Overview

Oceanic is focused on the development of the Ungava Bay iron properties. These properties comprise 3,453 claims over three project areas, namely Hopes Advance, Morgan Lake and Roberts Lake, which are located over 147,390 hectares along the northern extension of the Labrador Trough in the Nunavik Region of northern Quebec. The projects cover over 300 kilometres of iron formation and all the deposits are located within 20 – 50 km of tidewater.

Figure 1. Location Map.

Figure 2. Project Location Map.

 

All three project areas have been explored historically in the 1950's and 1960's, including sampling, drilling and metallurgical work to support the planning and development of iron mines. In September 2011, Oceanic reported an NI 43-101 compliant mineral resource estimate at Hopes Advance as well as Preliminary Economic Assessment (PEA) (view reports). In April 2012, the Company reported an updated NI 43-101 compliant mineral resource estimate at Hopes Advance (view report).

Hopes Advance Project: Pre-Feasibility Study

Overview

In September 2012, the Company announced the results of a Pre-Feasibility Study ("PFS") prepared by Micon International Limited in respect of the Hopes Advance project. The PFS was completed using the NI 43-101 Mineral Resource estimate published in April 2012 (view report) which the PFS has converted to a mineral reserve within engineered pit designs.

The Company engaged a team of specialized consultants, led by Micon International Limited ("Micon") and Met-Chem Canada Inc. ("Met-Chem") to produce the PFS. Micon performed the mine design and pit optimization and compiled the economic results for the project. Met-Chem performed the process flow sheet design and equipment selection based on the results of the Company's metallurgical and pilot plant test work performed by SGS Mineral Services Lakefield ("SGS"). In addition, Met-Chem completed the site infrastructure design. Port marine infrastructure design was completed by AMEC International (September 2011). Golder Associates Ltd. carried out studies for tailings disposal and waste rock.

The base case in the PFS for the Hopes Advance project assumes initial production of 10 million tonnes of concentrate per annum commencing in 2017 utilizing self-generated power, expanding to production of 20 million tonnes of concentrate per annum using hydroelectric power from 2027, following connection to the Hydro Québec grid in 2025 and construction to support the expansion in 2025 and 2026.

The PFS has been based on the Mineral Resource prepared by Eddy Canova, P.Geo., OGQ reported in a Company news release on April 2, 2012 and filed on SEDAR on May 17, 2012.

The open pit reserves, summarized below, are based on a 25% Fe cut-off grade. The reserves shown below are calculated based on industry standard pit optimization techniques guiding detailed pit designs including ramps and surface constraints. The mineral reserve is contained within the mineral resource. The effective date of the mineral reserve estimate is September 19, 2012.

Table 1 – NI 43-101 In-Pit Mineral Reserve Estimate Hopes Advance Bay (25% Fe Cut-off)

Category	Tonnes	Fe (%)	Wt. Recov. (%)	Concentrate Tonnes
Proven Reserves	763,276,000	32.3%	37.4%	285,428,000
Probable Reserves	595,990,000	32.1%	37.1%	221,246,000
Proven & Probable Reserves	1,359,266,000	32.2%	37.3%	506,675,000

There are no known legal, political, environmental or other risks that could materially affect the potential development of the mineral reserve.

The PFS mine schedule and economic analysis does not include inferred resources of approximately 72.7 million tonnes of 32.8% Fe. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

Pre-Feasibility Metrics

The table below lists the key PFS metrics. The analysis is based on the assumption that production begins in 2017.

Table 2 – PFS Results

 

As noted above, the PFS assumes a concentrate selling price of $100/tonne FOB and also takes into consideration the 2% royalty payable to the vendors of the project.  The PFS assumes that the Company exercises its right to purchase half of this royalty for $3 million in 2017, the first year of commercial production.

Analysis of the economics has been undertaken on both a pre-tax and post-tax basis and IRR is presented on both an unlevered and levered basis.  In respect of the leveraged case, the key assumptions are as follows:

• • Initial capital 60% debt financed;
• • Annual interest rate of 8%;
• • Upfront financing fee of 3%;
• • 7 year term post commencement of commercial production;
• • Expansion capital is assumed funded through operating cashflow.

Figure 3 below highlights the sensitivity of pre and post tax NPV to the FOB concentrate selling price:

Figure 3 – NPV (Unlevered) Sensitivity to FOB Ungava Bay Iron Ore Price

Capital Costs

Construction Capital Costs are set out below:

Table 3 – Capital Costs

Capital Description	Initial Capex 2014 to 2016 ($000)	Expansion Capex 2025/2026 ($000)
Mine Equipment	92,658	61,231
Mine Development	66,203	2,918
Crusher	29,674	30,355
Concentrator	481,514	492,643
Pipeline	56,740	83,787
Port Filtering and Drying	325,654	267,401
Port and Marine Infrastructure	288,000	84,000
Power	377,892	26,775
Site Infrastructure	81,591	25,675
Site Roads	33,583	-
Camp and Offices	29,575	7,175
Airstrip Upgrade	11,824	-
Fresh Water Supply	10,469	3,621
Sewage	4,554	1,574
Tailings and Hazardous Waste Disposal	23,577	30,122
Communications	2,305	-
Mobile Equipment	9,983	-
Indirect Costs	499,962	249,378
Contingency and Closure Bond	427,899	241,135
Total Construction Capital	$2,853,657	$1,607,790

The estimated initial capital cost required to support the initial phase of production of 10 million tonnes of concentrate amounts to approximately $2.85 billion.  This compares to a cost of approximately $2.4 billion outlined in “Scenario 1” of the Company’s preliminary economic assessment (PEA) published in November 2011.  Significant components of the increase in capital cost include the addition of concentrate drying and concentrate storage infrastructure and equipment which had not been accounted for in the PEA, in addition to increased indirect costs. 

Cost reductions between the PEA and PFS have been realized in the mining and mineral processing components of the capital expenditures, reflectingthe attributes associated with extraction, in particular the strip ratio and a simplified process required for concentration.  In addition, cost reductions have been realized in respect of power infrastructure, where the estimated initial capital cost of self-generation is below the PEA estimate of capital cost required for the development of an electrical transmission line (the PEA base case assumed that electrical power would be available at the time of project construction). 

The PFS assumes that once the Company moves to the use of hydroelectric grid power in year 9 of the project, the expansion capital required in respect of power is limited given the fact that the transmission line is assumed financed by Hydro Québec and amortized through the power rate charged to the Company by Hydro Québec.

Operating Costs

A summary of the estimated operating costs is set out below:

Table 4 – Operating Costs (excluding royalty)

Category	Years 2017 - 2024 (10 MM T/YR & Self Generated Power)	Years 2025 - 2026 (10 MM T/Y & Hydroelectric Power)	Years 2027 – 2047 (Post Expansion - 20 MM T/YR)	Life of Mine Average
Mining ($/tonne all material)	$1.57	$1.59	$1.23	$1.27
Mining ($/tonne product)	$5.46	$6.30	$7.78	$7.37
Concentrator ($/tonne product)	$20.87	$18.35	$17.45	$18.02
Port ($/tonne product)	$2.13	$2.13	$1.45	$1.58
Site Services ($/tonne product)	$3.33	$2.77	$2.04	$2.27
G&A (Site only) ($/tonne product)	$1.38	$1.38	$0.85	$0.95
Total Operating Cost / tonne product (excluding royalty)	$33.17	$30.93	$29.57	$30.18

The low operating costs are a function of a number of factors including:

• No rail component given the project's proximity to the identified port site at Pointe Breakwater;
• A very low strip ratio, averaging 0.57:1 waste to ore in the first 15 years of production and 1.17:1 over the life of mine;
• Straightforward metallurgy and high Fe recoveries, reflected in the simple flowsheet and low operating costs.

Overall, operating costs have increased relative to the PEA reflecting the net effect of higher electricity costs associated with self-generated power and additional costs for concentrate drying, offset by cost reductions in mining and other process costs.

Before the increase in power costs, total costs per tonne decreased by approximately $1.40/tonne in comparison to the PEA estimate.

In particular, in regards to power, the PEA assumed that Hydro Québec would offer an L rate of $0.045 per kilowatt hour to the project.  Subsequent discussions with Hydro Québec confirmed that it would not be consistent with current government policy to offer the Company the L rate.  In terms of concentrate drying, the PEA did not include operating costs (or capital costs) for concentrate drying in order to reduce concentrate moisture content to 2% to accommodate concentrate handling during the winter months.  The PFS includes estimates with regard to such additional costs.

The chart below sets out a sensitivity of the pre-tax NPV based on a factor of the base fuel price delivered to site for power generation of $0.652/Litre for No. 6 Oil. Diesel fuel for equipment operation has been assumed at $0.75/ Litre.

Figure 4 – Pre-tax NPV Sensitivity to Base Fuel Price

Hopes Advance Project: Site Layout

The Hopes Advance project site layout is set out below. As illustrated, the deposits are optimally located within approximately 26 km from the planned port site at Pointe Breakwater (discussed in more detail below) such that a pipeline will run from the concentrator, expected to be placed in proximity to all deposits, to the port. A 3D animated simulation of the project which provides a visual interpretation of the project can be accessed here and which provides a visual interpretation of the project.

The Company's power plant is planned to be located at the port site. The Company expects hydroelectric power from one of the existing operational power reservoirs near Ungava Bay is anticipated to be available by 2025.

Figure 5 - Hopes Advance Site Layout

Hopes Advance Project: Metallurgy

Background

In September 2011, the Company took the decision to accelerate its metallurgical test work program in order to continue the fast-track development of the Hopes Advance project.  This included the completion of a comprehensive metallurgical bench scale testing program earlier this year by SGS.

In addition to the bench scale work, SGS has undertaken a pilot plant testwork program to determine a flow sheet for the recovery of hematite and magnetite. The pilot plant test work was also used to determine the appropriate size of equipment for the flow sheet as well as the optimum grinding equipment and power requirements.

Bulk Samples and Composites

During the 2011 field season, the Company collected bulk samples to support the bench scale test work and the pilot plant.

The 180.1 tonne Castle Mountain bulk sample was collected from the same three trenches that provided samples for historic metallurgical work conducted in the late 1950’s.  A 95.1 tonne sample was composited and blended from the Castle Mountain bulk sample for the pilot plant test.

Bench Scale Testing

Bench scale work was conducted on a sample of the Castle Mountain bulk sample and included head mineralogy, bench-scale grindability testing, bench-scale gravity and low intensity magnetic separation (LIMS) testing.  A full suite of grindability testing was conducted on the sample. The sample was classified as soft to very soft in terms of rod and ball milling (RWI and BWI) and very soft in terms of autogenous milling (AWI).  This bench work complements the Mozley Table and Davis Tube test work conducted on drill core composites earlier this year at SGS.

Pilot Plant Testing

The initial flowsheet for the pilot plant test was designed based on historic metallurgical work with modifications indicated by the results of bench scale Mozley Table and Davis Tube tests conducted on drill core composites from Hopes Advance earlier this year (noted above). 

The pilot plant test work concluded that an optimized flowsheet composed of single-stage semi autogeneous milling (SAG), followed by rougher, cleaner, and recleaner spirals was optimal.  The rougher spiral tails were sent to a LIMS Cobber for recovery of the remaining magnetite.  The Cobber concentrate (12.9% of the feed) is then sent to a regrind mill for further liberation of the magnetite.  The liberated magnetite is then sent to the two-stage cleaning LIMS to produce an iron rich magnetite concentrate of 70.0% Fe.

The Castle Mountain composite, with a Head Fe of 34.2% and a magnetite content of 11.8% (Table 5) responded well to the optimized pilot plant flowsheet.  With a target grind of 300 microns the gravity circuit produced concentrate with a SiO2 content of 4.8%.  Not only did the gravity circuit recover hematite, it recovered 46.7% of the magnetite (Table 6).  The LIMS circuit with a target grind of 37 microns (minus 400 mesh) produced concentrate with a SiO2 content of 3.0%.  The LIMS circuit recovered another 49.8% of the magnetite.  The optimized circuit produced a combined concentrate with 4.5% SiO2 with a weight recovery of 37.6% and an iron recovery of 73.1%.

Figure 6 – Optimized Flowsheet

A description of the process is set out below:

1. Crushed ore is fed into a SAG mill (no ball mill required at this stage), where the ore is ground to minus 50 mesh (300 microns);  
2. Ground ore is passed through a series of spirals to recover hematite, coarse magnetite, and aggregates of hematite and magnetite.  A gravity concentrate (gc) is recovered; 
3. Tailings (rougher tails) from the spirals are sent to a magnetic cobber (low intensity magnetic cobber) where particles containing magnetite are separated from particles that do not contain magnetite;
4. Only 12.9% by weight of ore requires fine grinding for magnetic separation processing;
5. Residual magnetite containing particles are ground to minus 400 mesh (37 microns);
6. Ground magnetic material is passed through LIMS to recover the remaining magnetite.  The magnetite concentrate (mc) is combined with the gravity concentrate (gc) to form the final concentrate (fc).  By recovering the magnetite after gravity separation the amount of material that has to be finely ground is significantly reduced.

Table 5 - Analysis of Head for Optimized Castle Mountain Pilot Plant Test

Table 6 - Optimized Pilot Plant product quality and recovery

The results of the pilot plant test work on the composite suggest that Castle Mountain iron ore:

• Is soft;
• Can be processed with a simple flow sheet;
• Produces a concentrate with low SiO₂ and low deleterious elements;
• Produces concentrate with approximately 37.6% weight recovery and approximately 73.1% iron recovery, with 96.5% magnetite content recovery (Satmagan) (see Table 6 above).

The other zones at Hopes Advance can be expected to respond well to a similar flowsheet given the similarity in response to bench scale testing by Mozley Table and Davis tube as indicated by the results shown in Table 7.

Table 7 - Summary of overall concentrate grade from Mozley Table and Davis Tube bench tests

Next Steps

The complete report in respect of the PFS, including further details on mine reserves and schedule layouts, drawings and the results of metallurgical test work and pilot plant will be filed on SEDAR and on the Company’s website within 45 days of the news release announcing the results of the Pre-Feasibility Study.

In the coming months, the Company will be focused on continuing to fast-track the development of the project, including:

• • Strategic Partnering and offtake agreements
• • Pot Grate Pelletizing test work
• • Completing a Feasibility Study
• • Completing the environmental impact assessment and permitting
• • Negotiate Stakeholder Impact and Benefits Agreement

 

History of the Ungava Iron Properties

The history of the Ungava Iron Properties and the Hopes Advance, Morgan Lake and Roberts Lake deposits is described by Micon International Limited in their October 29, 2010 43-101 technical report entitled “Technical Report on the Ungava Iron Property – Ungava Bay Region, Quebec, Canada” available for review on this website and on SEDAR (www.sedar.com).  The following commentary in respect of Roberts Lake and Morgan Lake is taken as extracts from pages 19 to 26 of that report and the tables are: (view report)

Roberts Lake Area

The Roberts Lake area was first discovered in 1952 with active exploration commencing that same year and continuing through 1957. During this period of exploration work focused on the Kayak Bay deposit and consisted of surface mapping, channel sampling, exploration drilling (46 holes), and metallurgical testing. Additional work was completed during 1972 with a geophysical survey of the area and in the 1990's with additional metallurgical testing. Exploration work completed on the property includes exploration drilling, surface sampling, surface mapping, and metallurgical test work. At the Kayak Bay deposit, a preliminary pit was laid out to develop the drill indicated resource.

Exploration and drilling was also carried out in the Payne River zone (26 holes), Igloo Lake zone (11 holes), Hump zone (15 hole), and Roberts Lake zone. The iron formation can be traced along both limbs of the syncline. An extension to the northwest of the syncline was also identified and is the location of the Armand Lake zone.

A total of 97 drillholes were completed in the Roberts Lake area totalling 5,115 m.

1. Roberts Lake - Historic Resource*

*These are historical resource estimates that do not comply with the current Canadian Institute of Mining, Metallurgy and Petroleum Resources (CIM) Definition Standards on Mineral Resources and Mineral Reserves as required by National Instrument 43-101 (NI 43-101) Standards of Disclosure for Mineral Projects. These historical resource estimates were described as "drill indicated" and "potential" at the time of reporting which does not correspond to the categorization set forth in sections 1.2 and 1.3 of NI 43-101. Although these historical resource estimates are relevant to support the presence of large areas of iron mineralization, these estimates are speculative, are based on very limited exploration drilling and will require extensive new exploration and metallurgical efforts to validate. They should not be treated as current mineral resources or reserves or relied upon until confirmed by current exploration and a Qualified Person. A Qualified Person has not done sufficient work to upgrade or classify these historical resource estimates as current NI-43-101 compliant mineral resources. The Roberts Lake historic resource was reported in 1970 from drilling in the late 1950s, the Morgan Lake historic resource was reported in 1957 and 1964, and the Hopes Advance historic resource was reported in 1958. Further information in respect of these historic resources is outlined in a 43-101 technical report prepared by Micon entitled "Technical Report on the Ungava Iron Property - Ungava Bay Region, Quebec, Canada" dated Oct. 29, 2010, available on SEDAR and on this website.

Morgan Lake Area

The Morgan Lake area iron deposits were first discovered in 1953 with active exploration commencing in 1955 and continuing through 1957. Exploration work completed on the property includes exploration drilling, surface sampling, surface mapping, and metallurgical test work. Detailed site layouts were completed for a processing plant and harbour near the Payne Range iron deposits.

Drilling was completed on the Payne Range (29 holes) and Morgan Lake deposits (16 holes). Exploration was also conducted in the Black Payne South, Harnden Range, Esson Lake, and McOuat Range zones

A total of 45 drillholes were completed in the Morgan Lake area totalling 3,611 m.

2. Morgan Lake – Historic Resource*

*These are historical resource estimates that do not comply with the current Canadian Institute of Mining, Metallurgy and Petroleum Resources (CIM) Definition Standards on Mineral Resources and Mineral Reserves as required by National Instrument 43-101 (NI 43-101) Standards of Disclosure for Mineral Projects. These historical resource estimates were described as "drill indicated" and "potential" at the time of reporting which does not correspond to the categorization set forth in sections 1.2 and 1.3 of NI 43-101. Although these historical resource estimates are relevant to support the presence of large areas of iron mineralization, these estimates are speculative, are based on very limited exploration drilling and will require extensive new exploration and metallurgical efforts to validate. They should not be treated as current mineral resources or reserves or relied upon until confirmed by current exploration and a Qualified Person. A Qualified Person has not done sufficient work to upgrade or classify these historical resource estimates as current NI-43-101 compliant mineral resources. The Roberts Lake historic resource was reported in 1970 from drilling in the late 1950s, the Morgan Lake historic resource was reported in 1957 and 1964, and the Hopes Advance historic resource was reported in 1958. Further information in respect of these historic resources is outlined in a 43-101 technical report prepared by Micon entitled "Technical Report on the Ungava Iron Property - Ungava Bay Region, Quebec, Canada" dated Oct. 29, 2010, available on SEDAR and on this website.

Eddy Canova, P.Geo., OGQ(403), the Director of Exploration for the Company and a Qualified Person as defined by NI 43-101, has reviewed and is responsible for the technical information contained on this website..

Copyright © 2011 OCEANIC IRON ORE CORP.