Author Topic: ALS.TO - Altius Minerals  (Read 1767489 times)

ItsAValueTrap

  • Hero Member
  • *****
  • Posts: 1945
    • Blog
Re: ALS.TO - Altius Minerals
« Reply #860 on: October 29, 2012, 11:52:40 AM »
Quote
Add the operating costs for the mined raw ore:
1a- Mining Cost (Ore, Waste) $2.10 + Mining Cost (OB) $1.05 + Processing Cost $1.95 + General and Administration (G&A) $1.13 = 6.23 $/t raw unprocessed ore.
There is a difference between $/t mined, $/t milled, and $/t FeCon.

Of everything that is mined, some of it is waste and goes to the waste pile.
Of everything that is milled, some of it is waste tailings and goes to the tailings storage.
And then you have your iron ore concentrate.

1b- The mining costs are different for ore/waste and overburden.  You don't add both costs up together.

2- The pit optimization may use more conservative assumptions than the economic assessment.  This is so if the ore price falls, you won't have a pit that was optimized for a higher price and you lose even more money.

Quote
Hebei is not stupid. They would not have negotiated a price of 95% Platt if they could get Platt - $15. The Platt price is based off 62% Fe. Alderon ore is 65.5% which would fetch a premium of Platt + $5/%Fe if pricing gets really competitive. Using Platt for the product price assumption seems pretty reasonable and a little conservative.
The way the benchmark pricing works is that it is a price for iron ore of a certain quality.  It will have limits for the levels of impurity in the product... Alderon's ore likely exceeds that.

What normally happens is that the price will be reduced for impurities (e.g. smelter deductions) and increased/decreased for iron content above/below the 62% level.  The smelter deductions will be linked to the level of impurities.  We don't know what the exact level of impurities will be (since there are uncertainties as to resource estimation and metallurgy).  The level of impurities may vary from shipment to shipment (it varies within the ore deposit).  So if Hebei is smart, they will link their price to the level of impurities in the ore.  This will protect them.

Otherwise Alderon could buy extremely low-quality ore from somebody else and sell that to Hebei.

So basically, Hebei will be getting 95% of Platt + adjustment for iron content - quality penalties / smelter deductions for manganese (and sulfur).

I don't know if the quality penalties will be $15/ton.
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. " -Buffett

my blog


Ross812

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 817
  • Move over KY
Re: ALS.TO - Altius Minerals
« Reply #861 on: October 29, 2012, 01:08:43 PM »
Quote
Add the operating costs for the mined raw ore:
1a- Mining Cost (Ore, Waste) $2.10 + Mining Cost (OB) $1.05 + Processing Cost $1.95 + General and Administration (G&A) $1.13 = 6.23 $/t raw unprocessed ore.
There is a difference between $/t mined, $/t milled, and $/t FeCon.

Of everything that is mined, some of it is waste and goes to the waste pile.
Of everything that is milled, some of it is waste tailings and goes to the tailings storage.
And then you have your iron ore concentrate.

1b- The mining costs are different for ore/waste and overburden.  You don't add both costs up together.

2- The pit optimization may use more conservative assumptions than the economic assessment.  This is so if the ore price falls, you won't have a pit that was optimized for a higher price and you lose even more money.

Quote
Hebei is not stupid. They would not have negotiated a price of 95% Platt if they could get Platt - $15. The Platt price is based off 62% Fe. Alderon ore is 65.5% which would fetch a premium of Platt + $5/%Fe if pricing gets really competitive. Using Platt for the product price assumption seems pretty reasonable and a little conservative.
The way the benchmark pricing works is that it is a price for iron ore of a certain quality.  It will have limits for the levels of impurity in the product... Alderon's ore likely exceeds that.

What normally happens is that the price will be reduced for impurities (e.g. smelter deductions) and increased/decreased for iron content above/below the 62% level.  The smelter deductions will be linked to the level of impurities.  We don't know what the exact level of impurities will be (since there are uncertainties as to resource estimation and metallurgy).  The level of impurities may vary from shipment to shipment (it varies within the ore deposit).  So if Hebei is smart, they will link their price to the level of impurities in the ore.  This will protect them.

Otherwise Alderon could buy extremely low-quality ore from somebody else and sell that to Hebei.

So basically, Hebei will be getting 95% of Platt + adjustment for iron content - quality penalties / smelter deductions for manganese (and sulfur).

I don't know if the quality penalties will be $15/ton.

You're right here is the corrected Pit Optimization Costs:

Let’s look at the system as a whole:

From Table 16.6, Applying Costs from 16.2:

Step 1 - Remove overburden:
46,766 Kt * 1000 t/Kt * 1.05 $/t = $49 million

Step 2 – Mining Ore and Waste Rock:
Kt Mined Ore + Kt Mined Rock= (335,128 + 711,853) * 1000 t/Kt * 2.10 $/t = $2.198 Billion to produce 335,128 Kt of Ore

Step 3 – Process the Ore:
335,128 Kt * 1000 t/Kt * (1.95+1.13) $/t = $1.032 Billion to produce:

335,128 Kt * 37% Weighted Recovery = 123,997 Kt of FeCon

So adding all this up we get:
$49M + $2198M + $1032M = $3279M to produce 123,997 Kt of FeCon so production OPEX is:

$3279M/(123997 Kt * 1000 t/Kt) = 26.44 $/t

This is equal to Table 21.2 Mining + Concentrator Cost (20.36+6.28) = 26.64 $/t (within rounding error)
96% Fixed Income CDs, Muni, Corporate Debt - 4% SPX Options

Ross812

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 817
  • Move over KY
Re: ALS.TO - Altius Minerals
« Reply #862 on: October 29, 2012, 02:10:36 PM »
Smelter deductions as far as I can tell don’t really come into play with respect to iron ore. Smelter credits/deductions are given to compensate the smelter for waste above a certain benchmark. For iron smelting this is usually in the form of credits or deductions above an agreed upon %Fe. The factory has to use the same amount of energy regardless if 58% Fe or 64% Fe ore is used and the recovery from 58% Fe ore is lower and waste higher so a credit/debit is given in the form of $5/%Fe to compensate. Sulfur and Manganese are not smelter deductions because they are actually incorporated into the steel (not a waste product).  Quality deductions may come into play. Most European iron ore contracts I could find state a max allowed sulfur % at 0.05. As far as Manganese goes, 0.4-1.1% is desirable. Alderon ore will have 1.6% Manganese and .053% sulfur which means it will probably be blended with lower manganese/sulfer/fe content ores during sintering. The ore as-is is acceptable to make steel in China, but blending a lower quality 60% Fe Indian ore with Alderon’s 65.5% Fe ore would create a product that could be sold in Europe. Manganese does not start affecting the quality of the steel produced until ~4%. 65.5% Fe 1.6% Mn or can only produce 2.45% Mn steel. Sulfur and the grain size distribution are the two main detractors to this ore’s marketability. 
96% Fixed Income CDs, Muni, Corporate Debt - 4% SPX Options

ItsAValueTrap

  • Hero Member
  • *****
  • Posts: 1945
    • Blog
Re: ALS.TO - Altius Minerals
« Reply #863 on: October 29, 2012, 03:11:04 PM »
Quote
Manganese increases hardenability and tensile strength of steel, but to a lesser extent than carbon. It is also able to decrease the critical cooling rate during hardening, thus increasing the steels hardenability much more efficient than any other alloying elements. Manganese also tends to increase the rate of carbon penetration during carburizing and acts as a mild deoxidizing agent. However when too high carbon and too high manganese accompany each other, embrittlement sets in. Manganese is capable to form Manganese Sulphide (MnS) with sulphur, which is beneficial to machining. At the same time, it counters the brittleness from sulphur and is beneficial to the surface finish of carbon steel.
 
For welding purposes, the ratio of manganese to sulphur should be at least 10 to 1. Manganese content of less than 0.30% may promote internal porosity and cracking in the weld bead, cracking can also result if the content is over 0.80%. Steel with low Manganese Sulphide ratio may contain sulphur in the form of iron Sulphide (FeS), which can cause cracking (a “hot-short” condition) in the weld
http://www.leonghuat.com/articles/elements.htm

It seems that the ideal level of manganese is different for different types of steel?  For steel that will be welded, manganese should be lower than 0.8%.  There are other types of steel where more manganese is better.... most of the world's manganese mined is used as a additive for steel.

2- The Platts index specifies sulphur below 0.02% for one of its indexes but not the others.
PDF of the specification here:
http://www.platts.com/IM.Platts.Content/MethodologyReferences/MethodologySpecs/ironore.pdf

Beyond that the index would make some kind of adjustment to normalize for the difference in quality.

3- Strathcona wrote a report for the government regarding the Wabush mine and problems with the manganese content in its ore.

Quote
The manganese content in the ore, which is a specific characteristic of the Scully Mine deposits,
is the primary market limitation to exploiting more of the remaining resources than is currently
planned and that are not included in the most recent reserve estimates.
Cleveland-Cliffs Inc., as the managers of the Wabush Mines joint venture, have been examining
the possibility of installing a manganese reduction plant and if feasible this project could allow the
current blend of pellet products to be produced through to 2021.  Encouragement and support for
this endeavour should be given by all stakeholders because of the significant benefits of extended
mine life for the employees of Wabush Mines and the community of Wabush

Cliffs bought out its other partners in the mine and installed a manganese separation plant.
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. " -Buffett

my blog

Green King

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 746
Re: ALS.TO - Altius Minerals
« Reply #864 on: October 29, 2012, 03:26:40 PM »
Quote
3- Strathcona wrote a report for the government regarding the Wabush mine and problems with the manganese content in its ore.

http://www.nr.gov.nl.ca/mines&en/publications/wabush-memo-v3.pdf

Can you explain again how the high manganese matter ?

If you can just blend or build one of those plants for 40 million ?
sorry i am very new to the sector. It was very hard to keep up. :(
« Last Edit: October 29, 2012, 03:47:45 PM by Green King »
GK

Dazel

  • Guest
Re: ALS.TO - Altius Minerals
« Reply #865 on: October 29, 2012, 03:52:45 PM »
"Cleveland-Cliffs have previously examined the possibility of installing a manganese reduction plant
that would reduce the manganese content of ore processed to allow production of the current pellet
products to continue, with their manganese content of either 1.2% or 2.0%, from ores that would
contain up to 4.0% manganese."

from with in the old Strachcona report.

Alderon is at 1.6% maganese well with in the range of 1% or 2 % that Cliffs is desiring at Wabush. It explains their high cost 40 year
old mine ($125 cash cost a ton last quarter) with very little desirable reserves left without the additional cost and hence why they bought Thompson Consolidated...where once they get operations on track they will do very well.

Not sure why Wabush is being compared to Alderon or Bloom lake very different.

dazel.

Dazel

  • Guest
Re: ALS.TO - Altius Minerals
« Reply #866 on: October 29, 2012, 04:04:11 PM »

sorry Wabush mine cash cost were $132 last quarter....

BloomLake was $88/ton ....last year this quarter it was about $70/ton at Bloom lake...

I have not looked but it is possible that Bloom lake changed strategy to mine higher premium
ore at Bloom lake to blend with the lower quality ore at Wabush.

As I stated earlier the spike in cash cost at Bloom Lake is over how they have implemented their new strategy and
their cash cost will come down now...

Dazel.

ItsAValueTrap

  • Hero Member
  • *****
  • Posts: 1945
    • Blog
Re: ALS.TO - Altius Minerals
« Reply #867 on: October 29, 2012, 05:02:19 PM »
Quote
Can you explain again how the high manganese matter ?
I'm not sure why but apparently it was a big deal for Wabush.  (As Dazel points out, Wabush's manganese content is far higher than Alderon.)

I suppose that non-Chinese smelters are not interested in making steel with high levels of manganese.

Quote
If you can just blend or build one of those plants for 40 million ?

To get rid of the manganese, I believe this is what they do.

You grind up the ore really fine.  Hopefully you don't have too many grains where manganese is stuck to something magnetic (e.g. magnetite/iron, hematite/iron)... it depends on the nature of the ore.  If you grind the ore finer, you will probably have less of those grains.  But it depends on the nature of the ore.

You use magnets to separate out magnetic material from non-magnetic material.  There are two different processes that can be used... high-intensity magnetic separation and low-intensity magnetic separation.
http://en.wikipedia.org/wiki/High_intensity_magnetic_separator

Grinding the ore:
- Depends on how hard the ore is.
- Grinding the ore finer costs more money
- Grinding the ore generates fines.  These receive a lower price since they cause problems in the furnace when iron ore is smelted.  Fines receive a lower price than lumps which receive a lower price than pellets.  You need a pelletization plant to turn fines/lumps into pellets.

Quote
sorry i am very new to the sector. It was very hard to keep up. :(
I am too.

You know what... I'm starting to feel that this is really hard.  There is a lot of esoteric knowledge involved and this information is not on Google.  I still don't know how to figure out the smelter deductions/quality deductions.  I've read some university textbooks on mine engineering but they don't cover that aspect of project economics.
Mining companies have teams of specialized engineers who all do different things.  Doing due diligence on juniors is freakishly hard when you don't have access to all the technical data and lack knowledge about several *different* fields of engineering.
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. " -Buffett

my blog

ItsAValueTrap

  • Hero Member
  • *****
  • Posts: 1945
    • Blog
Re: ALS.TO - Altius Minerals
« Reply #868 on: October 29, 2012, 05:17:15 PM »
As I stated earlier the spike in cash cost at Bloom Lake is over how they have implemented their new strategy and
their cash cost will come down now...

Dazel.

Hmm there may be a disconnect between what Cliffs says it will do and what it actually does:

Quote
For the full year 2012, Cliffs said it anticipates Bloom Lake iron ore concentrate sales and production volume to be approximately 8 million tons, with a revenue rate of approximately $170 - $175 per ton, based on current iron ore spot prices. With the additional volume expected and resulting fixed cost leverage, Bloom Lake's 2012 cash costs per ton are anticipated to decline to $45 - $50.

In addition, Cliffs anticipates 2012 capital expenditures related to Bloom Lake to be approximately $350 million, including sustainable and expansion capital.
http://ir.cliffsnaturalresources.com/releasedetail.cfm?ReleaseID=582597

2012 is almost over and it looks like Cliffs will definitely miss their target.  Part of it is cost inflation that every miner is experiencing (this trend will likely continue as the shortages of labour and equipment are likely to continue).  The rest is "optimism".

Of course Cliffs' press release coincided with Cliffs selling its shares.
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. " -Buffett

my blog

Ross812

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 817
  • Move over KY
Re: ALS.TO - Altius Minerals
« Reply #869 on: October 29, 2012, 08:14:19 PM »
It seems that the ideal level of manganese is different for different types of steel?  For steel that will be welded, manganese should be lower than 0.8%.  There are other types of steel where more manganese is better.... most of the world's manganese mined is used as a additive for steel.

2- The Platts index specifies sulphur below 0.02% for one of its indexes but not the others.
PDF of the specification here:
http://www.platts.com/IM.Platts.Content/MethodologyReferences/MethodologySpecs/ironore.pdf

Beyond that the index would make some kind of adjustment to normalize for the difference in quality.

3- Strathcona wrote a report for the government regarding the Wabush mine and problems with the manganese content in its ore.


Low sulfur is important for electric arc furnaces primarily used in the US. Every European contract i have looked at specifiies sulfur below 0.05% which is the standard. There is nothing wrong with 0.053% sulfur as long as there is manganese in the ore to help fix the sulfur. The rules in Europe are what they are but are an old rule of thumb. The chinese are not as picky and just want it to work. If their steel passes its astm tests they can export it. The price difference between fines and pellets is essentialy the price to sinter the fines. The chinese would rather sinter their own pellets than pay for our more expensive energy costs to do it at the mine. There is three ways to look at iron ore. Dso ore is hematite that come out of the ground at 60+ %Fe. It is broken onto small pieces and shipped dso=direct ahipping ore. In canadian fe mines the ore is not dso, it is beneficiated. It is ground up and separated woth magnets. Here they use magnetite and low grade hematite. Magnetite is more magnetice than hematite so it can be separated in larger pieces than hematite which undergoes a second fine grinding before it can be separated. Magnetite is much cheaper to process because it is separated on the first pass.

This is a huge difference between the cliffs operation and alderon. Alderon is 60-70% magnetite where cliffs is 80-90% hematite.



96% Fixed Income CDs, Muni, Corporate Debt - 4% SPX Options