Mineral Resources has taken a big step forward in its plans for a new iron ore hub in the Pilbara, with Red Hill Iron shareholders set to be big winners.
Mineral Resources has taken a big step forward in its plans for a new iron ore hub in the Pilbara, with Red Hill Iron shareholders set to be big winners.
MIN announced late on Friday afternoon it has struck an agreement with Red Hill Iron to acquire its 40 per cent interest in the Red Hill Iron Ore Joint Venture (RHIO JV) in the West Pilbara.
The joint venture’s tenements contain a mineral resource of 820 million tonnes grading 56.44 per cent iron.
This will add to nearby tenements held by MIN, including Bungaroo South and Kumina, which the company hopes will anchor a new 30 million tonne per annum mining operation.
MIN will pay Red Hill Iron $200 million out of existing cash resources, on completion of the acquisition, and a further $200 million cash when the first commercial shipment of iron ore extracted from the tenements departs port.
In addition, MIN will pay Red Hill Iron a royalty of 0.75 per cent of FOB revenue on all iron ore that is extracted and sold from the RHIO JV tenements and from the Bungaroo South tenement, provided the two are jointly developed.
The deal represents a huge win for Red Hill Iron shareholders.
The company’s share price has risen strongly over the past six months, as the possibility of developing its ‘stranded’ resource started to improve.
Nonetheless, its market value was still a modest $65 million when it called a trading halt last week.
The biggest winner from the deal will be Red Hill chairman Joshua Pitt, who holds a 21 per cent stake through his company Perth Capital Pty Ltd.
Other big shareholders include the family of former director, the late Neil Tomkinson, as well as Tony Poli’s Aigle Royal and Mark Creasy’s Yandal Investments.
The deal comes two months after MIN bought a 15 per cent stake in Aquila Resources, which is also a significant shareholder in Red Hill Iron.
More significantly, Aquila is part of the Australian Premium Iron Joint Venture (API JV), which owns the remaining 60 per cent of the RHIO JV.
The API JV has been largely dormant for the past decade after its West Pilbara project was made uneconomic by a combination of low iron ore prices and high infrastructure costs.
It was also hampered by disparate ownership of its tenements.
MIN’s planned Ashburton Hub provides a potential solution, through the use of trucks (rather than heavy rail) and a transhipment port (rather than a deepwater port).
For the full project to proceed, it also needs alignment between members of the API JV, which include China’s Baosteel, South Korea’s POSCO and private investment group AMCI.
Mineral Resources managing director Chris Ellison said he was pleased to have reached agreement with Red Hill Iron, with the deal due to close in early September.
“The transaction is in line with our strategy to build own and operate infrastructure assets to unlock stranded iron ore deposits in the Pilbara and build a long-life, sustainable iron ore business exporting out of Onslow,” he said.
“The RHIOJV holds a sizeable iron ore mineral resource in a strategically significant location in the West Pilbara.
“MIN’s proposed acquisition of RHI’s participating interest in the RHIOJV will enhance the company’s iron ore footprint in the West Pilbara as we progress our Ashburton Hub development.”
“We look forward to joining the RHIOJV and working constructively with the other partners to deliver value for all stakeholders.”
The sale of its interest in the RHIO JV will allow Red Hill Iron to focus on its wholly-owned Pannawonica iron ore project.
The company is assessing development of a 1.8 mtpa mine.
