In early 2009 things were looking as grim for the mining sector as they were for the market as a whole. While most market observers were calling for years of pain, HRA thought differently. China was gearing up massive infrastructure spending and we expected metals and bulk materials to recover quickly. We went looking for strong exploration stories and special situations. One such special situation was Consolidated Thompson Iron Mines (CLM-T). CLM had developed the Bloom Lake iron ore deposit in the Labrador Trough and started construction of a mine. It needed a lot more funds to complete it and the financial crisis had closed traditional financial channels. Note that the HRA comments below are just a subset of the ongoing coverage our readers enjoyed as this story developed.
1. CLM released important financing news on a Sunday in late March 2009. The markets were awful but news that a Chinese steel producer was willing to ante up $240 million for 19.9% of the company and 25% of Bloom Lake got our attention. This valued the mine at two and a half times the $2.29 per share CLM was trading at. HRA rushed out an Alert (Special Delivery #356) over the weekend making CLM a strong buy.
2. After a couple of Alert updates HRA produced an extended review in the August HRA Journal. CLM had arranged most of the financing to complete the mine and at $4.37 we thought it was ready for a broader audience. Iron ore prices were strengthening and we thought CLM could ride the wave.
3. CLM continued to develop Bloom Lake and the iron ore market continued to exceed our expectations. We updated our Alert level readers in March 2010 to an important change in the iron ore market. BHP, one of the world's largest iron ore miners, effectively killed off the annual pricing model by signing a number of three month sales contracts. Iron ore soon developed a monthly pricing model and a tradable iron ore futures contract. Prices for iron ore climbed quickly through 2010 and CLM followed.
4. Summer 2010 was tough on equity markets with a US economic slowdown and lots of bad news out of Europe. CLM continued to move to production however. We highlighted this in the August 2010 HRA Journal, noting the company had shipped 500k of iron ore in July and was working to ramp up to full production of 8MM tpy by the end of 2010 when it would start work on an expansion to 16MM tpy iron ore production. A prescient quote from that issue stated "The current market value is substantial, but there is room for some gains if the iron ore price stays strong. A more likely exit could be a takeover once Phase II is well advanced since a 16 MM tpy producer in a mine friendly environment seems like an attractive target."
5. By late 2010 CLM had everything going its way as we pointed out in the October 2010 Journal. The Bloom Lake operation was up to 50% capacity and generated a profit of $46 million for Q3 2010. We reiterated then that with iron ore hitting all-time highs and production ramping up there was still upside in CLM as revenue expanded and it became either an aggregator or a takeover target. The stock was hitting all-time highs of $11.80 at the time.
As we had long suspected, Cons Thompson didn't get to remain independent much longer. In early January 2011 Cliffs Natural Resources made an all cash offer of $17.25 for CLM, capping and incredible run and delivering a gain of over 600% to our Special Delivery Alert readers and almost 400% for our HRA Journal subscribers.
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HRA is great at getting the "real" story out on resource companies by doing their due diligence and keeping on top of maps, news releases and corporate development. I highly recommend HRA...to any investor whether it be an institutional client or private investor.