Northland Moves to Feasibility Study after Positive PEA on Kaunisvaara Iron Ore Concentrate Project

9/7/2009, 7:10 AM (Source: GlobeNewswire)
September 7, 2009 Northland Resources Inc. (Northland) is pleased to
announce the positive outcome of the Preliminary Economic Assessment
(PEA) on its 100%-owned Kaunisvaara Project ("the Project") in
northern Sweden.

"The PEA demonstrates that the Kaunisvaara Project stands to be a
financially rewarding project with robust operating margins and high
rates of return", said Anders Hvide, Northland's Executive Chairman.

"The findings of the PEA put Northland firmly on the way to becoming
a substantial iron ore producer in Europe," said Buck Morrow,
Northland's President and CEO.

Highlights of the PEA include:


* The PEA confirms that the Kaunisvaara Project, which includes the
Tapuli, Sahavaara and Pellivuoma magnetite iron ore deposits in
northern Sweden is technically feasible and financially positive.

* Using a discount rate of 8%, the Project has a potential Net
Present Value (NPV) of USD 393 million and an Internal Rate of
Return (IRR) of 21.1 %.

* Subject to securing all relevant permits and financing, the
production of iron ore concentrate is forecast to begin in 2012
at a rate close to 2 Mt per year, increasing to 5 Mt per year in
2014.

* The Project is estimated to have a 24 year Life of Mine based on
NI 43-101 defined resources.

* Northland will need to secure financing of approximately USD 417
million as the total CAPEX will be partially funded by Project
cash flow. Total CAPEX to reach 5 Mt of concentrate capacity is
USD 617 million. The CAPEX figure includes a 15% contingency
(excluding mine mobile equipment).

* Total OPEX per tonne concentrate delivered FOB at the port of
Kemi, Finland, is estimated to average USD 38.64/t for the Life
of Mine and average USD 34.04/t over the first 10 years of
operation. The OPEX figure includes a 15% contingency (excluding
royalty and transport).

* Turner & Townsend were engaged as a peer reviewer to provide an
independent review of both the CAPEX and OPEX figures in the PEA
as compiled by Aker Solutions.


Please note that the PEA is preliminary in nature. It includes
inferred mineral resources that are considered too geologically
speculative to have economic considerations applied to them that
would enable them to be categorized as mineral reserves. There is no
certainty the PEA will be realized.

Northland presented the results of the Kaunisvaara Project PEA to
Gulf Industrial Investment Co. (GIIC) in conjunction with the
Memorandum of Understanding between the parties for the delivery of
up to 3 Mtpa off-take. GIIC and Northland are encouraged by the PEA
results and Northland will now consider the best strategy for
acquiring funding and moving the Project forward. Discussions
between Northland and GIIC will continue to progress towards a final
agreement in order to meet part of GIIC's long-term concentrate
requirements.

PEA Overview

Northland will stage the development of its iron ore projects,
beginning with Northland's Swedish projects - Tapuli, Sahavaara and
Pellivuoma - which will provide feed to a single, multi-line
processing facility in Sweden (together called "the Kaunisvaara
Project").

The PEA commenced in January 2009, with Aker Solutions being
responsible for overall study management and coordination, acting in
consultation with specialist service groups and sub-consultants
including:


+-------------------------------------------------------------------+
| Study Management & | Aker Solutions |
| Coordination | |
|-------------------------+-----------------------------------------|
| Geology and Resources | GeoVista & Micon International Ltd. |
| | (Tapuli) |
| | Chlumsky, Armbrust & Meyer (Sahavaara) |
| | GeoVista (Pellivuoma) |
|-------------------------+-----------------------------------------|
| Mine Scheduling | Scott Wilson (Sahavaara) |
| | Micon (Tapuli & Pellivuoma) |
|-------------------------+-----------------------------------------|
| Processing Plant | Metso |
|-------------------------+-----------------------------------------|
| Rail Infrastructure | Scott Wilson/Railize |
|-------------------------+-----------------------------------------|
| Capital Cost Estimate | Aker Solutions |
| Compilation | |
|-------------------------+-----------------------------------------|
| Operating Cost Estimate | Aker Solutions |
| Compilation | |
|-------------------------+-----------------------------------------|
| Financial Analysis | An international accounting firm |
+-------------------------------------------------------------------+



PEA Results

Using the Base Case Scenario, the Project has a potential NPV of USD
393 million and an IRR of 21.1 %. The capital payback period is 5.8
years. A real discount rate of 8% and a USD:SEK exchange rate of
1:8.13 were applied in these calculations. The product pricing used
is described in the next section. We have provided a sensitivity
analysis on the Base Case below.

Capital and Operating Cost Estimates were compiled by Aker Solutions
based on information provided by all consultants involved in the
production of the PEA.

Total CAPEX has been estimated at USD 617 million. This is based on a
pipeline solution from the Kaunisvaara process facility in Sweden to
Äkäsjokisuu in Finland where an existing rail line is situated.
Dewatering and loading facilities will be built in Äkäsjokisuu. The
rail line is presently being upgraded by the Finnish rail authority
to handle up to 3 million tonnes per year of concentrate.
Discussions are ongoing with the Finnish rail authority to increase
the rail capacity up to 8 - 10 million tonnes per year from
Äkäsjokisuu. A study is ongoing with the Finnish and Swedish rail
authorities for an extension of the existing rail line to the
Kaunisvaara Project.

Total OPEX has been estimated at an average of USD 38.64/t of
concentrate delivered Free on Board ("FOB") to the Port of Kemi,
Finland, over the Life of Mine, with a noticeably lower average
operating cost of USD 34.04/t during the first 10 years of operation.
The capital and operating costs were developed to an accuracy of plus
or minus 30 per cent and include all direct and indirect costs, EPCM
costs, and contingency and accuracy provisions.

(see pdf)

The Kaunisvaara Project will be able to produce 5 Mtpa of iron ore
concentrate based on the PEA design basis maximum feed rate of 12.7
Mtpa. The PEA indicates that the total Project life will be 24
years; during years 3 to 16 the concentrate production will be 5
Mtpa, and will then gradually drop off during the remaining 8 years.

(see pdf)

Product Pricing

(see pdf)

The product price forecast, as used in the Base Case of the PEA, has
been based on price predictions for Carajas fines delivered to
Europe, as derived from the confidential internal reports received
from several analysts. It has been assumed that Northland's product
should achieve the same price as the premium product Carajas fines.
The forecast price also includes the freight rate differential that
can be expected to be gained by Northland when shipping to the
European market (when compared with those producers shipping from
Brazil). Northland has used a freight rate differential of USD
5.00/t.

In evaluating Northland's market potential in the North African
region, the consensus of opinion is that there is only likely to be a
small difference in the freight rates from Brazil and Kemi to those
locations. However, the quality advantages in the chemistry,
physical properties and value in use may exact a premium price for
Northland's products in the DR pellet feed market. Therefore, it is
possible that Northland's quality advantages could provide a similar
overall price differential to the North African market that
Northland's freight differential provides to the European market.

Sensitivity Analysis

The following sensitivity analyses have been run while keeping all
other variables in the Base Case the same.


+-------------------------------------------------------------------+
| | NPV8 | IRR | Max Cash Req | Payback |
| | USD M | % | USD M | years |
|------------------------+-------+------+-----------------+---------|
| Base Case | 393 | 21.1 | 417 | 5.8 |
|------------------------+-------+------+-----------------+---------|
| Increase Price 10% | 613 | 26.7 | 385 | 5.1 |
|------------------------+-------+------+-----------------+---------|
| Increase Price 20% | 832 | 31.8 | 352 | 4.7 |
|------------------------+-------+------+-----------------+---------|
| Decrease Price 10% | 173 | 14.6 | 450 | 6.9 |
|------------------------+-------+------+-----------------+---------|
| Decrease Price 20% | (47) | 5.7 | 483 | 9.3 |
|------------------------+-------+------+-----------------+---------|
| Increase CAPEX 10% | 332 | 18.4 | 475 | 6.3 |
|------------------------+-------+------+-----------------+---------|
| Increase CAPEX 20% | 271 | 16.0 | 532 | 6.7 |
|------------------------+-------+------+-----------------+---------|
| Decrease CAPEX 10% | 453 | 24.2 | 360 | 5.4 |
|------------------------+-------+------+-----------------+---------|
| Decrease CAPEX 20% | 514 | 27.8 | 303 | 5.0 |
|------------------------+-------+------+-----------------+---------|
| Increase OPEX 10% | 273 | 17.8 | 435 | 6.3 |
|------------------------+-------+------+-----------------+---------|
| Increase OPEX 20% | 153 | 14.1 | 452 | 6.9 |
|------------------------+-------+------+-----------------+---------|
| Decrease OPEX 10% | 513 | 24.0 | 400 | 5.5 |
|------------------------+-------+------+-----------------+---------|
| Decrease OPEX 20% | 633 | 26.8 | 383 | 5.2 |
|------------------------+-------+------+-----------------+---------|
| Increase USD vs SEK | 462 | 23.7 | 379 | 5.5 |
| 10% | | | | |
|------------------------+-------+------+-----------------+---------|
| Increase USD vs SEK | 520 | 26.1 | 347 | 5.2 |
| 20% | | | | |
|------------------------+-------+------+-----------------+---------|
| Decrease USD vs SEK | 308 | 18.0 | 464 | 6.3 |
| 10% | | | | |
|------------------------+-------+------+-----------------+---------|
| Decrease USD vs SEK | 202 | 14.5 | 523 | 7.0 |
| 20% | | | | |
+-------------------------------------------------------------------+


Permitting

Environmental permitting of the Tapuli mine and the Kaunisvaara mill
and any related activities will be the responsibility of the
Swedish-Finnish Border River Commission, which has authority over all
water-related projects in the border river's watershed. A
comprehensive application was filed in June and the permitting
process is underway, with responses from the reference authorities
requested by September 30th. A hearing before the Commission is
anticipated early this fall and a permit may be issued, earliest, by
the end of the year. Tapuli has already been granted an Exploitation
Concession by the Swedish Mine Inspector.
An Exploitation Concession application for the Sahavaara project will
be filed with the Chief Mine Inspector in September. The next step
will be the preparation of an Environmental Permit Application for
Sahavaara, which contemplates an open pit operation and ore treatment
at the Kaunisvaara mill. The goal is to file this application early
in 2010.
Pellivuoma has been included in a comprehensive environmental
baseline study that will be completed by next year. An Exploitation
Concession application will be completed as soon as sufficient
information on the mineral resource is available.

Resources and Mining

The Tapuli open pit contains a mineral resource (measured and
indicated) of 71.5 million tonnes at an average grade of 25% Fe with
an overall stripping ratio of 2.1:1 (waste to ore). Mining is
expected to consist of a conventional loader and truck open pit
operation, moving approximately 25 million tonnes total material per
year. Crusher feed will be hauled to the pit rim, crushed and
transported by conveyor to the processing plant.

The Sahavaara open pit, located 4 km to the south of Tapuli, contains
a mineral resource (measured and indicated) of 91.0 million tonnes at
an average grade of 43% Fe and an inferred resource of 1.8 million
tonnes at an average grade of 43% Fe with an overall stripping ratio
of 4.6:1 (waste to ore). Like Tapuli, the mining is expected to
consist of a conventional loader and truck open pit operation, moving
approximately 35 million tonnes total material per year. Crusher
feed will be hauled to the pit rim, crushed and then transported by
conveyor to the processing plant.

The third open pit mine, Pellivuoma, is located 15 km to the
southwest of Sahavaara and contains an indicated mineral resource of
33.8 million tonnes at an average grade of 30% Fe and an inferred
resource of 37.4 million tonnes at an average grade of 30% Fe. The
overall stripping ratio is expected to reach 2.8:1 (waste to ore).
Like the other two mines, the Pellivuoma mine consists of a
conventional loader and truck open pit operation, moving
approximately 20 million tonnes total material per year. Crusher
feed will be hauled to the pit rim, crushed and then transported by
conveyor to the processing plant.

Brief Description of Mineral Processes for Tapuli, Sahavaara and
Pellivuoma

Process development work has been conducted on all the resources by
the Northland staff and consultants and has resulted in process flow
sheets that are both simple and flexible and are consequently able to
accommodate feed ore variability.

All processes are based on primary crushing at the mine sites and
transport to the Kaunisvaara beneficiation plant, which includes the
primary grinding plant using AG or SAG (Autogenous or Semi-Autogenous
Grinding) mills. There are two process lines capable of processing
ores from multiple deposits at any given time. The first separation
stage consists of wet cobbing (with low-intensity magnetic separators
- LIMS), which shall reject a substantial portion as a waste material
with minimal loss of iron units. The cobbing magnetic concentrate is
then ground by efficient, low-energy mills to a size suitable for
final stage magnetic separation, again using LIMS.

The vast majority of the Tapuli feed will not require further
processing, to achieve the high grade concentrate which will be
dewatered and readied for transportation to the port. After
dewatering to recover process water, the tailing slurry will be
pumped to a tailings disposal area, where it will be combined with
the cobbing waste and tailings from other ore processing.

In order to achieve the target quality of concentrate, most of the
feed from Sahavaara and Pellivuoma requires further upgrading by
removing sulphide minerals using simple flotation techniques (See the
flow sheet below).

The PEA shows transportation by pipeline from the process plant to a
train loading station across the border in Finland, where the pumped
concentrate will be filtered to a low moisture level before being
loaded onto railroad wagons for further transport to the harbour at
Kemi.

(see pdf)
Infrastructure/Logistics

Transport costs of the iron ore concentrate from the mining area to
the end customer are crucial for the feasibility of the project.
Therefore Northland, in close cooperation with Swedish and Finnish
transport authorities, has spent a lot of effort in finding the best
possible transport solution. Ideally, such a solution would include;


* Cross-border electrified rail link between Kaunisvaara and Kemi,
* Custom-designed and built iron ore loading terminal in the Port
of Kemi and
* Regular year-round shipments in up to Handymax size vessels via
trans loading at sea as well as through one or two hub ports.

However, as the time frame within which the cross-border rail link
into Sweden has to be completed is very tight and not controlled by
Northland, Northland has based the PEA on building a pipeline from
Kaunisvaara to Äkäsjokisuu. This will mitigate the risk of delays in
the rail construction and serve as an acceptable alternative. The
final decision on rail vs pipeline has to be taken at the latest in
the beginning of 2010.

The PEA assumes that the power for the project will be supplied by
Finland, although a Swedish alternative is still being considered. A
final decision on this matter will be based entirely on the economics
for the project.

Development Schedule

A provisional timetable for development of the project is as follows:


+----------------------------------------------+
| Feasibility Study Start | August 2009 |
|--------------------------------+-------------|
| Feasibility Study Completion | 2Q 2010 |
|--------------------------------+-------------|
| Commence Basic Engineering | 2Q 2010 |
|--------------------------------+-------------|
| Commence Detailed Engineering | 3Q 2010 |
|--------------------------------+-------------|
| Procurement of Long Lead Items | 2Q 2010 |
|--------------------------------+-------------|
| Commence Site Clearance | 2Q 2010 |
|--------------------------------+-------------|
| Commence Site Construction | 3Q 2010 |
|--------------------------------+-------------|
| Commence Operations Tapuli | 2012 |
|--------------------------------+-------------|
| Commence Operations Sahavaara | 2013 |
+----------------------------------------------+


The Kaunisvaara Project will involve the staged development of
several mines, and a centralised processing plant. Project
development will commence immediately upon the finalisation of the
Feasibility Study, which is estimated to be complete during Q2 2010.
It is intended that toward the end of the Feasibility Study, the
basic engineering will commence, leading on to detailed engineering
later in 2010. In order to fast-track the overall development of the
Project, a number of items will be developed in tandem. The
placement of orders for long-lead items is another critical
determinant of the overall schedule.

The PEA technical report will be filed on SEDAR and Northland's
website www.northlandresourcesinc.com within 45 days.

Independent Peer Review

Turner & Townsend were engaged as a peer reviewer to provide an
independent review of both the CAPEX and OPEX figures in the PEA as
compiled by Aker Solutions. The opinion follows:

Turner & Townsend: It is our opinion based on the information
provided to us that the PEA Capital Expenditure estimate in respect
of the Tapuli, Sahavaara and Pellivuoma projects has where visible to
us been constructed in line with the general guidance provided by the
Institute of Cost Engineers in respect of level 4 design concept. We
believe that level 4 design concept to be comparable to the PEA
requirement and that the estimate conforms, as far as it is possible
to ascertain, to the accepted industry standard of ± 30% accuracy
and 15% contingency.

The following persons whom are qualified persons under NI 43-101 and
are independent of the company, have reviewed and approved the
technical information in this press release.

Aker Solutions
Mike Butler, MIMMM, Associate Director

GeoVista AB
Thomas Lindholm, MSc, MAusIMM, Senior Mining Engineer

Micon International
Dibya Kanti Mukhopadhyay, MAusIMM, Senior Economic Geologist
Dayan J. Anderson, MMSA, Senior Mining Engineer

Scott Wilson Mining
David Smith, Technical Director, Mining and Environment


CAUTION REGARDING FORWARD-LOOKING INFORMATION

This press release contains forward-looking information within the
meaning of securities laws. Except for statements of historical fact
relating to the Company, certain information contained herein
constitutes ''forward-looking information'' under Canadian securities
legislation. Forward-looking information includes, but is not limited
to, statements with respect to mineral reserve and resource
estimates; the ability to realize estimated mineral reserves and to
convert mineral resources into mineral reserves; terms and costs of
future exploration; mineralization projections; receipt of all
necessary approvals; the parameters and assumptions underlying the
mineral resource estimates and iron ore prices. Generally,
forward-looking information can be identified by the use of
forward-looking terminology such as ''plans'', ''expects'' or ''does
not expect'', ''is expected'', ''budget'', ''scheduled'',
''estimates'', ''forecasts'', ''intends'', ''anticipates'' or ''does
not anticipate'', or ''believes'', or variations of such words and
phrases or statements that certain actions, events or results
''may'', ''could'', ''would'', ''might'' or ''will be taken'',
''occur'' or ''be achieved''. Forward-looking statements are based on
the opinions and estimates of management as of the date such
statements are made. Estimates regarding the mineral resources, as
outlined above and in the technical report, have been based on
knowledge of company management and the knowledge and experience of
third party experts. Forward-looking information is subject to known
and unknown risks, uncertainties and other factors that may cause the
actual results, level of activity, performance or achievements of
Northland Resources Inc to be materially different from those
expressed or implied by such forward-looking information. Although
management of Northland Resources Inc has attempted to identify
important factors that could cause actual results to differ
materially from those contained in forward-looking information, there
may be other factors that cause results not to be as anticipated,
estimated or intended. There can be no assurance that such statements
will prove to be accurate, as actual results and future events could
differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on
forward-looking information. Northland Resources Inc. does not
undertake to update any forward-looking information, except in
accordance with applicable securities laws.

For More Information, Contact:

Anders Hvide, Executive Chairman, Oslo: Tel. +47 92 88 98 58
Deborah Craig, Vice President, Northland Resources AB, Stockholm:
Tel. +46 70 638 4300

Visit our website: www.northlandresourcesinc.com

The press release (including pictures) can be downloaded from the
following link.


This announcement was originally distributed by Hugin. The issuer is
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