Moly Mines shares have shot up on the ASX after the company announced it had signed a mine gate sale agreement with Mineral Resources worth up to $38 million for output from its Spinifex Ridge iron ore mine in the Pilbara.
Under the agreement, MinRes will pay Moly for iron ore from Spinifex Ridge in cash or by issuing MinRes shares.
At 12:45PM WST, Moly shares had jumped 30.4 per cent, trading at 15 cents. MinRes shares were up 1.3 per cent, at $10.03.
Moly will continue to coordinate mining operations with its contracts and service providers, while MinRes will take control of the project’s operating systems to the end of mine life.
The purchase price will be calculated on the basis of agreed minimum product tonnage.
About 24 million dry metric tonnes of iron ore is estimated to be available at Spinifex Ridge, and based on these estimates the purchase price would be around $38 million.
“This agreement signed today with Moly Mines extends the long-term relationship between the companies and provides the opportunity to utilise the operating resources of both companies to maximise the return from the combined Pilbara iron ore inventories,” MinRes managing director Chris Ellison said.
Moly previously had an offtake agreement for output from Spinifex Ridge with Chinese mining investment group Hanlong Mining.
Moly said it had not been able to determine a pricing mechanism for the offtake agreement, and had agreed to terminate the arrangement.
Hanlong will be paid $1 million in cash and a royalty of $1.20 for each tonne of ore sold by Moly after termination, up to a cap of $4 million, or up until December 31 2015.
“In the view of the limited life and scale of the mine as well as the recent volatility in iron ore prices, the company has been looking at ways to divest or otherwise de-risk the Spinifex Ridge iron ore mine,” Moly Mines chairman Michael Braham said.
“The transaction is attractive to Moly Mines as it provides us with a material upfront payment with no downside pricing risk, and the potential to participate in upside should the iron ore price increase again."
Moly was advised by Azure Capital and Herbert Smith Freehills in relation to the transaction.
The agreement with Moly follows MinRes signing an agreement in February this year to jointly develop the Iron Valley mine in the Pilbara.
The key to that agreement was also a mine-gate sale agreement, which could be worth between $20 million and $75 million to IOH.
