Hanam Canada Corporation

 Mayne Bay Iron Project, Port Alberni, BC

Hanam Canada is intending to apply to the Tolquart First Nation for consideration of an iron mining project at Mayne Bay.  Approval of the Nation would be required before a more detailed project plan can be developed. Part of our purpose is to help create economic opportunities for the First Nation.

Hanam holds 170 hectares of mineral tenures from the BC Ministry of Energy & Mines, Mineral Titles Branch, Victoria, at Mayne Bay on Southern Vancouver Island as shown in Exhibit 1. The tenures are located 10 kilometers from Ucluelet and close to Port Alberni, BC.  

Exhibit 1. Hanam Mineral Tenure Locations

Market

The U.S. Geological Survey estimated the global iron ore market at approximately 1.69 billion tonnes in 2006. There are two common types of iron ore used worldwide: hematite and magnetite. Most of the market is for hematite, a reddish brown, black or grey iron oxide mineral with the chemical formula Fe2O3. Hematite is the mineral mined in the huge open pit iron ore mines in Australia and Brazil. Magnetite is a black magnetic iron oxide mineral with the chemical formula Fe3O4.

Magnetite has a higher natural iron concentration of approximately 65 percent.  Per tonne of iron, the costs of shipping and smelting magnetite are lower than for hematite. Therefore ore buyers are willing to pay more for magnetite than for hematite. Magnetite is more responsive to low-grade magnets than hematite making it easier to separate from the ore. 

The market for magnetite in the Pacific northwest is about 40,000 tonnes per year. The main customers are three coal companies as shown in Exhibit 2. The largest user is Elk Valley coal in south eastern BC. Finely ground magnetite utilized for cleaning coal is preferential over other types of dense media because lost magnetite it is recoverable through the use of magnetic separators. The recovered magnetite is used many times over and only minor amounts of magnetite are purchased to replace the magnetite lost in the coal cleaning process.

Three cement producers also use some iron ore in their cement products. The cement grade product is coarser.

Exhibit 2          Potential Customers

There are also good markets for magnetite at iron and steel mills in China, Japan and Korea. Magnetite can be used either in a reducing blast furnace to make high-grade steel in a single stage, or it can be converted to "reduced iron" pellets that can be used in a melting furnace. Melting furnaces typically are used to re-cycle scrap iron to produce certain steel products. High-purity concentrate such as that proposed from the project is critical to managing the quality of the recycled iron.

The only significant competitive producer is Craigmont Mines, Merritt, BC. This company has been producing magnetite from tailings at a former copper mine. However the inventory of these old tailings has been reduced to less than 400,000 tonnes. This provides a good long term opportunity for the project as current buyers seek to diversify their supply.

Iron ore prices are generally set through annual contract negotiations between major buyers (like steelmakers) and producers.  In addition there are regional "spot" market sales representing a small percentage of the overall iron ore trade.

Current major iron ore contracts were being priced in the range of US$160 per tonne, including trans-ocean shipping costs of US$40 per tonne. The project economics are based on iron ore pricing of $120 per tonne (including shipping).

History of the Property

In the early 1960s, Ucluelet was the largest shipper of iron concentrates from British Columbia to Japan. The iron ore mine was located about 4 kilometres east of highway 4 on the Toquart Bay road. It was put into production by Noranda Mines in 1961 at a cost of $11 million. From 1962 until a strike stopped production in mid 1966, about 600,000 tonnes per year of ore was hauled to a crushing and concentrating plant located at Toquart Bay. The processed ore was loaded onto ships and sent to Japan.  The fine sand left over from the crushing processed was deposited at the waters edge and slowly filled in the area from the main island and a small one known as “Tree Island”. Over the years this sand was slowly pushed out until the entire area was filled and formed a beautiful sandy beach and camping area.

The showing, on the claim, consists of a body of magnetite striking southeast and dipping north 45 degrees. The magnetite, exposed by stripping and quarrying, has a width of about 10 metres at the surface. North of this, trenching and stripping has exposed a magnetite outcrop which follows the same trend and is possibly an extension of the magnetite body.

A tunnel was driven 15 metres through sheared and altered igneous rock. The right side of the tunnel contains a little ore mixed with pyrite and arsenopyrite until solid ore is encountered at 23 metres. From this point up to and including the face, the tunnel is in solid ore.

A drift runs diagonally to the left off the tunnel for 20 metres, 15 metres from the portal of the tunnel. The first 6 metres of the drift is in ore somewhat mixed with rock, not as clean as in the main tunnel, and is probably a continuation of it. The next 6 metres contains magnetite highly mixed with rock and pyrite. The remaining 8 metres is in barren rock.

Product quality

Product quality specifications are provided in Exhibit 3.  The two main grades to be produced are 80 Grade and 90 grade, both used in coal cleaning. Two other products may be produced in small quantities.

Exhibit 3. Product specification

The three main product quality characteristics are the magnetic content, the density and the particle size. Magnetite is not considered a hazardous material and is therefore not a controlled substance under the WHIMIS program. Magnetite is a naturally occurring substance and is inert, non-corrosive, non-explosive, non-oxidizing and non-toxic - in short, not hazardous in anyway.

Project Description

Mining operations would use mainly existing forestry roads across the property. Ore would be hauled to a barge loading site at Mayne Bay. This area was previously used to store logs from forestry operations on the property.

It is proposed that iron would be mined on a relatively small scale. The operation would look like a small gravel pit. The mine would be located on the south side of the Broughton Peaks. The scale of operations would be small about 120,000 tonnes per year. The magnetite would be ground to a specified particle size in a crushing and screening system. Product would be magnetically separated from the ground ore. Waste ore would be backfilled in the excavated area.

A mine site plan is provided in Exhibit 4.  Raw ore is crushed and placed on a stockpile. It then passes by conveyor belts to a trommel screen, which removes any large unwanted material. The material that passes through the screen is then transformed into a slurry by mixing it with water, and all subsequent operations are conducted with material in slurry form.

Exhibit 4. Mine Site Plan

Processing plant

Once the slurry enters the plant, it is fed through a sequence of magnetic separators, which separate the magnetic material from the non-magnetic material. The magnetic material passes through several 'cleaner' magnetic circuits in a pre-determined sequence as it is upgraded to meet customer quality specifications. The non-magnetic material is then returned to the tailings pond.

In addition to the magnetic separation the ore material also passes through a grinding circuit where it is reduced in size to meet customer specifications.

Once the magnetite is of appropriate quality, it is dried to between 6% and 8% moisture prior to shipping.

There are no chemical or other additives used in the process. The magnetite recovery operations are planned to be carried out during non-freezing weather, to the maximum extent possible.

The water used in the magnetite recover process is maintained in a closed circuit, so that there is no surface discharge from the operation. Make-up water is required to replace water trapped in the newly-deposited tailings and water lost to sub-surface drainage and to evaporation from the tailings pond. Make-up water to maintain the necessary water volume in the system would be provided from an on-site well,

Magnetite will be trucked to the barge loading terminal at Mayne Bay as shown in Exhibit 9 and transported by barge to Port Alberni. The sale quantities loaded on board ship for export would be 5,000 or 10,000 tonnes at a time. Iron would be stored in a dockside warehouse at Port Alberni.  If there is sufficient iron as determined by further exploration, the barge loading system could be upgraded to load Handy size, 30,000 tonne capacity, ships.

Capital investment

The estimated capital investment to develop a 120,000 tonne-per-year mine at this location is $2 million as shown in Exhibit 5.  About $700,000 would be spent in the local community. The main cost items are for the inclined access tunnels, mining equipment, and a cleaning plant. Depending on financing, some equipment could be leased or used. As much as possible, local contractors would construct the mine and process plant.  In addition to direct investment for the mine there would be indirect investment by mine personnel in property, housing, and amenities in the communities where they choose to live.

Exhibit 5         Capital Investment Estimate

Income

The total delivered cost on board a barge or ship is about $41 per tonne as shown in Exhibit 6.  At a selling price of $75 per tonne the annual revenue before interest and taxes would be $2.6 million per year.

Taxes are levied on the mining industry by the British Columbia provincial government under the Mineral Tax Act in two stages.  Until the producer has recovered its initial investment and return based on long term interest rates, the operating cash flow is taxed at 2% then increases to 13% of the annual operating cash flow after deducting capital expenditures.

Exhibit 6         Income Estimate