Finally I could see light at the end of tunnel as iron-ore stockpiles at Chinese mills have fallen by 30% in the past two months and the National Development and Reform Commission in China announced approvals for projects that analysts estimate total more than US$157-billion. On Friday, benchmark iron ore delivered to China rose 2.3% to $89 a metric ton after Beijing (not the local governments) announced it had approved subway and road-construction infrastructure projects. About 30% of Chinese mines have shut down this year and further remaining mines will shut down if the iron ore prices stay under $130 where production costs in China are about $140 a ton. China will soon need to start rebuilding inventories within months (one month? two-three months? Further 30% stockpiles will be reduced in the next two months). Some said the current situation will likely push prices to between $100 a ton and $120 a ton while others are expecting prices to run toward $140 a ton. Iron ore prices hit the bottom as the Chinese have almost completely withdrawn from the iron ore spot market. In a similar situation as experienced in year 2008 with the help of the massive stimulus package unleashed in response to the global financial crisis in 2008, the iron ore prices rebounded by an average of 36% from the lows before the year was out after China re-entered the market.

Chinese are main importers taking roughly 60% of world-wide exports. About 20-30% of iron ores are produced internally with the concentrate Iron ore grade is 18-20%. These mines will not sustain by continuously making losses and making more expensive to extract. This dire situation will force Chinese to secure iron ore resources abroad. India is putting a major export tax and Russia is depleting its resources for the last 10 years. Potentially Australia and Brazil (such as BHP and FMG, etc.) will increase their profits. Most importantly it will give an exciting opportunity to Canadian companies like Champion Minerals Inc. Iron ore analyst, Salman Partners from BNN interview alluded Champion Minerals Inc. will likely have an off-take deal by the end of year 2012. Prior to commencing its mining construction scheduled in Q4 2013, at least 6 months’ lead time is required to have the project be on schedule.

More than half of FNC market cap is based upon 15 million shares of CHM, the rest comes from 9 million shares of RGX, and their respective NSR’s. Besides, FNC has cash. The values at other properties at McFauld’s and MagPie’s are not counted till PS receives all appropriates aboriginal consents and metallurgical tests address to effectively and practically yield iron ore concentrates with low aluminum, manganese and phosphates. In the case of MagPie deposits, I believe aluminum is the point at issue and it’s been over a year to hear any progress updates from PS. Hopefully Sichuan Non-Ferrous Technology Group in China will effectively address this issue in the coming months.

Champion’s projects are very robust in terms of cost figures.

Current resource estimates at four of their twelve properties are 5 billion tons of iron (40 year mine life). In July 2012, Champion Minerals Inc. has signed a long-term agreement with the Sept-Iles Port Authority related to its planned 50-million-tonne-per-year multiuser port facilities. The port agreement has an initial term of 20 years, renewable for up to four additional five-year terms. On the cost side, the operating costs including transportation costs will be below $40. If it adopts conventional common carrier which goes up to IOC rail line building 60-90 Km with CAPEX $200 million will cost $16 per ton (approx half of the total operating costs). Fractionalized private multi-user line with CN will drop down $10 per ton resulting below $40 per ton. This is less than one-third of Chinese mining operation costs. Even in the worst case scenario, the company will be quite profitable. 1.5% NSR secured by FNC excludes the costs of building the mine and infrastructure, the cost of repaying the loans needed for construction, and so on. If the iron ore price is about $120 per ton producing 10 million iron per year, FNC will take $12 million a year.

I recently added CHM in my portfolio in addition to FNC. I’m looking forward positive move on both FNC and CHM in the coming months.

Good Luck!!