Alderon Iron Ore (ADV-T, AXX-X) took a big step towards developing its Kamistiatusset (Kami) iron-ore project on the Labrador-Quebec border by entering a US$195-million partnership with China’s leading steel producer, Hebei Iron & Steel Group.
The agreement was announced on April 13 and gives Alderon access to project debt facilities — including Chinese banks — that are needed to fund exploration and eventual development. Kami has a projected capital expenditure of US$989 million.
“Alderon now has both the capital and the China market access to build a world-class company,” comments executive chairman Mark Morabito.
Hebei’s initial investment totals US$88.5 million. It will receive a 19.9% stake in Alderon through 25.8 million shares issued at $3.42 per unit. Hebei will commit the balance of the US$195-million investment — roughly US$106 million — following a review of Kami’s upcoming feasibility study, creating a limited partnership with a 75%-Alderon and 25%-Hebei ownership split.
In an April 16 research report to clients, Canadian Imperial Bank of Commerce World Markets analyst Ian Parkinson labelled Alderon a “sector outperformer” and increased the company’s target price from $6 to $6.50 per share.
“Additional drilling, a maiden resource calculation and detailed engineering will give investors more confidence in the project as well as boost valuations for the company,” Parkinson noted. “Completing the definitive feasibility study and closing the Hebei transaction will be a key catalyst for the stock.”
The staged agreement also features an offtake element, with Hebei obligated to purchase 60% of the actual annual production from Kami upon exercising its right, up to a maximum 4.8 million tonnes of an initial 8-million-tonne iron-ore concentrate projected to be produced annually at 65.5% iron.
“Alderon is developing a high-quality iron ore project with abundant resources and strategic location,” explained Hebei chairman Wang Yifang. “I believe this is an important transaction in the push of China’s iron and steel enterprises to invest into overseas mining assets.”
Alderon filed a joint resource estimate and preliminary economic assessment (PEA) on its Kami-Rose zone on March 21. The PEA was originally completed last October, and pegs Kami’s pre-tax net present value at US$3.07 billion with an 8% discount rate and 40.2% internal rate of return.
The project holds an estimated 490 million indicated tonnes grading 30% iron, and another 118 million inferred tonnes at 30.3% iron.
Alderon’s partnership agreement with Hebei is part of a growing trend of joint ventures between industrial, growth-based Asian economies and Canadian iron-ore exploration outfits.
Calgary-based New Millennium Iron (NML-T) optioned a 27% stake to India’s Tata Steel subsidary Tata Steel Global Minerals last March, in an agreement that could be worth as much as US$4.8 billion. Toronto-based Adriana Resources (ADI-V) formalized a partnership worth US$93 billion with a subsidiary of China’s WISCO International Resources Development & Investment to access Chinese financing for its costly US$12.9-billion Lac Otelnuk iron project outside of Nunavik, Que.
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