:

Table 1. Hannukainen DFS Work Packages

DFS Results in Detail

Capital and operating cost estimates were compiled by Northland and Pöyry based on information provided by all consultants. This formed the basis for the financial analysis included in DFS and technical report.

Capex and Opex

Total Opex /tonne (“t”) Fe concentrate delivered FOB at the port of Kokkola estimated to average USD 88.2/t concentrate for the Life of Mine (“LOM”) and to Cash Cost adjusted for bi-products Cu/Au Concentrate is estimated to USD 49.9/t for the Life of Mine. The Opex figure includes a 5% contingency.

Table 2. Hannukainen DFS OPEX Breakdown

Initial Capex in order to reach 2 Mtpa of Fe concentrate capacity is 641 MUSD. Capex over the life of mine is estimated 810 MUSD. The Capex figure includes owners cost and a 10% contingency.

Table 3. Hannukainen DFS CAPEX Breakdown

Product Pricing and Marketing

During the DFS, Northland commissioned a market study report, including the price forecast, from Raw Material Group (RMG), a Swedish based iron ore market consultancy. The base case constitutes a conservative approach to product pricing. The base case in the DFS was based on their high price scenario for shipments to Europe and Middle East.

Even their high price scenario should be considered very robust and conservative since they assumed that the market will be balanced long-term, as opposed to other analysts, who are assuming that supply will have difficulties keeping up with the growing demand. The figure below illustrates an estimate of the Chinese marginal production cost, which can be considered as a floor in iron ore pricing service.

Table 4. RMG long-term price forecast Fe concentrate and pricing estimated for the Hannukainen iron concentrate

Metallurgical testing has shown that processing the Hannukainen ore requires fine grinding to liberate the valuable magnetite, copper and gold, which allow the unwanted waste materials to be discarded. The final products are; a very high quality magnetite iron ore concentrate (70% Fe) and a copper concentrate (>25% Cu) with gold credits (7 g/tonne of Cu concentrate).

The properties of this iron ore concentrate makes it most suitable for the production of iron ore pellets, both pellets for use in blast furnaces (BF-pellets) and for use in DRI production (DR-pellets). DRI (Direct Reduced Iron) is primarily then used in Electric Arc Furnaces (EAF’s). It will also be most suitable for sinter production due to its high Fe content and its low level of impurities.

Table 5. Hannukainen Product Quality Specification

Copper and Gold

The Hannukainen deposit is an iron oxide copper gold (IOCG) mineralization system. In addition to producing an iron concentrate there is an option to also produce a copper concentrate. The value of this copper concentrate could give an important support to the total value created in the Hannukainen project.

The copper concentrate produced in the Hannukainen project is expected to have the following characteristics: Cu 25%, Au 7.1 g/t, Moisture 10% (Source: SGS - Certificate of analysis).

Sensitivity Analysis

Based on the RMG high price forecast, the Financial Model produces the following output when applying the base case scenario inputs:

• The Project has a NPV[1] of 383 MUSD at a discount rate of 8% and an IRR1 of 16.45%. Based on cash flows pre-tax and interest.
• The payback period1 is expected to be 5 years from the first production of concentrate from the Project.
• Minimum cash balance pre-financing is 658 MUSD

The following sensitivity analysis, which is pre interest and taxes has been run using an 8% discount rate while keeping all other variables in the Base Case the same.

The sensitivity analysis was performed by sensitising four key variables in the financial model: capex, opex, iron ore and Cu/Au prices.

Table 6. IRR Sensitivity analysis                  

Table 7. NPV Sensitivity analysis

Table 8. MCB Sensitivity analysis

Permitting

Hannukainen Mining Concession Application was filed in December 2010. Northland is expecting the mine permit process to be finalized until summer 2014.

Hannukainen Environmental Impact Assessment (EIA) including Social Impact Assessment (SIA) was delivered to authorities (Northern Finland ELY-Centre) in September 2013 and it has been state to be adequate. At the moment Northland is preparing an Environmental Permit application and Natura assessment for authorities, the Company is expecting to file the application during Q2 2014.

Land Use Planning process for the Hannukainen Project was started in November 2010; at the moment the process is in the first official public feedback stage.

Resources and Reserves

The Mineral Resource Statement generated is divided into two categories: open-pit and underground. The open pit Resource has been restricted to all classified material falling within a Whittle shell representing a metal price of USD1.50/dmtu for magnetite concentrate, USD3.35/lb for copper and USD1375/oz for gold.

In addition, the open pit resource was reported above a Fe equivalent cut-off grade of 13.3%, however, this represented almost all material within the pit. This represents the material that has reasonable prospects for eventual economic extraction potential via open pit mining methods based on the Whittle optimisation analysis.

The underground Resource has been calculated using a Fe equivalent cut-off grade of 35.6%, calculated using the same metal prices as the Whittle shell. This represents the material considers to have reasonable prospects for eventual economic extraction potential via underground mining methods.

Table 8 shows the resulting Mineral Resource Statement for the Hannukainen project. The statement has been classified by Qualified Person Howard Baker (MAusIMM(CP)) in accordance with CIM Guidelines. It has an effective date of 24 October 2012.  Mineral resources that are not mineral reserves do not have demonstrated economic viability. There are no other factors (environmental, permitting, legal, title, taxation, socio-economic, marketing, political, or other relevant factors) that have materially affected the Mineral Resource Estimate.

The quantity and grade of reported Inferred Resources in this estimation are uncertain in nature and there has been insufficient exploration to define these Inferred Resources as an Indicated or Measured Mineral Resource; and it is uncertain if further exploration will result in upgrading them to an indicated or Measured Resource category.

Table 8. Mineral resources of the Hannukainen IOCG Project

The Hannukainen project has a combined Measured and Indicated open pit Resource of 159 Mt grading 30.06% Fe Total, 0.18% Cu, and 112 ppb Au. Of this, 154 Mt grading 30.28% Fe Total, 0.18% Cu, and 112 ppb Au is in the Measured category, and 6 Mt grading 24.09% Fe Total, 0.17% Cu, and 118 ppb Au is in the Indicated category. In addition, 1 Mt grading 26.24% Fe Total, 0.19% Cu and 36 ppb Au is in the Inferred category.

The Project also has a combined Measured and Indicated underground Resource of 28 Mt grading 29.46% Fe Total, 0.18% Cu, and 130 ppb Au. Of this, 17 Mt grading 29.88% Fe Total, 0.18% Cu, and 149 ppb Au is in the Measured category, and 11 Mt grading 28.82% Fe total, 0.17% Cu, and 101 ppb Au is in the Indicated category. In addition, 62 Mt grading 32.14% Fe Total, 0.15% Cu, and 47 ppb Au is in the Inferred category.

In total, the Hannukainen project has a joint underground and open pit combined Measured and Indicated Resource of 187 Mt grading 30.04% Fe Total, 0.18% Cu and 114 ppb Au. In addition, there is a total of 63 Mt grading 32.05% Fe Total, 0.15% Cu and 47 ppb Au in the Inferred category.

Mineable Tonnages – Engineered Pit Design

On the basis of a 17 years mine life minimum, the 0.89 revenue factor pit shell (relating to an iron ore price of USD1.25/dmtu) was selected as the basis for the pit designs. The mineable tonnages from the engineered pit design are 114.8 Mt of ore with 446.8 Mt of waste.

Mineral reserves reported include a Proven Mineral Reserve of 113.7 Mt grading 30.5% Fe, 0.185% Cu, 0.112 g/t Au and 2.4% S and a probable Mineral Reserve of 1.1 Mt grading 30.0% Fe, 0.157% Cu, 0.1 g/t Au and 2.4% S for a total of 114.8 Mt grading at 30.5% Fe, 0.185% Cu, 0.112 g/t Au and 2.4% S. Confidence in the modifying factors has resulted in classifying all Measured material as a Proven Ore Reserve and all Indicated material as a Probable Ore Reserve.

The mining operation consists of a conventional drill and blast, and load and haul operations with material hauled to waste dumps, RoM stockpile or directly tipped at the crusher.

Mineral Processing

The Hannukainen minerals processing plant is located eight kilometres south of the Hannukainen mine at Rautuvaara, Finland and processes the iron oxide, copper and gold (IOCG) ore to be mined at Hannukainen and Kuervitikko. The minerals processing plant is designed to treat 6.5 Million tonnes of ore per year at a nominal processing rate of 825 tonnes per hour.

Run-of-mine (RoM) ore is crushed by a primary crusher at the Hannukainen mine site. The crushed ore is transferred by a 9 km long overland conveyor to the stockpile at the concentrator in Rautuvaara. At Rautuvaara, the crushed ore is screened into a fine and a coarse fraction. The two fractions are stored separately in the stockpile. Mill feed is extracted from the stockpile by apron feeders and conveyed to the grinding circuit in the concentrator. The grinding circuit comprises a primary AG/SAG mill in closed circuit with screens followed by secondary ball mill in closed circuit with hydrocyclones. A portion of the cyclone underflow is processed in a flash flotation stage to recover coarse, fast floating chalcopyrite. The product from the grinding circuit passes to copper rougher flotation.

The copper rougher concentrate, together with the flash flotation concentrate, is treated in the stirred mill regrind circuit to ensure adequate liberation of copper minerals.  The regrind product is upgraded in three stages of copper cleaning. The final copper concentrate is thickened, filtered and stored, prior to transportation to market.

Copper first cleaner tailings pass to cleaner scavenger flotation for recovery of slow floating value minerals. The cleaner scavenger tailings are then sent to the pyrite concentrate thickener. Copper rougher tailings are pumped to the pyrite flotation circuit for removal of sulphur-rich pyrite. The pyrite flotation concentrate is thickened together with the copper cleaner scavenger tailings. The non-floating fraction (i.e. the high iron fraction) from pyrite flotation is diluted and processed in a number of parallel low intensity magnetic separators (LIMS) for magnetite recovery. 

LIMS concentrate is treated in the pyrrhotite flotation circuit to float the sulphur rich pyrrhotite in order to achieve a final magnetite product with less than 0.05% w/w sulphur.  The cleaned magnetite fraction is dewatered by magnetic separators followed by filtration. The filter cake is loaded onto rail wagons for onward delivery to market.

The non-magnetic tailings streams from the LIMS and dewatering magnetic separation stages are combined and thickened in the low sulphur tailings thickener to produce a high density thickener underflow. The thickened tailings are pumped to the low sulphur tailings management facility (TMF). The high sulphur flotation concentrate generated from the pyrrhotite flotation circuit is dewatered by magnetic separator and combined with the pyrite thickener underflow. The combined high sulphur tailings are pumped to the separate high sulphur deposition area in the TMF.

Logistics

The Hannukainen iron concentrate is planned to be transported by rail, around 450 km, to the Port of Kokkola, where it is discharged, stored and then reclaimed for loading to ships. The Hannukainen project has the significant advantage of being able to utilise existing infrastructure including railways (originally designed to handle bulk materials from the Rautaruukki iron ore mine and the cement industry), the port and shipping. Some upgrading of the rail infrastructure and some investments for storage and handling at the port are however required.

The Port of Kokkola has already experience from and equipment for handling of various dry bulk cargoes, including coal and iron ore. Panamax vessels and not fully laden Capesize vessels discharge and load at the port during the ice free period of the year while during the winter season smaller vessels better suited for ice conditions are used more frequently. The ports and fairways along the Swedish and Finnish coastlines have been kept open year around since the early 70’s by heavy duty ice breakers from both countries assisting each other.

Cu/Au concentrate is targeted to be sold EX Works Hannukainen, and Boliden has been identified as the most probable client. Boliden can receive the product either in Skellefteå, Sweden or Harjavalta, Finland. The logistic operations for Cu/Au base case consist of the two operations, loading and trucking, where Boliden will have responsibility for loading the trucks and manage the truck transport to customer receiving location.

Financing

Based on the current situation December 2013 for Northland, the Company has decided to finalise the DFS with a pre financing and tax level, even though the financial model is able to handle the post financing and tax level. The financing solution for the Hannukainen IOGC project will be determined when Northland is able to seek financing on normal terms. The long-term cost of debt is assessed between 3.4% - 7% while the required return on equity for the mining sector is assessed between 8 - 12% while the current financing situation requires returns close to the IRR level for the Hannukainen IOGC project which makes it difficult to identify the capital structure for the project at this stage. As it is well known, Iron projects are sensitive to market price fluctuation. However, the performed sensitivity analysis suggests that Hannukainen as iron and copper-gold project is less sensitive to Iron ore market fluctuations due to the bi-products.

For more information, please contact:
ir@northland.eu
Jonas Lundström, Vice President Corporate Communication: +46 705 49 33 38
Jari Väisinen, Vice President Finnish Operations: +46 920 779 00

Or visit our website: www.northland.eu

Northland is a producer of iron ore concentrate, with a portfolio of production, development and exploration mines and projects in northern Sweden and Finland. The first construction phase of the Kaunisvaara project is complete and production ramp-up started in November 2012. The Company expects to produce high-grade, high-quality magnetite iron concentrate in Kaunisvaara, Sweden, where the Company expects to exploit two magnetite iron ore deposits, Tapuli and Sahavaara. Northland has entered into off-take contracts with three partners for the entire production from the Kaunisvaara project over the next seven to ten years. The Company is also preparing a Definitive Feasibility Study (“DFS”) for its Hannukainen Iron Oxide Copper Gold (“IOCG”) project in Kolari, northern Finland.

Forward-Looking Information

This announcement may include “forward-looking” information within the meaning of applicable securities laws. This forward-looking information can be identified by the use of forward-looking terminology, including the terms “believes”, “estimates”, “anticipates”, “expects”, “intends”, “may”, “will” or “should” or, in each case, their negative, or other variations or comparable terminology. This forward-looking information includes all matters that are expectations concerning, among other things, Northland’s results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which it operates. By their nature, forward-looking information involves risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Readers are cautioned that forward-looking information is not a guarantee of future performance and that Northland’s actual results of operations, financial condition and liquidity, and the development of the industry in which it operates may differ materially from those made in or suggested by the forward-looking information contained in this press release. In addition, even if Northland’s results of operations, financial condition and liquidity, and the development of the industry in which Northland operates are consistent with the forward-looking information contained in this press release, those results or developments may not be indicative of results or developments in subsequent periods.

[1] Values include contingency 10% Capex and 5% Opex

[1] This is based on Northland’s estimate of IRR and NPV before tax and interest, which are consistent in all material respects with the equivalent pre.tax estimates derivated by SRK and presented in the technical report. Values include contingency 10% Capex and 5% Opex