I am pleased to see that the rights issue was well received and brought in SEK 18.9 million before issue cost. This was very important, as it not only secures the financing for the ongoing process tests, but also secures the survival of the project well into 2017. A sound cash position and strong owners are crucial for any mining project and especially so in today’s very uncertain market.
We are still waiting for Bergsstaten to process the granting of a mining concession for Väsman Syd. When granted this will provide a significant value adding second phase development which is attractive for long term strategic investors with visions to develop NIO into a successful medium sized iron ore producer.
Looking forward we will focus on the completion of the technical and commercial components of the feasibility study. This is important, and adds significant value to NIO, as it decreases the risks and confirms the economics. Completion of the feasibility study is expected to attract attention from potential and strategic investors. Completion of the study requires additional financial/strategic resources, which is a prioritised focus for the board and management the coming months.
The iron ore price has been clearly falling, driven by oversupply of base iron ores grades and by the general economic situation, not only in China, but elsewhere in the world. The intention, clearly, of the lower cost and larger iron ore producers is to drive out (high cost) competition from the market place and regain full control of the vast majority of traded iron ore in the world. Once additional supply is removed from the market the big three or four producers can slowly restrict supply and prices will, once again, rise towards more sustainable levels. Re-starting some of the larger operations that have closed, in recent times, will be difficult and expensive; as well as requiring a justified confidence in a long term sustainable price for basic iron ore of more than double the current levels.
However it should be recognised that the natural resources sector is undergoing a typical cyclical pattern, where global commodities such as iron ore and oil are experiencing particularly sharp and deep falls. Historically such steep falls have brought about even quicker steep rises from the low base levels. Many analysts are beginning to believe values will start to rise in late 2016.
For these reasons NIO is determined to keep advancing the project by optimising the processes and design of plant and equipment, using energy efficient processes and advanced control systems. During this development phase and the near term potential construction phase, there are also circumstances that NIO can take advantage of, such as low costs of equipment and services. A good timing in a cyclical business has significant impact on the value creation. We have reasons to maintain an optimistic view on NIO:s potentials to develop as a high quality niche iron ore producer.