Lithium and iron ore miner Mineral Resources (ASX: MIN) looks like it will be trumping Gold Valley Iron Pty Ltd in its bid to secure Cazaly Resources’ (ASX: CAZ) Parker Range iron ore project – offering Cazaly $20 million for the asset in addition to royalties.
The offer outbids Gold Valley, which said it would pay $13 million plus royalties for the asset back in June.
Cazaly revealed this morning that due to Mineral Resources’ superior offer, the agreement with Gold Valley has now been terminated, with Cazaly to pay a $250,000 break fee.
Mineral Resources has provided a binding heads of agreement offering Cazaly $20 million for the iron ore asset as well as a royalty of $0.50 per tonne of iron ore produced from the tenements after the first 10Mt.
However, the agreement remains conditional on a 21-day due diligence period and requisite shareholder and regulatory approvals.
The companies plan to execute a more comprehensive agreement within 30 days.
Parker Range lies about 85km from Mineral Resources’ Koolyanobbing operation, which produces 6 million tonnes per annum of iron ore, with output expected to increase to 7.5Mtpa in early 2020.
Parker Range iron ore project
In an updated definitive feasibility study earlier this year, Cazaly revealed it would cost about $130 million to develop Parker Range, which is located in Western Australia’s Yilgarn and has key approvals in place to begin production.
The project has a proven and probable ore reserve of 31.4Mt to produce an iron ore fines product grading 56.4% iron.
An original DFS was revealed for the project in 2011 estimated annual production of 4.2Mt of iron ore fines.
At the time, the project had a net present value of $372 million and a 106% internal rate of return.
In August 2011, Cazaly almost sold Parker Range to a major South East Asian diversified investment group in a deal worth more than $180 million, including $100 million in cash and the remainder in royalties.
However, port and logistics constraints at the time led to the deal falling through.
In Cazaly’s updated DFS, it noted there was now sufficient capacity on the rail network and access to export the ore through Esperance Port.
“The infrastructure constraints that previously held up development are now clearing and there is a potential pathway forward for the project,” Cazaly’s joint managing director Nathan McMahon said.
He added the company was “greatly encouraged” by the improving iron ore market.
Cazaly’s share price had rocked 76% to reach $0.044 by midday, while Mineral Resources’ shares dipped 1.63% to $13.585.