iron valley transaction with mineral resource , page-28

March 6, 2013, 10:49 AM
Iron Ore Holdings in Talks with Investors in Buckland Project
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By Stephen Bell

Iron Ore Holdings Ltd. IOH.AU 0.00%is in talks with several potential investors in its Buckland iron ore project in Western Australia state, and could use a recent deal with Mineral Resources Ltd. MIN.AU +2.83%over a separate deposit as a development template.

The Perth-based company–controlled by media mogul Kerry Stokes and with a market value of 185 million Australian dollars (US$190 million)–has been approached by several parties interested in taking equity in Buckland and has given several large Australian mining companies a tour of the proposed mine site.

Alwyn Vorster, Iron Ore Holdings’ managing director, told Deal Journal Australia that he is holding back appointing a financial advisor for now to allow the talks to progress.

But management remains confident of locking in a partner by the end of September, enabling a final investment decision on Buckland to be made, he said.

Iron Ore Holdings estimated in November that it would cost up to A$810 million to develop Buckland, which is located in the western Pilbara region. This would involve construction of a mine capable of producing up to 8 million tons of iron ore a year at the Bungaroo South deposit, plus a 195-kilometer private road connecting to a new barging facility at Cape Preston East on the Pilbara coastline.

Mr. Vorster said the best-case scenario involves Iron Ore Holdings paying a “disproportionately lower share of the capital expenditure, and the partner comes in and funds a disproportionately higher part of the capital expenditure”.

“We also need to remain open minded to alternatives,” he said. “The alternatives include private equity investors, and some of the larger engineering firms are expressing interest in a build, own, operate solution.”

Iron Ore Holdings last week struck a deal for its Iron Valley project with Mineral Resources, which has a mining services arm and also produces iron ore in Western Australia. The agreement lays a platform for iron ore production from the Iron Valley project in the central Pilbara to begin by early 2014.

Mineral Resources, which will build and operate the mine at its cost, agreed to buy a minimum annual volume of iron ore from Iron ore Holdings that it plans to truck roughly 300 kilometers to export facilities at Port Hedland.

The terms weren’t disclosed, though Macquarie estimates Mineral Resources will pay a royalty to Iron Ore Holdings of between $5 and $12.50 a ton depending on the international iron ore price.

Haris Khaliqi, an analyst at Foster Stockbroking, rates Iron Ore Holdings as a buy recommendation and Wednesday upped his price target by nearly 50% to A$1.90 a share following the announcement of the Mineral Resources deal.

“We consider the binding formal agreement with Mineral Resources to be an excellent and low risk outcome for Iron Ore Holdings shareholders given significant value will be realized over the life of the asset, while eliminating the large level of capital expenditure, dilution and inherent risks of developing a mine,” Mr. Khaliqi said.

Mr. Vorster said a similar agreement was possible for Buckland, as the board is keeping all its options open.

http://blogs.wsj.com/dealjournalaustralia/2013/03/06/iron-ore-holdings-in-talks-with-potential-investors-in-buckland-project/