UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C.  20549
 
Form 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
 
For the month of November 2014.
Commission File Number 001-33439

 
ALDERON IRON ORE CORP.
 
(Translation of registrant’s name into English)
 
Suite 1240, 1140 West Pender St., Vancouver, B.C.  Canada  V6E 4G1
 
(Address of principal executive office)
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
Form 20-F  ¨
Form 40-F  þ
 

 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):          _____
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):          _____
 
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.  Yes  ¨          No  þ
 
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):  82-______________
 
EXHIBIT INDEX
 

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
   
ALDERON IRON ORE CORP.
   
By:
 
     
/s/ Sheila Paine
     
Sheila Paine
Date:  November 13, 2014
   
Assistant Corporate Secretary
 


















(A Development-Stage Company)


 



Condensed Interim Consolidated Financial Statements
As of September 30, 2014 and for the three-month and nine-month periods ended
September 30, 2014 and 2013
(in Canadian dollars)
(Unaudited)

 


 
Alderon Iron Ore Corp.
Condensed Interim Consolidated Statements of Financial Position (Unaudited)
(in Canadian dollars)


   
As of
September 30,
   
As of
December 31,
 
   
2014
   
2013
 
    $       $    
ASSETS
               
Current assets
               
Cash and cash equivalents
    32,650,353       95,366,039  
Restricted short-term investments (note 3)
    22,202,011       -  
Prepaid expenses and other current assets (note 4)
    2,380,584       1,322,204  
Receivables (note 5)
    1,999,464       3,760,730  
Total current assets
    59,232,412       100,448,973  
                 
Non-current assets
               
Mineral properties (note 6)
    176,243,252       138,645,822  
Property, plant and equipment (note 7)
    21,804,330       4,265,204  
Long-term advances (note 8)
    20,465,016       20,465,016  
Total non-current assets
    218,512,598       163,376,042  
Total assets
    277,745,010       263,825,015  
                 
LIABILITIES
               
Current liabilities
               
Payables and accrued liabilities (note 9)
    13,246,922       14,179,526  
Due to related parties (note 10)
    675,510       221,029  
Interest payable on convertible debt (note 11)
    443,617       -  
Total current liabilities
    14,366,049       14,400,555  
                 
Non-current liabilities
               
Convertible debt (note 11)
    17,676,736       -  
Total non-current liabilities
    17,676,736       -  
Total liabilities
    32,042,785       14,400,555  
                 
EQUITY
               
Share capital, warrants and conversion option
    263,760,392       259,143,095  
Other capital (note 13)
    24,725,957       24,206,055  
Deficit
    (97,815,500 )     (90,639,603 )
Equity attributable to owners of the parent
    190,670,849       192,709,547  
Non-controlling interest (note 14)
    55,031,376       56,714,913  
Total equity
    245,702,225       249,424,460  
Total liabilities and equity
    277,745,010       263,825,015  
                 
Basis of preparation, nature of operations and
   going concern (note 1)
Commitments and contingencies (note 19)
Subsequent event (note 20)
 
               
 
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
 
Approved by the Board of Directors

Lenard Boggio”
   
“David Porter”
 
Lenard Boggio
Director
   
David Porter
Director
 

 
2

 
Alderon Iron Ore Corp.
Condensed Interim Consolidated Statements of Changes in Equity (Unaudited)
For the nine-month periods ended September 30, 2014 and 2013
(in Canadian dollars, except share data)



 
Attributable to owners of the parent
       
 
Common shares
Share capital and warrants
Other capital
Deficit
Non-controlling interest
Total
 
 
(number)
$
$
$
$
$
 
               
Balance – January 1, 2013
130,144,167
259,143,095
21,619,782
(140,271,942)
-
140,490,935
 
Changes in ownership interest of an affiliate that does not result in a loss of control
             
     Proceeds received following the issuance of units of The Kami LP to Hebei (note 12)
-
-
-
-
119,926,293
119,926,293
 
     Reallocation of non-controlling interest between partners of The Kami LP (note 14)
-
-
-
61,455,488
(61,455,488)
-
 
Total changes in ownership interest of an affiliate
-
-
-
61,455,488
58,470,805
119,926,293
 
Contributions by and distributions to owners
             
     Share-based compensation costs (note 13)
-
-
2,242,559
-
-
2,242,559
 
     Net loss and comprehensive loss
-
-
-
(10,315,341)
(1,215,256)
(11,530,597)
 
Total contributions by and distributions to owners
-
-
2,242,559
(10,315,341)
(1,215,256)
(9,288,038)
 
               
Balance – September 30, 2013
        130,144,167
259,143,095
23,862,341
(89,131,795)
57,255,549
251,129,190
 
 

Attributable to owners of the parent
       
 
Common shares
Share capital,
warrants and conversion option
Other capital
Deficit
 
Non-controlling interest
Total
 
(number)
$
$
$
$
$
 
               
Balance – January 1, 2014
130,144,167
259,143,095
24,206,055
(90,639,603)
56,714,913
249,424,460
 
Changes in ownership interest of an affiliate that does not result in a loss of control
             
     Reallocation of non-controlling interest between partners of The Kami LP (notes 11 and 14)
-
-
-
(1,154,324)
1,154,324
-
 
Total changes in ownership interest of an affiliate
-
-
-
(1,154,324)
1,154,324
-
 
Contributions by and distributions to owners
             
     Equity component of convertible debt, net of transaction costs (note 11)
-
4,617,297
-
-
-
4,617,297
 
     Share-based compensation costs (note 13)
-
-
519,902
-
-
519,902
 
     Net loss and comprehensive loss
-
-
-
(6,021,573)
(2,837,861)
(8,859,434)
 
Total contributions by and distributions to owners
-
4,617,297
519,902
(6,021,573)
(2,837,861)
(3,722,235)
 
               
Balance – September 30, 2014
         130,144,167
263,760,392
24,725,957
(97,815,500)
55,031,376
245,702,225
 

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

 
3

 

Alderon Iron Ore Corp.
Condensed Interim Consolidated Statements of Comprehensive Loss (Unaudited)
For the three-month and nine-month periods ended September 30, 2014 and 2013
(in Canadian dollars, except share and per share data)



         
 
Three-months ended
September 30,
Nine-months ended
September 30,
 
2014
2013
2014
2013
 
$
$
$
$
         
Operating expenses
       
General and administrative expenses
2,358,146
3,095,471
6,498,770
11,718,508
Development expenses (note 19)
-
-
3,300,000
-
Environmental, aboriginal, government and community expenses
-
177,501
-
872,993
Exploration and evaluation expenses
-
-
-
194,956
 
2,358,146
3,272,972
9,798,770
12,786,457
         
Loss from operations
(2,358,146)
(3,272,972)
(9,798,770)
(12,786,457)
         
Finance income
245,941
477,055
939,336
1,255,860
Net loss and comprehensive loss
(2,112,205)
(2,795,917)
(8,859,434)
(11,530,597)
         
Attributable to:
       
Owners of the parent
(1,196,462)
(2,250,753)
(6,021,573)
(10,315,341)
Non-controlling interest
(915,743)
(545,164)
(2,837,861)
(1,215,256)
 
(2,112,205)
(2,795,917)
(8,859,434)
(11,530,597)
         
Net loss per share (note 15)
       
Basic and diluted
(0.01)
(0.02)
(0.05)
(0.08)
Weighted average number of shares outstanding (note 15)
       
Basic and diluted
130,144,167
130,144,167
130,144,167
130,144,167





The accompanying notes are an integral part of these condensed interim consolidated financial statements.

 
4

 
Alderon Iron Ore Corp. Inc.
Condensed Interim Consolidated Statements of Cash Flows (Unaudited)
For the three-month and nine-month periods ended September 30, 2014 and 2013
(in Canadian dollars)



 
Three-months ended
September 30,
Nine-months ended
September 30,
 
 
2014
2013
2014
2013
 
 
$
$
$
$
 
Cash flows from operating activities
         
Net loss
(2,112,205)
(2,795,917)
(8,859,434)
(11,530,597)
 
  Adjustments for:
         
Share-based compensation costs (note 13)
127,378
447,208
430,560
1,931,667
 
Depreciation
33,455
46,820
108,312
99,743
 
Interest income
(245,941)
(477,055)
(939,336)
(1,255,860)
 
Changes in operating assets and liabilities
  (note 16)
(2,317,809)
(1,078,395)
(311,638)
(13,653,668)
 
Interest received
158,473
695,296
722,823
1,416,021
 
Net cash used in operating activities
(4,356,649)
(3,792,043)
(8,848,713)
(22,992,694)
 
           
Cash flows from investing activities
         
Additions to mineral properties (note 6)
(8,472,234)
(17,437,865)
(35,660,820)
(26,231,510)
 
Increase in restricted short-term investments (note 3)
-
-
(22,202,011)
-
 
Deposits on equipment (note 7)
(5,057,632)
(1,806,702)
(17,660,867)
(1,806,702)
 
Decrease in restricted cash equivalents
-
-
-
10,232,508
 
Purchases of property, plant and equipment, net
  of disposals
-
(74,492)
(13,275)
(368,916)
 
Net cash used in investing activities
(13,529,866)
(19,319,059)
(75,536,973)
(18,174,620)
 
           
Cash flows from financing activities
         
Proceeds received on the issuance of convertible debt, net of transaction costs of $330,000 (note 11)
-
-
21,670,000
-
 
Proceeds received following the issuance of units of The Kami LP to Hebei (note 12)
-
-
-
119,926,293
 
Net cash provided by financing activities
-
-
21,670,000
119,926,293
 
           
Net change in cash and cash equivalents
(17,886,515)
(23,111,102)
(62,715,686)
78,758,979
 
           
Cash and cash equivalents at the beginning of
  the period
50,536,868
136,182,397
95,366,039
34,312,316
 
           
Cash and cash equivalents at the end of the
  period
32,650,353
113,071,295
32,650,353
113,071,295
 
           
Cash and cash equivalents components:
         
Cash
32,650,353
105,341,011
32,650,353
105,341,011
 
Cash equivalents
-
7,730,284
-
7,730,284
 
 
32,650,353
113,071,295
32,650,353
113,071,295
 

The accompanying notes are an integral part of these condensed interim consolidated financial statements.


 
5

 
Alderon Iron Ore Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
As of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013
(amounts in Canadian dollars, except share/option data)



1           Summary of business, reporting entity, basis of preparation, nature of operations and going concern

Summary of business

Alderon Iron Ore Corp. (“Alderon” or the “Company”) is a development-stage company advancing towards production its Canadian properties located in western Labrador in the province of Newfoundland & Labrador. Those properties are collectively referred to as the Kamistiatusset, or “Kami”, Property. All activities associated with the Kami Property are referred to as the Kami Project.

Reporting entity

The accompanying condensed interim consolidated financial statements include the accounts of Alderon Iron Ore Corp., an entity incorporated under the laws of the Province of British Columbia, and its subsidiaries: 0964896 BC Ltd. and Kami General Partner Limited (“Kami GP”), a corporation incorporated under the laws of the Province of Ontario. The condensed interim consolidated financial statements also include the accounts of an affiliate, The Kami Mine Limited Partnership (“The Kami LP”), established under the laws of the Province of Ontario. Kami GP and The Kami LP are each owned 75%, directly or indirectly, by the Company.

The Company’s common shares are listed on the Toronto Stock Exchange, under the symbol “ADV” and on the NYSE MKT, under the symbol “AXX”.

Basis of preparation, nature of operations and going concern

Basis of presentation

These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board, applicable to the preparation of interim financial statements, including International Accounting Standard (“IAS”) 34, Interim Financial Reporting (“IAS 34”), and should be read in conjunction with the Company’s consolidated financial statements as of and for the years ended December 31, 2013 and 2012.

The preparation of financial statements in accordance with IAS 34 requires the use of certain critical accounting estimates and the exercise of management’s judgment in applying the Company’s accounting policies. Areas involving a high degree of judgment or complexity and areas where assumptions and estimates are significant to the Company’s condensed interim consolidated financial statements are discussed in note 2.

The policies applied in these condensed interim consolidated financial statements are based on IFRS issued and effective as of September 30, 2014. These condensed interim consolidated financial statements were approved by the Company's Board of Directors on November 12, 2014.


 
6

 
Alderon Iron Ore Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
As of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013
(amounts in Canadian dollars, except share/option data)




1           Summary of business, reporting entity, basis of preparation, nature of operations and going concern (continued)

Nature of operations and going concern

The accompanying condensed interim consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they become due (see also note 18).

The application of the going concern concept is dependent upon the Company’s ability to satisfy its liabilities as they become due and to obtain the necessary financing to complete the development of its mineral property interests, the attainment of profitable mining operations or the receipt of proceeds from the disposition of its mineral property interests. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but not limited to, twelve months from the end of the reporting period.

The business of exploration, development and mining of minerals involves a high degree of risk and there can be no assurance that current exploration, development and mining plans will result in profitable mining operations. The recoverability of the carrying value of assets and the Company's continued existence is dependent upon the preservation of its interests in the underlying properties, the development of economically recoverable resources, the achievement of profitable operations and the ability of the Company to raise additional financing. Changes in future conditions could require material write-downs to the carrying values of the Company’s assets.

To date, the Company has not recorded any revenues from operations, has no source of operating cash flow and no assurance that additional funding will be available to it for further development of the Kami Project. The Company does not have financial resources sufficient to cover all of its commitments for the coming year, which includes net amounts payable, as at September 30, 2014, necessary general and administrative costs through 2015, contractual obligations as at September 30, 2014 (in relation to anticipated equipment payments, see also note 19) and the remaining security deposits which could be required to be advanced to Newfoundland and Labrador Hydro (“NLH”), a subsidiary of Nalcor Energy (note 3), as of a date to be determined. As noted below (see note 19), Alderon has completed the engineering work required to commence construction at the Kami Project. The commencement of construction of the Kami Project is subject to the completion of the Company’s financing plan and project sanction by the Company’s Board of Directors. As the Kami Project’s required pre-construction engineering is substantially complete, Alderon has temporarily suspended any further work by its Engineering, Procurement and Construction Management (“EPCM”) contractor. The Company’s internal project team is continuing to advance the Kami Project in preparation for the start of construction once the Company’s financing plan is completed. The Company has plans in place and is seeking to arrange the necessary funds in order to cover these obligations. Specifically, the Company continues to advance all of the elements of its financing plan, including debt and equity. There can be no assurance that management’s financing plan will be successful. These conditions and events indicate material uncertainties that cast substantial doubt upon the Company's ability to continue as a going concern.

If management is unable to obtain new funding, the Company may be unable to continue its operations, and amounts realized for assets might be less than amounts reflected in these consolidated financial statements. If the going concern assumption were not appropriate, adjustments to the carrying value of assets and liabilities, reported expenses and consolidated statement of financial position classifications would be necessary. Such adjustments could be material.

 
7

 
Alderon Iron Ore Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
As of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013
(amounts in Canadian dollars, except share/option data)




2           Significant accounting policies and critical accounting estimates and judgements

Significant accounting policies

The accounting policies described in the Company’s 2013 annual consolidated financial statements have been applied consistently to all periods presented in these condensed interim consolidated financial statements, except as noted below.

Convertible debt

The Company’s convertible debt is accounted for as a compound financial instrument comprised of a non-derivative host contract and a conversion option. The conversion option is equity classified because it will result in the issuance of a fixed number of equity instruments issued in return for a fixed dollar value. The liability component of a compound financial instrument is recognized initially at the fair value of a similar secured liability that does not have an equity conversion option. The equity component is recognized initially as the residual difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition. The Company’s option to prepay the instrument early is a separable embedded derivative but has nominal value at inception and period end.

New standard

The following new standard is effective for the first time for interim periods beginning on or after January 1, 2014 and has been applied in preparing these condensed interim consolidated financial statements. The accounting policy has been applied consistently by all subsidiaries of the Company.

·  
International Financial Reporting Interpretations Committee (“IFRIC”) 21, Levies, provides guidance on accounting for levies in accordance with the requirements of IAS 37, Provisions, Contingent Liabilities and Contingent Assets.

The impact of the adoption of this standard did not have a significant impact on the Company’s condensed interim consolidated financial statements.

Critical accounting estimates and judgments

The preparation of the Company’s condensed interim consolidated financial statements in accordance with IFRS requires management to make estimates about and apply assumptions to future events and other matters that affect the reported amounts of the Company’s assets, liabilities, expenses and related disclosures. Assumptions and estimates are based on historical experience, expectations, current trends and other factors that management believes to be relevant at the time at which the Company’s condensed interim consolidated financial statements are prepared. Management reviews, on a regular basis, the Company’s accounting policies, assumptions and estimates in order to ensure that the condensed interim consolidated financial statements are presented fairly and in accordance with IFRS.

Critical accounting estimates are those that have a significant risk of causing material adjustment and are often applied to matters or outcomes that are inherently uncertain and subject to change. As such, management cautions that future events often vary from forecasts and expectations and that estimates routinely require adjustment.

Management considers the following areas to be those where critical accounting policies affect the significant estimates used in the preparation of the Company’s condensed interim consolidated financial statements.

 
8

 
Alderon Iron Ore Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
As of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013
(amounts in Canadian dollars, except share/option data)




2           Significant accounting policies and critical accounting estimates and judgements (continued)

Capitalization of development costs

The application of the Company’s accounting policy for development costs requires judgment in determining the timing at which to begin capitalizing development costs and whether future economic benefits, which are based on assumptions about future events and circumstances, may be realized. Judgement is also required in assessing the extent and duration of any project suspension, including its impact on whether or not management can continue to capitalize development costs. Should the facts and circumstances surrounding a suspension of the project be such that management can no longer capitalize development costs related to the project, the impact on the Company’s financial position and results of operations may be significant.

Carrying value and recoverability of mineral properties

The carrying amount of the Company’s mineral properties does not necessarily represent present or future values, and the Company’s mineral properties have been accounted for under the assumption that the carrying amount will be recoverable. Recoverability is dependent on various factors, including the discovery of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete the development and upon future profitable production or proceeds from the disposition of the mineral properties themselves. Additionally, there are numerous geological, economic, environmental and regulatory factors and uncertainties that could impact management’s assessment as to the overall viability of the Kami Project or to the ability to generate future cash flows necessary to cover or exceed the carrying value of the Company’s mineral properties.

To the extent that any of management’s assumptions change, there could be a significant impact on the Company’s future financial position, operating results and cash flows.

Provisions

Provisions represent liabilities to the Company for which the amount or timing is uncertain. Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation and where the amount can be reliably estimated. Judgement is required to determine if a present obligation exists at the end of the reporting period by considering all available evidence. The expense relating to any provision is presented in the condensed interim consolidated statement of comprehensive loss.
Fair value estimates of financial liabilities

The determination of fair value of the liability component at the date of issuance of the convertible debt is based on a discounted cash flow model which requires management to estimate the current market interest rate that the Company could have obtained for a similar secured loan without a conversion option. Application of a different rate in the model could result in a different initial fair value of the liability component which would impact future interest accretion throughout the life of the liability.

Fair value of stock options

Determining the fair value of stock options requires the estimation of stock price volatility, the expected forfeiture rate and the expected term of the underlying instruments. Any changes in the estimates or inputs utilized to determine fair value could result in a significant impact on the Company’s future operating results.

 
9

 
Alderon Iron Ore Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
As of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013
(amounts in Canadian dollars, except share/option data)




2           Significant accounting policies and critical accounting estimates and judgements (continued)

Recovery of deferred tax assets

The estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the Company’s ability to utilize the underlying future tax deductions against future taxable income prior to expiry of those deductions. Management assesses whether it is probable that some or all of the deferred income tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income, which in turn is dependent upon the successful discovery, extraction, development and commercialization of mineral reserves. To the extent that management’s assessment of the Company’s ability to utilize future tax deductions changes, the Company would be required to recognize more or fewer deferred tax assets, and future income tax provisions or recoveries could be affected.

3           Restricted short-term investments

Restricted short-term investments represent short-term investments deposited with the Company’s bank to guarantee letters of credit issued in the course of the Company’s development activities. Such short-term investments must remain on deposit as long as the letters of credit are outstanding.

On February 19, 2014, the Company entered into a Power Purchase Agreement (“PPA”) with NLH, pursuant to which NLH agrees to sell electrical power and energy to the Company. Power will be provided based on a rate schedule in line with the Labrador Industrial Rates Policy published in December 2012. Under the terms of the Security Agreement with NLH (the “Security Agreement”), the Company has agreed to provide a total of $65,000,000 in security deposits that will each take the form of a letter of credit that will be released to the Company once the Kami Project is interconnected to the electrical system as contemplated under the PPA, and has been commissioned and the Company has loaded saleable product produced from the Kami Project in two consecutive months.

The first security deposit in the amount of $21,000,000 (the “Security Deposit”) was paid upon on the signing of the Security Agreement. The remaining $44,000,000 in security deposits will be provided to NLH at such time as NLH can reasonably demonstrate that it has additional existing and pending commitments for such amount to construct the new transmission line. NLH is required to provide sufficient advance notice of the timing and amounts of additional security deposits. The letter of credit expires on February 18, 2015.

On March 14, 2014, the Company issued a letter of credit for $967,011 in favour of Fisheries and Oceans Canada (“DFO”) in relation to the DFO’s monitoring of the Kami Project. The letter of credit expires on March 13, 2015.

On March 17, 2014, the Company issued a letter of credit for $235,000 in favour of Hydro-Quebec (“HQ”) in relation to HQ’s energy study at the Company’s port facilities in Sept-Îles. The letter of credit expires on March 16, 2015.

The Company expects that each of the letters of credit described above will be renewed at expiration.


 
10

 
Alderon Iron Ore Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
As of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013
(amounts in Canadian dollars, except share/option data)




4           Prepaid expenses and other current assets
 
As of September 30,
2014
As of December 31, 2013
 
$
$
     
Deferred transaction costs
1,973,353
896,005
Deposits on Kami Project activities
188,352
403,600
Other
218,879
22,599
 
2,380,584
1,322,204

During the nine-month period ended September 30, 2014, the Company incurred professional fees of $1,077,348 ($896,005 in 2013) that are directly related to a probable future debt transaction. These costs will be reclassified to debt upon completion of the debt transaction.

5           Receivables
 
As of September 30,
2014
As of December 31, 2013
 
$
$
     
Sales tax credits receivable
1,512,122
3,489,901
Deposits receivable
258,750
258,750
Interest receivable
228,592
12,079
 
1,999,464
3,760,730

6           Mineral properties

On January 15, 2013, the Company filed on SEDAR a Technical Report, entitled Feasibility Study of the Rose Deposit and Resource Estimate for the Mills Lake Deposit of the Kamistiatusset (Kami) Iron Ore Property, Labrador for Alderon Iron Ore Corp., (the “Feasibility Study”), dated effective December 17, 2012. As the technical feasibility and commercial viability of the extraction of the Kami Property’s mineral reserves have been demonstrated, the Company has started to capitalize directly attributable pre-production expenditures that give rise to future economic benefits as of February 1, 2013. Pre-production expenditures incurred prior to February 1, 2013 have been recorded in the condensed interim consolidated statement of comprehensive loss as exploration and evaluation expenses or environmental, aboriginal, government and community expenses.


 
11

 
Alderon Iron Ore Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
As of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013
(amounts in Canadian dollars, except share/option data)




6           Mineral properties

Components of the Company’s mineral properties, as well as the activity associated therewith, are summarized below.

 
Acquisition costs
Development costs
Share-based compensation costs capitalized
Depreciation capitalized
Total
 
$
$
$
$
$
           
Balance – January 1, 2013
88,668,710
-
-
-
88,668,710
Additions during the period
-
49,576,480
386,958
13,674
49,977,112
Balance – December 31, 2013
88,668,710
49,576,480
386,958
13,674
138,645,822
           
Additions during the period
-
35,806,172
89,342
26,704
35,922,218
Interest capitalized (note 11)
-
1,675,212
-
-
1,675,212
Balance –September 30, 2014
88,668,710
87,057,864
476,300
40,378
176,243,252


Additions to mineral properties in the condensed interim consolidated statement of cash flows are presented on a cash basis. During the three-month period ended September 30, 2014, cash expenditures totaled $8,472,234 ($17,437,865 for the three-month period ended September 30, 2013), the decrease in accrued expenditures totaled $5,440,241 (decrease of $4,480,743 for the three-month period ended September 30, 2013) and increase in other non-cash items totaled $298,206 ($89,256 for the three-month period ended September 30, 2013). During the nine-month period ended September 30, 2014, cash expenditures totaled $35,660,820 ($26,231,510 for the nine-month period ended September 30, 2013), the increase in accrued expenditures totaled $1,196,530 ($5,012,670 for the nine-month period ended September 30, 2013) and increase in other non-cash items totaled $740,080 ($321,503 for the nine-month period ended September 30, 2013).

7      Property, plant and equipment

During the three-month period ended September 30, 2014, the Company advanced $5,057,632 ($1,806,702 for the three-month period ended September 30, 2013) to various suppliers in relation to the purchase of equipment. During the nine-month period ended September 30, 2014, the Company advanced $17,660,867 ($1,806,702 for the nine-month period ended September 30, 2013). As of September 30, 2014, advances on equipment totaled $21,266,443.

8      Long-term advances

On July 13, 2012, the Company entered into an agreement with the Sept-Îles Port Authority (the “Port”) to secure usage of a new multi-user deep water dock facility that the Port is constructing (the “Port Agreement”).

Per the Port Agreement, the total initial commitment by the Company is $20,465,016 (the “Buy-in Payment”), which constitutes an advance on Alderon’s future shipping fees. The Buy-in Payment was payable in two equal installments, the first of which was paid upon signing the Port Agreement, and the second of which was paid on June 28, 2013. The Buy-in Payment will be reimbursed to the Company via a discount that will be applied to shipping fees to be billed by the Port once Alderon’s usage of the multi-user facility commences. The Company has a take or pay obligation based on a discounted rate applied on 50% of the 8,000,000 tons minimum annual shipping capacity and is payable even if Alderon does not use the facilities.


 
12

 
Alderon Iron Ore Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
As of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013
(amounts in Canadian dollars, except share/option data)




9           Payables and accrued liabilities
 
As of
September 30,
As of
December 31,
 
 
2014
2013
 
$
$
Accrued development costs (note 19)
9,803,562
9,159,018
Accrued salaries and benefits
1,565,218
2,101,783
Trade accounts payable
1,228,833
807,884
Sales tax credits payable
241,002
148,063
Accrued environmental, aboriginal, government and community costs
170,735
240,595
Accrued legal and professional expenses
164,048
441,619
Accrued finder’s fee (note 19)
-
1,198,875
Other accrued liabilities
73,524
81,689
 
13,246,922
14,179,526

10       Related party disclosures

Related parties and related party transactions impacting the accompanying condensed interim consolidated financial statements are summarized below and include transactions with the following individuals or entities:

Key management personnel

Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. The Company has determined that key management personnel consists of executive and non-executive members of the Company’s Board of Directors, corporate officers, including the Company’s Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, as well as any Vice Presidents reporting directly to a Corporate Executive Board member or officer, acting in that capacity.

Remuneration attributed to key management personnel can be summarized as follows:

 
Three-months ended
September 30,
Nine-months ended
September 30,
 
2014
2013
2014
2013
 
$
$
$
$
Short-term benefits*
896,554
868,554
2,607,628
2,472,703
Incentive compensation other than
  share-based compensation
293,725
278,310
994,677
807,845
Share-based compensation
145,818
405,357
426,650
1,739,732
 
1,336,097
1,552,221
4,028,955
5,020,280

 
*
include base salaries, pursuant to contractual employment or consultancy arrangements, Directors’ fees, applicable payroll taxes and other non-post-retirement benefits.

 
13

 
Alderon Iron Ore Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
As of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013
(amounts in Canadian dollars, except share/option data)




10       Related party disclosures (continued)

Other related parties

King & Bay West Management Corp. (“King & Bay”): King & Bay is an entity that is owned by the Executive Chairman of the Company’s Board of Directors. King & Bay provides certain administrative, management, geological, legal and regulatory, corporate development, information technology support and corporate communications services to the Company.

McInnes Cooper (“McInnes”), formerly Ottenheimer Baker Barristers & Solicitors: A Director of the Company was a partner at McInnes, which provides certain legal services to the Company.

Cassels Brock & Blackwell LLP (“Cassels”): A Director of the Company is the Deputy Managing Partner of Cassels, which acts as lead external counsel for the Company.

Liberty Metals & Mining Holdings, LLC (“Liberty”): Liberty is a significant shareholder of the Company and is entitled to a representative on Alderon’s Board of Directors. During the nine-month period ended September 30, 2014, Liberty provided the Company with financing (note 11).
 
HBIS International Holding (Canada) Co., Ltd (“HBIS”): HBIS is a subsidiary of Hebei Iron & Steel Group Co. Ltd (“Hebei”), a significant shareholder of the Company. HBIS has nominated two individuals who act as officers of Kami GP and provide services to the Company.
 
Transactions entered into with related parties other than key management personnel, not otherwise disclosed, include the following:
 
Three-months ended
September 30,
Nine-months ended
September 30,
 
 2014
2013
 2014
2013
 
$
$
$
$
Cassels
582,003
194,301
1,206,859
1,434,849
King & Bay
183,517
411,436
829,871
1,101,979
HBIS
80,004
90,671
240,012
90,671
McInnes
5,902
-
45,947
11,315
 
851,426
696,408
2,322,689
2,638,814

Amounts owed to related parties other than key management personnel, not otherwise disclosed are summarized below.


   
As of September 30,
2014
As of December 31, 2013
   
$
$
Cassels
 
495,461
128,606
King & Bay
 
126,713
92,423
HBIS
 
53,336
-
   
675,510
221,029

 
14

 
Alderon Iron Ore Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
As of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013
(amounts in Canadian dollars, except share/option data)




11       Convertible debt

On February 24, 2014, Liberty provided a loan to The Kami LP (the “Note”) in the amount of $22,000,000. $21,000,000 of the gross proceeds of the Note was used to fund the Security Deposit. The remaining $1,000,000 will be used for working capital purposes, including for the payment of the establishment fee and transaction costs. Commencing 12 months after the issuance of the Note, the principal amount of the Note and any accrued but unpaid interest, become convertible at Liberty’s option into the Company’s common shares at a conversion price equal to $2.376 per common share. The Note is secured with a mortgage over the Kami Project and bears interest at a rate of 8% per annum, payable on June 30th and December 31st of each year. A 1.5% establishment fee was paid to Liberty in connection with the Note. The Company has the option to prepay the entire balance of the Note, at a premium of a 20% internal rate of return to Liberty. The maturity date of the Note is December 31, 2018.

The issuance of the Note was recorded at inception as follows:
   
 
$
   
Debt component
17,052,703
Equity component
4,617,297
Transaction costs
330,000
Net proceeds
22,000,000

*           The effective interest rate that will be used to accrete the liability component of the Note up to the principal amount at maturity is 12.7%.

The recording of the equity component of the Note as described in the table above increased the non-controlling interest in the Company by $1,154,324.

Transactions affecting the debt component for the nine-month period ended September 30, 2014 were as follows:
   
 
$
   
Balance at January 1, 2014
-
Issuances
17,052,703
Accretion
624,033
Balance at September 30, 2014
17,676,736

During the nine-month period ended September 30, 2014, the Company accrued $1,051,179 and paid $607,562 in interest charges. The accrued amount, along with the $624,033 in accretion charges are capitalized to mineral properties (see note 6).

12     Transaction with Hebei

On September 4, 2012, the Company completed a subscription transaction (the “Subscription Transaction”) with Hebei, pursuant to an agreement whereby Hebei purchased 25,858,889 of the Company’s common shares by way of a private placement in exchange for aggregate gross proceeds of $62,319,922, less cash transaction costs of $1,435,901.
 

 
15

 
Alderon Iron Ore Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
As of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013
(amounts in Canadian dollars, except share/option data)




12    Transaction with Hebei (continued)

On closing of the Subscription Transaction, Hebei and Alderon also entered into an arrangement pursuant to which Hebei would invest an additional $119,926,293 (the “Initial Investment”) in exchange for a 25% interest in the Kami Project. Per the definitive agreements entered into between the Company and Hebei, the latter’s 25% interest would be made into The Kami LP. The Kami LP was established in order to develop and operate the Kami Project, and it is this entity into which Alderon would transfer all assets associated with the Kami Project contemporaneously with the Initial Investment. Alderon and Hebei would be required to contribute to capital expenditures for the development of the Kami Project not covered by initial capital contributions and project debt financing, in accordance with their respective interests. However, Hebei’s further contributions to The Kami LP will depend upon the amount of aggregate proceeds received as project debt financing and will not exceed $220,000,000.

On March 15, 2013, Hebei contributed the Initial Investment, and Alderon contributed the Kami Property and its related assets to The Kami LP. In connection with Hebei’s contribution of the Initial Investment, the Company has provided confirmations to Hebei with respect to certain information rights related to the development of the Kami Project and to the use of the Initial Investment proceeds.

13    Stock options

The following table summarizes the activity under the Company’s stock option plan.

 
Nine-months ended
September 30, 2014
   
Year ended
December 31, 2013
 
 
 
Number
Weighted average
exercise price
$
   
Number
Weighted average
exercise price
$
 
               
Balance, beginning of period
14,830,000
2.46
   
14,102,500
2.58
 
Granted
600,000
1.48
   
1,655,000
1.40
 
Exercised
-
-
   
-
-
 
Forfeited
(1,235,000)
2.15
   
(927,500)
2.42
 
               
Balance, end of period
14,195,000
2.45
   
14,830,000
2.46
 

Share-based compensation costs for the three-month period ended September 30, 2014 totaled $153,250 ($533,401 for the three-month period ended September 30, 2013): $25,872 capitalized in mineral properties ($86,193 for the three-month period ended September 30, 2013); and $127,378 in general and administrative expenses ($447,208 for the three-month period ended September 30, 2013). Share-based compensation costs for the nine-month period ended September 30, 2014 totaled $519,902 ($2,242,559 for the nine-month period ended September 30, 2013): $89,342 capitalized in mineral properties ($310,892 for the nine-month period ended September 30, 2013); nil in exploration and evaluation expenses ($39,912 for the nine-month period ended September 30, 2013); $430,560 in general and administrative expenses ($1,865,759 for the nine-month period ended September 30, 2013); and nil in environmental, aboriginal, government and community expenses ($25,996 for the nine-month period ended September 30, 2013).


 
16

 
Alderon Iron Ore Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
As of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013
(amounts in Canadian dollars, except share/option data)




13    Stock options (continued)

Fair value input assumptions

The table below shows the assumptions, or weighted average parameters, applied to the Black-Scholes option pricing model in order to determine share-based compensation costs over the life of the awards for options granted during each of the periods presented.
     
 
Nine-months
ended
September 30,
 2014
Nine-months
ended
September 30,
 2013
     
Expected dividend yield
0.0%
0.0%
Estimated volatility
59.5%
63.5%
Weighted average risk-free annual interest rate
1.09%
1.16%
Weighted average expected life (years)
2.5
2.5
Grant date fair value
$0.55
$0.54
     

14    Non-controlling interest

Non-controlling interest in the Company’s less than wholly owned subsidiary is classified as a separate component of equity. On initial recognition, non-controlling interest is measured at the fair value of the non-controlling entity’s contribution into the related subsidiary. Subsequent to the original transaction date, adjustments are made to the carrying amount of non-controlling interest for the non-controlling interest’s share of changes to the subsidiary’s equity.

Changes in the Company’s ownership interest in a subsidiary that do not result in a loss of control are recorded as equity transactions. The carrying amount of non-controlling interest is adjusted to reflect the change in the non-controlling interest’s relative interest in the subsidiary, and the difference between the adjustment to the carrying amount of non-controlling interests and the Company’s share of proceeds received and/or consideration paid is recognized directly in equity and attributed to owners of the Company.

15    Net loss per share

For the three-month and nine-month periods ended September 30, 2014 and 2013, diluted net loss per share was calculated based on the net loss and comprehensive loss attributable to owners of the parent using the basic weighted average number of shares outstanding, since all outstanding conversion options, warrants and stock options have been excluded from the calculation of diluted net loss per share because they were anti-dilutive. Accordingly, diluted net loss per share for each period was the same as the basic net loss per share.


 
17

 
Alderon Iron Ore Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
As of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013
(amounts in Canadian dollars, except share/option data)




16    Supplemental disclosure of cash flow information

 
Three-months ended
September 30,
Nine-months ended
September 30,
 
2014
2013
2014
2013
 
$
$
$
$
Changes in operating assets and liabilities
       
Receivables
263,321
(1,150,022)
1,977,779
(554,708)
Prepaid expenses and other current
  assets
(201,263)
195,179
(1,058,380)
112,197
Long-term advance
-
-
-
(10,232,508)
Payables and accrued liabilities
(2,738,665)
(53,995)
(1,685,518)
(2,991,120)
Due to related parties
358,798
(699,557)
454,481
12,471
 
(2,317,809)
(1,708,395)
(311,638)
(13,653,668)

17    Capital disclosures

The Company’s objective in managing capital, consisting of equity, with cash and cash equivalents being its primary component, is to ensure sufficient liquidity to fund: development and other Kami Project activities; general and administrative expenses; working capital; and capital expenditures.

Management regularly monitors the Company’s capital structure and makes adjustments thereto based on funds available to the Company for the acquisition, exploration and development of mineral properties. The Board of Directors has not established quantitative return on capital criteria for capital management, but rather relies upon the expertise of the management team to sustain the future development of the business.

The properties in which the Company currently has an interest are in the development stage, and the Company does not generate any revenue. Accordingly, the Company is dependent upon sources of external financing to fund both the Kami Project and its other costs. While the Company endeavours to minimize dilution to its shareholders, management has in the past engaged in dilutive financial transactions, such as private placements, and may engage in dilutive arrangements in the future.

The Company’s policy on dividends is to retain cash to keep funds available to finance the activities required to advance the Company’s Kami Project. Although the Company is not subject to any capital requirements imposed by any regulators or by any other external source, Alderon has provided confirmation to Hebei with respect to the use of the Initial Investment proceeds.

As at September 30, 2014, $26,815,900 of cash is held by The Kami LP which is the remaining amount of the Initial Investment. Under the terms of the agreements with Hebei, Alderon has agreed that the proceeds from the Initial Investment would be used solely for Kami Project related expenditures. As a result, Alderon is restricted from transferring this cash from The Kami LP to Alderon. Currently this restriction does not have an effect on Alderon’s ability to meet its short- to medium-term obligations as Alderon held $5,834,453 of cash and cash equivalents as at September 30, 2014.


 
18

 
Alderon Iron Ore Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
As of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013
(amounts in Canadian dollars, except share/option data)




18    Financial instruments, financial risk management and fair value

Financial risk management

The Company is exposed in varying degrees to certain risks arising from financial instruments, as discussed below.

Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.

As discussed in note 17, the Company’s capital management objectives include working to ensure that the Company has sufficient liquidity to fund Company activities that are directly and indirectly related to the advancement of the Kami Project.

The Company endeavours to ensure that it will have sufficient liquidity in order to meet short- to medium-term business requirements and all financial obligations as those obligations become due (see also Nature of operations and going concern in note 1). Historically, sufficient liquidity has been provided predominantly through external financing initiatives, including strategic, traditional and flow-through private placements to investors and institutions. The Company does not currently have sufficient resources to fund the construction of the Kami Project. Alderon is actively engaged in discussions to raise the necessary capital to meet its funding requirements for the Kami Project, including debt and equity financing. The Company will continue to rely upon sources of external financing in future periods until such time as commercial production commences. There is no assurance that financing of sufficient amounts or on terms acceptable to the Company will be available, notwithstanding the Company’s successful capital-raising activities prior to September 30, 2014 (see note 11).

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

The Company’s receivables consist primarily of sales tax credits, which are due from Canadian federal and provincial tax agencies. Additionally, the Company’s cash and cash equivalents and restricted short-term investments are held in deposit at high-credit quality Canadian financial institutions. As a result, management considers the risk of non-performance related to accounts receivable and cash and cash equivalents and restricted short-term investments to be minimal.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Fluctuations of market interest rates have little impact on the Company’s financial results since the Company does not have variable rate debt at September 30, 2014. Changes in market interest rates do not have an impact on interest expense related to the Note because the rate of the Note is fixed.


 
19

 
Alderon Iron Ore Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
As of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013
(amounts in Canadian dollars, except share/option data)




18    Financial instruments, financial risk management and fair value (continued)

Fair value

The carrying values of the Company’s cash and cash equivalents, restricted short-term investments, receivables, payables and accrued liabilities and amounts due to related parties approximate their fair values due to their short-term maturities or to the prevailing interest rates of the related instruments, which are comparable to those of the market. The determination of fair value of the convertible debt as at September 30, 2014 is based on a discounted cash flow model using the current market interest rate that the Company could have obtained for a similar secured loan without a conversion option.

The fair values of the Company’s financial assets and liabilities, together with the carrying values included in the balance sheet, as of September 30, 2014 and December 31, 2013 are presented below.

September 30, 2014
Carrying value
Fair value
 
$
$
Financial assets
   
   Cash and cash equivalents
32,650,353
32,650,353
   Restricted short-term investments (note 3)
22,202,011
22,202,011
   Receivables (note 5)
487,342
487,342
Financial liabilities
   
   Payables and accrued liabilities (note 9)
(13,005,920)
(13,005,920)
   Due to related parties (note 10)
(675,510)
(675,510)
   Convertible debt, including interest payable (note 11)
(18,120,353)
(18,120,353)
 
23,537,923
23,537,923


December 31, 2013
Carrying value
Fair value
 
$
$
Financial assets
   
   Cash and cash equivalents
95,366,039
95,366,039
   Receivables (note 5)
270,829
270,829
Financial liabilities
   
   Payables and accrued liabilities (note 9)
(14,031,463)
(14,031,463)
   Due to related parties (note 10)
(221,029)
(221,029)
 
81,384,376
81,384,376

In the preceding tables, receivables exclude sales tax credits, and payables and accrued liabilities exclude sales tax credits payable.


 
20

 
Alderon Iron Ore Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
As of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013
(amounts in Canadian dollars, except share/option data)




19    Commitments and contingencies

In connection with the closing of the Subscription Transaction (see note 12), the Company had committed to pay a finder’s fee associated with the Initial Investment (the “Finder’s Fee”) and an off-take sales fee to the finder engaged to identify Hebei to the Company and to assist with the conclusion of the transaction with Hebei (the “Finder”). On March 15, 2013, the Company sent notice terminating the finder’s fee agreement, in accordance with its terms. On July 31, 2013, the Company and the Finder concluded a settlement agreement for the Finder’s Fee and the off-take sales fee. The total amount of the settlement is $1,798,500. All payments made also included an interest amount calculated at a rate of 1% per annum from April 30, 2013 until the date of payment. As part of the settlement, the Finder has released all claims to the off-take sales fee.

On March 1, 2012, the Company entered into a two-year aircraft charter agreement (the “Charter Agreement”) with Image Air Charter Ltd. (“Image Air”) for a plane that Image Air leases from a limited partnership. The former Vice Chairman of the Company’s Board of Directors is the sole limited partner of this limited partnership. Per the Charter Agreement, the minimum cost to the Company is $44,400 per month, with additional charges incurred for each hour that the aircraft is flown. On April 9, 2013, the Company sent notice to Image Air terminating the Charter Agreement, in accordance with its terms.

The Company has negotiated contracts with suppliers in relation to the purchase of equipment. As at September 30, 2014, payments of $37,100,000 remain to be paid on the equipment for contracts entered into and approximately $30,000,000 of this amount is contingent on confirmation by the Company of future fabrication of this equipment.

On January 21, 2014, the Company entered into an agreement (the “Agreement”) with the Town of Labrador City (“Labrador City”) with respect to the development of the Kami Project. Under the terms of the Agreement, the Company will pay to Labrador City an annual grant, in lieu of municipal taxes based on the Kami Project mining operations that will be located outside the town boundaries but within the Municipal Planning Area of Labrador City. The Company will not be required to pay municipal or other taxes except with respect to such assets and business of the Company, as may be located from time to time within the town boundaries of Labrador City.

On January 21, 2014, the Company and the Innu Nation entered into an Impact and Benefits Agreement ("IBA") with respect to carrying out the Kami Project. The IBA provides for participation in the Kami Project on the part of the Innu Nation in the form of training, jobs and contract opportunities, along with providing their community with financial and socio-economic benefits over the life of the mine. The IBA also contains provisions which recognize and support the culture, traditions and values of the Innu Nation.

On February 18, 2014, the Federal Government of Canada issued the Notice of the Minister of Environment’s Environmental Assessment Decision Statement for the Kami Project (the “Decision Statement”). The Decision Statement sets out the Minister of Environment’s conclusion that the Kami Project is “not likely to cause significant adverse environmental effects”. As a result, the Kami Project has approval to proceed, subject to the terms and conditions included in any federal permits or authorizations. On January 10, 2014 the Cabinet of Newfoundland and Labrador (the “Provincial Cabinet”) determined that the Kami Project met the requirements of Part X of the Newfoundland and Labrador Environmental Protection Act and was released from the provincial environmental assessment process. On March 17, 2014, the Company received the federal Navigable Waters Protection Act Approval and on March 25, 2014, the Company received the federal Fisheries Act Authorization. Combined with the decisions by the Federal Minister of Environment and the Provincial Cabinet, Alderon is now in a position to move ahead with plans to commence construction, subject to completion of the Company’s financing plan.

 
21

 
Alderon Iron Ore Corp.
Notes to the Condensed Interim Consolidated Financial Statements (Unaudited)
As of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013
(amounts in Canadian dollars, except share/option data)




19    Commitments and contingencies (continued)

On March 25, 2014, the Company signed a Grant-in-lieu of Municipal Taxes Agreement (the “Wabush Agreement”) with the Town of Wabush (“Wabush”) with respect to the development of the Kami Project. Under the terms of the Wabush Agreement, the Company will pay to Wabush an annual grant-in-lieu of municipal taxes on the Kami Project mining operations. Payments under the Wabush Agreement will commence after initial production occurs at the Kami Project. As long as the Company makes the payments required under the Wabush Agreement, Wabush will not seek to charge or assess the Company for any municipal taxes in relation to the Kami Project or the business carried on by the Company on the Kami Project.

On May 27, 2014, Alderon signed a benefits agreement with the Province of Newfoundland and Labrador (the “Provincial Agreement”). The Provincial Agreement covers the life of the Kami Project and sets out employment, procurement and training benefits. Under the terms of the Provincial Agreement, Alderon has committed to provide full and fair opportunity and first consideration for provincial residents and suppliers. The Company has also agreed to establish an education and training fund commencing after the Kami Project achieves commercial production.

On June 30, 2014, the Company announced the completion of the required engineering work in order to commence construction at the Kami Project. The commencement of construction remains subject to the completion of the Company’s financing plan and project sanction by the Board of Directors of Alderon. As such, Alderon has temporarily suspended any further work by its EPCM contractor. It is likely that the temporary suspension of the EPCM contractor will result in certain demobilization costs to be incurred and charged to the Company in accordance with the terms of the EPCM contract. As at September 30, 2014, the Company has estimated an accrual of $3,300,000 in demobilization costs, which have been accounted as development expenses in the condensed interim consolidated statements of comprehensive loss as these costs were determined to not be directly attributable to the Kami Project for the nine-month period ended September 30, 2014. The actual amount to be incurred is a function of the duration of delay, actual costs incurred and commitments entered into by the EPCM contractor, and adjustments to the estimate will be recorded in future periods as necessary.

On July 29, 2014, The Company entered into an off-take agreement (the “Glencore Agreement”) with a subsidiary of Glencore plc (“Glencore”), with respect to an off-take transaction pursuant to which Glencore will acquire all of actual annual production from the Kami Project that has not been allocated to Hebei. Under the terms of the Glencore Agreement, Glencore will be obligated to purchase upon the commencement of commercial production, 40% of the actual annual production from the Kami Project up to a maximum of 3,200,000 tonnes of the first 8,000,000 tonnes of iron ore concentrate produced annually at the Kami Project. The term of the Glencore Agreement will continue until Kami LP has delivered 48,000,000 tonnes of iron ore concentrate to Glencore, which is expected to be 15 years after the commencement of commercial production. The market price paid by Glencore will be based on the monthly average price for iron ore sinter feed fines quoted by Platts Iron Ore Index for 62% iron content (plus additional quoted premium for iron content greater than 62%), less a discount equal to 2% of such quoted price.

20    Subsequent event

Alderon engaged a contractor under an agreement (the “Contractor Agreement”) pursuant to which the contractor was engaged to provide financial, management and business consulting services to the Company. On November 12, 2014, the Company and the contractor agreed to terminate the Contractor Agreement and settle all outstanding fees and expenses under the Contractor Agreement in exchange for the issuance of 1,990,049 common shares of Alderon. The issuance of common shares is subject to regulatory approval, including the approval of the Toronto Stock Exchange.


 
22

 
 






 

 
 

 

(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Introduction

This Management’s Discussion and Analysis (“MD&A”) provides a review of the financial performance, financial condition and cash flows of Alderon Iron Ore Corp. for the nine-month period ended September 30, 2014. In this MD&A, “Alderon”, the “Company”, “we”, “us” or “our” mean Alderon Iron Ore Corp. and its subsidiaries and affiliates. This MD&A should be read in conjunction with the Company’s annual consolidated financial statements as of and for the years ended December 31, 2013 and 2012 and is intended to supplement and complement the unaudited condensed interim consolidated financial statements and notes thereto as of September 30, 2014 and for the three-month and nine-month periods ended September 30, 2014 and 2013 (collectively, the “Financial Statements”). This MD&A is prepared as of November 12, 2014.

The Company has prepared this MD&A with reference to National Instrument 51-102 “Continuous Disclosure Obligations” of the Canadian Securities Administrators. Under the U.S./Canada Multijurisdictional Disclosure System, the Company is permitted to prepare this MD&A in accordance with the disclosure requirements of Canada, which are different from those of the United States.

All dollar amounts in this MD&A are presented in Canadian dollars (which is the Company’s presentation and functional currency), except where otherwise indicated.

Responsibility of financial reports

Management is responsible for the preparation and integrity of financial reports, as well as for the maintenance of appropriate information systems, procedures and internal controls and for ensuring that information used internally or disclosed externally, including our Financial Statements and MD&A, is complete and reliable. The Company’s Board of Directors follows recommended corporate governance guidelines for public companies to ensure transparency and accountability to shareholders. Our Board of Director’s Audit Committee meets with management quarterly to review the Financial Statements and the MD&A and to discuss other financial, operating and internal control matters.

Our Financial Statements have been prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board (“IFRS”). Consequently, all comparative financial information presented in this MD&A reflects the consistent application of IFRS.

Except as otherwise indicated, Mr. Brian Penney, P.Eng., the Chief Operating Officer of Alderon and a Qualified Person, as defined by National Instrument 43-101, Standards of Disclosure for Mineral Projects (“NI 43-101”), has reviewed and approved the technical information contained in this MD&A.

Forward-looking information

This MD&A contains "forward-looking information" within the meaning of the U.S. Private Securities Litigation Reform Act and applicable Canadian securities laws concerning anticipated developments and events that may occur in the future. Forward looking information contained in this MD&A includes, but is not limited to, statements with respect to: (i) the estimation of mineral reserves and mineral resources; (ii) permitting time lines; (iii) the sufficiency of working capital; (iv) requirements for additional capital; (v) development, construction and production
 
 
 

 

(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



timelines and estimates; (vi) the timing of long lead equipment items; (vii) the supply of power for the Kami Project; (viii) the use of financing proceeds; (ix) the results of our Feasibility Study (as defined below), including statements about estimated future production, future operating and capital costs, the projected internal rate of return (“IRR”), net present value (“NPV”), payback period, construction timelines and production timelines for the Kami Property (as defined below); (x) forecasts for future expenditures; (xi) the Company’s financing strategy for the development of the Kami Project, including the Senior Debt Facility (as defined below); and (xii) the statements in the “Outlook for 2014” section of this MD&A including the anticipated amount, timing and successful completion of the Senior Debt Facility and other financing for the construction of the Kami Project, the expected timeline for the commencement of construction and its duration, the negotiation and conclusion of infrastructure contracts, implementation of agreements and ongoing consultation with aboriginal groups.

In certain cases, forward-looking information can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved" suggesting future outcomes, or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. Forward-looking information contained in this MD&A is based on certain factors and assumptions regarding, among other things, the estimation of mineral reserves and resources, the realization of resource estimates, iron ore and other metal prices, the timing and amount of future exploration and development expenditures, the estimation of initial and sustaining capital requirements, the estimation of labour and operating costs, the availability of necessary financing and materials to continue to explore and develop the Kami Property (as defined below) in the short-and long-term, the progress of exploration and development activities, the receipt of necessary regulatory approvals, the estimation of insurance coverage, and assumptions with respect to currency fluctuations, environmental risks, title disputes or claims, and other similar matters. While the Company considers these assumptions to be reasonable based on information currently available to it, these assumptions may prove to be incorrect.

Forward looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information including, without limitation, the following risks and uncertainties referred to under the heading “Risk Factors” in the Company’s Annual Information Form (“AIF”) for the year ended December 31, 2013:

·  
risks relating to the fact that the Company depends on a single mineral project;
·  
risks inherent in the exploration and development of mineral deposits, including risks relating to changes in project parameters as plans continue to be redefined including the possibility that mining operations may not commence at the Kami Property;
·  
risks relating to variations in mineral resources and reserves, grade or recovery rates resulting from current exploration and development activities;
·  
risks related to fluctuations in the price of iron ore as the Company’s future revenues, if any, are expected to be derived from the sale of iron ore;
·  
risks related to a reduction in worldwide and specifically Chinese demand for iron ore which could result in lower prices and demand for iron ore;
·  
financing, capitalization and liquidity risks, including the risk that the financing necessary to fund the development and construction activities at the Kami Property may not be available on satisfactory terms, or at all;


 

(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014


 
·  
the Company has no history of mining operations and no revenues from operations and expects to incur losses for the foreseeable future;
·  
risks related to the Company relying on a single customer for 60% of its expected iron ore concentrate production (as noted below, as of July 29, 2014, the Company relies on only two customers for 100% of its expected iron ore concentrate production);
·  
risks related to the Company obtaining various permits required to conduct its current and anticipated future operations;
·  
risks related to unresolved land claims by various aboriginal groups;
·  
risks related to disputes concerning property titles and interest;
·  
risks relating to the ability to access rail transportation, sources of power and port facilities;
·  
the Company is dependent on the support and cooperation of Hebei Iron & Steel Group Co. Ltd (“Hebei”), its partner to develop the Kami Property;
·  
operational risks inherent in the conduct of mining activities, including the risk of accidents, labour disputes, increases in capital and operating costs and the risk of delays or increased costs that might be encountered during the development process;
·  
risks related to the significant governmental regulation that the Company is subject to;
·  
environmental risks;
·  
reliance on key personnel;
·  
risks related to increased competition in the market for iron ore and related products and in the mining industry generally;
·  
risks related to potential conflicts interests among the Company’s directors and officers;
·  
the absence of dividends;
·  
risks related to current global financial conditions;
·  
land reclamation requirements may be burdensome;
·  
risks associated with the acquisition of any new properties;
·  
uncertainties inherent in the estimation of mineral resources;
·  
the Company may become subject to legal proceedings; and
·  
risks relating to the Company’s common shares.

Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. The forward-looking information is made as of the date of this MD&A.

Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking information contained in this MD&A is expressly qualified by this cautionary statement. Except as required by applicable securities laws, the Company does not undertake any obligation to publicly update or revise any forward-looking information, and readers should also carefully consider the matters discussed under the heading, "Risk Factors", in this MD&A and under the heading, “Risk Factors”, in the AIF.

 
3

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014




Cautionary Note to investors in the United States regarding resource estimates

This MD&A has been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of United States (“U.S.”) securities laws. Unless otherwise indicated, all resource and reserve estimates included in this MD&A have been prepared in accordance with NI 43-101 and the Canadian Institute of Mining and Metallurgy Classification System. NI 43-101 is a rule developed by the Canadian Securities Administrators which establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects.

Canadian standards, including NI 43-101, differ significantly from the requirements of the United States Securities and Exchange Commission (“SEC”), and reserve and resource information contained herein may not be comparable to similar information disclosed by U.S. companies. In particular, and without limiting the generality of the foregoing, the term “resource” does not equate to the term “reserves”. Under U.S. standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SEC’s disclosure standards normally do not permit the inclusion of information concerning “measured mineral resources”, “indicated mineral resources” or “inferred mineral resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by U.S. standards in documents filed with the SEC. U.S. investors should also understand that “inferred mineral resources” have a great amount of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an “inferred mineral resource” will ever be upgraded to a higher category. Under Canadian rules, estimated “inferred mineral resources” may not form the basis of feasibility or pre-feasibility studies. Investors are cautioned not to assume that all or any part of an “inferred mineral resource” exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in place tonnage and grade without reference to unit measures. The requirements of NI 43-101 for identification of “reserves” are also not the same as those of the SEC. Accordingly, information concerning mineral deposits set forth herein may not be comparable with information made public by U.S. companies subject to the reporting and disclosure requirements of the SEC.

Description of business and overview

Alderon is a development-stage company advancing towards production its Canadian iron ore properties, located in the province of Newfoundland & Labrador. Those properties are collectively referred to as the Kamistiatusset, or “Kami”, Property. All activities associated with the Kami Property are referred to as the Kami Project.

The Company’s common shares are listed on both the Toronto Stock Exchange, under the symbol “ADV”, and on the NYSE MKT LLC, under the symbol “AXX”.

 
4

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014




Highlights for the nine-month period ended September 30, 2014

·  
In January 2014, the Company and the Innu Nation entered into an Impact and Benefits Agreement ("IBA").
·  
On January 10, 2014, the Government of Newfoundland and Labrador released the Kami Project from the Provincial Environmental Assessment (the “PEA”) process.
·  
On January 21, 2014, the Company entered into an agreement (the “LC Agreement”) with Labrador City with respect to an annual grant-in-lieu of municipal taxes.
·  
In February 2014, Alderon finalized orders for the supply of the rotary car dumper and stacker-reclaimer.
·  
On February 18, 2014, the Federal Minister of Environment released the Environmental Assessment Decision which determined that the Kami Project is not likely to result in any significant negative environmental effects. This decision marked the conclusion of the Federal Environmental Assessment process.
·  
On February 19, 2014, the Company entered into a Power Purchase Agreement (“PPA”) with Newfoundland and Labrador Hydro (“NLH”), a subsidiary company of Nalcor Energy (“Nalcor”).
·  
On February 24, 2014, Liberty Metals & Mining Holdings, LLC (“Liberty”) provided a loan (the “Liberty Loan”) to the Company in the amount of $22.0 million.
·  
In March 2014, the Company entered into an agreement (the “Framework Agreement”) with the Innu of Uashat mak Mani-Utenam and the Innu of Matimekush-Lac John (collectively, “The Innu”).
·  
On March 25, 2014 the Company signed a grant-in-lieu of Municipal Taxes Agreement (the “Wabush Agreement”) with the Town of Wabush (“Wabush”).
·  
On May 13, 2014, Alderon’s General Environmental Protection Plan, Environmental Protection Plan for Valued Environmental Components and Environmental Effects Monitoring Plan (collectively, the “Plans”) were approved by the Provincial Minister of Environment and Conservation.
·  
On May 27, 2014, Alderon received its Mining and Surface Leases (collectively, the “Leases”).
·  
On May 27, 2014, Alderon signed a benefits agreement with the Province of Newfoundland and Labrador (the “Provincial Agreement”) which and sets out employment, procurement and training benefits.
·  
In June 2014, the Company concluded purchase and sale agreements with twenty-three cabin owners.
·  
On June 11, 2014, the Company signed a Life Cycle Services Agreement with Metso Minerals Canada (“Metso”).
·  
On June 30, 2014, the Company announced that it had completed the required pre-construction engineering on the Kami Project and as such has temporarily suspended any further work by WorleyParsons Canada Services Ltd. (“WorleyParsons”).
·  
On July 29, 2014, The Kami LP entered into an off-take agreement (the “Glencore Agreement”) with a subsidiary of Glencore plc (“Glencore”), with respect to an off-take transaction pursuant to which Glencore will acquire all of actual annual production from the Kami Project that has not been allocated to Hebei.
·  
On August 20, 2014, the Company announced that Alderon and BNP Paribas (“BNP”) mutually agreed to terminate the engagement of BNP as lead arranger of the Senior Debt Facility (as defined below) for the construction of the Kami Project. Alderon appointed Endeavour Financial Limited (Cayman) (“Endeavour Financial”) to act as its financial advisor with respect to the project financing process and intends to form a club syndicate of international banks to provide the senior debt financing facility.
·  
On October 2, 2014, the Company reported that NLH has cleared 20 kilometers in preparation for the installation of the New Transmission Line (as defined below).

 
5

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014




The Kami Project

Alderon is focused on developing its core asset, the Kami Property, which is located next to the mining towns of Wabush and Labrador City in western Labrador, Canada. The Kami Property is surrounded by three producing mines and is within close proximity to a common carrier railway that is connected to deep sea ports with year-round access to the global market. The Company’s goal is to develop the Kami Property into a profitable mining operation and to become a producer of low-cost iron concentrate by taking advantage of the Kami Property’s strategic location and of the readily available regional infrastructure.

The following represents a brief summary of key activities, milestones and deliverables associated with the ongoing advancement of the Kami Project during the nine-month period ended September 30, 2014. Information related to prior periods is included where contextualization for 2014 activities is deemed appropriate. In addition to the technical, geological and exploration-specific activities carried out on the Kami Property, the following summary presents information related to environmental, aboriginal, government and community-related efforts, as well as a brief discussion of infrastructure-related matters and initiatives.

Much of the information presented below is derived from the Company’s Technical Report, entitled Feasibility Study of the Rose Deposit and Resource Estimate for the Mills Lake Deposit of the Kamistiatusset (Kami) Iron Ore Property, Labrador for Alderon Iron Ore Corp., (the “Feasibility Study”), dated effective December 17, 2012 and filed on January 16, 2013, on SEDAR (accessible at www.sedar.com). Additional and more detailed information can be found in the Feasibility Study, as well as in the Company’s AIF for the year ended December 31, 2013.

Exploration and development initiatives

From January 1, 2010, through to September 30, 2014, the Company has incurred a cumulative total of $153.8 million related to the Kami Project. These costs include $65.5 million of exploration and evaluation expenditures which have been accounted for as expenses in the consolidated statements of comprehensive loss and $87.6 million of development costs which have been accounted for as additions to mineral properties in the consolidated statement of financial position. A description of the nature of the development costs is detailed in the discussion under the heading “Consolidated statement of financial position information-Mineral properties” below.

 
6

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014




Feasibility Study initiatives

On January 9, 2013, Alderon announced that it had received the results of the Feasibility Study on the Rose Deposit. The Feasibility Study was completed by BBA Inc. (“BBA”), located in Montreal, Quebec, Stantec Consulting Ltd. (“Stantec”), located in St. John’s, Newfoundland & Labrador, and Watts, Griffis and McOuat Limited (“WGM”), located in Toronto, Ontario. The Feasibility Study was based on a subset of the total resource and utilized the measured and indicated resources in the Rose Deposit only. The highlights of the Feasibility Study include the estimates that are presented below (dollar amounts are USD and are presented on a pre-tax basis, except where otherwise indicated):

NPV at 8% discount rate
$3,244 million
IRR
29.3%
Total estimated capital cost (excluding sustaining capital and closure costs)
$1,273 million
Average estimated operating costs (loaded in ship Port of Sept-Îles) per tonne
$42.17
Free on board (“FOB”) concentrate sales price forecast- based on long-term Cost and Freight (“CFR”) benchmark prices of $115/t (from Year 1-5) and $110/t (from Year 6 onward) @ 62% iron adjusted for Kami Iron (“Fe”) grade and Hebei agreement terms
     Year 1-5
     Year 6 onward
 
$107
$102
Estimated mine life (the number of years that the Company is planning to mine and treat ore)
30 years
Final product grade (% iron content)
65.2%
Measured and Indicated Resource of the Rose Deposit (in tonnes)
1,093.2 million
Proven and Probable Reserves of the Rose Deposit (in tonnes)
668.5 million
Annual production (average life of mine, post ramp-up year) (in tonnes)
8.0 million
Projected years to payback, at 8% discount rate
3.8

The level of accuracy of the Feasibility Study is considered by the authors to be +/-15% and a foreign exchange rate of US$1.00=$1.00 was used. Please refer to the heading “Outlook for 2014” in this MD&A for the expected timing of certain key project milestones.

The mineral resource estimate for the Kami Property is set out below. WGM was retained to audit an in-house estimate completed by Alderon. Mr. Michael Kociumbas, P.Geo. and Mr. Richard Risto, P.Geo., with independent firm, WGM, are Qualified Persons as defined by NI 43-101 and were responsible for reviewing and approving this mineral resource estimate. They have verified, reviewed and approved the technical data contained in the underlying sampling, analytical and test data. The mineral resource estimate has been prepared using a 15% Total Fe cut-off grade, and is inclusive of mineral reserves.
 
7

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014





Zone
Category
Tonnes
(millions)
Total Iron Content (TFe)%
Magnetite Iron (MagFe)%
Hematite Iron (hmFe)%
Rose Central
Measured
249.9
29.4
17.6
8.1
 
Indicated
294.5
28.5
17.7
5.9
 
Total
544.4
28.9
17.7
6.9
           
 
Inferred
160.7
28.9
16.9
7.1
           
Rose North
Measured
236.3
30.3
13.0
14.7
 
Indicated
312.5
30.5
11.8
17.1
 
Total
548.8
30.4
12.3
16.1
           
 
Inferred
287.1
29.8
12.5
15.5
           
Mills Lake
Measured
  50.7
30.5
21.5
7.0
 
Indicated
130.6
29.5
20.9
3.9
 
Total
181.3
29.8
21.1
4.8
           
 
Inferred
  74.8
29.3
20.3
2.7

The mining engineering work performed for the Feasibility Study was based on the 3-D block model provided by Alderon and audited by WGM. Pit optimizations were performed on Measured and Indicated resources, and the pit shell having the optimal discounted NPV and strip ratio at a cut-off grade of 15% Total Fe was selected for the mineral reserve estimate. The final mineral reserve was estimated after applying engineering and operational design parameters. BBA is of the opinion that the mineral reserve estimate derived in the Feasibility Study reasonably quantifies the economical ore mineralization of the Rose Deposit. The mineral reserves presented in the table below are included in the mineral resource estimate set out above.

Category
Mt
TFe%
Weight recovery (“WREC”)%
MagFe%
Magnetite%
Proven
431.7
29.7
35.5
15.5
21.4
Probable
236.8
29.2
34.1
14.9
20.5
Total
668.5
29.5
35.0
15.3
21.1

 
8

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



The Kami Project, as stated in the Feasibility Study, includes the following components:

·  
The Rose Deposit and waste rock disposal areas.
·  
Processing infrastructure, including a crushing and grinding circuit, spiral plant, magnetite plant and fine tailings thickener.
·  
Tailings management facility.
·  
Ancillary infrastructure to support the mine and process plant (gate and guardhouse, reclaim water pumphouse, truck wash bay and repair shop, electrical substation, administration/office buildings, maintenance offices, warehouse area and employee facilities, conveyors, loadout silo, stockpiles, sewage and effluent water treatment systems, mobile equipment and transmission lines).
·  
Services for a temporary construction camp located off-site and operated by a third party.
·  
The rail infrastructure, including the rail line connecting to Quebec North Shore & Labrador (“QNS&L”) railway, the rail loop and the service tracks consist of a total of 25 km of new track passing to the south and east of Wabush.
·  
Power provided by Nalcor directly to the Kami site main substation by means of a 315 kV transmission line.

Facilities at the Port of Sept-Îles (the “Port”) will include:

·  
A rail transportation component consisting of a Sept-Îles Junction interchange, railway line and staging tracks.
·  
A car dumper.
·  
A stacker/reclaimer system.
·  
A concentrate storage area with a capacity of 550,000 tonnes.
·  
A conveyor system feeding the future common deep water shiploading facility, capable of loading high capacity vessels destined for Asia, operated by the Sept-Îles Port Authority (the “Port Authority”).

The proposed project will produce 8.0 million tonnes of iron ore concentrate per year and will ship concentrate to market via the Port facilities at Pointe Noire, Quebec. Ore processing will take place at the Kami Property and will involve the following steps:

·  
Ore will be mined from the open pit mine using conventional drill and blast and loading techniques and transported via haul trucks.
·  
Ore will be hauled to the primary crusher in proximity of the pit and the crushed ore will be delivered to the stockpile and to the process plant via conveyor.
·  
The process plant will include grinding, screening, and gravity and magnetic concentration.
·  
Tailings (process waste) will be pumped to the tailings impoundment area south of the process plant.
·  
Iron ore concentrate will be loaded onto gondola rail cars for transportation to the Port where it will be stockpiled and in turn transferred to ships for delivery to market.

 
9

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Mr. Angelo Grandillo, P.Eng, of BBA, a Qualified Person as defined by NI 43-101 has reviewed and approved the technical information contained in this section, with the exception of the mineral resource estimate which was reviewed and approved by WGM as noted above. Mr. Grandillo has verified all the data underlying the technical information disclosed in this section.

Environmental, aboriginal, government and community initiatives

Environment

The Kami Project is subject to the environmental assessment provisions of the Newfoundland and Labrador Environmental Protection Act and the Canadian Environmental Assessment Act.

On September 30, 2013, the Provincial Government announced that the Environmental Impact Statement (“EIS”) submitted by Alderon complies with the legislation and the EIS Guidelines and that no further work under the provincial environmental assessment process was required. Subsequently, on January 10, 2014, the Government of Newfoundland and Labrador determined that the Kami Project met the requirements of Part X of the Newfoundland and Labrador Environment Protection Act and released the Kami Project from the Provincial Environmental Assessment process. This marked the end of the PEA process. In compliance with the conditions of release from the PEA process, Alderon submitted the Plans for Ministerial approval on April 16, 2014. The Plans were approved by the Minister of Environment and Conservation on May 13, 2014.

At the Federal level, the Canadian Environmental Assessment Agency (“CEAA”) prepared its Comprehensive Study Report which presents CEAA’s analysis of the Kami Project to determine whether the Kami Project is likely to cause significant adverse environmental effects. On February 18, 2014, the Minister of Environment released the Environmental Assessment Decision which determined that the Kami Project is not likely to result in any significant negative environmental effects. This decision marked the conclusion of the Federal Environmental Assessment process. In addition, the Company received the federal Navigable Waters Protection Act Approval pursuant to subsections 5(1) and (3) of the Navigable Waters Protection Act and the federal Fisheries Act Authorization pursuant to Sections 35(2)(b) of the federal Fisheries Act.

At the municipal level, Labrador City and Wabush (collectively, the “Towns”) municipal plan amendments to rezone lands within the Kami Project has been completed. The footprint of the Kami Project’s operations in Labrador is located entirely within the municipal planning areas of the Towns. The Towns published these amendments in the March 14, 2014 edition of the Newfoundland and Labrador Gazette following their registration by the Provincial Department of Municipal Affairs. These amendments were necessary to permit mineral extraction and mineral workings within the Kami Project area.

Alderon has received the Leases, pursuant to Sections 31 and 33, respectively, of the Mineral Act RSNL 1990, c. M-12. The Leases were registered on February 17, 2014 and signed and sealed by the Minister of Natural Resources on May 27, 2014. The Mining Lease gives the Company the exclusive rights to develop the mineral resource underlying the Kami Project. The Surface Lease provides the Company with the surface rights covering the area of the Mining Lease and areas for siting the required infrastructure incidental to the development of the mine.

 
10

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014




Aboriginal groups

Alderon continues to actively engage with aboriginal groups as part of its initiatives to identify, understand and address any potential effects of the Kami Project on aboriginal communities and groups and their current use of land and resources for traditional purposes, as well as to ensure an efficient and timely completion of the environmental assessment process.

There are no treaties or settled land claims which overlap the project area. However, the Kami Property is located in an area which five aboriginal groups assert as their traditional territory: Innu Nation, NunatuKavut Community Council (the “NCC”), the Naskapi Nation of Kawawachikamach (the “Naskapi Nation”), the Innu of Matimekush-Lac John and the Innu of Uashat mak Mani-Utenam. While there are no aboriginal communities in proximity to the Kami Property, over 100 members of the NCC reside in the Towns.

The Terminal, defined and discussed below, is located within the asserted traditional territory of two aboriginal groups: the Innu of Uashat mak Mani-Utenam and the Innu of Matimekush-Lac John. Though located near Schefferville, approximately 500 km north of Sept-Îles, the Innu of Matimekush-Lac John share their ancestral territory with the Innu of Uashat mak Mani-Utenam.

Alderon is committed to the development of collaborative relationships based on mutual trust and respect with aboriginal groups whose asserted rights or interests or traditional territory may be potentially affected by the Kami Project. Consistent with that commitment, Alderon's engagement efforts with each of the five aboriginal groups commenced prior to project registration and have been ongoing since that time. These efforts include the regular and timely provision of project-related information, meetings with leadership and community residents to discuss issues and concerns and offers to fund land and resource use studies and other initiatives designed to identify and mitigate or avoid any adverse effects of the Kami Project upon asserted aboriginal rights and interests. In order to enhance the positive effects of the Kami Project, Alderon has extended offers to various aboriginal groups to enter into formal arrangements which are intended to create opportunities for participation in employment, business, training and environmental monitoring and follow-up. Alderon will continue to engage with each aboriginal group throughout the life of the Kami Project, including through the provision of permit applications to each aboriginal group for review and comment and meetings with leadership and the community to provide Kami Project updates.

On June 24, 2013, the Company concluded a Community Participation Agreement (the “CPA”) with the NCC with respect to the development of the Kami Project. The CPA sets out the basic positions of each of the Company and the NCC and addresses such matters as environmental permitting, training and employment, business opportunities and community initiatives. Alderon will provide the NCC with capacity funding for the review of permits, participation in any follow-up or monitoring programs, and training initiatives. In return, the NCC will support the Kami Project and not take any action which would delay or interfere with the Kami Project. Implementation of the CPA is underway: parties meet regularly to discuss employment and business opportunities and the Company has held a procurement workshop with NCC businesses.

 
11

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014




In January 2014, the Company and the Innu Nation entered into an IBA with respect to carrying out the Kami Project. The IBA provides for participation in the Kami Project on the part of the Innu Nation in the form of training, jobs and contract opportunities, permit review and environmental monitoring, along with providing their community with financial and socio-economic benefits over the life of the mine. The IBA also contains provisions which recognize and support the culture, traditions and values of the Innu Nation. In return, Innu Nation agrees to support the Kami Project and not take any action which would delay or interfere with the Kami Project. Implementation of the IBA is underway: an IBA Implementation Committee has been established and has met to discuss employment and business opportunities. In addition, a procurement workshop with Innu businesses has been held. The first meeting of the joint Environmental Monitoring Committee was held in April 2014.

In March 2014, the Company entered into the Framework Agreement with the Innu of Uashat mak Mani-Utenam and the Innu of Matimekush-Lac John (collectively, “The Innu”). The Framework Agreement establishes the terms of reference for the negotiation of an IBA. Discussions are currently ongoing and The Innu have agreed not to object to the issuance of any permits or authorizations or to take any action which would delay or interfere with the Kami Project while negotiations are in progress.

The Company continues to engage with the Naskapi Nation. The parties have been engaged in the negotiation of a community benefits agreement since the fall of 2013. The draft agreement addresses training and employment, business opportunities and environmental monitoring. If the agreement is concluded, the Naskapi Nation will agree to support the Project and not to take any action which would delay or interfere with the Project.

Community relations

Alderon is committed to operating within a sustainable development framework. A key principle of sustainable development is to consult with stakeholders who may have an interest in or be affected by the Kami Project in order to build and maintain positive, long-term and mutually beneficial relationships.

On March 26, 2013, the Company announced that it had signed a memorandum of understanding (“MOU”) with each of the Towns. In the MOUs, Alderon and the Towns agreed to formalize their working relationship and to facilitate community consultation and input.

On January 21, 2014, the Company entered into the LC Agreement with respect to the development of the Kami Project. Under the terms of the LC Agreement, the Company will pay to Labrador City an annual grant-in-lieu of municipal taxes on the Kami Project mining operations that will be located in the Municipal Planning Area of Labrador City. Payments under the LC Agreement will commence after initial production occurs at the Kami Project.

On March 25, 2014, the Company signed the Wabush Agreement with respect to the development of the Kami Project. Under the terms of the Wabush Agreement, the Company will pay to Wabush an annual grant-in-lieu of municipal taxes on the Kami Project mining operations that will be located within the municipal boundaries of Wabush. The Company will also provide a capital projects disbursement to the Town, with the funds going towards required infrastructure needs. Payments under the Wabush Agreement will commence after initial production occurs at the Kami Project.

 
12

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



On May 27, 2014, Alderon signed the Provincial Agreement with the Province of Newfoundland and Labrador. The Provincial Agreement covers the life of the Kami Project and sets out employment, procurement and training benefits. Under the terms of the Provincial Agreement, Alderon has committed to provide full and fair opportunity and first consideration for provincial residents and suppliers. The Company has also agreed to establish an education and training fund commencing after the Kami Project achieves commercial production.

In June 2014, the Company concluded purchase and sale agreements with twenty-three cabin owners. The cabins purchased were identified as being directly impacted by the Kami Project and such, the Company negotiated purchase and sale agreement with each of the identified cabin owners. Payments for these cabins totalled $1.2 million as at September 30, 2014.

Alderon continues to actively engage all stakeholders and aboriginal groups to ensure an efficient and timely completion of any required permit to develop the Kami Project.

Infrastructure

Port infrastructure

As noted above, the Kami Property is in close proximity to a transportation network that will enable the Company to access a deep sea port, from which Alderon will dispatch iron ore concentrate to international customers. As part of the construction to support the Kami Project, Alderon will build a facility in Pointe-Noire, Quebec for receiving, unloading, stockpiling and reclaiming concentrate for ship loading (the “Terminal”).

On July 13, 2012, the Company entered into an agreement with the Port Authority to secure usage of a new multi-user deep water dock facility that the Port Authority is constructing (the “Port Agreement”). Pursuant to the Port Agreement, Alderon has reserved an annual capacity of 8.0 million tonnes of iron ore that Alderon can ship through the Port. Construction on the new multi-user dock facility by the Port Authority is progressing with construction scheduled to wrap up during the second quarter of 2015.

Per the Port Agreement, the total initial commitment by the Company is $20.5 million (the “Buy-in Payment”), which constitutes an advance on Alderon’s future shipping fees. The Buy-in Payment was payable in two equal installments, the first of which was paid upon signing the Port Agreement, and the second was paid on June 28, 2013. The Buy-in Payment will be reimbursed to the Company via a discount that will be applied to shipping fees to be billed by the Port Authority once Alderon’s usage of the multi-user facility commences. Once the new multi-user dock facility is operational, the Company will have a take or pay obligation based on a discounted rate applied on 50% of the 8.0 million tons minimum annual shipping capacity, payable even if Alderon does not use the facilities.

The Port Agreement includes a base fee schedule for wharfage and equipment fees for iron ore loading for Alderon’s shipping operations. The rates commence in 2014 or when the deep water dock facility is ready for use, and the rates are on a sliding scale based on the volume of iron ore that is shipped. The term of the Port Agreement is 20 years from the date of the Port Agreement, with the option to renew for further five year terms, up to a maximum of four renewals.

 
13

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



On April 2, 2014, the Company announced the commencement of preliminary work for the Terminal. Specifically, the tree cutting has been completed at the Terminal, which will be built for receiving, unloading, stockpiling and reclaiming concentrate for ship loading. The Terminal will consist of a railcar unloading stub track, a single rotary car dumper, a concentrate storage yard with stacker-reclaimer and interconnecting conveyor systems. Two of the most critical pieces of the material handling system for the Kami Project, the car dumper and the stacker-reclaimer, have already been ordered, as discussed below under the heading “Site infrastructure and equipment”.

Rail infrastructure

The Kami Project is in close proximity to an established rail network that currently services other operating mining operations in the region.

In April 2012, Alderon initiated preliminary tariff negotiations with QNS&L and Chemin de Fer Arnaud (“CFA”). Alderon’s base case for the Feasibility Study is to use these two rail operators to transport its iron ore concentrate from the Kami Project to the Port. Tariffs are expected to be within industry norms. The Company has had discussions with QNS&L and CFA in order to negotiate rail transportation tariffs. No agreement has been concluded to date.

Power supply

Although low cost power from a major hydroelectric facility at Churchill Falls to the east of the Kami Property is currently transmitted into the region for the existing mining operations, the current availability of additional electric power on the existing infrastructure in the region is constrained by the transmission infrastructure.

Nalcor has established a formal process in advance of Nalcor’s or NLH’s being able to supply power to an industrial customer in Labrador. The technical process involves three stages: Stage I – Pre-Project Phase; Stage II – Concept Selection; and Stage III – Front End Engineering Design. Alderon and Nalcor have completed Stages I, II and III of the process. Stage III engineering and assessment related to providing transmission and electrical plant and services associated with supplying electrical power for the Kami Project was completed in September 2013, and the cost of $3.8 million was funded completely by Alderon.

In February 2014, the Government of Newfoundland and Labrador confirmed that it would proceed with the construction of a third transmission line from Churchill Falls to Labrador West (the “New Transmission Line”). Nalcor had previously confirmed that it would be able to supply power to the Kami Project but the New Transmission Line is necessary to ensure there is enough transmission capacity to deliver the power to the Kami Project.

 
14

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



On February 19, 2014, the Company entered into a PPA with NLH, pursuant to which NLH agrees to sell electrical power and energy to the Company. Power will be provided based on a rate schedule in line with the Labrador Industrial Rates Policy published in December 2012. The Company also agreed, pursuant to the terms of a security agreement with NLH (the “NLH Security Agreement”) to provide security for its commitment to begin purchasing electrical power under the terms and conditions of the PPA once the Kami Project is commissioned. Under the terms of the NLH Security Agreement, the Company has agreed to provide a total of $65.0 million in security deposits that will each take the form of a letter of credit that will be released to the Company once the Kami Project is interconnected to the electrical system as contemplated under the PPA, and has been commissioned and the Company has loaded saleable product produced from the Kami Project in two consecutive months.

The first security deposit in the amount of $21.0 million was paid on the signing of the NLH Security Agreement. The remaining $44.0 million in security deposits will be provided to NLH at such time as NLH can reasonably demonstrate that it has additional existing and pending commitments for such amount to construct the New Transmission Line. NLH is required to provide sufficient advance notice of the timing and amounts of additional security deposits.

On October 2, 2014, the Company reported that NLH has cleared 20 kilometers in preparation for the installation of the New Transmission Line. The construction timetables for the New Transmission Line and the Kami Project have been aligned and as such the remaining portion of the New Transmission Line will be executed upon completion of Alderon’s financing plan (as discussed below under the Corporate activities heading). As noted above, Alderon provided an initial security deposit in the amount of $21.0 million to NLH and all of the New Transmission Line costs incurred to date are covered by this security deposit.

Site infrastructure and equipment

Alderon has placed orders for the autogenous (“AG”) and ball mills for the Kami Project. The AG and ball mills are the key processing equipment in the proposed concentrator as described in the Feasibility Study. Specifically, an order has been placed with Metso for the supply of AG and ball milling systems, which are due for delivery in Q4 2014. The AG mill, which is 36 ft. in diameter and 23 ft. long, the largest diameter commonly used in pinion driven systems, has a 15 megawatt (MW) power rating. The ball mill is 22 ft. in diameter and 41 ft. long having a 10 MW rating.

In February 2014, Alderon finalized orders for two critical pieces of its material handling system for the Terminal. An order has been placed with Metso for the supply of the rotary car dumper which was originally due for delivery in Q1 2015. In addition, the stacker-reclaimer will be acquired from Sandvik AB and the delivery was originally scheduled for Q2 2015. The Company has not yet released the rotary car dumper and stacker-reclaimer for fabrication, and will schedule this with Metso and Sandvik AB once the Company’s financing plan (as discussed below under the Corporate activities heading) is completed. Additionally the AG and ball mill drive systems were awarded to General Electric which complement the mills that were ordered in August 2013.

On June 11, 2014, the Company signed a Life Cycle Services Agreement with Metso, which will provide ongoing maintenance services with respect to all mechanical maintenance of equipment located in the Kami Project’s processing area.

 
15

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Corporate activities

Strategic investment from Hebei (the “Strategic Investment”)

On March 15, 2013, Hebei and Alderon completed the Strategic Investment in which Hebei contributed $119.9 million (the “Initial Investment”) into The Kami LP for 25% interest in the Kami Project and Alderon contributed the Kami Property and its related assets into The Kami LP for 75% interest in the Kami Project. Alderon and Hebei are required to contribute to capital expenditures for the development of the Kami Project not covered by initial capital contributions and project debt financing, in accordance with their respective interests. However, Hebei’s further contributions to The Kami LP will depend upon the amount of aggregate proceeds received as project debt financing and will not exceed $220.0 million.

In connection with the closing of the Strategic Investment, the Company had committed to pay a finder’s fee associated with the Initial Investment (the “Finder’s Fee”) and an off-take sales fee to the finder engaged to identify Hebei to the Company and to assist with the conclusion of the transaction with Hebei (the “Finder”).

On March 15, 2013, the Company sent notice terminating the Finder’s Fee agreement, in accordance with its terms. On July 31, 2013, the Company and the Finder concluded a settlement agreement for the Finder’s Fee and the off-take sales fee. The total amount of the settlement is $1.8 million, which was accrued as a general and administrative expense during the third quarter of 2012. All payments made included an interest amount calculated at a rate of 1% per annum from April 30, 2013 until the date of payment. As part of the settlement, the Finder has released all claims to the off-take sales fee.

Engineering and Planning (“EPCM”) Services Agreement

A formal, comprehensive EPCM agreement (the “EPCM Agreement”) with WorleyParsons was executed effective April 30, 2013.

On June 30, 2014, the Company announced that it had completed the required pre-construction engineering on the Kami Project and as such has temporarily suspended any further work by WorleyParsons. Alderon’s internal project team has taken over the management of all works in progress to continue advancing the Kami Project in preparation for the start of construction, once the Company’s financing plan (as discussed below) is completed. It is likely that the temporary suspension of WorleyParsons will result in certain demobilization costs to be incurred and charged to the Company in accordance with the terms of the EPCM Agreement. As at September 30, 2014, the Company has estimated an accrual of $3.3 million in demobilization costs, which have been accounted as development expenses in the consolidated statements of comprehensive loss as these costs were determined to not be directly attributable to the Kami Project for the nine-month period ended September 30, 2014. The actual amount to be incurred is a function of the duration of delay, actual costs incurred and commitments entered into by the EPCM contractor, and adjustments to the estimate will be recorded in future periods as necessary.

 
16

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Image Air Charter Ltd (“Image Air”)

On March 1, 2012, the Company entered into a two-year aircraft charter agreement (the “Charter Agreement”) with Image Air for a plane that Image Air leases from a limited partnership. The former Vice Chairman of the Company’s Board of Directors is the sole limited partner of this limited partnership. Per the Charter Agreement, the minimum cost to the Company is $44,000 per month, with additional charges incurred for each hour that the aircraft is flown. On April 9, 2013, the Company sent notice to Image Air terminating the Charter Agreement, in accordance with its terms.

Independent Contractor Agreement

Alderon engaged a contractor under an agreement (the “Contractor Agreement”) pursuant to which the contractor was engaged to provide financial, management and business consulting services to the Company. On November 12, 2014, the Company and the contractor agreed to terminate the Contractor Agreement and settle all outstanding fees and expenses under the Contractor Agreement in exchange for the issuance of 1,990,049 common shares of Alderon. The issuance of common shares is subject to regulatory approval, including the approval of the Toronto Stock Exchange.

Debt Financing

Alderon is pursuing a financing strategy for the Kami Project based on a combination of an up to US$1.0 billion senior debt facility (the “Senior Debt Facility”), other debt options, equipment financing, and equity. In order to provide flexibility and maximize its financing options, Alderon intends to pursue the Senior Debt Facility and its other debt options in parallel, and is targeting a total debt financing amount of up to US$1.0 billion. There can be no assurance that the Company will successfully conclude the Senior Debt Facility or any of its financing strategy.

Convertible debt

On February 24, 2014, Liberty provided the Liberty Loan to the Company in the amount of $22.0 million. $21.0 million of the gross proceeds of the Liberty Loan was used to fund the first security deposit that is required by NLH in connection with the construction of the New Transmission Line. The remaining $1.0 million will be used for working capital purposes, including for the payment of the establishment fee and transaction costs. Commencing 12 months after the issuance of the Liberty Loan, the principal amount of the Liberty Loan and any accrued but unpaid interest, become convertible at Liberty’s option into the Company’s common shares at a conversion price equal to $2.376 per common share. The Liberty Loan is secured with a mortgage over the Kami Project and bears interest at a rate of 8% per annum, payable on June 30th and December 31st of each year. A 1.5% establishment fee is payable to Liberty in connection with the Liberty Loan. The Company has the option to prepay the entire balance of the Liberty Loan, at a premium of a 20% internal rate of return to Liberty. The maturity date of the Liberty Loan is December 31, 2018.

 
17

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Letters of credit

In addition to the first security deposit paid on the signing of the NLH Security Agreement, the Company had the following letters of credit outstanding as at September 30, 2014:

·  
On March 14, 2014, the Company issued a letter of credit for $967,011 in favour of Fisheries and Oceans Canada (“DFO”) in relation to the DFO’s monitoring of the Kami Project. The letter of credit expires on March 13, 2015.
·  
On March 17, 2014, the Company issued a letter of credit for $235,000 in favour of Hydro-Quebec (“HQ”) in relation to HQ’s energy study at the Company’s port facilities in Sept-Îles. The letter of credit expires on March 16, 2015.

Off-take agreement

On July 29, 2014, The Kami LP entered into the Glencore Agreement with respect to an off-take transaction pursuant to which Glencore will acquire all of actual annual production from the Kami Project that has not been allocated to Hebei.

Under the terms of the Glencore Agreement, Glencore will be obligated to purchase upon the commencement of commercial production, 40% of the actual annual production from the Kami Project up to a maximum of 3.2 million tonnes of the first 8.0 million tonnes of iron ore concentrate produced annually at the Kami Project. The term of the Glencore Agreement will continue until Kami LP has delivered 48.0 million tonnes of iron ore concentrate to Glencore, which is expected to be 15 years after the commencement of commercial production. The market price paid by Glencore will be based on the monthly average price for iron ore sinter feed fines quoted by Platts Iron Ore Index for 62% iron content (plus additional quoted premium for iron content greater than 62%), less a discount equal to 2% of such quoted price.

 
18

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Results of operations

Consolidated statements of comprehensive loss information
         
 
Three-months ended
September 30,
Nine-months ended
September 30,
 
2014
2013
2014
2013
 
$
$
$
$
         
Operating expenses
       
General and administrative expenses
2,358,146
3,095,471
6,498,770
11,718,508
Development expenses
-
-
3,300,000
-
Environmental, aboriginal, government and
   community expenses
-
177,501
-
872,993
Exploration and evaluation expenses
-
-
-
194,956
 
2,358,146
3,272,972
9,798,770
12,786,457
         
Loss from operations
(2,358,146)
(3,272,972)
(9,798,770)
(12,786,457)
         
Finance income
245,941
477,055
939,336
1,255,860
Net loss and comprehensive loss
(2,112,205)
(2,795,917)
(8,859,434)
(11,530,597)
         
Attributable to:
       
Owners of the parent
(1,196,462)
(2,250,753)
(6,021,573)
(10,315,341)
Non-controlling interest
(915,743)
(545,164)
(2,837,861)
(1,215,256)
 
(2,112,205)
(2,795,917)
(8,859,434)
(11,530,597)
         
Net loss per share
       
Basic and diluted
(0.01)
(0.02)
(0.05)
(0.08)
Weighted average number of shares
   outstanding
       
Basic and diluted
130,144,167
130,144,167
130,144,167
130,144,167

 
19

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



General and administrative expenses

Comparative general and administrative expenses, by nature of expenditure, are summarized below:

 
Three-months ended September 30,
Nine-months ended September 30,
 
2014
2013
2014
2013
 
$
$
$
$
         
Salaries, wages and benefits
729,829
715,422
2,055,908
2,201,557
Legal, professional and consulting costs
963,962
980,533
1,939,932
4,901,482
Rent and facilities
145,845
184,458
516,928
414,382
Travel costs
50,156
186,308
463,715
888,436
Share-based compensation
127,377
447,209
430,560
1,865,760
Investor relation costs
47,438
236,161
269,663
716,850
Other costs
293,539
345,380
822,064
730,041
 
2,358,146
3,095,471
6,498,770
11,718,508

During the three-month period ended September 30, 2014, our general and administrative expenses decreased by $0.7 million, as compared to the same period in 2013. A reason for this decrease is due to a reduction in share-based compensation costs ($0.3 million), which in turn is due to the lower degree of vesting associated with stock options granted in prior periods. In addition, travel and investor relation costs have decreased ($0.3 million) which coincides with the temporary suspension of the EPCM agreement and the continued focus on the Senior Debt Facility.

During the nine-month period ended September 30, 2014, our general and administrative expenses decreased by $5.2 million, as compared to the same period in 2013. The primary reason for the decrease is due to a significant decrease in legal, professional and consulting costs of $3.0 million, predominantly in relation to the closing of the Strategic Investment, as discussed above under the heading “Corporate activities- Strategic investment from Hebei”. While the Subscription Transaction occurred in September 2012, the Initial Investment was finalized in March 2013, and therefore, non-capitalizable transaction costs were incurred during the first half of 2013. These costs were not incurred during the nine-month period ended September 30, 2014. In addition, share-based compensation costs were significantly lower ($1.4 million), which in turn is due to the lower degree of vesting associated with stock options granted in prior periods.

It is our expectation that, excluding the impact of share-based compensation costs, which in turn depend on a number of unknown or currently inestimable factors, including the number of options that will be granted in future periods and any changes to parameters or judgments applied to the option pricing model used to calculate the underlying fair value of awards, total general and administrative expenses are expected to be at slightly lower levels for the remainder of the year, as compared to the nine-month period ended September 30, 2014.

Development expenses

As noted above under the “Corporate activities” heading, the Company has temporarily suspended any further work by WorleyParsons. The Company has estimated that demobilization costs caused by this suspension will total approximately $3.3 million.

 
20

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Environmental, aboriginal, government and community expenses

Environmental, aboriginal, government and community (“EAGC”) expenses represent any non-general or administrative (i.e. corporate and strategic) activities in connection with engaging with relevant aboriginal, governmental and community groups as the Kami Project advances, as well as other costs related to planning and similar initiatives that are required in order to allow the Kami Project to proceed through the environmental assessment process. Typical expenditures reflected in this category include, but are not limited to, employee salaries and benefits (including share-based compensation) of the Company’s environmental and aboriginal affairs and government and community affairs staff, as well as consulting and professional service fees that are directly attributable to underlying functional areas.

There were no EAGC expenses incurred during the three-month period ended September 30, 2014. EAGC expenses have decreased by $0.9 million for the nine-month period ended September 30, 2014 as compared to the same period in 2013. This decrease is due to the Company capitalizing EAGC costs that are directly attributable to the Kami Project as of February 1, 2013. Therefore, EAGC costs incurred after February 1, 2013 have been capitalized as development costs and are discussed under the heading “Consolidated statement of financial position information-Mineral properties” below.

Exploration and evaluation expenses

Our accounting policy on exploration and evaluation expenditures is to expense these costs as they are incurred, until such time as the technical feasibility and commercial viability of the extraction of mineral reserves are demonstrated, at which time any further directly attributable pre-production expenditures that give rise to future economic benefits are capitalized. The Company started to capitalize costs that are directly attributable to the Kami Project as of February 1, 2013, which broadly coincides with the release of the Feasibility Study. Pre-production expenditures incurred prior to February 1, 2013 have been recorded in the consolidated statement of comprehensive loss as exploration and evaluation expenses or EAGC expenses.

As noted above, we started capitalizing all costs that are directly attributable to the Kami Project as of February 1, 2013. As such, ongoing evaluation and other development activities, which, prior to February 1, 2013, had been expensed in our consolidated statement of comprehensive loss, are recorded as additions to mineral properties in our consolidated statement of financial position. Details of capitalized development expenditures are provided under the heading “Consolidated statement of financial position information-Mineral properties” below.

Quarterly consolidated results of operations information

As shown below, our loss from operations for the three-month period ended September 30, 2014, amounted to approximately $2.4 million, as compared to approximately $3.3 million for the three-month period ended September 30, 2013. As noted above, the quarter-over-quarter decrease is due to the reduction in our general and administrative expenses ($0.7 million), as compared to the same period in 2013. The main reasons for this decrease is due to a reduction in share-based compensation costs ($0.3 million) and travel and investor relation costs ($0.3 million) incurred during this period.

 
21

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



The net operating expenditure decreases discussed above largely explain the decrease in net loss and comprehensive loss attributable to owners of the parent, which decreased to approximately $1.2 million for the three-month period ended September 30, 2014 from approximately $2.3 million for the three-month period ended September 30, 2013.

Selected quarterly consolidated results of operations information include the following:

 
Quarters ended
       
 
September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
     
 
$
$
$
$
     
Loss from operations
(2,358,146)
(5,118,803)
(2,321,821)
(2,443,601)
     
Net loss and
  comprehensive loss
  attributable to owners of
  the parent
 
(1,196,462)
 
(3,591,049)
 
(1,234,062)
 
(1,555,697)
     
Net loss per share
                       
  Basic and diluted
(0.01)
(0.03)
(0.01)
(0.01)
 
           
 
Quarters ended
       
 
September 30,
2013
June 30,
   2013
March 31,
   2013
December 31,
    2012
     
 
$
$
$
$
     
Loss from operations
(3,272,972)
(2,738,072)
(6,775,413)
(13,759,453)
     
Net loss and
  comprehensive loss
  attributable to owners of
  the parent
 
(2,250,753)
 
(1,605,431)
 
(6,459,157)
 
(13,582,893)
     
Net loss per share
                       
  Basic and diluted
(0.02)
(0.01)
(0.05)
(0.10)
   

Net loss per share is based on each reporting period’s weighted average number of shares outstanding, which may differ on a quarter-to-quarter basis. As such, the sum of the quarterly net loss per share amounts may not equal year-to-date net loss per share.

Historical quarterly results of operations and net loss per share data do not necessarily reflect any recurring expenditure patterns or predictable trends. As such, quarterly results cannot be interpreted as being indicative of future expectations, results of operations or net loss per share. The decrease in reported quarterly information, in both our loss from operations and net loss and comprehensive loss, notwithstanding, the three-month periods ended June 30, 2014 and September 30, 2013, are explained predominantly by the overall ramping up of exploration and evaluation activities, and subsequently by the movement of the Kami Project into the development stage, at which time further project-specific expenditures are capitalized.

 
22

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



The loss from operations and net loss and comprehensive loss for the three-month period ended June 30, 2014 was largely attributable to the development expense discussed above ($3.3 million). The loss from operations and net loss and comprehensive loss for the three-month period ended September 30, 2013 was slightly higher than the previous quarter, due to legal, professional and consulting costs incurred in relation to the Company’s evaluation of the various financing strategy options and possible off-take partners.

Consolidated statement of financial position information
   
As of
September 30,
As of
December 31,
   
2014
2013
   
$
$
Cash and cash equivalents
 
             32,650,353 
95,366,039
Restricted short-term investments
 
22,202,011
-
Receivables and other current assets
 
4,380,048
5,082,934
Mineral properties
 
176,243,252
138,645,822
Long-term advance
 
20,465,016
20,465,016
Property, plant and equipment
 
21,804,330
4,265,204
Total assets
 
277,745,010
263,825,015
       
Total short-term liabilities
 
14,366,049
14,400,555
Convertible debt
 
17,676,736
-
Equity attributable to owners of the parent
 
190,670,849
192,709,547
Non-controlling interest
 
55,031,376
56,714,913
Total liabilities and equity
 
277,745,010
263,825,015

Cash and cash equivalents

As noted below under the heading “Liquidity and capital resources”, cash and cash equivalents decreased by $62.7 million, due largely to the additions to mineral properties, deposits made on key processing and material handling equipment, and the cash used in operating activities.

Restricted short-term investments

Restricted short-term investments represent short-term investments deposited with the Company’s bank to guarantee letters of credit issued in the course of the Company’s development activities as noted above under the heading “Corporative activities- Letters of credit”. Such short-term investments must remain on deposit as long as the letters of credit are outstanding.

 
23

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Mineral properties
 
Acquisition costs
Development costs
Share-based compensation costs capitalized
Depreciation capitalized
Total
 
$
$
$
$
$
           
Balance – January 1, 2013
88,668,710
-
-
-
88,668,710
Additions during the period
-
49,576,480
386,958
13,674
49,977,112
Balance – December 31, 2013
88,668,710
49,576,480
386,958
13,674
138,645,822
           
Additions during the period
-
35,806,172
89,342
26,704
35,922,218
Interest capitalized
-
1,675,212
-
-
1,675,212
Balance –September 30, 2014
88,668,710
87,057,864
476,300
40,378
176,243,252

Components of the additions to development costs for the nine-month period ended September 30, 2014 include the following:
 
$
   
Consulting and professional costs
29,287,506
Salaries, employment taxes and short-term benefits
3,737,176
Environmental, aboriginal, government and community costs
2,145,604
Travel costs
526,448
Share-based compensation costs
89,342
Other costs
136,142
 
35,922,218

During the nine-month period ended September 30, 2014, the Company incurred $35.9 million in development costs that are directly attributable to the Kami Project. Specifically, a total of $30.0 million was incurred on consulting and professional costs. These costs primarily reflect the detailed engineering, planning and procurement services rendered by WorleyParsons ($23.3 million) in order to transition the Kami Project from the feasibility stage to the development stage, in preparation for the Kami Project’s construction. These costs also include services provided by direct consultants of the Company ($2.1 million). Direct consultants are part of the Kami Project team, working alongside employees of the Company in order to advance all facets of the Kami Project towards and through construction.

The results of this work has allowed the Company to advance its procurement of long-lead items and complete the required pre-construction engineering such that it will be able to commence construction, once the Company’s financing plan is completed as described in this MD&A under the heading “Outlook for 2014”.

Development costs will continue to be incurred in the fourth quarter of 2014 at a reduced rate, due to the suspension of the EPCM Agreement, as noted above under the heading “Corporate activities- Engineering and Planning (“EPCM”) Services Agreement”. Development costs will only increase significantly once the Company’s financing plan is in place and the Company commences construction of the Kami Project.

 
24

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Long-term advance

As discussed above under the heading “Infrastructure- Port infrastructure”, the long-term advance relates to the Buy-in Payment per the Port Agreement. The Buy-in Payment was payable in two equal installments, the first of which was paid upon signing the Port Agreement, and the second was paid on June 28, 2013, using the Company’s previously restricted cash equivalents.

Property, plant and equipment

The increase in property, plant and equipment relates primarily to the Company’s advances of $17.7 million to suppliers for key processing and material handling equipment, as discussed above under the “Infrastructure- Site infrastructure and equipment” heading.

Short-term liabilities

Short-term liabilities, comprised of payables and accrued liabilities, amounts due to related parties and interest payable on convertible debt decreased slightly since December 31, 2013. This decrease is primarily due to the decrease in accrued development costs ($2.7 million) due to timing differences, along with the decrease in the Finder’s Fee due ($1.2 million) as noted above under the “Corporate activities-Strategic investment from Hebei” heading. These decreases are mostly offset by the demobilization costs accrued by the Company ($3.3 million), as noted above under the “Corporate activities-Engineering and Planning (“EPCM”) Services Agreement” heading and an increase in trade accounts payable ($0.4 million) due to timing differences.

Convertible debt

As discussed above under the “Corporate activities- Convertible debt” heading, the Company entered into a contract with respect to the Liberty Loan which amounted to $22.0 million ($21.7 million, net of $0.3 million transaction costs). The Liberty Loan is a compound instrument composed of both a debt component and an equity component. The equity component is due to the embedded derivatives identified in the agreement that come in the form of the convertible debentures holders’ conversion option and the Company’s early repayment option. Management has determined that the fair value of the debt component at inception was $17.0 million, with the residual value of $4.6 million allocated to the equity component. The Company will use an effective interest rate of 12.7% to accrete the debt component of the Liberty Loan up to the principal amount at maturity. Accretion expense during the nine-month period ended September 30, 2014 totaled $0.6 million.

Equity attributable to owners of the parent

Equity attributable to owners of the parent has decreased by $2.0 million since December 31, 2013. This decrease is primarily related to the net loss and comprehensive loss totaling $6.0 million for this period. In addition, there has been an adjustment of $1.2 million to reflect the change in the non-controlling interest’s relative interest in The Kami LP, as discussed below. These decreases are partially offset by the Liberty Loan’s equity component ($4.6 million) discussed above. No distributions or cash dividends were made or declared during the nine-month period ended September 30, 2014.

 
25

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Non-controlling interest

Non-controlling interest represents Hebei’s 25% interest in the equity of the Company’s less than wholly-owned affiliate, The Kami LP, and is classified as a separate component of equity. On initial recognition, non-controlling interest, which represents Hebei’s $119.9 million contribution into The Kami LP, was measured at fair value. Changes in the Company’s ownership interest in The Kami LP that do not result in a loss of control are recorded as equity transactions. The carrying amount of non-controlling interest decreased by $1.7 million during the nine-month period ended September 30, 2014 due to the non-controlling interest’s portion of net loss for this period ($2.8 million). This is partially offset by an adjustment of $1.2 million to reflect the non-controlling interest’s portion of the Liberty Loan equity component as discussed above.

Liquidity and capital resources

Consolidated statements of cash flows information

As of September 30, 2014, the Company had cash and cash equivalents of $32.7 million, as compared to $95.4 million as of December 31, 2013, and a working capital surplus (total current assets less total current liabilities) of $44.9 million, as compared to $86.0 million as of December 31, 2013.

As discussed under the “Consolidated statement of financial position information” heading, changes in cash and cash equivalents during the three and nine-month periods ended September 30, 2014 were most notably impacted by the net cash used in investing activities relating to additions to mineral properties, deposits made on equipment and issuances of letters of credit. In addition, changes in cash and cash equivalents during the three and nine-month periods ended September 30, 2014 were impacted by operating expenditures, as discussed above under the heading “Results of operations”. For the nine-month period ended September 30, 2014, these uses of cash were slightly offset by net cash proceeds received in connection with financing activities discussed above under the heading “Corporate activities”. The impacts of all the activities noted above are summarized below.

 
Three-months ended
September 30,
Nine-months ended
September 30,
 
2014
2013
2014
2013
 
$
$
$
$
Net cash used in operating activities
(4,356,649)
(3,792,043)
(8,848,713)
(22,992,694)
Net cash (used in) from investing activities
(13,529,866)
(19,319,059)
(75,536,973)
(18,174,620)
Cash flows from financing activities:
       
Proceeds received following the issuance
   of units of The Kami LP to Hebei
-
-
-
119,926,293
Proceeds received on the issuance
   of convertible debt, net of transaction costs
-
-
21,670,000
-
Net cash provided by financing activities
-
-
21,670,000
119,926,293
         
Net change in cash and cash equivalents
(17,886,515)
(23,111,102)
(62,715,686)
78,758,979
         
Cash and cash equivalents at the beginning of the period
50,536,868
136,182,397
95,366,039
34,312,316
         
Cash and cash equivalents at the end of the period
32,650,353
113,071,295
32,650,353
113,071,295

 
26

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Cash used in operating activities represents our net loss and excludes the impact of any non-cash transactions, such as the recording of share-based compensation costs (which amounted to $0.1 million and $0.4 million during the three-month periods ended September 30, 2014 and 2013, and $0.4 million and $1.9 million during the nine-month periods ended September 30, 2014 and 2013, respectively). Additionally, net cash used in operating activities reflects any changes in components of working capital, such as receivables and payables, which fluctuate in a manner that does not necessarily reflect predictable patterns for the overall use of cash, the generation of which depends almost entirely on sources of external financing to fund our evaluation and development initiatives and other expenses.

Cash used in investing activities primarily represents cash development costs that have been capitalized, increases in restricted short-term investments and advances made to suppliers of equipment, as discussed above in the “Consolidated statement of financial position information” section of this MD&A. These costs are directly attributable and give rise to future economic benefits for the Kami Project.

As at September 30, 2014, $26.8 million of cash is held by The Kami LP which is the remaining amount of the Initial Investment. Under the terms of the agreements with Hebei, Alderon has agreed that the proceeds from the Initial Investment would be used solely for Kami Project related expenditures. As a result, Alderon is restricted from transferring this cash from The Kami LP to the parent company (Alderon Iron Ore Corp.). Currently this restriction does not have an effect on Alderon’s ability to meet its short- to medium-term obligations as Alderon held $5.9 million of cash as at September 30, 2014; however, Alderon will need to obtain additional financing at the parent company level in the future. See below under the headings, “Financial instruments and risk management – Liquidity risk” and “Risk factors”.

To date, the Company has not recorded any revenues from operations, has no source of operating cash flow and no assurance that additional funding will be available to it for further development of the Kami Project. The Company has $32.7 million in cash and cash equivalents. The Company does not have financial resources sufficient to cover all of its commitments for the coming year, which includes net amounts payable ($11.9 million), as at September 30, 2014, necessary general and administrative costs through 2015 which are projected at approximately $8.0 million annually, $21.0 million in contractual obligations as at September 30, 2014 (in relation to anticipated equipment payments, interest on the Liberty Loan and operating lease obligations) and up to $44.0 million which could be required to be advanced to NLH as of a date to be determined. These conditions and events indicate material uncertainties that cast substantial doubt upon the Company’s ability to continue as a going concern. The Company has plans in place and is seeking to arrange the necessary funds in order to cover these obligations. While the Company has been successful in the past in obtaining necessary funds on terms acceptable to the Company, there is no assurance that such funds will be available in the future. If management is unable to obtain new funding, the Company may be unable to continue its operations, and amounts realized for assets might be less than amounts reflected in the consolidated financial statements.

As discussed in the “Outlook for 2014” section below, the Company does not currently have sufficient resources to fund the construction of the Kami Project. In order to obtain the necessary funds the Company plans to conclude the Senior Debt Facility and issue equity instruments as discussed further in the section below. The Company will not be able to commence the construction of the Kami Project until the funds are obtained.

 
27

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Outlook for 2014

As noted above, the Company has completed the required pre-construction engineering on the Kami Project and is ready for construction. As such, during the last quarter of 2014, the Company will focus on completing the financing for the construction of the Kami Project, including moving forward with the process of implementing the Senior Debt Facility and issuing equity instruments. As discussed above, the overall project financing strategy likely will take the form of a combination of debt and equity instruments.

As previously disclosed, Alderon intends to commence construction of the Kami Project when the Company’s financing plan is successfully completed, including the closing of the Senior Debt Facility. The completion of the financing plan has taken longer than anticipated and as a result of the delay, the Company has revised its intended construction commencement from spring 2015 to summer 2015. It is possible that the Company will further revise its intended construction commencement date if it is unable to complete its financing plan in a timely manner due to market conditions. Following tree clearing, full-scale construction will commence and is expected to take 26 months for completion, including pre-operational verifications, hot commissioning and handover to mine operations team.

Alderon has already concluded agreements for key infrastructure requirements of port access and power supply. During the remainder of 2014, Alderon will also continue to advance discussions with QNS&L and CFA towards an agreement on rail transportation tariffs.

Alderon will continue to implement the provisions of the agreements agreed to with the Innu Nation and the NunatuKavut and will continue its ongoing consultation efforts with the Québec communities of Uashat mak Mani-Utenam, Matimekush-Lac John and the Naskapi Nation.

Outstanding share data

As of November 12, 2014, there were 130,144,167 common shares issued and outstanding, 14,195,000 stock options outstanding and 9,259,259 common shares issuable on the conversion of the principal amount of the Liberty Loan.

Related party transactions

A related party is any person, including close members of that person’s family, or entity that has significant influence over the Company. Related parties also include members of our key management personnel—namely, those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, including any director (whether executive or otherwise) of the Company. Significant influence is the power to participate in the financial and operating policy decisions of an entity, but is not control over those policies. Significant influence may be gained by share ownership, statute or agreement.

A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

 
28

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Key management personnel

Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. The Company has determined that key management personnel consists of executive and non-executive members of the Company’s Board of Directors, corporate officers, including the Company’s Chief Executive Officer (“CEO”), Chief Operating Officer (“COO”) and Chief Financial Officer (“CFO”), as well as any Vice Presidents reporting directly to a Corporate Executive Board member or officer, acting in that capacity.

Remuneration attributed to key management personnel can be summarized as follows:

 
Three-months ended
September 30,
Nine-months ended
September 30,
 
2014
2013
2014
2013
 
$
$
$
$
Short-term benefits*
896,554
868,554
2,607,628
2,472,703
Incentive compensation other than
  share-based compensation
293,725
278,310
994,677
807,845
Share-based compensation
145,818
405,357
426,650
1,739,732
 
1,336,097
1,552,221
4,028,955
5,020,280


 

 
 
*
includes base salaries, pursuant to contractual employment or consultancy arrangements, Directors’ fees, applicable payroll taxes and other non-post-retirement benefits.

Other related parties

King & Bay West Management Corp. (“King & Bay”): King & Bay is an entity that is owned by Mark Morabito, the Executive Chairman of the Company’s Board of Directors. King & Bay provides certain administrative, management, geological, legal and regulatory, corporate development, information technology support and corporate communications services to the Company. These services are provided to the Company on an as-needed basis and are billed based on the cost or value of the services provided to the Company. The amount set out in the table below represents amounts paid to King & Bay for the services of King & Bay personnel and for overhead and third party costs incurred by King & Bay on behalf of the Company.

McInnes Cooper (“McInnes”): John Baker, a Director of the Company, is a former partner at McInnes, which provides certain legal services to the Company with respect to local matters in Newfoundland and Labrador including regulatory and mineral law matters.

Cassels Brock & Blackwell LLP (“Cassels”): John Vettese, a Director of the Company, is the Deputy Managing Partner of Cassels, which acts as lead external counsel for the Company. Cassels advises the Company with respect to corporate, securities, infrastructure, finance and regulatory matters.

 
29

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Liberty: Liberty is a significant shareholder of the Company and is entitled to a representative on Alderon’s Board of Directors. During the nine-month period ended September 30, 2014, Liberty provided the Company with the Liberty Loan that was used to fund the first security deposit that is required by Nalcor in connection with the construction of the New Transmission Line. The Liberty Loan has an interest rate of 8% per annum and an establishment fee and the amounts paid to Liberty in respect of these obligations are discussed under the “Corporate activities-Convertible debt” heading. The Company entered into this related party transaction because alternate sources of financing were unavailable at the time due to the short time period that Company had to fund the first security deposit that is required by NLH.

HBIS International Holding (Canada) Co., Ltd (“HBIS”): HBIS is a subsidiary of Hebei, a significant shareholder of the Company. Under the terms of the definitive agreements governing the strategic partnership between Hebei, HBIS and the Company, HBIS has the right to appoint two people to the management of the Kami LP. HBIS has nominated two individuals to act as Vice President, Finance & Procurement (China) and Vice President, Strategy & Development. These individuals provide management services to the Kami LP in these roles and HBIS is paid a fee for the provision of these individuals to provide these services. The fees for these services are consistent with the Company’s compensation policies for other management personnel.

Transactions entered into with related parties other than key management personnel and the Liberty Loan discussed under the “Corporative activities- Convertible debt” heading include the following:

 
Three-months ended
September 30,
Nine-months ended
September 30,
 
 2014
2013
 2014
2013
 
$
$
$
$
Cassels
582,003
194,301
1,206,859
1,434,849
King & Bay
183,517
411,436
829,871
1,101,979
HBIS
80,004
90,671
240,012
90,671
McInnes
5,902
-
45,947
11,315
 
851,426
696,408
2,322,689
2,638,814

Transactions with related parties, are described above, were for services rendered to the Company in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. All services were made on terms equivalent to those that prevail with arm’s length transactions.

Commitments and contingencies

In connection with the 2010 purchase from Altius Resources Inc. (“Altius”) of the Kami Property, Alderon committed to paying Altius a 3% gross royalty on iron ore concentrate that is generated from the Kami Project.

As discussed above, as part of Alderon’s strategy to source the long-lead mining and processing equipment in sufficient time to adhere to the Kami Project’s schedule, the Company has negotiated contracts with suppliers in relation to the purchase of equipment. As at September 30, 2014, payments of $37.1 million remain to be paid on the equipment for contracts entered into and approximately $30.0 million of this amount is contingent on confirmation by the Company of future fabrication of this equipment, as noted above under the heading “Infrastructure- Site infrastructure and equipment”.

Including the commitments and contractual obligations discussed above, the Company has the following known commitments as at September 30, 2014:

   
Payments due in:
 
 
 
Total
 
Less than
1 year
 
1 to 3 years
 
3 to 5 years
More than 5 years
 
$
$
$
$
$
Equipment
37,100,000
18,600,000
18,500,000
-
-
Convertible debt
29,932,000
1,760,000
3,524,822
24,647,178
-
Operating lease obligations
998,000
635,000
363,000
-
-
Totals
68,030,000
20,995,000
22,387,822
24,647,178
-

As noted above under the heading “Infrastructure- Power supply”, under the terms of the NLH Security Agreement, the Company has agreed to provide an additional $44.0 million in security deposits to NLH. At this point, the Company does not know the timing of these security deposits.

Off-balance sheet arrangements

As of September 30, 2014, we did not have any off-balance sheet arrangements.

Significant accounting policies and critical estimates and judgments

Significant accounting policies

A complete summary of our significant accounting policies is provided in note 2 to our consolidated financial statements as of and for the years ended December 31, 2013 and 2012, except as noted below.

Convertible debt

The Company’s convertible debt is accounted for as a compound financial instrument comprised of a non-derivative host contract and a conversion option. The conversion option is equity classified because it will result in the issuance of a fixed number of equity instruments issued in return for a fixed dollar value. The liability component of a compound financial instrument is recognized initially at the fair value of a similar secured liability that does not have an equity conversion option. The equity component is recognized initially as the residual difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition. The Company’s option to prepay the instrument early is a separable embedded derivative but has nominal value at inception and period end.

 
30

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



New standard

The following new standard is effective for the first time for interim periods beginning on or after January 1, 2014 and has been applied in preparing these condensed interim consolidated financial statements. The accounting policy has been applied consistently by all subsidiaries of the Company.

·  
International Financial Reporting Interpretations Committee (“IFRIC”) 21, Levies, provides guidance on accounting for levies in accordance with the requirements of IAS 37, Provisions, Contingent Liabilities and Contingent Assets.

The impact of the adoption of this standard did not have a significant impact on the Company’s condensed interim consolidated financial statements.

Critical estimates and judgments

The preparation of the Company’s consolidated financial statements in accordance with IFRS often requires management to make estimates about and apply assumptions or subjective judgment to future events and other matters that affect the reported amounts of the Company’s assets, liabilities, expenses and related disclosures. Assumptions, estimates and judgments are based on historical experience, expectations, current trends and other factors that management believes to be relevant at the time at which our consolidated financial statements are prepared. We review, on a regular basis, our accounting policies, assumptions, estimates and judgments in order to ensure that the consolidated financial statements are presented fairly and in accordance with IFRS.

Critical accounting estimates and judgments are those that have a significant risk of causing material adjustment and are often applied to matters or outcomes that are inherently uncertain and subject to change. As such, we caution that future events often vary from forecasts and expectations and that estimates routinely require adjustment.

We consider the following areas to be those where critical accounting policies affect the significant estimates and judgments used in the preparation of our consolidated financial statements.

Capitalization of development costs

The application of the Company’s accounting policy for development costs requires judgment in determining the timing at which to begin capitalizing development costs and whether future economic benefits, which are based on assumptions about future events and circumstances, may be realized. Judgement is also required in assessing the extent and duration of any project suspension, including its impact on whether or not management can continue to capitalize development costs. Should the facts and circumstances surrounding a suspension of the project be such that management can no longer capitalize development costs related to the project, the impact on the Company’s financial position and results of operations may be significant.

 
31

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Carrying value and recoverability of mineral properties

The carrying amount of the Company’s mineral properties does not necessarily represent present or future values, and the Company’s mineral properties have been accounted for under the assumption that the carrying amount will be recoverable. Recoverability is dependent on various factors, including the discovery of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete the development and upon future profitable production or proceeds from the disposition of the mineral properties themselves. Additionally, there are numerous geological, economic, environmental and regulatory factors and uncertainties that could impact management’s assessment as to the overall viability of the Kami Project or to the ability to generate future cash flows necessary to cover or exceed the carrying value of the Company’s mineral properties.

To the extent that any of management’s assumptions change, there could be a significant impact on the Company’s future financial position, operating results and cash flows.

Provisions

Provisions represent liabilities to the Company for which the amount or timing is uncertain. Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation and where the amount can be reliably estimated. Judgement is required to determine if a present obligation exists at the end of the reporting period by considering all available evidence. The expense relating to any provision is presented in the consolidated statement of comprehensive loss.
Fair value estimates of financial liabilities

The determination of fair value of the liability component at the date of issuance of the convertible debt is based on a discounted cash flow model which requires management to estimate the current market interest rate that the Company could have obtained for a similar secured loan without a conversion option. Application of a different rate in the model could result in a different initial fair value of the liability component which would impact future interest accretion throughout the life of the liability.

Fair value of stock options

Determining the fair value of stock options requires the estimation of stock price volatility, the expected forfeiture rate and the expected term of the underlying instruments. Any changes in the estimates or inputs utilized to determine fair value could result in a significant impact on the Company’s future operating results.

 
32

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Recovery of deferred tax assets

The estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of our ability to utilize the underlying future tax deductions against future taxable income prior to expiry of those deductions. We assess whether it is probable that some or all of the deferred income tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income, which in turn is dependent upon the successful discovery, extraction, development and commercialization of mineral reserves. To the extent that our assessment of the ability to utilize future tax deductions changes, we would be required to recognize more or fewer deferred tax assets, and income tax provisions or recoveries in future periods could be affected.

Capital disclosures

The Company’s objective in managing capital, consisting of equity, with cash and cash equivalents being its primary component, is to ensure sufficient liquidity to fund: development and other Kami Project activities; general and administrative expenses; working capital; and capital expenditures.

Management regularly monitors the Company’s capital structure and makes adjustments thereto based on funds available to the Company for the acquisition, exploration and development of mineral properties. The Board of Directors has not established quantitative return on capital criteria for capital management, but rather relies upon the expertise of the management team to sustain the future development of the business.

The properties in which the Company currently has an interest are in the development stage, and the Company does not generate any revenue. Accordingly, the Company is dependent upon sources of external financing to fund both the Kami Project and its other costs. While the Company endeavours to minimize dilution to its shareholders, management has in the past engaged in dilutive financial transactions, such as private placements, and may engage in dilutive arrangements in the future.

The Company’s policy on dividends is to retain cash to keep funds available to finance the activities required to advance the Company’s Kami Project. Although the Company is not subject to any capital requirements imposed by any regulators or by any other external source, Alderon has provided confirmation to Hebei with respect to the use of the Initial Investment proceeds.

Financial instruments and risk management

At September 30, 2014, our financial instruments are comprised of cash and cash equivalents, restricted short-term investments, receivables, payables and accrued liabilities, amounts due to related parties and convertible debt.

The carrying values of the Company’s cash and cash equivalents, restricted short-term investments, receivables, payables and accrued liabilities and amounts due to related parties approximate their fair values due to their short-term maturities or to the prevailing interest rates of the related instruments, which are comparable to those of the market. The determination of fair value of the convertible debt as at September 30, 2014 is based on a discounted cash flow model using the current market interest rate that the Company could have obtained for a similar secured loan without a conversion option.

 
33

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



The fair values of the Company’s financial assets and liabilities, together with the carrying values included in the balance sheet, as of September 30, 2014 are presented below.

September 30, 2014
Carrying value
Fair value
 
$
$
Financial assets
   
   Cash and cash equivalents
32,650,353
32,650,353
   Restricted short-term investments
22,202,011
22,202,011
   Receivables
487,342
487,342
Financial liabilities
   
   Payables and accrued liabilities
(13,005,920)
(13,005,920)
   Due to related parties
(675,510)
(675,510)
   Convertible debt, including interest payable
(18,120,353)
(18,120,353)
 
23,537,923
23,537,923


As noted above under the heading “Corporative activities- Letters of credit”, restricted short-term investments represent short-term investments deposited with the Company’s bank to guarantee letters of credit issued in the course of the Company’s development activities. In order to issue the restricted short-term investments, the Company issued convertible debt, as discussed above under the “Corporate activities- Convertible debt” heading.

We are exposed in varying degrees to certain risks arising from financial instruments, as discussed below.

Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.

As discussed above, our capital management objectives include working to ensure that we have sufficient liquidity to fund Company activities that are directly and indirectly related to the advancement of the Kami Project.

The Company endeavours to ensure that it will have sufficient liquidity in order to meet short- to medium-term business requirements and all financial obligations as those obligations become due. Historically, sufficient liquidity has been provided predominantly through external financing initiatives, including strategic, traditional and flow-through private placements to investors and institutions. Alderon is actively engaged in discussions to raise the necessary capital to meet its funding requirements for the Kami Project, including debt and equity. The Company will continue to rely upon sources of external financing in future periods until such time as commercial production commences, notwithstanding the Company’s successful capital-raising activities prior to September 30, 2014, as discussed above under the “Corporate activities” section of this MD&A.

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

 
34

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Our receivables consist primarily of sales tax credits, which are due from Canadian federal and provincial tax agencies. Additionally, our cash and cash equivalents are held in deposit at high-credit quality Canadian financial institutions. As a result, we consider the risk of non-performance related to accounts receivable and cash and cash equivalents to be minimal.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Fluctuations of market interest rates have little impact on the Company’s financial results since the Company does not have variable debt at September 30, 2014. Changes in interest rates do not have an impact on interest expense related to the Liberty Loan because the rate of the Liberty Loan is fixed.
Risk factors

The exploration of mineral deposits involves significant risks and uncertainties, which even a combination of careful evaluation, experience and knowledge may not eliminate. A comprehensive list of risk factors relating to our business is provided under the heading, “Risk factors”, in the Company’s AIF for the year ended December 31, 2013, which is available on SEDAR, at www.sedar.com. Certain of the more prominent risk factors that may materially affect the Company’s future performance, in addition to those referred to above, are listed hereunder.

Alderon depends on a single mineral project.

The Kami Property accounts for all of Alderon's mineral resources and mineral reserves and exclusively represents the current potential for the future generation of revenue. Mineral exploration and development involves a high degree of risk that even a combination of careful evaluation, experience and knowledge cannot eliminate and few properties that are explored are ultimately developed into producing mines.  Any adverse development affecting the Kami Property will have a material adverse effect on our business, prospects, financial position, results of operations and cash flows.

The successful start of mining operations at, and the development of, the Kami Project into a commercially viable mine cannot be assured.

Development of mineral properties involves a high degree of risk and few properties that are explored are ultimately developed into producing mines. The commercial viability of a mineral deposit is dependent upon a number of factors which are beyond Alderon’s control, including the attributes of the deposit, commodity prices, government policies and regulation and environmental protection. Fluctuations in the market prices of minerals may render resources and deposits containing relatively lower grades of mineralization uneconomic.

 
35

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



There are numerous activities that need to be completed in order to successfully commence development and production at the Kami Project, including, without limitation: optimizing the mine plan; recruiting and training personnel; having available funds to finance construction and development activities; avoiding potential increases in costs; negotiating contracts for railway transportation, port loading and handling and for the sale of iron ore; updating, renewing and obtaining, as required, all necessary permits, including, without limitation, environmental permits; and handling any other infrastructure issues. There is no certainty that we will be able to successfully complete these activities, since most of these activities require significant lead times, and we will be required to manage and advance these activities concurrently in order to begin production. A failure or delay in the completion of any one of these activities may delay production, possibly indefinitely, at the Kami Project and would have a material adverse effect on our business, prospects, financial position, results of operations and cash flows.

As such, there can be no assurance that Alderon will be able to complete development of the Kami Project at all, on time or in accordance with any budgets due to, among other things, the delivery and installation of plant and equipment and cost overruns, or that the current personnel, systems, procedures and controls will be adequate to support operations. Failure to successfully complete these events as expected would have a material adverse effect on our business, prospects, financial position, results of operations and cash flows.

There is no assurance that Alderon will ever achieve production or that the Company will ever be profitable if production is achieved.

Alderon currently relies on only two customers for 100% of its expected iron ore concentrate production.

Alderon currently relies on two significant customers for 100% of the Alderon expected output of 8 Mt of iron ore concentrate annually once the commencement of commercial production occurs. Alderon has entered into the Off-Take Agreement with Hebei, a related party who owns 25% of The Kami LP and 19.9% of the Company’s common shares. As part of this agreement, upon the commencement of commercial production, Hebei is obligated to purchase 60% of the actual annual production from the Kami Property, up to a maximum of 4.8 Mt of the first 8.0 Mt of iron ore concentrate produced annually at the Kami Property. In addition, the Company entered into the Glencore Agreement with respect to an off-take transaction pursuant to which Glencore will acquire all of actual annual production from the Kami Project that has not been allocated to Hebei. As noted above, Glencore will be obligated to purchase upon the commencement of commercial production, 40% of the actual annual production from the Kami Project up to a maximum of 3.2 million tonnes of the first 8.0 million tonnes of iron ore concentrate produced annually at the Kami Project.

As a result of reliance on these two customers for the entirety of Alderon’s iron ore production, Alderon could be subject to adverse consequences if Hebei or Glencore breach their purchase commitments.

 
36

 

(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Titles and other rights to the Kami Property cannot be guaranteed and may be subject to prior unregistered agreements, transfers or claims and other defects.

Alderon cannot guarantee that title to the Kami Property will not be challenged. Alderon may not have, or may not be able to obtain, all necessary surface rights to develop the Kami Property. Title insurance generally is not available for mineral properties, and our ability to ensure that we have obtained secure claim to individual mineral properties or mining concessions comprising the Kami Property may be severely constrained. The Kami Property may be subject to prior unregistered agreements, transfers or claims, and title may be affected by, among other things, undetected defects. We have not conducted surveys of all of the claims in which we hold direct or indirect interests. A successful challenge to the precise area and location of these claims could result in our being unable to operate on all or part of the Kami Property as permitted or being unable to enforce our rights with respect to all or part of the Kami Property. This could result in Alderon not being compensated for its prior expenditures relating to the property. In addition, Alderon's ability to continue to explore and develop the property may be subject to agreements with other third parties including agreements with aboriginal groups. For instance, Alderon has concluded agreements with the Innu Nation of Labrador and the NunatuKavut pursuant to which these groups will provide their support for the Kami Project in return for certain benefits.

Alderon needs to enter into contracts with external service providers.

Mining, processing, development and exploration activities depend, to one degree or another, on adequate infrastructure. In order to develop a mine at the Kami Project, we will need to negotiate and conclude various agreements with external service providers for rail transportation and port loading and handling, and these are important determinants that affect capital and operating costs. The inability to conclude any such agreements could have a material adverse effect on the Company’s financial position, results of operations and cash flows and render the development of a mine on the Kami Project unviable.

Alderon's activities are subject to environmental laws and regulations that may increase Alderon's costs of doing business and restrict the Company’s operations.

All of our exploration, potential development and production activities in Canada are subject to regulation by governmental agencies under various environmental laws, including with respect to air emissions, discharges into water, management of waste, management of hazardous substances, protection of natural resources, antiquities and endangered species and reclamation of lands disturbed by mining operations. Compliance with environmental laws and regulations may require significant capital outlays on behalf of Alderon and may cause material changes or delays in our intended activities. There can be no assurance that future changes in environmental regulations will not adversely affect our business, and it is possible that future changes in these laws or regulations could have a significant adverse impact on some portion of our business, causing us to re-evaluate those activities at that time. Failure to comply with applicable environmental laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulator or judicial authorities, causing operations to cease or to be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions.

 
37

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Alderon may experience difficulty attracting and retaining qualified management and technical personnel to meet the needs of its anticipated growth.

We are dependent on the services of key executives, including our Executive Chairman, Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and other highly skilled and experienced executives and personnel focused on managing Alderon's interests and the advancement of the Kami Property and on identifying new opportunities for growth and funding. Due to our relatively small size, the loss of these persons or our inability to attract and retain additional highly skilled employees, on a timely basis or at all, required for the development of our activities may have a material adverse effect on our business or future operations.

We also anticipate that, as we bring the Kami Project into production and, where appropriate, acquire additional mineral rights, we will experience significant growth in our operations. We expect this growth to create new positions and responsibilities for management and technical personnel and to increase demands on our operating and financial systems. There can be no assurance that we will successfully meet these demands and effectively attract and retain additional qualified personnel to manage our anticipated growth. The failure to attract such qualified personnel to manage growth would have a material adverse effect on our business, financial position, results of operations and cash flows.

The Company does not have financial resources sufficient to cover all of its commitments for the coming year, therefore, material uncertainties exist that cast substantial doubt upon the Company's ability to continue as a going concern.

Alderon currently has limited financial resources, no cash inflows from production and negative operating cash flows. Although Alderon has completed the engineering work required to commence construction at the Kami Project, the commencement of construction of the Kami Project is subject to the completion of the Company’s financing plan.

The Company does not have financial resources sufficient to cover all of its commitments for the coming year and must secure sufficient funding to meet its existing commitments. In addition, further development and exploration of the Kami Property depends upon Alderon's ability to obtain financing through strategic partnerships, equity or debt financings, production-sharing arrangements or other dilutive or non-dilutive means. There is no assurance that Alderon will be successful in obtaining required financing on acceptable terms, or at all. If Alderon is unable to obtain additional financing it may consider other options, such as (i) selling assets, (ii) selling equity, or (iii) selling interests in the Kami Property. If Alderon raises additional funding by issuing additional equity securities or other securities that are convertible into equity securities, such financings may substantially dilute the interest of existing or future shareholders. Sales or issuances of a substantial number of securities, or the perception that such sales could occur, may adversely affect the prevailing market price of Alderon's common shares. With any additional sale or issuance of equity securities, investors will suffer dilution of their voting power and may experience dilution in earnings per share. Failure to obtain additional financing could result in an indefinite postponement of further exploration and development of the Kami Property and will have a material adverse effect on Alderon's business, prospects, financial position, results of operations and cash flows.

 
38

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Alderon is pursuing a financing strategy for the Kami Project that includes obtaining the Senior Debt Facility to complete the construction and start-up of the Kami Project. The completion of the financing plan has taken longer than anticipated. There can be no assurance that Alderon will receive commitments from lenders for the Senior Debt Facility or that Alderon will be able to negotiate binding agreements with respect to the Senior Debt Facility. There can be no assurance that the Company will successfully conclude the Senior Debt Facility or any of its financing strategy. These conditions and events indicate material uncertainties that cast substantial doubt upon the Company's ability to continue as a going concern. The failure of Alderon to enter into the Senior Debt Facility on reasonable terms, or at all, could delay construction and start-up of the Kami Project. The Company may be unable to continue its operations, which would have a material adverse effect on Alderon's business, financial position, results of operations and cash flows.

If the going concern assumption were not appropriate, adjustments to the carrying value of assets and liabilities, reported expenses and consolidated statement of financial position classifications would be necessary. Such adjustments could be material.

Alderon has a history of losses and expects to incur losses for the foreseeable future.

Alderon has incurred losses since its inception and expects to incur losses for the foreseeable future. We expect to continue to incur losses unless and until such time as the Kami Project enters into commercial production and generates sufficient revenues to fund continuing operations. The development of the Kami Project will require the commitment of substantial financial resources. The amount and timing of expenditures will depend on a number of factors, including the progress of ongoing exploration, evaluation and development, the results of consultant analysis and recommendations, the rate at which operating losses are incurred, the execution of any agreements with strategic partners and our acquisition of additional properties. Some of these factors are beyond our control. There can be no assurance that Alderon will ever achieve profitability.

Our securities are subject to price volatility.

In recent years, the securities markets in the United States and Canada have experienced a high level of price and volume volatility, and the market prices of securities of many companies have experienced wide fluctuations that have not been necessarily related to the operating performance, underlying asset values or prospects of such companies. There can be no assurance that fluctuations in our share price will not occur. It may be anticipated that any quoted market for our common shares will be subject to market trends generally, notwithstanding any potential success in creating revenues, cash flows or earnings. The value of our common shares will be affected by such volatility.

 
39

 
(A Development-Stage Company)
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the nine-month period ended September 30, 2014



Internal control over financial reporting

During the nine-month period ended September 30, 2014, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Additional information

Additional information relating to the Company, including the Company’s AIF for the year ended December 31, 2013 is available on SEDAR at www.sedar.com.

Approval

The Board of Directors of Alderon Iron Ore Corp. has approved the information and disclosures contained in this MD&A.

 
40

 

 






 
 

 
Form 52-109F2
Certification of Interim Filings
Full Certificate


I, Tayfun Eldem, Chief Executive Officer of Alderon Iron Ore Corp, certify the following:

1.  
Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Alderon Iron Ore Corp. (the “issuer”) for the interim period ended September 30, 2014.

2.  
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3.  
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

4.  
Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (“DC&P”) and internal control over financial reporting (“ICFR”), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 
5.  
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings:

 
(a)
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that:

(i)  
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)  
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 
(b)
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1
Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission.

5.2
N/A.

5.3
N/A.

6.  
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2014 and ended on September 30, 2014 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: November 13, 2014


“Tayfun Eldem”
_____________________________
Tayfun Eldem
 







Form 52-109F2
Certification of Interim Filings
Full Certificate


I, François Laurin, Chief Financial Officer of Alderon Iron Ore Corp, certify the following:

1.  
Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Alderon Iron Ore Corp. (the “issuer”) for the interim period ended September 30, 2014.

2.  
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3.  
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

4.  
Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (“DC&P”) and internal control over financial reporting (“ICFR”), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

 
5.  
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings:

 
(a)
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that:

(i)  
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)  
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

 
(b)
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1
Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission.

5.2
N/A.

5.3
N/A.

6.  
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on July 1, 2014 and ended on September 30, 2014 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: November 13, 2014


“François Laurin”
_____________________________
François Laurin
Chief Financial Officer


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