NML: Letter to Management

LETTER TO MANAGEMENT

Dear management of New Millennium Iron,

I am a longterm shareholder of New Millennium Iron Corp. (NML) and I believed in the story of NML. Huge resources / reserves, high-quality products, estimated low-cost production, possible year-round production despite a boreal subarctic climate through a dome, save and mining friendly jurisdiction, experienced management team and a strategic investor of downstream industry. Sounds attractive and confident, right?

My experience in the mining sector revealed to me that in particular under difficult and challenging market conditions it is totally negligible if a listed commodity company has a world-class asset or not. It’s all about the quality and ability of the management with respect to shareholders value! And a management can proclaim and pride themselves about all past things they have achieved and how many years of experience they have in the industry, but regarding shareholder value, what in the end creates more value: the ‚how things are done‘ or the ‚what things are done‘? We all are aware of the difference between ‚to do the right things‘ and ‚to do the things right‘.

If we take a look to NML’s corporate governance we find the following:

The Board is ultimately responsible for overseeing the management of the business and required to act in the best interests of NML and its shareholders.“

In NML’s mission statement we find the following:

NML’s mission is to add shareholder value through the responsible and expeditious development of the Millennium Iron Range and other mineral projects to create a new large source of raw materials for the world’s iron and steel industries. In this process, NML aims to become a significant iron ore producer in North America by developing an additional Taconite Project before the end of this decade. […]NML’s motto is ‚do it right the first time‘.

So, regarding all significant business decisions that management is constantly faced with we come now to the most important point for NML’s shareholders:

What shareholder value has the management created so far and what shareholder value can probably be created in the future from today’s perspective?

Simultaneously it should indeed be noted what bad decisions had (or will have) a negative impact on the (future) shareholder value.

If I take a deeper and analytical view from the past to the present of NML I come to the following, critical points that confront the current corporate crisis of NML (and I resolutely don’t refer to any macroeconomic issues, neither regarding the commodities sector nor the stock market):

1. Conducting a „Normal Course Issuer Bid“ (NCIB)

Given that NML was/is unable to fulfill cash calls from TSMC (see news release 15-04, April 10, 2015), how could NML announce a share buyback program (see news release 13-01, January 21, 2013) at the time when (NML started initial mining of saleable iron ore from the DSO project in September 2012) NML was at the very beginning of the ramping up phase in order to become a producing company in the medium term? It’s customary in this specific phase that higher costs (will) occur conditioned by the facts that

  • due to unforeseen circumstances (weather conditions, soil conditions, delayed delivery of materials, delayed installation / construction …) processes / procedures that are to be implemented defer / differ than made in the theoretical planning approach,
  • due to initially inexperienced workers/foremen the implemented processes / procedures run more lengthy and cumbersome and have to face with several adjustments / optimizations / (non-)scheduled standstills at the beginning (keyword: learning curve effects), moreover the implemented processes / procedures run inefficient / unproductive at the beginning (keyword: economies of scale).

Therefore, a mining company in this development phase should have / is reliant on a sufficient financial buffer in order to compensate these higher, partly unforeseen additional costs that occur beside the normally high material and labor costs, not mentioned the loss of prospective sales / profits accumulated through delays. Only a company which has such an enormous amount of money so that the company doesn’t even know where to invest it for its operational business, this company could put that money into a share buyback program if they like.

In the MD&A for the year ended December 31, 2013, NML announced that through the „normal course issuer bid“ (NCIB) the company repurchased and cancelled 220,000 common shares for C$ 169,780. The program expired on January 22, 2014, and was (thankfully) not renewed. I assume that NML only announced the direct purchase costs for the conducted transactions. It would be very important to know if NML engaged a bank / external company to act as a broker and to administer the NCIB and what the total costs for that were?

Even though the repurchased and canceled shares reduce the number of shares outstanding, therefore the earnings per share increase and finally result in an increased market value per share for each shareholder, I am firmly of the opinion that it would have been much better for the company / for the shareholders if such a NCIB would not have been conducted precisely because NML at that time would have require several years even in order to prove that NML/TSMC would be a profitable / low-cost producer. Simultaneously NML would need every dollar they (would) have on their bank account under the above mentioned conditions during the ramping up phase instead of wasting money on the NCIB.

Although the wasted amount for the NCIB was not great, it was the first time when first doubts about the managements ability occurred to lead such a commodity company correct.

2. DSO Project capital costs (estimations)

NML announced the positive feasibility study (FS) results with the news release 10-02 on February 25, 2010:

  • Production of 4 million tonnes per year of Sinter Fines and Super Fines
  • Total initial capital costs of US$ 300 million
  • plus working capital of about US$ 13.5 million
  • plus sustaining capital, capital leasing, mine rehabilitation and Goodwood development of about US$ 115 million
  • = Total estimated capital costs of around US$ 428.5 million ~ C$ 475 million
  • Internal rate of return (“IRR”) of 29% (unleveraged and before corporate taxes and mining taxes) and a payback period of 3 years after the start of commercial production

The amended FS from February 2011 showed for the production of 4 million dry tonnes per year of iron ore (approximately 80% Sinter Fines and 20% Super Fines) the following financial data:

  • Total capital costs of C$ 335 million for the Timmins mining site
  • plus additional costs for second year production start-up in DSO Area 4 at Goodwood of C$ 23.6 million
  • plus C$ 100.9 million for leasing mining equipment and rolling stock, annual cost of mine rehabilitation
  • plus C$ 15 million working capital
  • = Total estimated capital costs of around C$ 474.5 million

In October 2012 (see news release 12-24) NML / TSMC revised the capex assumption upward to C$ 560 million for production of 4.2 million tonnes per year due to

  • changes in the project’s scope
  • unexpected soil conditions
  • steel fabricated dome structure
  • increased EPCM cost
  • increased cost of construction

In April 2015 (see news release 15-04) NML announced that NML decided not to fund an equity cash call of C$ 23 million from TSMC. In addition NML announced in June 2015 (see news release 15-06) another cash call of C$ 60.9 million from Tata Steel, totaling in the amount of C$ 83.9 million.

By taking a view into the Heads of Agreement made on September 24, 2008, (document is uploaded on SEDAR) between Tata Steel Global Minerals Holdings Pte Ltd. and New Millennium Capital Corp. under point 5 (d) (iv) it is written:

NML shall earn a 20% equity interest in the JVC as free carry until the substantial completion of the mining plan of the DSO Project, provided such development related capital expenditures for the DSO Project and related infrastructure do not in the aggregate exceed $300 million (and for greater certainty, to the extend that such expenditures in the aggregate exceed $300 million then NML shall not be entitled to a free carry but shall receive a 20% participation interest on making their 20% contribution of the excess amount.“

Under point 5 (d) (vii) it is written:

„The capital expenditures for the DSO Project up to $300 million shall be funded 100% by Tata Steel through debt and equity financing, at the option of Tata Steel. Any capital expenditure exceeding $300 million for the DSO Project, shall be funded proportionately by NML and Tata Steel according to the parties respective equity interest in the JVC through debt (on a non recourse basis to NML) and equity financings, as may be determined by the board of the JVC from time to time.“

As these two points make not clear who is responsible for funding the contribution of the excess amount, we come to two scenarios due to insufficient / intransparent information:

  • Scenario A

    Does Tata Steel arrange the financing of C$ 300 million within the joint venture company, but will only finance the excess amount according to their equity interest? In this case NML would be responsible to fund their 20% contribution to the excess amount (in equity and on debt).

    If we do our math here:

    This would mean that the first cash call of C$ 23 million from TSMC is the equity cash call und the second one of C$ 60.9 million is the debt cash call. 23 of 83.9 means 27.4% and 60.9 of 83.9 means 72.6% which is close to the financing plan to arrange the financing on a basis of 30% on equity and 70% on debt. This would result in a total capex for the DSO and Howse Projects of C$ 719.5 million, C$ 419.5 million above the C$ 300 million. But in the latest MD&A (period ended September 30, 2015) NML announced that

    • „TSMC’s investment in its DSO and Howse Project properties is now approximately $ 1 billion“,
    • „current cash requirement of just over $1.0 billion for the DSO Project, to fund certain capital and operating expenses for the DSO Properties and the Howse Deposit“ and
    • „total cash calls of $524.5 million to the shareholders have or will be satisfied solely by Tata Steel“.

    In this scenario our total capex of C$ 719.5 million does not match with „over C$ 1 billion“ and C$ 524.5 million does not match with our total equity part of C$ 215.8 million (30% of C$ 719.5 million). As NML announced no further cash call from TSMC, I expect that the total capex didn’t rise from C$ 719.5 to over C$ 1 billion from June to September 2015.

  • Scenario B

    Or does Tata Steel arrange the financing of C$ 300 million within the joint venture company and Tata Steel will also be responsible to fund the complete debt contribution of the excess amount (debt financing for both them and NML)? In this case NML would only be responsible to pay Tata Steels equity cash calls.

    If we do now our math here:

    If both announced cash calls are equity cash call of a total of C$ 83.9 million, then NMLs total contribution to the DSO and Howse Projects is around C$ 297.6 million (C$ 195.7 million on debt arranged in the JVC by Tata Steel). In this case the total capex of the DSO and Howse Projects are around C$ 1,698.3 million, C$ 1,398.3 million above the C$ 300 million. This is far beyond C$ 1 billion, but the total equity cash calls are around C$ 509.5 million which is very close to NMLs mentioned C$ 524.5 million.

    The last official number we are able to refer to is the C$ 560 million capex mentioned by NML in October 2012. But if I get it right, NML mentioned there only a number for a production scenario of 4.2 million tonnes annually just for the DSO Project (excluding the additional costs for the 6 million tonnes production scenario and excluding the additional costs for the Howse deposit). But a total capex of around C$ 1.7 billion is nearly 3.5 times higher than the capex of the feasibility study of February 2010 and the DSO and the Howse Project is yet not finished. Like Mr. Chanda said in April 2013 the cash calls NML would have to pay are only:

    (total capex amount – 300 million) x 0.3 x 0.2

You may realize that with our two scenarios we come to two totally different results. NML should provide here absolute clarification as these numbers have a very big (negative) impact on shareholders value and there should be no misunderstandings / misinterpretations among the shareholders. NML should announce their financials transparent / comprehensible.

One other major thing is that since October 2012 and now there is no officially announced updated capex cost estimation. We could recalculate the capex through the cash call amounts but as you see the problem above intransparent information can easily lead to misinterpretations with a huge spread. I have already contacted the management regarding this issue without a satisfactory answer. As I won’t believe that NML is hiding information that is available to the management of NML but not to their shareholders, I assume that regarding to the fact that NML as a junior partner through their minority stake in the DSO Project is such dependent to Tata Steel that NML is just lucky with the information that Tata Steel is willing to provide them when they want / like. In such a case we have to realize that the management of NML is provided with insufficient, not updated information. So the management of NML would have no clue how huge the real, current capex costs would be, would work in with black box model and might be just as surprised as every other shareholder at the time when NML had to announce the magnitude of each of the two cash calls including their consequences.

As a shareholder of a listed stock corporation and regarding the fact that the amount of the capex cost estimation is such extremely important for shareholders to know because the consequences of that determine wether a further future investment is still attractive or not the capex cost estimation has such a high impact on the companies future that it would have been absolutely necessary that NML / TSMC would have announced an updated capex cost estimation at least each year! I can’t believe that the accounting department for the DSO / Howse Project is so bad and/or lags behind that an updated cost model would not be possible! There might have been some possibilities when the capex cost model would have been provided on a yearly basis that necessary arrangements with sufficient lead time would have been made different in order to preserve and strengthen the companies financial position to would be able to meet the cash calls from TSMC and not being diluted in our equity interest in the joint venture company. Taking into account the fact that (greater) cost overruns are quite (unfortunately) normally in the mining sector and that the financials of an ongoing iron ore producer should have been very carefully calculated in order to compensate a cost overrun and not go bankrupt.

And if an updated capex cost estimation is announced to the public as a shareholder of NML I want to have more transparency as this matter affects me greatly and I would like to have an announcement in which the former feasibility capital costs are contrasted to the current (higher) capital costs and specified in a breakdown with detailed explanations as to what has led to the increase of each capital cost position. I really don’t understand why this won’t be possible. The news release from October 2012 in which NML announced the capex costs of C$ 560 million is totally inadequate! Other important information are the interest rate for the debt funding or the maturity of the debt funding, which were / are not provided to the shareholders. I believe that these information are very relevant for shareholders of NML and I rigorously refuse to accept that this information should be (senselessly) confidential!

Lastly, the DSO Project was designed for a production of 4 million tonnes annually. Who forced the management of NML to accept and participate to the production expansion (announced by NML in October 2012)? The management of NML could have said „No!“ and NML through its existing joint venture agreement would only be responsible for costs that occur on the basis production model of a 4 million tonne per year prodution wether Tata Steel solely would have decided to continue with the 6 million tonne production expansion or not. Was the management of NML succumbed to megalomania? With the now created fait accompli, we will be diluted to an equity interest of 6% in the joint venture company, any future dividend earnings will be divided by 3.33. I personally believe (pure but foreseeable speculation!) that this dilution will sadly continue in the future. Why did the management of NML not try to convert the equity interest into a 3% gross revenue royalty on all sales from the 20 DSO deposits from the original 2011 deal, plus a 1% gross revenue royalty on sales from any NML anomalies or the Howse deposit? How did that go again with: Acting in the best interest for shareholders…

3. DSO project operating costs (estimations)

According to the amended feasibility study from February 2011 the estimated total operating costs for the mine, rail transportation and terminal operation and administration, averaged over the life of the DSO Project, is C$ 32.48 per tonne of dry product (Sinter Fines & Super Fines). By reading and evaluating this, somebody could say that this would be an outstanding, positive cash flow generating operation, even if the iron ore price falls temporarily down to C$ 50 or C$ 60 dollar per natural metric ton FOB Sept-Îles. Mining companies do not exclusively conduct feasibility studies to create a scientifically reliable, economically viable, high quality information basis in order to arrange to project financings. Secondary, shareholders and interested people will be informed about every key data, so that they can evaluate if their (possible) investment is (would be) attractive / profitable or not.

On the one hand there might have been some general cost inflation since February 2011, but on the other hand the oil price plunged since summer 2014 from over US$ 100 to below US$ 50 per barrel. Accordingly, the fuel costs for the complete vehicle fleet (and maybe some machines), especially the large dump trucks and stripping shovels consume an exorbitant amount of fuel, should be much more favourable.

But as NML outsourced the DSO Project into a joint venture company (Tata Steel Minerals Canada Ltd.) with a minority equity interest, this joint venture company is a totally separate entity, majority-controlled by Tata Steel. Cash comes to NML through dividends from TSMC when TSMC is in a position to issue dividends to its shareholders after accounting for all of its expenses, including interest on debt.

As we could await first operational mining data until TSMC reaches full production (completes the deferred ramping up phase to 6mtpy), the far more interesting question is: What quality of operating mining data will be presented to us? Will NML only announce (hopefully quarterly) a single number, each for sales revenues, profit / loss and operating costs? If we assume it would be that way, how should shareholders or interested people evaluate and compare these numbers? Or will we receive detailed operational data with e.g. an all-in sustaining cost breakdown that is already standard communication within the mining industry? As a shareholder of a commodity company that reaches moreover for the first time the production status I would demand the latter from a professional management which has the task to inform their shareholders extensively and comprehensibly!

Since shareholders experienced a lot of intransparent and insufficient information within the last years of NMLs development, the management of NML should unambiguously announce what quality of information in this regard shareholders will receive once the DSO Project reaches full production! Or has the management of NML no clue what information / data Tata Steel is willing to provide them?

Hopefully we won’t be faced with the same cost increase that we already experienced with the capital cost estimations for the DSO Project?! This would lead the feasibility study results (with all costs / time concerning to conduct a feasibility study) completely ad absurdum, especially if we would have no detailed cost breakdown to compare and evaluate specific cost types!

4. Howse acquisition / transactions

On July 8, 2010, (see news release 10-12) at a time when the mining sector was in a much better shape NML paid C$ 7,500 and issued 350,000 shares (a total cost of C$ 497,500) to purchase 5.12 million tonnes of NI43-101 compliant DSO resources located in the Goodwood deposit (DSO area 4). The purchase gave NML 100% control of the (58-59% Fe) Goodwood DSO deposit. In other words, the purchase price was essentially C$ 0.097 per tonne of NI43-101 compliant resources in the ground.

On March 12, 2013, (see news release 13-07) at a time when the mining sector was in a weak shape and the crisis mode started to begin NML & TSMC paid C$ 30 million for a 51% stake in Labrador Iron Mines Howse deposit which has historical reserves of 28.228 million tonnes of 58% Fe. The effective purchase price of this transaction was proud C$ 2.08 per every tonne of historical 58% DSO in the ground. On a relative basis, the Howse purchase was approximately 21.5 times more than the Goodwood purchase in 2010 despite the fact that Howse has about 20-25 meters of overburden according to a report on the Newfoundland & Labrador Geoscience Website (pages 391-399, report „Lab1496“), and the fact that Howse still likely requires millions of dollars of drilling in order to move the deposit from historical reserves to NI43-101 compliance.

While I understand why NML finds this deposit attractive due to its close proximity to the Timmins processing plant, I don’t understand why another firm without a foothold in the Schefferville area would find this deposit attractive as well. For instance, if NML & TSMC didn’t step in to purchase Howse, what would a third party pay in order to purchase the deposit?  If a third party came in they’d have to take on the risk of drilling the deposit, they’d have to take the risk of proving the historical reserves are in fact NI43-101 compliant, and they’d likely have to spend close to C$ 100 million dollars in order to build out the infrastructure in order to mine the deposit. Additionally, Labrador Iron Mines at that time was in a very weak negotiating position this deal was negotiated due to their well publicized capital constraints. Many people, especially industry experts, were aware of the general problems Labrador Iron Mines had / has:

  • very high operating costs that resulted in an operating loss several times,
  • small NI43-101 compliant resource basis with additional historical resources that need to be drilled,
  • highly fragmented resource deposits that made it impossible to mine a longer time at one place. Labrador Iron Mines bypassed this situation by hauling ore from the closest deposits to the plant but that resulted again in higher operating costs.

Solely these three circumstances ultimately led to the announcement of Labrador Iron Mines that they initiated a Court-supervised restructuring process under the Companies‘ Creditors Arrangement Act („CCAA“) in order to facilitate a restructuring and refinancing of its business. Labrador Iron Mines did not resume mining operations in the 2014 or 2015 operating seasons, due to the deteriorating iron ore market conditions and particularly in the context of LIM’s previous high operating costs (see LIMs news release).

At September 30, 2015, LIM had a working capital deficit of C$ 65.1 million, compared to a working capital

  • deficit of C$ 62.2 million at December 31, 2014,
  • deficit of C$ 27.1 million at December 31, 2013, after the operating season 2013,
  • of C$ 0,6 million at December 31, 2012, after the operating season 2012,
  • of C$ 25.6 million at December 31, 2011.

Within the fiscal year of LIM from April to March each year, here the following financial data:

  • for the year ended March 31, 2014, including the operating season 2013:
    • Operating loss of C$ 90.9 million and a net loss of C$ 105.2 million
  • for the year ended March 31, 2013, including the operating season 2012:
    • Operating loss of C$ 58.5 million and a net loss of C$ 129.6 million

The market cap of LIM was

  • around C$ 3.1 million at December 31, 2014,
  • around C$ 33.4 million at December 31, 2013,
  • around C$ 89.9 million at December 31, 2012.

In this context a purchase price of C$ 30 Million for a 51% interest for the Howse deposit is extraordinary high, even if we consider that the agreement with LIM involved a cooperation in transport and port infrastructure development where both companies would enjoy the benefit of cost synergies from the rationalization of various aspects of their respective iron ore operations.

Mr. Chanda said in March 2013 after an e-mail inquiry to that matter:

„It was win/win decision. By delaying the development of Goodwood, we expect to defer bulk of the cost related to the building of 38 KM road. Because of the closeness, savings in the order of 3-4 per tonne of the operating cost will be realized. This deposit was drilled by the original owner IOC. Based on our experience, the historical resources estimated by IOC will be pretty accurate and close to 43-101 estimate. $25 million is required for the pre-development of the mine. By funding LIM’s share of $12.5, we acquire additional 6 mt of resources. This is in line with the original 51% acquisition. By developing Howse, we will have a higher cashflow during the early years.“   

Mr. Chanda tries explain why this deal was arranged, but even then the size of the payments seemed to me very high and it still seems to me that way today. In analogy it seems to be the same thing what the Federal Reserve System of the United States of America has done: paying a huge amount of money to keep an ailing system running to prevent it from the imminent collapse.

The whole Howse acquisition was regarding the amount of the payments a totally excessive and wrong management decision. Otherwise, I really cannot explain to myself why this could happen that way. But considering the fact that NML has unsufficient capital to meet the cash calls, who forced the management of NML to accept and participate at the Howse acquisition? The management of NML could have said „No!“ and we would have preserve and strengthen our cash position with the money we wouldn’t have invested in the Howse project. C$ 35 million multiplied by 0.2 in line with the Joint Venture equity interest would mean C$ 7 million. Not mentioned the millions of dollars that will be invested in the future we could save.

The sad Conclusion | The inconvenient Truth

Based on the circumstances described above we can only concluded that the management of New Millennium Iron made several serious corporate mistakes that resulted in anything else than in creating shareholder value or to secure future shareholder value what would/should have been their highest priority. The management of NML should have concentrated solely on the development of the DSO Project in order to assure that shareholders of NML will receive cash flow out of iron ore production from quarterly dividend payments through its 20% equity interest in the joint venture company. By simultaneously wasting money on developing the Taconite Project that

  • is multiple times greater than the DSO Project,
  • whose project financing would require multiple times the capex of the DSO Project,
  • whose financing is much more uncertain (nearly impossible with a view to NMLs financing ability) to realize, even with an alternative lower production and reduced capex,
  • whose resources still had a very gigantic amount in the proven and probable reserve category but still has been drilled / developed

Solely through three major financings in the past NML came to an agglomerated cash amount of around C$ 130 million (see news releases 08-18, 10-08, 11-07). If only NML would have used this raised capital mainly / exclusively to finance (fulfill cash calls from TSMC) the DSO Project besides general corporate costs. It would have been necessary that the management of NML would have the highest priority (acting in the best interest for the shareholders to generate (future) value to them) to preserve that capital till the point of time it would have been needed. Against this backgroud why was an additional dock investment by NML in 2012 necessary at all?

  • C$ 12.8 million investment for 5 million tonnes annual shipping capacity for the DSO Project (see news release 12-21). NML has been reimbursed of 80% of this costs in line with the pro rata equity interest in the joint venture company TSMC.
  • C$ 38.4 million investment for 15 million tonnes annual shipping capacity for the Taconite Project (see news release 12-17).

    „NML will invest $38.4 million for its interest, payable in two instalments over a one year period, the first of which was paid at time of signing. NML’s investment is from available funds.“

    Dean Journeaux, President and Chief Executive Officer of NML, said: “This investment is a major step in assuring access to world markets in Europe, Asia and elsewhere through a world class shiploading system capable of handling the latest generation of large-size vessels. We are pleased to be part of this exciting new development for the Port of Sept-Îles providing for the development of our large taconite resources.”

The really simple question here is: What shareholder value has NML generated through its C$ 38.4 million dock investment for the Taconite Project with a direct view to the current situation where NML is financially unable to fulfill cash calls from TSMC for the DSO project? NML would have been able to secure their 20% equity interest in the joint venture company TSMC in order to receive pro rata dividend payments in the near future if NML would not have made this additional investment into the deep water dock. If an additional financing partner would have been necessary in order that the dock as a whole would have been erected, then Tata Steel on its own could have finance this, not NML! If any joint venture company agreement regarding the Taconite Project would be announced NML then could reimburse Tata Steel for this investment amount in line with a pro rata equity interest.

NML pursued a disastrous vision to develop both the DSO and the Taconite Project simultaneously that they better should have postponed in the future after the DSO Project would have been ramped up to full and profitable production with fulfilled cash calls by NML. In this case the further development of the Taconite Project(s) could have incrementally been financed and development with the cash flow received from TSMC. And if the iron ore market price would have collabsed NML could have suspend the further development of the Taconite deposits. Here we now have just to asked ourselves: What value has the DSO Project as further dilution in equity interest will / might happen and what value has the Taconite Project which would require multiple times the financing amount of the DSO Project that will likely also be faced with huge construction delays, insufficient / intransparent provided information and nearly the same cost overruns like we experienced at the DSO Project??? Just as NML would have needed any dollar availabe to finance the DSO Project we should be aware about the fact that it has been commonly (especially for industry experts) known since several years that the industry leaders in the iron ore sector – Vale and Rio Tinto (see links 1 for 2011| 2 for 2012 | 3) – planned to expand their production dramacitally. A stable or just slightly rising demand assumed this great production expansions will cause a serious and potentially persistent excess of supply over demand. This was clearly predictable in order to calculate the financial buffer more carefully due to much lower sales revenues to expect. On the other side this situation is exacerbated by a slump in demand from emerging economies such as China and India that was not clearly predictable with regard to time and intensity.

I don’t know if everyone is aware that the management of NML already confessed themselves officially that they ran the DSO Project against the wall by announcing in April 2015 (see news release 15-04):

„NML management is of the opinion that continued investment in its taconite properties would be in the best interests of the Company and its shareholders.  In this regard, the Company’s current primary focus is on the environmental, social and regulatory steps needed to advance development of the LabMag and KéMag deposits, collectively known as the Taconite Project, under the current agreement with Tata Steel. A secondary focus is to explore the alternatives for development of its other taconite properties which are owned 100% by NML.“

This statement is a slap into the face of every shareholder of NML and simultaneously a proof / revelation of the incompetence of the management of NML to lead such a commodity company like NML in favour of the shareholders!

The announcement in September 2015 in the „open letter to shareholders“ (see news release 15-11):

„At our recent Annual General Meeting, New Millennium’s (“NML”) Board of Directors and senior management made a commitment to keeping you informed of our efforts aimed at protecting your interests as well as enhancing the Company’s value.“

„Even with a backdrop of lower commodity prices and challenging market conditions, New Millennium is very well positioned.“

„And we have a healthy balance sheet.“ –> then let the champagne corks pop! (attention: sarcasm!)

„Your Board will Protect the Interests of All Shareholders and Enhance Value“ –> who should believe this anymore as the past (as described above) proves exactly the opposite?!

is a total farce and the management of NML makes themselves ridiculous and completely implausible!

The latest revelation does the management of NML in announcing a response to the Dissident Shareholders Claim (see news release 15-20):

  • not even one single time you will find the word „DSO“ in that announcement, congratulations that the managment of NML apparently already depreciated this Project fully. Moreover, the management of NML seems to be incapable in practising themselves in self-criticism regarding the confession of wrong management decisions which at least would be a beginning to regain shareholders confidence!
  • in line with the first point there are no explanations regarding construction delays or cost overruns at the DSO Project
  • “The past two years have been among the most challenging ever for the iron ore industry. Iron ore prices have plunged, due primarily to weaker demand in China at a time when significant new supply from previously committed projects in Australia and Brazil continues to flood the market. Combined, these factors have resulted in weak financing conditions and sharp declines in share prices for all mining companies.“

    Of course we cannot deny the quoted content with its consequences, but are macroeconomic factors to blame for the facts that NML is unable to fulfill TSMCs cash calls by simultaneously wasting money on developing other projects (Taconite Project) and on not viable megalomania (6mtpy production expansion | very expensive Howse acquisition)?

  • “Against this background of unfavorable conditions and negative market sentiment, NML has transitioned from mainly an exploration company to one in the development stage, through investment in a direct shipping ore project, comprehensive feasibility studies on two taconite deposits and the successful definition of further large NI 43-101 taconite resources. This record is unique in the Labrador Trough’s junior mining sector.”

    The only thing that will be a unique record will be the fact that NML has been developing a project over several years of which the company and finally the shareholders will have to expect no equivalent (no operational income, no cash-flow). Acutally a zero-sum game if NML wouldn’t have invested 20% in the developing costs (drilling, surveys, feasibility study, port infrastructure, …) of the DSO Project and 20% in the acquisition costs for the Howse deposit. NML will bear all these costs, these investments will not create any shareholder value! A total write-off! Thankfully for all that how reassuring was it that we could trust on a management team with such an extraordinary mining sector experience which likes to be reelected for this great achievement (attention: sarcasm!)!

Any shareholder of NML and interested people should tackle this complete issue of the ‚Letter to Management‘ actively and critically. I don’t know the dissidents which actively confronted the mangement with their view / opinion already, but I assume that they argue certainly not much different than me.

I can only urge the management of NML to take this ‚Letter to Management‘ with each of its points / positions / questions very seriously and that a response to this should contain extensive explanations, no excuses regarding macroeconomic factors and self-criticism / self-reflection regarding their made corporate decisions in the past relating directly to shareholders value!

Kind regards from your shareholder,

Markus Linnepe

We will miss safe harbor!

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  1. Congratulations for your comments! Extremely well researched and well presented.
    I hope management will acknowledge and respond.

    Yves M.
    Sherbrooke, Québec

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