Preliminary Economic Assessment for Hot Briquetted Iron (2015)

On October 14, 2015, Rockex announced that it had received the results of an updated Preliminary Economic Assessment (the “PEA”) prepared by CIMA+ (“CIMA+”) for the production of 4.3 million tonnes per year of hot briquetted iron (“HBI”) from the Company’s 100% owned Lake St. Joseph Project (“Lake St. Joseph”) in Northwestern Ontario. The PEA was filed on SEDAR on October 26, 2015.

Highlights of the PEA include:

• $ 9.42 Billion Net Present Value (pre-tax) using a 6% discount rate

• $ 6.85 Billion Net Present Value (post-tax) using a 6% discount rate

• $ 6.58 Billion Net Present Value (pre-tax) using an 8% discount rate

• $ 4.67 Billion Net Present Value (post-tax) using an 8% discount rate

• 22.5% Internal Rate of Return (pre-tax)

• 19.5% Internal Rate of Return (post-tax)

• 3.7 year undiscounted payback (pre-tax)

• 4.1 year undiscounted payback (post-tax)

• Initial Investment of $3.772 billion (not including sustaining capital)

• Total cost of production estimated at $135.35/tonne of HBI

• Resource Estimate of an Indicated Mineral Resource of 1.287 billion tonnes at 28.39% Fe, plus an Inferred Mineral Resource of 108 million tonnes at 31.03% Fe.

• Life of Mine Production of 4.3 million tonnes of HBI per year for 30 years, with an expected metallization of 94% Fe.

• Low strip ratio of 0.51 to 1

The PEA is based on the production of 4.3 million tonnes of HBI per year at a grade of 94% total iron (“Fe”) at the Rockex Lake St. Joseph Project in northwestern Ontario. The average run of mine feed of 17.3 million tonnes per year used is based on mill recovery of 80% from the Eagle Island deposit operating year-round. The life of mine of 30 years is based on 512 million tonnes of in-pit resources at a grade of 28.9% Fe which uses less than half of Eagle Island’s estimated Indicated Resources of 1.287 billion tonnes at a grade of 28.39% Fe, allowing the opportunity for continuing production for many years following the 30-year life of mine used for the PEA. The PEA contemplates a process whereby iron ore concentrate will be transferred by pipeline to a pelletizing plant and HBI plant to be built near Sioux Lookout, Ontario. 

The plant is expected to produce 4.3 million tonnes per year of HBI.  Initial capital expenditures are estimated to be $3.772 billion. The PEA uses an average operating cost of $135.35 per tonne of HBI, and assumes an HBI sales price of US$ 350 per tonne FOB Sioux Lookout.  Calculated Net Present Value for the Lake St. Joseph Project is $9.42 billion (pre-tax) using a 6% discount rate and $6.58 billion (pre-tax) using an 8% discount rate.  The PEA is based on the 2013 independent mineral resource estimate completed by Met-Chem Canada Inc. (“Met-Chem”) which defined 1.287 billion tonnes of Indicated Resources at a grade of 28.39% Fe and 108 million tonnes of Inferred Resources at a grade of 31.03% Fe. The resource is summarized in Table 1 below.

  Table 1:  Summary of Mineral Resource Estimate (2013)

Mineral Resource Category	Metric Tonnes (Millions)	Fe (%)
Indicated	1,287	28.39
Inferred	108	31.03

The PEA is based on the production of 4.3 million tonnes of HBI per year at a grade of 94% total iron (“Fe”) at the Rockex Lake St. Joseph Project in northwestern Ontario. The average run of mine feed of 17.3 million tonnes per year used is based on mill recovery of 80% from the Eagle Island deposit operating year-round. The life of mine of 30 years is based on 512 million tonnes of in-pit resources at a grade of 28.9% Fe which uses less than half of Eagle Island’s estimated Indicated Resources of 1.287 billion tonnes at a grade of 28.39% Fe, allowing the opportunity for continuing production for many years following the 30-year life of mine used for the PEA.

The PEA contemplates a process whereby iron ore concentrate will be transferred by pipeline to a pelletizing plant and HBI plant to be built near Sioux Lookout, Ontario.  The plant is expected to produce 4.3 million tonnes per year of HBI.  Initial capital expenditures are estimated to be $3.772 billion. The PEA uses an average operating cost of $135.35 per tonne of HBI, and assumes an HBI sales price of US$ 350 per tonne FOB Sioux Lookout.  Calculated Net Present Value for the Lake St. Joseph Project is $9.42 billion (pre-tax) using a 6% discount rate and $6.58 billion (pre-tax) using an 8% discount rate.  The PEA is based on the 2013 independent mineral resource estimate completed by Met-Chem Canada Inc. (“Met-Chem”) which defined 1.287 billion tonnes of Indicated Resources at a grade of 28.39% Fe and 108 million tonnes of Inferred Resources at a grade of 31.03% Fe.

The updated PEA (2015) is based on the same basic mining method and processing flow sheet utilized in the original 2013 PEA; however, the updated PEA evaluates the economic impact of further processing the mine’s production to HBI as an end product in place of pellet feed concentrate.  As illustrated in the table below, the updated PEA (2015) further improves the project economics relative to the previous study.

Category	PEA 2013 (Fines)	PEA 2015 (HBI)
Production Rate
Pellet Feed Concentrate (Mtpa)	6.0	6.0
Pellet (Mtpa)	-	6.1
HBI (Mtpa)	-	4.3
Projected Mine Life (yrs)	30	30
Commodity Price Assumption
Pellet feed, FOB Sioux-Lookout ($US/t)	105	-
HBI, FOB Sioux-Lookout ($US/t)	-	350
LOM Revenue (M$)	19,812	52,683
Initial Capital (M$)	1,559	3,772
Working Capital (M$)	48.1	129.6
Sustaining Capital (M$)	543	538
Closure Cost (M$)	65.7	65.7
Average Operating Costs	$/t of pellet feed	$/t of pellet feed	$/t of HBI
Mining cost	12.76	12.76	17.88
Concentrator & tailings cost	18.05	18.05	25.29
Concentrate dewatering cost	1.83	-	-
Railroad	0.20	0.20	0.28
General & administration cost	3.79	4.52	6.33
Pelletizing cost	-	-	19.13
Briquetting cost	-	-	66.44
Total Operating Cost ($/tonne)	$36.63	-	$135.35
Manpower Requirements
Mine	180	180
Concentrating & Tailings	114	114
Concentrate dewatering	36	-
General & administration	49	89
Rail	6	6
Pelletizing	-	127
Briquetting	-	200
Total Manpower	385	716
Pre-Tax Economic Indicators
NPV @ 8%	2,217	6,577.5
IRR (%)	20.7	22.5
Payback (yrs)	4.2	3.7
Post-Tax Economic Indicators
NPV @ 8%	1,553.7	4,672.6
IRR (%)	18.1	19.5
Payback (yrs)	4.4	4.1

The updated PEA (2015) is based on the transformation of iron ore concentrate into HBI as an end product to supply the North American electric arc furnace industry and grey foundry industry.  HBI is considered to be a cleaner, higher quality, finished iron product for the steel industry.  HBI is an ideal, high quality alternative to scrap steel, which is a vital component in the steel manufacturing process. The HBI process requires access to an abundant and low cost source of natural gas. Rockex’ proximity to the TransCanada Natural Gas Pipeline and year-round transportation infrastructure positions the company well for the manufacturing of HBI to supply the North American market in the United States immediately south of the Great Lakes and in Canada.

The PEA operating costs were estimated based on economic assumptions and estimates of consumable prices from suppliers. The Table below outlines the estimated operating costs for a typical operating year as:

Operating Costs	$/tonne HBI
Mining	17.88
Concentrating and tailings	25.29
General and administration	6.33
Rails	0.28
Pelletizing	19.13
Briquetting	66.44
Total	$135.35

The release of this economic report is a major milestone for Rockex and marks the culmination of many years of work by the Rockex team.  This PEA presents Lake St. Joseph’s strong economic potential and confirms management’s belief in the quality of the deposit and overall project. Furthermore, this PEA is a critical valuation and marketing document that will give Rockex excellent positioning for hosting the first HBI plant in Canada, which should attract negotiations with a strategic partner.