Northland Decides on New Strategy and Informal Reorganization
LUXEMBOURG, LUXEMBOURG -- (Marketwired) -- 06/30/14 -- Northland
Resources S.A. (OSLO: NAUR)(FRANKFURT: NPK)(OMX: NAURo) - (together
with its subsidiaries "Northland", "NRSA" or the "Company") announces
a change in strategy and initiates an informal reorganization due to
low iron ore prices. Focus is to maximize operational flexibility.
Northland's long term strategy has since 2010 been to develop
Kaunisvaara to reach a yearly production of approximately 4 million
tonnes of iron ore concentrate, with two processing lines in use.
Over the last years, all Northland's major business decisions have
been made in the context of implementing this strategy. Such
decisions include staffing and organizational setup, capital
expenditures, key supplier contracts and financing.
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. However, 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.
New strategy and operational implications
Northland's new strategy is based on reaching maximal flexibility in
operations and cost structure to be able to cope with the high
volatility of world iron ore prices. Through a focus, at this point,
on production from the existing processing line significant cost
reductions can be made, while simultaneously preserving ore resources
and retaining long-term flexibility.
With the new strategy, Northland will complete construction of the
second processing line but not take this line into production at
current price levels. As remaining expenditure to complete the second
processing line is limited, this will enable the Company's to
maintain optionality to ramp up when market conditions improve. Until
then, the strategy gives Northland the opportunity to preserve
liquidity and at the same time avoid depleting Reserves & Resources
in periods of low prices.
With the new strategy fully implemented, the Company is targeting to
reach breakeven cash flow on an operating level at close to
prevailing iron ore price even when operating only one processing
As a consequence of the new strategy, significant changes to the
operations of Northland are required. The lower cost level is
expected to be achieved through organizational changes and
productivity improvements in combination with a review of certain
commercial supplier contracts. At this stage it is uncertain how
employees will be affected by this change. The Company has initiated
a dialogue with the relevant labor unions.
In addition, the Company will seek to improve terms and conditions
under its off-take agreements. As a part of such improvements,
Northland has signed a non-binding Memorandum of Understanding with
Mitsubishi Corporation RtM International for deliveries of a
significant part of the production.
The Company has also entered into a non-binding Term Sheet with a new
Strategic Partner. If materialized, a final agreement with the
Strategic Partner would allow Northland to source iron ore for the
second processing line starting in 2016 and continuing until
2018/2020 maintaining an annual production of 4.4 - 5.4 million
dmtpa. Upon expiry of the sourcing agreement the second processing
line can be supplied with ore from the Sahavaara deposit. An
agreement with the Strategic Partner is expected to result in a
higher operating cost compared to own mining, but would enable
postponing Capex of approximately USD 150 million required to start
production from the Sahavaara deposit. Ramping up production, whether
on Strategic Partner ore or based on development of Sahavaara, would
nonetheless require an improved market for iron ore or seeing the
effects of the new strategy to reduce the cost of production.
Suspension of payments and informal reorganization
To implement the new strategy while preserving liquidity, Northland
has today decided to temporarily suspend payments to its suppliers
and creditors. The company will initiate an informal reorganization
procedure in which creditors and suppliers will be presented with a
proposal for a settlement. The process and procedures regarding
temporary suspension of payments will be managed by attorney Lars
Soderqvist who also managed Northland's formal reorganization in
2013. The new strategy will also affect the capability to keep the
repayment time plan for the creditors set up as part of the
reorganization in 2013.
The current market environment with low iron ore prices does not
provide the basis to secure viable long term financing. Accordingly,
the Company's financing process has not been concluded on schedule
but will remain an area of focus as the new strategy is implemented.
Key stakeholders including major bond holders and key suppliers have
indicated their support for the new strategy.
"The dramatic weakening of the world iron ore prices has led
Northland to revisit its strategy, despite the positive operational
development we've seen during the past months with the existing
operations. With the new strategy that the Board has decided on,
Northland achieves a much higher flexibility which we see to serve
best the long term interests of all our stakeholders. In current
market conditions, we will be able to preserve liquidity and
strategic assets allowing Northland to maximize production when iron
ore prices are higher", said Olav Fjell, Chairman of the Board.
"The new strategy means that Northland needs to go through painful
but necessary changes. This will affect the organization and how we
run our daily operations. Our task ahead is to secure that Northland
has a viable future even in challenging market conditions", said
Johan Balck, CEO.
"Under current circumstances, I believe an informal reorganization of
the Company can be successful. Through an informal reorganization it
is possible to reach the best available solution for all creditors.
If the informal process should not progress as expected the Company
will always have the option to at a later stage enter into a formal
reorganization, in order to increase protection of the company's
assets for the long-term benefit of all its creditors", said attorney
Northland is a producer of iron ore concentrate, with a portfolio of
production, development and exploration mines and projects in
northern Sweden and Finland. The first construction phase of the
Kaunisvaara project is complete and production ramp-up started in
November 2012. The Company expects to produce high-grade,
high-quality magnetite iron concentrate in Kaunisvaara, Sweden, where
the Company expects to exploit two magnetite iron ore deposits,
Tapuli and Sahavaara. Northland has entered into off-take contracts
with three partners for the entire production from the Kaunisvaara
project over the next seven to ten years. The Company has also
finalized a Definitive Feasibility Study ("DFS") for its Hannukainen
Iron Oxide Copper Gold ("IOCG") project in Kolari, northern Finland.
This announcement may include "forward-looking" information within
the meaning of applicable securities laws. This forward-looking
information can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates",
"anticipates", "expects", "intends", "may", "will" or "should" or, in
each case, their negative, or other variations or comparable
terminology. This forward-looking information includes all matters
that are expectations concerning, among other things, Northland's
results of operations, financial condition, liquidity, prospects,
growth, strategies and the industry in which it operates. By their
nature, forward-looking information involves risks and uncertainties
because they relate to events and depend on circumstances that may or
may not occur in the future. Readers are cautioned that
forward-looking information is not a guarantee of future performance
and that Northland's actual results of operations, financial
condition and liquidity, and the development of the industry in which
it operates may differ materially from those made in or suggested by
the forward-looking information contained in this press release. In
addition, even if Northland's results of operations, financial
condition and liquidity, and the development of the industry in which
Northland operates are consistent with the forward-looking
information contained in this press release, those results or
developments may not be indicative of results or developments in
Northland Resources S.A.
+46 920 779 00
Vice President Investor Relations & Corporate Communication
+46 705 49 33 38
Vice President Financing and Business Control
+46 920 779 00
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