Iron ore hopeful Aurox Resources has parted ways with engineering and mining equipment supplier FLSmidth, after the global financial crisis derailed the project financing process for the Balla Balla magnetite project in the Pilbara.
Iron ore hopeful Aurox Resources has parted ways with engineering and mining equipment supplier FLSmidth, after the global financial crisis derailed the project financing process for the Balla Balla magnetite project in the Pilbara.
The announcement is below:
Pilbara iron ore developer Aurox Resources Limited ("Aurox" ASX: AXO) and engineering
and mining equipment supplier, FLSmidth Pty Ltd ("FLSmidth") have agreed to conclude the
uncompleted process of detailed engineering and procurement activities for key plant items at
the Balla Balla magnetite project.
In April 2008 Aurox announced that it had entered into a contract with FLSmidth to initiate
detailed design and engineering work and secure the manufacture of key plant items for the
Balla Balla magnetite project. The contract provided for an initial phase of work to be
undertaken by FLSmidth pending notification by Aurox of its decision to proceed with the
Project upon receipt of government approvals and project funding.
Following the award of the lump sum agreement, FLSmidth was able to demonstrate the
benefits of the plant systems approach incorporating integrated plant design and procurement
efforts which allowed for fabrication of key equipment to begin within weeks of award.
Benefits were also realised in the efficient transition from the basic engineering phase into the
detailed design effort. As a result the overall project was on track to achieve or exceed all
original project schedule expectations. The design and supply approach chosen by Aurox,
using FLSmidth as its primary contractor had forecast substantial schedule and cost savings
for the Balla Balla project.
Unfortunately the dramatic changes to credit markets brought about by the GFC in late 2008
meant that the Company was unable to secure project funding in the timeframe originally
contemplated. With the initial phase of work completed and the timing of project funding
uncertain it was determined to be in the best interest of both parties to close the current
agreement. As part of the mutually agreed closure process FLSmidth will provide a full
release of all plant design information established to date for future use by Aurox in the
development of the Balla Balla Project. Both parties have also agreed to pursue opportunities
for recovery of capital from previous procurement related activities. In addition, FLSmidth has
offered to make available their technical and project management services in further support
of Aurox's efforts to advance the project. Such services would be provided and compensated
on a case by case basis as agreed under future purchase order agreements.
Commenting on the these matters, Aurox Managing Director stated that "the finalisation of the
agreement with FLSmidth concludes arrangements put in place in early 2008 and derailed by
the global financial crisis. By closing the agreement we gain flexibility in strategy and
development options and ensure that Aurox generates maximum value from a relationship that
has substantially advanced the Balla Balla project."
