Advanced Explorations lines up Chinese partner for Roche Bay

XinXing Pipes Group, a Chinese state-owned enterprise with businesses in iron and steel, military clothing, heavy machinery engineering and real estate, has agreed to provide financing and development capital for Advanced Explorations‘ (AXI-T) Roche Bay iron ore project.

A subsidiary of the company, Xinxing Ductile Iron Pipes, and its affiliate China Huaxin International Trade, jointly agreed to acquire 19% of Advanced Explorations’ issued and outstanding shares at a price of 25¢ apiece for proceeds of about $5.3 million.

The agreement sets out the parameters for further direct investment and or the establishment of a joint venture to complete a definitive feasibility study. In that scenario, XinXing Ductile Iron Pipes would earn a 50% direct interest in a newly formed joint venture by spending $20 million to complete a definitive feasibility study and a further $30 million for working capital following the completion of the definitive feasibility study.

“In addition, XDIP has agreed to provide the necessary financing and development capital for Advanced Explorations’ Roche Bay project to a maximum of $1 billion,” Advanced Exploration outlined in a press release. “In accordance with the agreement, Advanced Exploration has agreed to provide XDIP with 50% off-take from all iron products once the Roche Bay project begins production.”

News of the agreement sent Advanced Explorations’ shares up 16.07% or 9¢ to close the day at 65¢. Over the last year the junior has traded in a range of 14.5¢-82¢ per share.

The magnetite project, classified as an Algoma type Banded Iron Formation, is adjacent to a deep water harbor on the east side of the Melville Peninsula in Nunavut. Roche Bay is a small bay that forms the northwest arm of Parry Bay in Foxe Basin.

In June 2009, the company released a preliminary economic assessment based on a previously released inferred resource estimate for the project’s C-zone of 357 million tonnes grading 28.1% total iron at a 25% iron cut-off grade. (The historical resource of 70 million tonnes from the deposit’s A, B and D zones were not included in the report and according to the company are considered “an excellent exploration target for future drill programs.)

Highlights of the PEA included annual production of 1 million tonnes of 96%-98% iron direct reduced nuggets (DRI), capital expenditure of US$1.11 billion, a payback period of about three to five years, and a minimum mine life of 50 years.

Operating expenditures were estimated at US$176 per tonne nugget. The net present value (NPV) before taxes at a 10% discount rate was calculated to be US$1.16 billion at US$500 per tonne nugget and US$2.76 billion at US$750 per tonne nugget. The pre-tax internal rate of return (IRR) was forecast to be 24.4% at US$500 per tonne nugget and 39.5% at US$750 per tonne nugget.