China’s third largest steel group, Wuhan Iron & Steel (Group) Co (WISCO), is to invest up to A$180 million to earn a half share in selected iron ore projects owned in South Australia by Centrex Metals Limited (ASX code: “CXM”) in the development of five projects located in the southern part of South Australia’s Eyre Peninsula.
WISCO will also take a strategic 15% direct stake in Centrex, at a cost of an additional A$9.7 million.
As part of the buy-in, the Chinese investment will see Centrex paid A$59.5 million cash once all necessary government consents and permits have been received which is expected in March next year, with a further A$30 million unconditional cash payment 12 months later.
A non-refundable deposit of A$500,000 will be paid to Centrex by WISCO by the end of this month.
A further A$90 million will be paid in four progressive but equal tranches subject to the new joint venture to be set up between the two companies achieving Inferred Resource definition targets across the projects of 1,250 million tonnes (Mt), 1,500 Mt, 1,750 Mt and 2,000 Mt.
Adelaide-based Centrex has a number of maturing hematite and magnetite iron projects across South Australia’s Eyre Peninsula.
Under a Heads of Agreement announced today between Centrex and WISCO – which has its major operations in the central Chinese province of Hubei – WISCO will now participate in the development of five of those projects located in the southern part of the Peninsula.
The Heads of Agreement is expected to be formalised by March 17 next year, subject only to approvals by governments and regulatory authorities in both Australia and China.
“This is a landmark, high integrity agreement with a top three steel group in China and is a company-maker for us in every sense,” Centrex Chairman, Mr David Lindh, said today.
“Importantly, the negotiations to reach this strategic partnership were concluded after a thoroughly professional and exhaustive due diligence. WISCO is committed to the rapid development of the Eyre Peninsula deposits,” Mr Lindh said.
“As such, WISCO brings to Centrex, and Australia’s iron ore sector, enormous technical and financial capability.
“The agreement also sets up a potential long-term relationship of substance that will significantly grow Centrex while evolving Eyre Peninsula as a genuine new contributor to Australia’s iron ore export capability.
“The terms of the agreement can also deliver Centrex the financial capacity to self fund its exploration and mine development expenditures not just for its commitments to the new joint venture, but across our other well advanced iron ore projects throughout Eyre Peninsula.”
Key terms of Agreement
The key terms of the Heads of Agreement announced today provide for the A$59.5 million payment within seven days of the execution of the formal agreements, and the payment of a further A$30 million on the first anniversary of the formal agreements.
At this point, WISCO will be deemed to have acquired a 50% interest in the joint venture owning and operating the five tenements covered under the agreement.
This milestone will then pave the way for the additional staged four payments of A$22.5 million each once set resource definition hurdles have been achieved.
Other terms comprise:
• WISCO’s acquired 50% interest in Centrex’s southern and south central Eyre Peninsula magnetite deposits, will comprise five Exploration Licences all in close proximity:
– EL 3611 just north of Port Lincoln
– EL 3421 near Dutton Bay, 90 kilometres northeast of Port Lincoln
– EL 3269 just northwest of Port Lincoln
– EL 3731 just west of Tumby Bay, and
– EL 3877 stretching along the Port Lincoln to Tumby Bay coastline.
The tenements host a number of magnetite deposits including Carrow, Dutton Bay, Mount Hill, Bald Hill, Charleton Gully, Koppio, Brennand, Oolanta, Greenpatch and Iron Mount.
• The acquisition cost to be equivalent to A$0.18 per tonne of Inferred Resource up to a total of 2,000 million tonnes
• WISCO’s half share liability of this 2,000 Mt means it pays in staged payments for a maximum of 1,000 Mt, equating to A$180 million
• Subject to completion of the joint venture, WISCO will subscribe for approximately 39 million ordinary shares in Centrex at an agreed price of A$0.25 per share – providing Centrex with an additional A$9.7 million in funds for working capital
• Both companies commit to undertake exploration and resource definition drilling and to complete mine feasibility studies aimed at early development of commercial iron ore mining operations within the five project areas.
Centrex’s Managing Director, Mr Gerard Anderson, said today both parties were working to ensure the new joint venture was completed in time to coincide with the necessary granting of government consents and permits by March.
“WISCO has also agreed to work with Centrex to jointly develop a deep water export port at Sheep Hill, 20 kilometres north of Tumby Bay, on land already acquired by Centrex for this very purpose,” Mr Anderson said.
“Centrex’s plan is to link development of its iron ore assets with the joint construction of a nearby export port. Centrex’s acquisition of Sheep Hill was one of the central factors in securing the agreement announced today,” he said.
“The port will be capable of handling Capesize [> 160,000 DWT] bulk carriers.
“It is proposed to be built in conjunction with other mine and processing infrastructure needed to export iron ore products produced by the Centrex-WISCO joint venture.”
Mr Anderson said it was already planned to fly multi-dimensional airborne surveys across the southern tenements during 2009 and this would aid the rapidity at which drill targets could be selected and substantive drill campaigns put in place.
Share structure changes
Centrex – which has 261 million ordinary shares on issue – has 55 million 20 cent options expiring on 31 December this year.
WISCO has agreed to the share placement and to acquire additional shares if needed to take its shareholding in Centrex to 15%.
He said WISCO had also been invited to nominate a Director to the Centrex Board.
The Wuhan Iron & Steel (Group) Co (WISCO) is ranked third in its sector in China, with a current annual capacity of 30 million tonnes of steel.
WISCO’s operations are predominately located in Wuhan in the Hubei province of central China.
It operates an integrated supply chain comprising mining, coking, sintering, pelletising, iron making, steel making and rolling operations.
WISCO’s assets were valued at 118 billion RMB (A$26 billion) in 2007. WISCO has a 48.3% interest in Kunming Iron and Steel Corporation which is located in Yunnan province.
WISCO also has an 80% interest in the Guangxi Iron and Steel Group which currently has approval to construct a new 10 million tonne steel plant in the Guangxi port of Fangchenggang, with further plans to expand the facility to 50 million tonnes per annum by 2011.
Coober Pedy Regional Times
Categories: GENERAL News