Consolidated Thompson

Source: Exec Digital Canada

Date :11/04/2008 04:46:10

Consolidated Thompson has been busy putting some sound financial and operational foundations in place and its big day is fast approaching

Written by Ben O’Hanlon and Produced by Jason Wright

Ontario-based firm Consolidated Thompson Iron Mines Ltd (CLM) specializes in the exploration and development of iron ore sites. The company runs from its head office in Toronto, but with a second office in Montreal, Quebec, it’s very much a bi-lingual operation.

Richard Quesnel, CLM’s President and CEO since 2005, says that it’s the people behind the figures that drives the company to this level of achievement: “We’ve got a great team of engineers and geologists, accountants, finance staff and other employees that have driven us forward. Our management team has a lot of experience so we’re in a good position.” Richard is a professional mining engineer, having gained a BSc in Engineering from McGill University, Montreal. With over 30 years industry experience he has worked as a senior executive at large-scale mining corporations throughout the world.

Wealth of Experience

Richard sits on a management team that boasts some impressive industry credentials and experience. Chairman Bruce Humphrey, in what he describes as a ‘lifetime of mining industry experience,’ has worked as a former COO at Goldcorp and most recently as President and CEO of Desert Sun Mining prior to its sale to Yamana Gold.

Equally impressively, Vice-Chairman Brian Tobin served as the Federal Minister of Industry from October 2000 to January 2002. Prior to this, he was the Premier of Newfoundland and Labrador from 1996 to 2000 and won two consecutive majority governments in provincial elections held in February 1996 and February 1999.

Currently, Mr. Tobin serves on a number of public company boards including Aecon Group Inc., Lions Gate Entertainment Corp., and is also Chairman of the board for New Flyer Industries Inc. He is also Special Advisor for the Canadian Youth Business Foundation.

The board’s directors, Stan Bharti, Gerald McCarvill, Jean Depatie, all have similarly impressive resumes. Mr. Bharti, a Professional Mining Engineer with a Masters Degree in Engineering from Moscow and University of London, has over 25 years of experience in operations, public markets and finance.

From 2002 to April 2006, Mr. Bharti was a director and past president of Desert Sun Mining Corp, Mr. Depatie has over 35 years of national and international experience in economic geology, working in over 15 countries and acting as a consultant for organizations such as the United Nations, the World Bank, the Commonwealth Secretariat and Quebec’s Ministry of Natural Resources.

Mr. McCarvill served as the President and Chief Executive Officer of McCarvill Corporation from 1995 to 2002 and is the former Vice Chairman of Desert Sun Mining Corp. He is also a director of a number of Canadian public companies.

Back in August last year, CLM made another significant addition to its board - which also includes Chairman of the Advisory Board Pierre Lortie, Development Project Manager Hubert Vallée, Mining Project Manager René Scherrer and Corporate Secretary Pat Gleeson – with the appointment of Brad Boland as Chief Financial Officer.

Mr. Boland, a seasoned financial professional with a wide array of experience in the mining industry, previously served as Vice President, Corporate Controller of Kinross Gold Corporation, and held the position of Vice President, Finance of Goldcorp Inc.

Iron ‘Awe’ At Bloom Lake

Collectively, this impressive array of talent is a good position to take on the company’s biggest project to date, and are poised to do so. CLM is currently preparing its Bloom Lake property, which promises to be the largest of its kind, that has been developed in the past 40 years. Located in Normanville Township in the East of Quebec province, the mine has understandably attracted a lot of attention.

“It’s a very exciting project,” says Richard. “Iron ore is a commodity that’s becoming more and more recognized and this is one of the very few areas in the world that can be developed on such a scale. We have a world class asset in a great location and the resources and experience to get the job done.”

At a cost of $200 million, the mine is expected to produce seven-million tons of high-quality iron concentrate a year over a 34-year lifetime. The vast majority of this will be used to make steel. Progress to date has been rapid with production due to start in the second quarter of next year and the company estimates that its initial investment will be paid back in little over two years. There will also be a massive boost to the local economy with some 400 jobs to be created by the construction activities and approximately 250 direct jobs subsequently created during operation.

This exciting phase in CLM’s history began with its acquisition of the property in 2005. Already at development stage and in a unique location, the site promised a low-cost, fast development and had an immediate appeal. Much of the required infrastructure (i.e. rail, road and power access) was already in place. The property also has good access to ports on the mouth of the St. Lawrence River, from which ships will carry up to 300,000 tones of payload at a time. An initial scoping study took place in 2005, followed by a feasibility study (used to assess the project’s viability and potential output) in April 2006.

After these initial assessments, Richard says that the full focus was on financing and preliminary construction: “We’re now almost completely financed at about $179. The access roads have been built, the site has been cleared for installing infrastructure and we’re in the process of building a major 34.5kV power line.” The company also proposes a new 31 kilometre rail line, which will connect the site with nearby Labrador City – this will be built and installed by a third party contractor.

Taking Out, Putting Back

Getting to this stage has required a high level of commitment, not just to the effectiveness of internal operations, but also to mitigating external effects. Official Government approvals for the mine came in early March of this year – largely due to CLM’s ability to demonstrate that it has fully assessed and put measures in place to reduce the environmental impact of the project.

This commitment is particularly evident in the company’s use of the environmentally friendly ‘gravity separation’ technique to extract pure iron from the rock and minerals that are also contained within the ore. The process involves feeding the crushed product into big grinding mills using water. Iron being the heavier element of the mixture, it is then extracted with the aid of gravity. Although this process uses a lot of water, most can be re-circulated back into the system; to be exact, 98.5 percent in CLM’s case.

The company is also committed to disposing of the waste material responsibly, rather than into lakes or rivers. This will help it to replenish the land as work progresses, filling in areas where the mining has finished. “It makes a lot of business sense to rehabilitate your mine on an ongoing basis,” says Richard. “The work we are doing in this field will become a template for mine development in Canada and it’s a very important consideration for us. We’re not only looking for a legal license to operate, we’re also looking for a social license to operate.”

The gravity separation and waste disposal capabilities are partly the result of a program of heavy investment in technology. Richard explains this is necessary to support the project’s requirements: “It makes good sense. We have the right kind of people and we want to be the best at what we’re doing. Technology is very important to that.”

Priority: People

These systems go hand-in-hand with a dedication to the skilled staff that operate them, particularly when it comes to keeping your people safe in a potentially unsafe climate. Creating a safe environment in which to work is a core priority for the company, alongside developing a strong employer-employee bond. As part of its commitments, the company is careful to scrutinize its contractors, including their processes and safety records.

Safety is particularly important given the considerable workforce that CLM is set to recruit and that once the mine is in production it will be operational around the clock, all through the year. “Safety, productivity and cost go hand-in-hand,” says Richard. “In the middle of that is the people – they’re who make it happen. If you want to be successful in the development and operation of mines then safety and creating good relationships with your workforce should be at the forefront of what you do.”

Joining the premier league

Back in September 2007, CLM floated on the Toronto Stock Exchange. At the time, Richard was excited by the move, saying that ‘graduating to the Toronto Stock Exchange is a significant accomplishment for us - the TSX is the premier stock exchange for mining companies in the world, and Consolidated Thompson is proud to join it.”

Six months on, the journey may have only just begun, but all of the signs are pointing towards the listing being a resound success. So far, the company has approximately 104.6 million shares outstanding, with its share price trading at a high of $8.40 after an initial offering of $2.80 showing a general strong upward curve.

Earlier this month, CLM announced an agreement with a syndicate of underwriters led by Macquarie Capital Markets Canada Ltd - and also including Canaccord Capital Corporation, GMP Securities L.P. and RBC Capital Markets - to sell 20,000,000 common shares in the company at a price of $7.80 per share, raising the sum of $156,000,000.

The company said that the net proceeds from the Offering will be used to finance development activities on the Bloom Lake property, and may also be used to finance future acquisitions of complementary mining assets, as well as working capital purposes.

Shipping Out The Goods

With some sound operational systems and production less than 18 months away, attentions are firmly focused on the mechanisms and processes needed to export Bloom Lake’s output. CLM has an agreement with Chinese firm Worldlink Resources (WLR), which trades with other Asian clients, to export seven million tones of iron concentrate per year. “The Asian market is the emerging market,” says Richard. “It’s been growing at ten percent for the last three to four years.”

This growth has contributed to a significant expansion in the overall market; almost 1.4 billion tones of iron ore is now traded on an annual basis. With demand outstretching supply for the last two to three years, this has seen prices rise from $55 per ton to their current level of about $80 per ton. While most of CLM’s product will feed the Chinese markets, the company is also exploring possibilities in Europe and Japan.

Looking Ahead

The WLR contract seems certain to ensure a steady flow of income once production begins, but aspirations for growth are never far from the table. For the immediate future that seems likely to take the form of internal expansion of the Bloom Lake project. The company is currently doing some exploration drilling to investigate further mining potential and the scale of the operation is expected to grow beyond its existing boundaries.

On an operational level, the possibility to grow is also driving the company to improve the effectiveness of its capabilities. For example, it aims to upgrade the product quality to yield higher unit content. Elsewhere, CLM is considering potential acquisitions and for additional sites – part of its strategy to ‘expand horizontally, rather than vertically.’ These measures, it hopes, will help the company achieve ‘mid-tier producer’ status and propel it to the forefront of the mining industry.

Let The Excavation Commence!

Although there are obvious issues ahead with the expected global downturn in the financial markets, Richard says CLM has no cause for concern: “We’ve got no debts to our name and there’s no sign of a slowdown in the markets in China or Tokyo, so we’re in a good position. We’ve got a great project and the window to build it is open.”

Combined with a strong strategic approach, the company seems well set to take the project forward: “We’re looking to bring in a new producer and we strongly believe we’ll be out there with the majors,” he says. “Once we’re in the circuit we’ll be there for a long time. There’re a lot of mines around the world that’ll close before we do. I don’t think we’ll ever close”

It’s a confident attitude – undoubtedly the same one that has allowed the company to overcome the challenges that are inextricably linked to such a large project, but with relative ease. With a strong financial footing, a wealth of experience, some innovative technologies and a scarce visionary attitude, CLM is ready to give the iron ore market a considerable boost.