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Australasian Resources announces Clive Palmer deal on iron ore
by: Nick Evans, Business Reporter From: PerthNow September 27, 2011 4:39PM Increase Text Size Decrease Text Size Print Email Share Add to Digg Add to del.icio.us Add to Facebook Add to Kwoff Add to Myspace Add to Newsvine What are these?

BACK: Mining magnate Clive Palmer. Source: AFP

CLIVE Palmer looks set to kick off his stalled WA iron ore projects, agreeing to a deal to allow his majority owned company, Australasian Resources, to move on Balmoral South.

Australasian Resources announced today that Mr Palmer’s privately owned company Mineralogy had granted it the mining rights to an extra billion tonnes of magnetite iron ore at the Balmoral South project, doubling the amount the company can potentially mine.

Australasian said a non-binding memorandum of understanding with Mr Palmer’s Mineralogy will establish a “structure” for development of the Pilbara mine.

The move appears to be an attempt to rescue the project from the wreckage of the failed Hong Kong float of Resourcehouse.

The Balmoral South iron ore project was one of the flagships of the failed $3.4 billion float.

Mineralogy holds the tenements, which contain an estimated 2.8 billion tonnes of magnetite iron ore. Mineralogy also has the righty to develop the mines there, through a 2002 State Agreement signed with the WA Government, and has won the majority of the required environmental approvals.

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The company had granted the right for Australasian Resources, which is 68 per cent owned by Mr Palmer, to mine a billion tonnes of that ore, but extended that to 2 billion tonnes today.

Mr Palmer also appears to have attracted partial debt funding for the project, with Australasian announcing the Royal Bank of Scotland will back $US500 million ($A507 million) worth of high-yield bonds to part-fund the project.

A 2008 feasibility study put the capital cost of mine development at Balmoral South at $2.7 billion (then $US2.5 billion), though this estimate was pulled back to $US2 billion in the Resourcehouse prospectus issued earlier this year.

The remaining 75 per cent of the funding, under the MOU, will be arranged by Chinese infrastructure company China Metallurgical Group Corporation (MCC) by way of export credit from Chinese banks.

Under the agreement MCC will be appointed as the engineering, construction and procurement contractor for Balmoral South. Mr Palmer has a close relationship with MCC, having invited MCC chairman Shen Heting onto the Resourcehouse float, and named it for an $8 billion development role in the company's projects, including Balmoral South.

It’s still a curious deal for MCC, which appears to effectively be finding itself work by arranging the debt funding.

And the company has not had a happy experience in Pilbara mine development, having reportedly been badly burned by delays and cost overruns at the CITIC Pacific’s nearby Sino Iron project.

That development, like South Balmoral, is based on Mineralogy’s tenements. CITIC also bought the rights to mine up to two billion tonnes of magnetite iron ore from Mr Palmer, reportedly paying $US415 million in 2006 for the rights. CITIC is also due to pay Mineralogy a significant royalty from its exports, which will go straight to Chinese steel mills.

While details of the Australasian Resources MOU are thin, a similar arrangement seems likely in this case.

Australasian Resources also said today it is in discussion with a “major trading house” regarding offtake from Balmoral South, which may result in a $US600 million investment in the project.

ARH shares surged on the announcement today, up 70 per cent to 28c