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Post-April 6, 2015 Financial Reports and Correspondence
The Mining Process as it pertains to the Trust of
Great Northern Iron Ore Properties
The Trust of Great Northern Iron Ore Properties previously received royalties primarily from the mining of taconite ore from its properties by the Trust’s lessees. The Trust itself did not mine or beneficiate the taconite ore. Rather, the Trust had many long-term leases with steel and mining companies that held a leasehold interest in the Trust’s properties. While the Trust also did receive current year rental or minimum royalty income from its lessees for the leasehold interests, most of the royalty revenues were earned once the taconite ore was shipped (removed from the leased premises).
There are essentially two types of iron ore; one is referred to as “taconite ore” and the other as “natural iron ore.” Taconite ore is a relatively low-grade iron ore that contains 20% to 30% iron. Taconite ore is a very hard and abrasive ferruginous (containing iron) rock that requires extensive processing to liberate the iron, which is then concentrated and made into pellets containing about 65% iron that are ultimately used in the steelmaking process. Natural iron ore, on the other hand, generally contains +50% iron. Some forms of natural iron ore were sometimes referred to as “merchantable (merch) ore” or “direct shipping ore” because they could be readily mined and immediately shipped to the steel mills without further processing or beneficiation. Though the Trust had some natural iron ore reserves remaining on its properties, the Trust’s lessees mined taconite ore given its abundance on the Mesabi Iron Range.
As noted above, the Trust received a majority of its revenues from royalties attributed to the mining of taconite ore by its lessees. Generally, royalties accrued to the Trust once the taconite ore was shipped (removed) from its premises (leased properties). After that, the taconite ore (and whatever further processes or products that evolves from it) became the property of the lessee. Also as previously mentioned, the Trust did receive minimum royalties from its lessees for the leasehold interests. These minimum royalties did accumulate and did allow the steel and mining companies (lessees) the ability to offset excess royalties (over the minimum royalty requirements) on future taconite ore shipments. In addition, the Trust did receive some revenues from the removal of timber, aggregates (sand, black dirt, gravel, etc.) and for other miscellaneous licenses incidental to mining. However, the Trust’s primary revenues were royalties paid for taconite ore shipped from the Trust’s properties by its lessees.
The lessees’ mining process begins with exploration drilling and long-range mine planning. Because the lessees’ taconite facilities require certain blends of taconite ore to operate efficiently, an orderly lessee mine plan, which is based on stripping ratios, proximity to the plant and taconite ore quality and quantity, must be designed and implemented by the lessees. The first stage, after mine planning, is removal of the timber and the surface overburden (glacial material), the latter of which is done using large electric and/or hydraulic shovels and large haulage trucks. After the surface overburden has been removed, it may be necessary for the lessee to remove waste rock that is above the taconite ore. Removal of the waste rock requires drilling and blasting to break the rock to a size that can be removed with shovels and trucks. Rotary drills are used to bore 16” diameter holes to approximately 40’ depths. Drill holes are spaced about 30’ apart in a blast pattern, which is typically 800’ long by 180’ wide by 40’ deep. This drilling procedure holds true for taconite ore as well as rock. Explosives are then loaded in each blast hole and, after numerous safety checks are completed, a controlled, time-released blast is fired resulting in broken rock and/or broken taconite ore. Next, the broken rock and/or broken taconite ore is loaded by shovels and loaders into large capacity haulage trucks that carry 170 to 240 tons per load. Waste rock is truck hauled to a stockpile. Taconite ore is hauled to a primary crusher where it is crushed and further processed. It was generally at this point that the Trust received credit for the taconite ore shipments and royalties were accrued (i.e., once the taconite ore physically left the Trust’s premises or was accounted for by blast pattern volumetric allocation).
The primary crusher reduces the taconite ore to less than 10” chunks, thereafter conveying it to a crushed taconite ore surge stockpile. From the stockpile, the crushed taconite ore is then conveyed into the concentrator where the -10” taconite ore chunks are further crushed and ground through secondary crushing and grinding mills until the taconite ore reaches face powder fineness. The purpose for the crushing and grinding of the taconite ore to this degree is to liberate or free the iron particles (magnetite) from the gangue (waste). At this point, large magnets are utilized to extract the iron bearing magnetite particles, now referred to as “taconite concentrate,” from the waste particles, which are referred to as “tailings.” The tailings are safely discarded in tailings basins on land that are contained by a series of impervious dams. After the tailings settle to the bottom of the basin, the water is reclaimed and reused in the taconite plant.
After additional processing of the taconite concentrate in which most of the water is removed, the taconite concentrate, which now contains about 65% iron, needs to be converted or made into a product that can be transported by railroad and boat vessel to the steel mills. This final product is referred to as a “taconite pellet,” which is produced in the agglomerator or pelletizing phase. A clay binder is added to the moist taconite concentrate, which is then conveyed to large rotating drums where it is rolled into “green balls.” Some of the lessees also add limestone to the taconite concentrate at this point, which is a fluxing agent. These marble-sized green balls are then heated in furnaces or kilns to approximately 2,400 degrees Fahrenheit, which significantly hardens them into taconite pellets thereby allowing them to endure transport to the steel mills by railroad and boat vessel with minimum breakage. The taconite pellets are then cooled and stockpiled until they are ready for transport. [To the extent pig iron or steel can be made on-site or near the taconite facility, the heated taconite pellets may proceed directly to the steelmaking phase.]
The taconite pellets, averaging about 65% iron, are well suited for the blast furnaces and make up the largest percentage of charge into the furnaces that produce molten iron or pig iron, which is used to make steel.
The above summary is intended to offer a general overview of the mining process of taconite ore on the Mesabi Iron Range in northeastern Minnesota. Variations of the processes do exist at the various taconite plants; however, the basic concepts described above summarize the overall mining process of taconite ore on the Mesabi Iron Range.