Chinese investment in Western Australia's iron ore sector has increased further, with Cape Lambert Iron Ore Ltd agreeing to sell its namesake project in the Pilbara to China Metallurgical Group Corporation for $400 million.
Chinese investment in Western Australia's iron ore sector has increased further, with Cape Lambert Iron Ore Ltd agreeing to sell its namesake project in the Pilbara to China Metallurgical Group Corporation for $400 million.
MCC already has a 20 per cent stake in the $5 billion Sino Iron project, and its investment reflects the desire of Chinese interests, including steel mills, to secure long-term iron ore supplies.
Iron ore miners and developers Australasian Resources, Midwest Corporation and Mt Gibson Iron have all attracted Chinese investments, and Chinese group Chinalco famously bought a large stake in takeover target Rio Tinto.
Under the terms of the Cape Lambert agreement, MCC has secured an exclusive right (until 30 April 2008) to conduct due diligence for the acquisition of the project.
MCC has paid a deposit of $10 million, with $5 million of this being non-refundable if MCC withdraws.
The entire deposit will be offset from the sale consideration when MCC complete the acquisition of the project.
The key terms of the proposed sale have largely been agreed. MCC will purchase the company's entire project land package (Exploration Licenses 47/1462, 47/1271, 47/1248 and 47/1233), other than Exploration License Application 47/1493, for a total consideration of $400 million.
The consideration will be paid in three tranches; A$240 million or 60 per cent at settlement, $80 million or 20 per cent sixty (60) days after settlement and $80 million or 20 per cent on the grant of a mining lease.
Importantly, the company will receive 80 per cent of the sale consideration, or $320 million, within 60 days of settlement.
MCC has total assets of approximately US$20 billion (145 billion Yuan) and in 2007 the revenue and total profit of the group totalled approximately US$18 billion (126 billion Yuan) and US$1 billion (7.2 billion Yuan) respectively.
It has completed design and construction assignments for approximately two thirds of the iron ore projects in China and undertaken design and construction work for more than 90 per cent of the steel mills in China.
Its stated objective is to become a Fortune 500 company by 2010.
In Australia, MCC owns 20 per cent of Citic Pacific Mining's $5.2 billion Sino Iron Project, located near Cape Preston, approximately 120km south west of the Cape Lambert iron ore project
MCC has also been awarded the EPC construction contract at the Sino Iron Project.
Cape Lambert chairman Ian Burston said, "Our commitment has at all times focussed on the development of what we believe is a world-class iron ore project at Cape Lambert. However, this opportunity has the potential to deliver significant upfront value to shareholders and it was therefore incumbent on us to look at it."
"MCC as a substantial, vertically integrated conglomerate clearly has the technical and financial capacity to develop the Cape Lambert iron ore project. Importantly, MCC has a good understanding of large, Australian iron ore projects through its investment and construction involvement in the Sino Iron Project."
The proposed sale is subject to the successful completion of due diligence by MCC, approvals by Cape Lambert shareholders, FIRB, the Chinese government and any other necessary approvals.
On successful completion of the proposed transaction with MCC, the board intends to follow an investment strategy to acquire assets at either company or project level.
Cape Lambert will have significant cash reserves and will be ideally placed to pursue this strategy in an uncertain market where access to capital is tightening.
The company has recently reviewed a number of assets in West Africa and throughout Australia, and intends to step up the review of opportunities in the near term whilst assisting MCC with its due diligence.
The company has excluded Exploration License Application E47/1493 from the proposed MCC sale.
This tenement contains a 3km long, untested magnetic anomaly, which is thought to represent the southern strike extension of the Cape Lambert resource and lies within the highly prospective Cleaverville geological formation.
Once granted (expected to take approximately 4 months) this tenement will become the focus of the company's Pilbara exploration program.
Shares in Cape Lambert were 1.5 cents, or 3.12 per cent, higher at 49.5 cents at 1509 AEDT.
