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Price Performance (1-year)
Lac Otelnuk Iron Ore Project
This advanced-stage project, covering 673 km2, is located in the central portion of the Labrador Trough in Nunavik, Northern Quebec. The project is located within a territory controlled by the Naskapi Nation, with whom MQM has an exploration and pre-development agreement. The company also continues to engage with other First Nations that may be impacted by the project's development.
MQM acquired the project in late 2022 for just $44K in cash; previous owners had spent approximately $150M on the project. Located 155 km northwest of Schefferville
Near active iron ore mines operated by majors, such as Rio Tinto (NYSE: RIO), Tata Steel (NSE: TATASTEEL), and ArcelorMittal (NYSE: MT). Currently, there is no road access to the property; if advanced to production, the property can be accessed through a new road and/or a rail spur
The 1,100 km long Labrador Trough is a large iron belt, accounting for 100% of Canada’s iron ore production. The region has excellent infrastructure in place, including low-cost hydroelectric power, rail, and port facilities
Mineralization, Resources, and FS
A large, low-grade open-pit resource. The current resource envelope covers 36 km (strike) x 4-6 km (width) x 130 m (depth). Metallurgical tests indicate that the project can produce high-grade concentrates, averaging 68% Fe (iron
The 2015 FS was based on open-pit-operations spanning 30 years.
The FS was based on just 24% of M&I resources. The study returned an AT-NPV8% of US$5.24B, AT-IRR of 13%, and a long payback period of 7.3 years, based on a long-term iron ore price forecast of US$105/t vs the spot price of US$100/t
Initial CAPEX is relatively high at US$9B, exceeding the typical range of US$2B-US$7B for iron ore projects. However, OPEX is relatively low at US$31-US$34/t, falling within the typical range of US$30-US$90/t for iron ore projects. Aiming to attract a strategic partner to advance the project
Financials
$0.4M in working capital at the end of October 2024. None of the outstaning options/warrants are in-the-money. We believe the company will pursue an equity financing in the coming months to fund the PEA
FRC Valuation and Rating
EV/Resource and EV/AT-NPV of MQM remain significantly lower than that of comparable iron ore juniors
Our DCF valuation declined from $0.95 to $0.72/share primarily due to potential share dilution from the upcoming equity financing
We are reiterating our BUY rating, and adjusting our fair value estimate from $0.95 to $0.72/share. We believe Lac Otelnuk presents a significant long-term opportunity in the iron ore sector, but its success hinges on securing substantial financing, and a strategic partner to navigate the capital-intensive development path.
Risks
Maintaining our risk rating of 5 (Highly Speculative)
We believe the company is exposed to the following key risks (not exhaustive):
