Monday 21st May 2018

Resource Clips

Right Place, Right Time, Right Company

Refounded in 2009, Alderon is On Track to Produce Iron Ore by 2014

By Kevin Michael Grace

Mark Morabito has made it look easy. One year ago, Alderon Resource Corp, of which Morabito is President and CEO, was effectively a shell. Today, it is talked up as the next Consolidated Thompson.

Refounded in 2009, Alderon is On Track to Produce Iron Ore by 2014

One year ago, Morabito didn’t have a company, but this lawyer by profession had a history of startups and of raising money. More important, he had a property. “I had a private deal I put together with Altius Minerals Corporation, a project generator that prefers joint venture projects and spreading the risk.”

Alderon’s Kami Iron Ore property is in Labrador, just across the Quebec border, and was once owned by Iron Ore Company of Canada, a giant of Canadian industry before it was devastated by low prices and the collapse of North American manufacturing. (IOC is now controlled by multinational Rio Tinto.)

Morabito continues, “IOC had all these properties around their mine, and they dropped them all 10 years ago, when they went into the tank to reduce their holding costs. So Altius picked them up and spent $2 million drilling 27 holes, doing geophysics and outlining for any prospective partner that there was a deposit there.”

Most fortuitously, the Altius property was close to Consolidated Thompson Iron Mines Limited, which had itself been effectively refounded in 2005, becoming one of the great TSX success stories of the decade (current market cap: $2.8 billion).

Morabito takes up the story. “Just as I was in the final stages of organizing the financing, deciding management and the board, the founders of Consolidated Thompson left. They said that their project was ready to be an operating mine, and they handed over the keys to management. So I approached them: Stan Bharti, Bruce Humphrey and Brad Boland, the former president, chairman and CFO, and asked if they’d like to join me in this new venture I had in a property six kilometres away from theirs. They said yes; so Stan became Chairman; I became President and CEO; and Bruce and Brad became directors. Our chief geologist is ex-Consolidated Thompson, and our COO is ex-IOC.”

As far as ownership was concerned, Morabito didn’t want a “vanilla” junior venture arrangement with Altius. He wanted full partnership. So he brokered a deal whereby once Alderon had spent $5 million in development—achieved this month—it would get 100% of Kami, with Altius taking a 47% equity position and putting directors on the board.

Already, even without 43-101 resource estimates—forthcoming in February and June 2011—Alderon has an $89-million market cap, and its share price has almost doubled since September. Certainly the results have been good: 30% over 207 metres reported November 16, 28% over 691 metres October 27, 30% over 429 metres October 7, 31% over 468 metres September 15 and 30% over 604.5 metres August 24. “We have great continuity in our deposit,” Morabito says. “In this part of the world the geology is very well understood, so the analysts know perhaps better than anywhere else what the results mean.”

Just as important is the global picture. Demand for iron ore rises 10% annually, and the developing world can’t get enough of it. China is now the world’s biggest producer as well as the biggest importer. Demand in India, the fourth-biggest producer, is now so high that its leading Karnataka region has just banned exports. This is sure to increase prices, already twice as high as 2008. And as Morabito points out, “This demand is expected to continue for decades.”

Of course, iron ore is found all over the world, and as Morabito admits, better grades than Alderon’s can be found elsewhere. But iron ore is a high-volume business, so costs are crucial. “Brazil, Africa and Canada’s subarctic are not connected to infrastructure, which means the capital expenditures required are in the billions. People think these places are going to come to market and affect the supply side in as little as five years. That’s bunk, in my humble opinion. They will be mined, because the deposits are very good, but the timeline to raise the necessary funds and build the infrastructure will be 10 years. We can be in production in three to four.”

You have to run your company as though you’re going to be able to put it into production yourselves Mark Morabito

Western Labrador has been a mining camp since the 1950s and its infrastructure is fully developed. Morabito lists the advantages: “We’ve got a local population of 20,000, which contains a highly-skilled workforce, multiple equipment vendors and experienced contractors. We have two railway options to transport material to deep sea ports. We have four port options which provide year-round access. We have low-cost power: four cents a kilowatt hour or less from electricity produced in Churchill Falls. We have main power lines only 15 kilometres away. Paved highway only 2.5 kilometres away. I just don’t think you could find a better location to develop an iron ore project. These are the reasons why Consolidated Thompson was able to go to production so quickly.”

Location, infrastructure, results and a good price for your metal: many companies share these attributes, but few are as successful as quickly as Consolidated Thompson and Alderon. Mark Morabito thinks the determining factor is keeping your eyes on the prize. He concludes, “Running your company as though you’re going to be bought out is a mug’s game, a recipe for failure. You have to run your company as though you’re going to be able to put it into production yourselves. You must execute, hit the milestones on personnel, equipment, permitting. Get your news out and have it hit the right places. That’s the only way to get full value.”

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