TSX-listed Alderon Iron Ore has entered into an agreement with Sprott Resource Lending for a $14-million loan facility, which will provide the junior with sufficient funds to repay a loan due to Liberty Metals and Mining and provide additional runway to reboot the Rose deposit of the Kamistiatusset (Kami) project, in iron-ore rich Labrador Trough of western Labrador.
The transaction with Sprott comes as Alderon advances an updated feasibility study scheduled for conclusion this fall. The study is expected to demonstrate that the Kami iron-ore project is well positioned to pursue project financing on account of the improved project economics highlighted in the November 2017 updated preliminary economic assessment (PEA).
“The loan from Sprott will allow Alderon to reduce its overall debt position and provide an extended bridge to the completion of project financing,” said Alderon CEO Tayfun Eldem.
The $14-million loan has an initial term of 18 months, maturing on December 31, 2019. The facility may be extended for an additional six-month period subject to the satisfaction of certain conditions.
Altius Minerals, through a wholly-owned subsidiary, will be participating in the loan facility by providing $2-million of the $14-million principal.
The loan will have an interest at 10% a year, payable monthly.
On the closing date of the loan, Alderon will issue $1.05-million common shares to Sprott and Altius.
“As one of the largest investors dedicated to the natural resource sector, Sprott is excited to partner with Alderon on the reboot of Kami,” Sprott MD Narinder Nagra said.
Based on a production rate of 7.8-million tonnes a year of iron-ore concentrate at a grade of 65.2% iron, the November 2017 updated PEA shows a net present value (NPV) of $1.78-billion, at a cash flow discount rate of 8%. The internal rate of return (IRR) for the project is 25.7%.
On an after-tax basis, based on the assumption that commercial production would begin 29 months after the start of construction and would continue for 24 years, the updated PEA shows an NPV of $941-million, at a cash flow discount rate of 8%.
The post-tax IRR for the project is 19.3% and the payback period is 4.5 years.
The project will cost $999.4-million to build, excluding sustaining capital. This is a marginal increase from the previous capital expenditure forecast of $897.5-million.
The report was based on in-pit resources of 536.8-million tonnes, with production slated to average 7.8-million tonnes a year.