Interview - John Gingerich - Advanced Explorations - Update
Advanced Explorations seems to live up to its name more and more. Within only one year since acquiring the Roche Bay Iron Ore Project in Nunavut/Canada, Advanced Explorations was able to achieve more than ever expected. We already presented Advanced Explorations in October 2007 and now we want to know what has changed within the last 9 months. Advanced Explorations’ CEO John Gingerich kindly provided us a few answers on our questions.
Since our first interview at October 13th 2007 , many things have changed at Advanced Explorations. Advanced Explorations was able to initialize an off take agreement with a Chinese mine finance company. Which facts build the basis for this contract and what advantages does this agreement have?
The Company secured an off-take agreement with Chinese Company for a total of 1,500,000 tons of concentrate and/or pellets per year. The primary objective of the agreement was to provide a link to the China market which has been the driver to the massive growth in the seaborne iron ore trade. The agreement also serves to validate the project by not only securing key clients in the world`s hottest iron ore market, but at the same time the Chinese company acquired a significant interest in the Company (~9%). In December 2007 you announced an agreement with Melville Capital Corporation which allows you to source up to $65,000,000 and build a strategic partnership for the installation of the required infrastructure at the Roche Bay project. How should this partnership for building the infrastructure look like and which time-frame do you have in mind for that?
Obviously this agreement is not current. MCC is a victim of the crash in the financial markets. As there are very important aspects of the agreement related to the Aboriginal communities we were patient in working with MCC in finding a solution. They eventually had secured a deal with China Steel Resource Investment Ltd. (CRSI) who were to help provide some of the debt and equity capital. CRSI who were introduced by the Baron Group were vouched to be a reputable company. Despite repeated assurances, bureaucratic delays continued with CRSI in China, and we simply had to make a decision to move on.
While the MCC arrangement failed, the Company has taken steps to ensure the key components of our Aboriginal strategy remain in place. We are committed to the development of a unique social economic partnership in moving the Roche Bay project forward. Our relationships in the north remain strong. From the mentioned 65 Million CA$ you’ve already got 12 Million by giving out 3 Million common shares at a price of 4 CA$ each. That is more than two times the price of the current share price at the TSX. Why is Melville paying more than they would have to pay at the regular market and why doesn’t AXI’s share price increase to this level?
At the time the intent was not only to provide funding to AXI but they would secure significant guarantees for the rights to develop associated and derivative businesses. These exclusive rights were sold at a premium given the substantial financial benefits they provided if a mine were to be built.
The other 53 Million CA$ should be facilitated and arranged as a debenture, convertible at $5.25 per share at maturity in five (5) years. 5 years are not that much for getting a big deposit like the RocheBay project into production. Is this the kind of pressure you imposed on yourself and your team to make sure to get this project into production as soon as possible but not later than in 5 years?
Remarkable progress has been made in only one year since AEI took on the RB project. The challenge we face is not only to validate the geotechnical and commercial aspects of the project but to move the project forward as quickly as possible to take advantage of the current hot iron ore market. We have assembled a strong team and forged an excellent partnership with MAN Ferrostaal leading our economic study. Our objective is to complete a definitive feasibility study by the end of 2009. This would put us into final permitting and financing by 2010. This is a very aggressive plan but one that is designed to maximize shareholder value in the shortest period of time. What is your current cash position and would this be enough to get the project into production?
We have just completed an $8,400,000 financing at a premium to the current market which will allow us to complete this year’s program. We are pleased that our financing was over- subscribed in the current turbulent market conditions. Despite the negative market pressures, the support we received from Canadian institutions indicates confidence that Advanced Explorations will move this project forward. As results from the program are released, we anticipate the market will react favourably, and additional financing in the fall is expected as part of the recently negotiated option that allows AXI to acquire an additional 19.9% equity interest in the Roche Bay Project. What is the current status of the Roche Bay project? What work has there been done within the last 6 to 9 months and how do your drilling plans for 2008 look like?
Our camp re-opened in March, and currently 4 drills are turning. Among the results are drill holes in Zone C1 returning 12 metre intervals and averaging 45.56% Fe. The mineralization has been confirmed to extent to a depth in excess of 500 metres. To date over 10,000 metres have been drilled in 2008, and the program has now eclipsed its targeted 1,500 metres of drilling per week.
Delays in assay turn around are a challenge as they significantly affect news flow. The company has invested a great deal of money in drilling, and the markets continue to wait for news. These delays add to the market pressures we are currently facing as investors become concerned with the absence of news. Our overall objective is to provide delineation drilling over approximately 5,000 metres of the C zones and initiate drilling of the A and B zones and be able to add resources there, as well. Will your primary focus lie on the production of high concentrated iron or would it also be possible to produce steel in the RocheBay Area?
The company is currently looking at the possibility of producing iron nuggets (98% Fe) on site. Iron nuggets (pig iron) sell at a considerable premium (>$800/t) and would allow us to bypass the pelletization process. Selling a high quality product, reducing the shipping requirements (1/3 fewer ships), securing freight capture (avoid rail and one leg of shipping) coupled with avoiding the capital and operating costs of a pellet plant certainly require a close examination. We will be looking at this option as part of our preliminary economic evaluation. If we were to go this route it would significantly change the overall plan. Given the high value of the end product we would consider a smaller start-up of 1.25 mtpy to 1.75 mtpy of nuggets which would reduce mine and infrastructure cost while maintaining equivalent cash flow. The challenge with this approach is that most of the available technologies do not have long production histories at the target levels envisaged.
