Consolidated Thompson says Chinese investment will open door to new contracts
Wed Jun 10, 6:10 PM
Kristine Owram, The Canadian Press
ca.news.finance.yahoo.com
By Kristine Owram, The Canadian Press
TORONTO - Consolidated Thompson Iron Mines Ltd. (TSX: CLM.TO) says a US$240-million investment by a Chinese steel company will help open the door to contracts with other Chinese steel producers.
Once Consolidated Thompson builds a business relationship with one Chinese steel producer, it creates a "red-carpet, open-door approach" with others, Consolidated Thompson president and CEO Richard Quesnel said at a mining conference Wednesday.
Quesnel said steel output by Wuhan Iron and Steel (Group) Corp., or WISCO, - and therefore its demand for the iron ore - is set to jump from 30 million to 50 million tonnes per year by 2011, and Consolidated Thompson is well positioned to take advantage of this.
"They're top producers when it comes to steel, the third-largest steel consortium in China," he said.
"Certainly we're very pleased to be associated with them as a strategic partner. Why? Because 50 million tonnes of steel will turn into 80 million tonnes of crude product required and here we are coming with our development."
Under the deal announced Tuesday, WISCO will buy 38.7 million common shares or a 19.9 per cent stake in Consolidated Thompson at a price of C$2.72 per share for a total of C$105.2 million.
WISCO will spend the balance of the US$240-million investment for a 25 per cent stake in the Bloom Lake project in northern Quebec. The Chinese company will be obligated to buy a percentage of the iron ore produced at Bloom Lake each year for the life of the mine.
Bloom Lake, which has a resource base estimated to exceed one billion tonnes, is scheduled to begin production of iron ore in the fourth quarter of 2009.
The mine should begin production at eight million tonnes per year at a cost of US$25 per tonne.
Although the price of iron ore plunged along with most other commodities when the global recession hit, falling from a high of US$170 per tonne to approximately US$70 per tonne today, Quesnel said Consolidated Thompson is well positioned with Bloom Lake.
"There's one thing we cannot control in this market, and that's the iron ore price," he said.
"Our business is to control cost, and that's what we're doing, certainly on the cap ex side and on the operating side."
Government approval is still required before the deal with WISCO can close, but Quesnel said he's confident it will be cemented before the July 20 deadline.
Under the agreement, Consolidated Thompson will manage Bloom Lake and, once it is in commercial production, will receive a management fee on a per tonne basis.
WISCO will be entitled to a minimum annual distribution from the partnership equal to not less than the profits from the annual sale of 1.6 million tonnes of iron ore concentrate.
As of March 31, Consolidated Thompson had spent approximately $219.8 million on Bloom Lake.
Demand for iron ore, used in the production of steel, has slumped because of the worldwide recession, which has affected demand for everything from new buildings and vehicles to appliances.
Steel production and prices, which reached all-time highs last year, have dropped to their lowest levels in a quarter century in recent months. This has forced the closure of major steel operations in Canada.
Consolidated Thompson shares were up 19 cents or 5.4 per cent to $3.69 in Wednesday trading on the Toronto Stock Exchange. |
