TORONTO (CP) -- Consolidated Thompson Iron Mines Ltd. [TSX:CLM], a Toronto-based miner, says it has struck a financing deal to raise C$156 million to help launch the Bloom Lake open-pit iron mine in Quebec.
This agreement "positions us with a very strong balance sheet in terms of cash," Richard Quesnel, president and CEO, said Thursday in an interview.
"We already had C$190 million in cash in hand. So with this financing it almost completes the financing requirement for the project," he said.
The company has struck a deal with underwriters to sell 20 million shares at C$7.80 each and will use the money for the Bloom Lake mine in the North Shore region near Fermont, Que., and for acquisitions and working capital.
Earlier Thursday, the Quebec government approved the mine, expected to operate for 34 years. Consolidated Thompson had bought the property in September 2005.
The company announced Thursday that it had signed the financing agreement, which took about nine months to negotiate, with a syndicate of underwriters led by Macquarie Capital Markets, and including Canaccord Capital Corp., GMP Securities and RBC Capital Markets.
Quesnel said "we've already spent C$50 million on the project itself. We're getting very close to finalizing our requirements."
The financing deal "gives us more flexibility to be able to move on and develop the mine now that we have our permits on a fast track and be able to deliver by the second quarter of 2009."
The mine is expected to begin operating in 2009 and produce seven million tonnes of high-quality 66.5% iron concentrate per year.
The company said early last year, following the completion of a feasibility study, that the capital cost for the mine would be about C$410 million.
China-based Worldlink Resources Ltd. has previously agreed to buy seven megatonnes, representing a full year of production.
The world's largest iron producer, Vale, recently negotiated a 65% hike in iron prices from some of its major customers - putting upward pressure on the widely used base metal, a primary raw material for steel production.
The deal with Worldlink comes at a time when the demand for steel has grown by 33% in China over the last three years.
"The iron market is known to be cyclical, and the prospects for the next few years are very encouraging. Very strong demand for our product and rising prices on world markets make this an exceptionally good time to launch our project," said Quesnel.
"We've already committed roughly about half of our expense in terms of locking in on equipment, on supplies and the cement and infrastructure bringing it online," said Quesnel.
According to the feasibility study, total operating costs would be about US$19.76 per tonne concentrate, with a total undiscounted cash flow of US$2.75 billion, and forecasted yearly cash flow exceeding US$150 million.
The payback has been set at about 2.5 years.
Thursday's Bloom Lake launch comes after Hamilton-based U.S. Steel Canada Inc., formerly known as Stelco and its partner Cleveland Cliffs Inc. withdrew from talks to sell their combined 71% stake in the Wabush Mines company to third partner ArcelorMittal Dofasco Inc. also of Hamilton.
Earlier the former Dofasco had exercised its right to buy out its two partners in Wabush, scrapping an earlier deal that would have seen their combined 71% stake sold to Consolidated Thompson.
At this point, Quesnel doesn't see any threat from a U.S. recession, but said "a global recession would have an impact ."
The driver in the steel market has been the Asian market over the past three or four years with demand at 10% and plus in China as well as India, he said.
In contrast, North American and European growth on steel consumption has been about 2%-3%, he said.
The ore will be moved directly by rail and ship to China through the deep sea port at Sept-Iles, Que. "We're building our own facilities there," said Quesnel.
To keep costs down, "we're setting ourselves up for bigger ships in the neighbourhood of 300,000 tonnes," he said.
As well, some of the highest quality ore comes from Canada.
"Our's is at 66.5% concentrate. In the blast furnace this produces more tonnes per hour than say 58% like some of the ore from Brazil," said Quesnel.
"The better quality there is, the more attractive it is to steel mills."
The company's shares closed Thursday at C$7.95, up four cents, after a trading halt was lifted following the financing deal announcement.
(c) The Canadian Press 2008