(By Mani) Champion Minerals, Inc. (TSX:CHM) announced initial resource estimates for its Oil Can deposit, which is adjacent to its flagship Fire Lake North project. The results support CHM's future growth potential.
Champion Minerals is an early-stage iron-ore exploration and development company with assets located in the southern portion of the Labrador Trough. Champion is primarily focused on advancing its flagship Fire Lake North project.
The company is one of the largest landholders of highly prospective iron ore claims located southwest of Fermont and northeast of Schefferville, Quebec. The company's portfolio includes the Fire Lake North, Bellechasse, Harvey-Tuttle, Moire Lake, Oil Can and O'Keefe-Purdy projects.
A study on the Fire Lake North Project released in November 2011 estimates Fire Lake North's Net Present Value (NPV) to be $4 billion, at a discounted cash flow rate of 8 percent, with an Internal Rate of Return of 41.5 percent and a capital payback period of 2.3 years.
A Preliminary Economic Assessment suggests that the company's Fire Lake North project has the potential to produce an average of 8.7 million tonnes of iron ore concentrates per annum for 35+ years. The initial inferred resource estimate of 1.9 billion tonnes grading 28.7 percent iron (Fe).
"While the pit optimization and resource estimate were based on what we would consider bullish assumptions, including a long-term iron ore price of +US$100/t and a 15% cut-off grade, the initial resource estimate is significant both in size and grade and points to future exploitation potential," RBC Capital Markets analyst Robin Kozar wrote in a note to clients.
Given the proximity of Champion's flagship Fire Lake North Project to Oil Can, Midway and Bellechase properties, it has consolidated these four properties to form a Consolidated Fire Lake North property, which could eventually support annual iron ore concentrate production of up to 20 million tonnes (Mt) of specular hematite sinter feed as well as 20 Mt of magnetite sinter feed.
Champion provides investors with exposure to a development-stage iron ore company with exceptional resource growth potential. The company's development timelines and cost structure results in net asset value (NAV) having significant leverage to long-term iron ore prices.
"While considerable development risks remain, including entering into and finalizing a rail agreement to transport Champion's future iron ore product, we believe the shares are attractive at current levels given additional potential near-term catalysts, exploration upside, and long-term take-out potential," Kozar added.
Kozar says his current NAV of $5.06 assumes Champion produces an average of 8.7 Mt of iron ore concentrates over the first 25 years of mine life.
"Assuming Champion doubles production to ~17 Mtpa at a cost of US$1.3 billion or $160/t of installed production capacity, our NAV would increase to $10.41 per share," the analyst noted.