Sweden-focused iron ore miner Northland Resources said Monday it was changing its strategy to produce less iron ore concentrate at a time of low prices and bring about more flexibility to cut costs.
Northland will only run one processing line for the time being, compared to its previous strategy of developing the Kaunisvaara mine to reach a 4 million mt/year iron ore concentrate run rate through two lines, the company said in a statement.
Northland will complete construction of the second processing line but not take this line into production at current price levels, it said. Operating one line and implementing its new cost strategy would allow it to break even at prevailing iron ore prices, the Luxembourg-based company said.
Northland has signed a non-binding memorandum of understanding with Mitsubishi Corp. RtM International for deliveries of a "significant part" of the iron ore concentrate, it said. A company spokesman was not immediately available for further comment on offtake arrangements.
Northland has decided to temporarily suspend payments to its suppliers and creditors. The new strategy has support from its large bond holders and suppliers. It has been unable to secure long-term financing as iron ore prices extended a drop below $100/dry mt.
"A significant reduction in world market iron ore prices in 2014 from around $135/dmt in the beginning of the year to a low point of $89/dmt has made the board of directors come to the conclusion that a change in the company's strategy is necessary under the prevailing challenging circumstances," it said.
"The production from the first processing line has gradually improved and during April and May the production reached targeted levels both in terms of volumes and cash costs."
Output from Kaunisvaara had been ramping up since late 2012.
Northland will review certain commercial supplier contracts, make organizational changes and look to implement productivity improvements.
The company has signed a non-binding term sheet with a strategic partner allowing Northland to source iron ore for the second processing line starting 2016 and continuing until 2018-2020 maintaining an annual production of 4.4-5.4 million dmt/year. This will be at higher operating cost than its own mining, but allow a postponement of $150 million capex in another deposit.
Upon expiry of the sourcing agreement, the second processing line can be supplied with ore from Northland's Sahavaara mine as it invests to bring production on from that mine. Both options are contingent on higher iron ore prices to justify this.
