Miner thinks small to resurrect big Canadian iron ore mine

By Susan Taylor

TORONTO, May 24 (Reuters) - Champion Iron Ltd

is thinking small with its plans to bring Quebec's

giant Bloom Lake iron ore mine back to life.

Chief Executive Michael O'Keeffe intends to slash costs

while cutting millions of tonnes from a planned production

expansion. The strategy runs counter to the traditional economy

of scale formula, which bumps up production for proportional

cost savings.

It may prove a prescient approach as iron ore prices pull

back from 30-month highs in February. The recovery sparked signs

of life for a handful of hibernating miners in Canada's

metal-rich Labrador Trough, straddling the provinces of Quebec

and Newfoundland and Labrador, including Champion, Alderon Iron

Ore and Tata Steel Minerals Canada .

Champion is taking a different tack with Bloom Lake than its

previous owner and North America's biggest iron ore producer,

Cliffs Natural Resources (NYSE: CLF - news) , beginning with the price tag.

Cliffs paid $4.9 billion for the mine in 2011, near the top

of the market. Later it launched a $1.2 billion expansion to

make the mine viable by doubling output to 16 million tonnes in

a bid to help bring costs down.

But as prices slumped, Cliffs suspended the money-losing

operation. It sold the mine to Champion for C$10.5 million in

2015, a year when spot prices bottomed at $37 a tonne, from $190

in 2011.

O'Keeffe, a former Glencore (Frankfurt: 8GC.F - news) executive, believes

other miners looking to buy Bloom Lake made calculations using

Cliff's high-volume blueprint and were spooked by the costs.

Walking "every inch" of the property, O'Keeffe told Reuters

that he and Champion's chief operating officer David Cataford

looked for ways to reconfigure operations that would squeeze

costs to $50 per tonne of delivered concentrate from over $91.

Rather than trucking ore in 240-ton trucks for processing,

for example, the mine will use a 3.8 kilometer (2.36 mile)

conveyer belt to move the steelmaking ingredient, Cataford said.

And instead of trucking some 12 million tonnes of tailings

waste to on-site storage each year, that material will move

through pumps, said Cataford.

A new recovery process and more efficient equipment, used to

sift through iron particles, will goose recovery rates to 80

percent from 68 percent, explained O'Keeffe, and cut production

costs by some $12 a tonne.

"We had a view which was quite contrary to everyone else,"

said O'Keeffe: scrapping the growth project underway and

matching costs with the "big guys."

"What was in everyone's head was the only way to do this is

expand. But your mining costs would have been more, and you'd

have to spend a massive amount of capital," added O'Keeffe, who

may be best known for building Riversdale Mining from a A$7

million ($5.23 million) coal explorer in Mozambique into a

producer that Rio Tinto (Hanover: CRA1.HA - news) paid nearly A$4 billion

to buy.

Champion's board has yet to vote on a C$326.8 million mine

restart plan, but the company said in a feasibility study it

intends to be operating by the first quarter of 2018.

The miner forecasts revenue of C$15 billion over a 21-year

mine life, producing 7.4 million tonnes of concentrate annually.

A lower stripping ratio - the amount of dirt removed to expose

mineable ore - helps squeeze costs to $44.62 per tonne, while

the high-grade concentrate price is seen at $78.40.

At 66.2 percent iron content, the ore earns a premium above

the industry standard 62 percent.

Market jitters over rising low-cost global production,

coupled with an oversupply of Chinese steel, have pushed spot

prices down to $63.19 a tonne , from $94.86 in

February.

Clarksons Platou analysts said the consensus price among

Asian steel industry companies they recently polled was $60 per

tonne, though several expect a decline to mid-$50 before a

longer-term climb above $60. Signs of cooling Chinese demand is

another factor at play, with BMI Research recently cutting its

forecasts to $50 from $55 a tonne in 2018.

Even (Taiwan OTC: 6436.TWO - news) at prices in the mid-$50s, Champion is comfortable that

it can repay debt and "keep our heads above water," O'Keeffe

said. But he expects demand to skyrocket for Champion's "clean"

concentrate, which will allow Chinese steelmakers to reduce

emissions and pursue high-grade steel production.

O'Keeffe, who recently announced C$40 million in bridge

financing to restart the mine and a supply deal with Japanese

trading company Sojitz Corp , acknowledges his opportune

acquisition.

"Cliffs were on the road to do this, they just ran out of

time and money," O'Keeffe said. "So it's easy for us to come

along and pick up and build all of this and implement a lot of

the changes that Cliffs were already going to do."

($1 = 1.3378 Australian dollars)

($1 = 1.3521 Canadian dollars)

(Reporting by Susan Taylor; Editing by Denny Thomas and Edward

Tobin)