May 16, 2006 - Toronto, Ontario – Baffinland Iron Mines Corporation (TSX-V: BIM) (“Baffinland” or the “Company”) today released the results of the Scoping Study on Deposit No. 1 (“Study”) of its 100%-owned Mary River Project, located in Nunavut Territory, Canada. The Study was performed by Aker Kvaerner E&C (“Aker Kvaerner”), a division of Aker Kvaerner Canada Inc.
A conference call, hosted by Gordon McCreary, President and CEO of Baffinland, will be held at 11:00 a.m. (Toronto time) today, May 16, 2006 to discuss the results of the Scoping Study and future plans. To participate in the question and answer portion of the conference call please call 416 644- 3433 or 1 800 814-3911 prior to the commencement of the call, or for listen only, the call can be accessed over the internet in real time at the Baffinland website www.baffinland.com. The conference call will subsequently be available for replay at 416 640-1917 (Access Code: 21189662#) until May 31, 2006 and also will be archived for replay at www.baffinland.com.
Highlights of the Scoping Study
• 34 year mine-life
• Pre-tax internal rate of return of 15%, with a payback period of just under 6 years
• Project cash flow is forecast to be in excess of C$6 billion over the mine life
Based on the shipment of 10 million dry metric tonnes (dmt) of high-grade iron ore (66% Fe) per year to the European market, the indicated and inferred resources sustain a mine life of 34 years. A moisture content of 2% and a lump to fine ratio of 75%:25% are assumed and are reflective of the metallurgical test-work. FOB Baffin Island sales prices assumed in the base case of the Study are approximately 25% lower than 2005 market prices and are approximately 36% below the 2006 iron ore price agreement for fines announced on May 15, 2006 by ThyssenKrupp and CVRD. Using the FOB Baffin Island base case iron ore price assumption of US$38.62/wet metric tonne (wmt) for lump ore and US$29.84/wmt for fines, the project generates a pre-tax internal rate of return of 15%, with a payback period of just under 6 years. Project cash flow over the life of the mine is forecast to be in excess of C$6 billion. An exchange rate of C$1.15 to US$1.00 is assumed and although full equity funding is assumed in the study, ultimate project financing is expected to include a substantial debt component.
“Even though we have used conservative assumptions throughout, the Scoping Study demonstrates the economic strength of the initial development scenario for Deposit No. 1 of our Mary River Project,” stated Gordon McCreary, President and CEO of Baffinland. “This Study clearly demonstrates the significant investment potential and robust economics inherent in just the first of our five wholly-owned deposits. During the next year, Baffinland, working with Aker Kvaerner, will optimize a number of further items, including expansion of initial annual throughput tonnage, pit slopes and transportation scenarios. This work will enable us to complete a definitive Feasibility Study by the second half of 2007 that will allow us to advance this world class project to the next stage of its development.”
The Study was performed by Aker Kvaerner based upon information and certain assumptions (such as long-term iron ore price, oil price and exchange rates) supplied by Baffinland. Aker Kvaerner worked with several specialist sub-consulting firms. Railway design and costs have been prepared by Canarail Consultants Inc., material handling systems design and costs have been prepared by Lassing Dibben Consulting Engineers Ltd – Bulk Handling, shipping costs and port design have been prepared by Aker Arctic Technology Inc. (“Aker Arctic”). Comprehensive metallurgical test-work has been performed at Studien Gesellschaft für Eisenerz-Aufbereitung (“SGA”) in Germany. The overall intended level of estimation accuracy for the Study is +/- 20 percent. Aker Kvaerner has also prepared a Technical Report in conformance to National Instrument 43-101 which has been filed on SEDAR.
Mineral Resources December 31, 2005
|
Description |
Mt (dmt) |
%Fe |
%P |
%S |
%SiO2 |
%Al2O3 |
|
Indicated |
309 |
66.1 |
0.028 |
0.25 |
2.6 |
1.0 |
|
Inferred |
28 |
65.9 |
0.020 |
0.27 |
2.4 |
1.0 |
Please refer to the Baffinland Iron Mines Corporation press release dated May 4, 2006 and the NI 43- 101 Technical Report filed on SEDAR for further details concerning the mineral resources.
Open Pit Mining
Mining of Deposit No. 1 at Mary River would utilize conventional open pit drilling and blasting techniques, electric shovels and 100-tonne haulage trucks. Mining equipment is assumed to be owned and operated by Baffinland. A manufacturer-supported full maintenance and repair contract for the life of the mine is assumed in the costs. Working capital for the project includes provision for mining, crushing and screening ore for seven months prior to first commercial shipments.
Pit optimization was completed using Whittle software, an industry-recognized pit optimization program. A mining cut-off grade of 60% Fe was used to define the pit shell. An overall pit slope of 45 degrees was assumed. Internal dilution was included in the block model, considering a minimum loading width of 8 metres. Allowances of 97.5% and 99.8% for mining and crusher recovery respectively were included in the analysis. The overall waste-to-ore strip ratio is 1.5 to 1 over the life of the mine. The open pit design is based on indicated resources only. The inferred resources contained within the open pit are included in the production schedule and contribute approximately 3 years to the life of the mine.
Crushing and Screening
Run-of-mine ore is hauled to a primary gyratory crusher located approximately 200 metres south of the deposit. Ore is crushed to -8 inches in size and conveyed to two secondary crushers where it is further reduced in size. Lump ore (less than 31.5 mm greater than 6.3 mm) is expected to constitute 75% of the crusher product. Sinter feed, or fines (less than 6.3 mm), should constitute 25% of the crusher product. Two linear stockpiles containing 250,000 tonnes each, one for lump and one for fines, are planned near the rail loadout facility at the mine. The stockpiles are equipped with railmounted stacker/reclaimer systems. This facility would have the capability of loading rail cars at a rate of 5,000 metric tonnes per hour.
Railway System
From the Mary River rail loadout facility, trains would proceed 93 kilometres to port facilities located at Milne Inlet. The railway has been designed in accordance with standard mainline railway practice and includes maintenance equipment, sidings, yard tracks, and rolling stock workshops. The rail system is designed to accommodate production rates well in excess of the initial production requirements, with only 6 trains per day, 280 days per year, required to deliver 10 million tonnes per year to the port. The railway system will be used to transfer operating supplies and equipment from Milne Inlet to the Mary River operations. An alternative transportation corridor extending 140 kilometres south to Steensby Inlet will be further evaluated during the feasibility study process.
Port Facilities
From the rail loop at the Milne Inlet port, rail cars are emptied with a twin rotary car dumper to a conveyor system that discharges to a 500,000 tonne fines stockpile or a 2,000,000 tonne lump stockpile. Rail-mounted stacker/reclaimer systems manage the stockpiled ore. From here the ship loading conveyor discharges to two radial ship loaders, each capable of 6,000 metric tonnes per hour. One ore carrier berth and one service berth are planned at Milne Inlet. The service berth would be used by harbour tugs, ice management vessels and for the delivery of supplies. Other facilities at Milne Inlet include a diesel fuel tank farm, diesel power generation, camp, gravel airstrip, general warehousing and the railway maintenance yard and facilities.
Infrastructure
Infrastructure envisioned at the Mary River mine site includes open pit maintenance shops, explosives storage, diesel fuel tank farm, diesel power generation, the primary camp, airstrip capable of accommodating Boeing 737 jet aircraft, general warehousing, surface equipment maintenance shops, administrative and technical offices, environmental and metallurgical laboratories, as well as mine rescue and training facilities.
Ocean Transportation
The port facility at Milne Inlet is assumed to accommodate Cape-sized bulk carriers for 9 months each year. Shipment of ore from Milne Inlet primarily to the European market, together with all port assistance vessels and ice management vessels, is assumed to be a service provided by a major international shipping company.
Ice transit simulations to evaluate the efficiency of ore shipment in each month of the year were completed by Aker Arctic, the designers of approximately 60 percent of the ice-breaking vessels currently in operation worldwide.
Environment and Permitting
Knight Piésold Ltd. has been engaged to conduct environmental baseline studies and traditional knowledge studies, to complete the environmental impact assessment of the project and the closure plan, and to represent Baffinland through the Nunavut Impact Review Board and Canadian Environmental Assessment Act processes. Baseline studies have been underway for nearly two years.
The environmental impact assessment of the project is anticipated to be completed by late-2007.
Negotiations for the Inuit Impact and Benefits Agreement are anticipated to start in 2006 and to be completed in the second half of 2007.
Management is not aware of any impediments to the successful completion of the regulatory process.
Engineering and Construction Schedule Basic engineering for the project is anticipated to be completed in 2008, leading to the definitive capital cost estimate for control of project construction. With completion of the regulatory process by the end of 2008, project construction will proceed in 2009. Commissioning and startup of the project is anticipated in 2011.
Capital Costs
The initial capital cost for the project is estimated to be C$1.5 billion, including all direct costs, indirect costs, contingencies, owner’s costs and working capital requirements. Sustaining capital is estimated to be C$0.2 billion over the life of the project, including project reclamation and closure costs. Financing costs are not included.
Operating Costs
Operating costs for all facilities at Mary River and Milne Inlet and including an assumption for freight equalization are estimated to be C$19 per dry metric tonne. Taxes and financing costs are not
included.
Financial Evaluation
The internal rate of return for the project, pre-tax and assuming full equity financing, is 15%.
Payback on initial capital is 5.9 years. Life-of-Mine cash flow is estimated to be C$6.256 billion. The
pre-tax net present value of the project at a discount rate of 5% is C$1.868 billion and is C$1.147
billion at a discount rate of 7%.
Conclusions
In addition to the base case analysis done in the Scoping Study, a number of sensitivity studies were performed to test the project economics to changes in assumptions. Rodney Cooper, Vice President Operation and COO of Baffinland, stated, “The project is not particularly sensitive to the price of fuel since it is a direct–shipping ore with no energy intensive processing facility and the transportation to the port is by energy efficient rail transport.”
The long-term nature of both the project and the assets required to exploit it, such as rail, port and ships, means that the project is highly sensitive to expansion to higher levels of throughput. Drilling in 2004 and 2005 was successful in delineating substantial tonnage beyond the original 250 million tonne objective and will be the justification to expand the planned output in the Feasibility Study to capture some of the positive impact of that sensitivity to throughput. Michael Zurowski, Executive Vice President of Baffinland, stated that “The potential to expand resources at the known deposits is superb and will be a focus of our efforts in 2006. Successful delineation of additional resources would lead to studies of further expansion to capture more of that positive impact.”
The largest sensitivity of the capital cost of the project is to the price of steel since the project is about trucks, crushers, rails, rail cars, locomotives, port facilities and ships. The largest sensitivity of the economics of the project is to the price of iron ore. Gordon McCreary stated further that, “Although recent increases in the price of steel are reflected in the capital cost estimate of the Scoping Study, we have been conservative with our long-term price assumption for our product, iron ore, a primary raw material used in making steel. The fundamental purpose of the Scoping Study is to provide the confidence to proceed to the Feasibility Study stage and the robust economics evinced under conservative assumptions has achieved that objective. The iron ore price to be used in the Feasibility Study will reflect future iron ore price settlements and revised expectations for long-term iron ore prices and the Feasibility Study will also reflect the optimization of many key variables for the project.”
Additional Disclosure
Geologic analysis is provided by Dr. Lynn Moxham, P. Geo. and geological modeling is performed by George Wahl, P. Geo., while open pit mine modeling is performed by Rene Gharapethian, P. Eng. All three of these independent technical professionals are Qualified Persons as defined by NI 43-101 and they performed their resource analysis and open pit modeling under the guidance of Aker Kvaerner E&C for inclusion in the Scoping Study.
Assaying and analytical work are performed by SGS Lakefield Research Limited (“Lakefield”) under a strict protocol designed for testing lump iron ores. Samples are then sent from Lakefield to SGA in Germany, where samples are composited for detailed metallurgical testing to ISO standards for iron ore. The testwork is specific for lump ores. Additional test-work was also completed on fine material for sintering.
Drill hole metallurgical data were interpreted by Michael T. Zurowski, P. Eng., Executive VP and a Qualified Person as defined by NI 43-101. Since joining Baffinland on March 1, 2006 as VP Operations and COO, Rodney Cooper, P. Eng., a Qualified Person as defined by NI 43-101, has had oversight responsibility regarding the various components of the Scoping Study including the estimation of resources.
Mineral resources which are not mineral reserves do not have demonstrated economic viability. This press release includes certain “Forward–Looking Statements” within the meaning of section 21E of the United States Securities and Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding potential mineralization and resources, exploration results and future plans and objectives of Baffinland Iron Mines Corporation, are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from Baffinland’s expectations are disclosed under the heading “Risk Factors” and elsewhere in Baffinland’s documents filed from time to time with the TSX Venture Exchange Inc. and other regulatory authorities.
THE TSX VENTURE EXCHANGE INC. HAS NEITHER APPROVED NOR DISAPPROVED THE CONTENTS OF THIS PRESS RELEASE.
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