TORONTO (miningweekly.com) – Maritime Canada-focused project developer Alderon Iron Ore on Tuesday announced that it expected further delays in completing its financing plan and starting construction of its flagship Kami direct shipping iron-ore project, in western Labrador, citing the current depressed state of the iron-ore market and changes in ownership and management of assets in the Labrador Trough.

The TSX- and NYSE MKT-listed company also revealed a reshuffling of senior management, which would undertake a rescope of the capital and operating costs of the Kami project to identify project savings and to evaluate strategic alternatives for the company.

Should the market price of iron-ore remain at current levels, Alderon expected to have additional delays in completing its financing plan.

President and CEO Tayfun Eldem would transition to become the vice chairperson of the company, effective from August 24, while executive chairperson Mark Morabito would become nonexecutive chairperson and CEO.

The company had in December slammed on the brakes on the $1.3-billion Kami, when it announced a comprehensive cash preservation programme that would allow the company to maintain a healthy working capital position into 2017 without the need to access equity or debt financing, aside from the financing required to start project construction.

Eldem had played a critical role in advancing Kami from the exploration stage to the point where the necessary regulatory approvals had been received, contracts for port and power were secured, stakeholder agreements struck and in guiding the company through completing the required preconstruction engineering on the Kami project, such that it was shovel ready.

Despite the stubbornly low prices the iron-ore market was grappling with in recent months, stemming from a market glut as the major iron-ore producers were ramping up output to maintain market share, Alderon affirmed that it intended to start construction of the Kami project as soon as it had secured enough debt and equity financing to fund the construction.

Morabito's primary priority would be to secure financing, while Eldem would be available to provide guidance in operational, technical and commercial matters as the company pursued its financing and value-engineering objectives.

As such, Morabito and Eldem would work with project partner Hebei Iron & Steel Group (HBIS) to rescope the capital and operating costs of the Kami project to identify savings.

"Alderon management recently travelled to Beijing, China, to present and discuss its project rescoping plans with HBIS, Chinese government agencies and Chinese banks. HBIS has confirmed its commitment to the Kami project and Chinese banks continue to be interested in exploring the financing of the Kami project.

“As a result of these meetings, Alderon is going to proceed with a rescope of the project to identify savings resulting from the current market environment and HBIS and the Chinese banks have agreed to participate in the process. If cost savings can be identified in the rescope of the project, this will provide significant assistance in completing the financing plan for the Kami project,” Morabito advised.

Alderon's cash preservation programme remained on track and the company had about $17.6-million in cash and short-term investments while management continued to identify and implement additional cash conservation measures.

However, as a further cash conservation measure, Alderon would shutter its Montreal office, making its sole corporate office in Vancouver. As part of the closure of the Montreal office, after a transition period, the company would replace its current interim CFO with a new CFO in Vancouver.

Meanwhile, Desjardins Capital Markets analyst Jackie Przybylowski noted that a take-or-pay contract would become effective when the multi-user port at Sept-Îles became operational, which was scheduled for this summer. The contract would require Kami to pay 50% of the eight-million-tonne-a-year capacity at about C$3/t (per Alderon’s 2014 43-101), which would equate to about C$12-million a year  on a 100% basis. Kami also owed consultant WorleyParsons about C$3.3-million in demobilisation costs related to termination of work.

"Cost-cutting initiatives will be especially crucial. Alderon currently has [about] C$17.6-million in cash and short-term investments, including its share of about C$12.7-million in cash at the Kami level. While this would be sufficient to fund relatively modest [general and administrative] expenses, we note that interest charges and new costs will strain Alderon and Kami’s balance sheets," she said in a note to clients.

Przybylowski now valued Alderon on salvage value, based on the net tangible value a share.

"We are cutting our one-year target to C$0.10 a share (from C$0.25) to reflect Alderon’s current net tangible value and not the future value of the Kami project, given uncertainty around project financing. We are downgrading our recommendation to 'Sell–Speculative' from 'Hold–Speculative'."