UPDATE: FRIDAY, FEBRUARY 20, 2009

PALLADON IRON CORP. FEATURED IN ENTERPRISE NEWSPAPER

Four Years After Buying Comstock/Mountain Lion Mine, Palladon Iron Corp. Brings Iron Mining Back to Iron County

Known for its vast iron resources and storied history of iron mines, Iron County had been missing its namesake for more than 10 years until last September, when Palladon Iron Corp. (PIC), Salt Lake City, began iron mining at the Comstock/Mountain Lion mine on Iron Mountain west of Cedar City.

Bought out of bankruptcy in 2005, the mine required nearly four years of dedication to get back into operation.

The Comstock/Mountain Lion mine is full of history. It was the first operating mine in the state of Utah, as the early pioneers used it for resources to build tools for construction in Salt Lake City. The mine has had multiple owners; the most recent was Geneva Steel. Today, the mine is the second largest open pit mine in the state.

A storied history and a great past don’t really help when the business is selling iron ore. What Palladon got when it purchased the mine was a beautiful historic mine on 6,000 acres of property with 2,100 acre-feet of water rights. It also got drill data that did not meet current standards and a rail line that was in place but far from safe operating condition. In addition, all existing facilities had to be demolished, as they were riddled with bullet holes and were not in safe working condition. On top of that was a 50 percent hedge fund partner out of New York City venturing into the iron ore industry for the first time.

What PIC didn’t get in the transaction was an iron ore sales contract, a port to ship the iron ore from, a rail contract with Union Pacific, capital to move the project along or one ounce of credibility.

“We were in a Catch-22 situation,” said Don Foot, president and CEO of PIC. “The hedge fund partner didn’t want to commit funds until they saw progress at the mine. The railroad and the shipping port wouldn’t take us seriously until they saw progress at the mine, and it all required funding.” PIC had the burden of building credibility with each of its constituents. This meant moving the project forward with limited financial support while building good relationships with Union Pacific Railroad and the port.

PIC was able to do a small private placement that raised enough funds to allow it to start work at Iron Mountain. The first priority was to demolish the existing facilities that had become dangerous and were a serious liability. New facilities needed to be constructed, which started with basic needs such as power. A new transformer for the mine was ordered but took approximately 42 weeks to be delivered. The substation building needed to be totally replaced and the rail line needed to be inspected and repaired to operational status.

With the project site moving forward, it was time to build credibility with Union Pacific Railroad. PIC was a small company trying to get the railroad to recognize that it was serious about moving iron ore from Cedar City to China at a time when the railroad was in an oversupply situation. What worked was to meet with Union Pacific representatives at the local and corporate levels to discuss the project and the future.

A crusher pad with stacker loading crushed material on a stockpile at the mine.

“Talking just wasn’t enough,” Foot said. “We were finally taken seriously when we spent $2.3 million building two one-mile interchange tracks that would allow us to easily hand off of the trains to the UP.”

The same was to be true when dealing with the port. The port authorities were able to see progress at the mine and progress with the railroad, so PIC and the port were able to begin developing a methodology to get material moving from the West Coast to a buyer, likely in China.

On April 1, 2008 PIC announced that it had reached an agreement to sell two million tons of run-of-mine ore to China Kingdom International. This buyer was forward-thinking enough to allow PIC to mine the ore and ship it directly to China without having to first concentrate the ore. Although selling at a lower price, this gave PIC a chance to start generating revenue for the project that would eventually be used to build the concentrator to produce a high-grade magnetite, which has higher margins.

Building credibility with PIC’s joint venture partner was a far more difficult scenario. The original management team agreed to a 50/50 joint venture, which meant nothing could move forward with- out both parties agreeing. The result was a stalemate. The JV partner would not commit funding to move forward with the project and PIC could not move forward without funding.

But iron ore prices were rising dramatically and an opportunity arose that allowed PIC’s parent company to pursue buying out the joint venture partner. On June 26, 2008, after a rise in the asking price from $27 million to $65 million in just four months, PIC, through the support of its shareholders, was able to raise the necessary capital to buy out the JV partner and take 100 percent control of the project. The JV partner held back a loan on part of the purchase price so that the project had working capital available to complete the project and start shipping. PIC now owned the entire project and it was time to start mobilizing to move it forward. With control of the project and facilities being built at the site, the project was ready to move forward at full speed.

A tipple is used to load trains with ore from the Comstock/Mountain Lion Mine.
Rail cars now sit full of run-of-mine ore ready to move to port;
Palladon is finalizing details of the first shipment.

Gilbert Development, the contract miner for 12 years at the site for the previous two owners of the mine, was contracted to do the same for PIC. Gilbert had the best understanding of the mine, ore handling and the mining conditions. The firm mobilized its equipment and installed a new stacker, tipple, crusher and conveyor system. Work at the mine started last September with the goal of building a 150,000-ton stockpile of run-of-mine ore for shipping. The mine was a limited operation, as the final details of the project were put together to initiate shipping. PIC was operating at 5,000 tons per day four days a week.

Few were prepared for what would happen later in the month of September, when the world’s economy crashed and commodity prices began a dramatic fall. For PIC, with the mine in operation, trying to pull the last logistical piece together for delivery, the world became a very different place in which to do business. Iron prices fell dramatically and Chinese steel buyers started to cut back on their demand for iron ore as steel demand dropped. Other commodities suffered in the same way and suppliers were looking for ways to survive in a very difficult market. Mines closed, projects were put on hold and every mining company took a hard look at their future.

PIC’s buyer still wanted the run-of- mine ore, as it was a direct replacement for its own mine, which was literally out of ore. The Iron Mountain ore ground easier and produced a better grade concentrate with equivalent or better recoveries than its own ore. The final piece of the project was signing with the port for shipment. The night before the final signing with the port storage facility was expected, PIC was notified that the product in the storage barn could not be sold in the marketplace. PIC now had no storage barn at the port. Without storage, PIC would not be able to get enough ore to the port to fill a ship. The company now had a buyer, a mine in operation, 100 cars loaded and ready to ship — but no way to ship through the port.

Starting from scratch in a totally different business climate was now required. New ports, totally different cost structures for rail and shipping and revamped logistics in moving the ore were all options that the staff was evaluating to get the project moving.

Today the blasting continues as trucks haul iron ore to be crushed and placed in the stockpile. Waste is being mined so the pit can be opened up for development and rail cars sit full of run-of-mine ore ready to move to port. PIC awaits the first shipments, but is still finalizing the last details to make it all happen. More than three years of work was virtually stilled in a matter of days. But, Foot said, PIC sees it as just another hurdle to jump in order to bring iron ore mining back to Iron County.

"Four Years After Buying Comstock/Mountain Lion Mine, Palladon Iron Corp. Brings Iron Mining Back to Iron County." The Enterprise [Salt Lake City] Feb. 2009: 10-11.