Atlas commits $15m to Port Hedland port, signs Chalice deal

West Perth-based iron ore explorer Atlas Iron Ltd will pay $15 million in port facilities charges to the Port Hedland Port Authority as an up-front contribution for the planned $225 million upgrade of the Utah Point public access facility.

The State Government last month approved the upgrade after securing up-front capital contributions from miners, with Atlas being the second largest contributor.

In an announcement to the Australian Securities Exchange, Atlas managing director David Flanagan said the expanded facilities were a key milestone to the company being able to export its product independently.

In other news for the company, Atlas today entered into an arrangement with West Perth's Chalice Gold Mines Ltd to acquire the iron ore rights on its Yandeearra tenements in the Pilbara, the companies have announced.

Under the deal, Atlas will pay $250,000 to Chalice in either cash or scrip prior to acceptance of the offer, with a further $1 million payment in cash or scrip once Atlas exercises its option.

The full text of the Utah Point announcement, followed by the Chalice announcement, is pasted below

Atlas Iron Limited [ASX Code: AGO] is pleased to report it has entered into a Facility Agreement with the Port Hedland Port Authority ("PHPA") for the Public Access Facility located at Utah Point.

Atlas has agreed to prepay an amount of $15 million worth of Port Facilities Charges, which will be recouped (along with notional interest) from future tonnes shipped over the Berth.

The prepayments from Atlas and the other proponents underpin the project's funding, which will be supplemented by the WA State Government (see Atlas' ASX announcement dated 24 October 2007).

This agreement to get access to the expanded Public Access Facilities in Port Hedland is a key milestone in Atlas being able to independently export its product. The new Berth, which will have an annual capacity in excess of 15 million tonnes, is expected to be operational in mid 2009.

"Atlas has been a long time supporter of plans to expand the Public Access Port Facilities in Port Hedland" Atlas Managing Director David Flanagan said. "I would like to thank Andre Bush and his staff at the Port Hedland Port Authority for their co-operation and support in the 2 years leading up to the signing of this agreement. This is a significant milestone in Atlas' plans for production and shipping of iron ore from its Pilbara iron ore projects."

Summary of the proposed agreement with Port Hedland Port Authority The key components of the proposed agreement are as follows:

• PHPA will provide the facility, berth and dedicated stockpile and handling area on commercial rates for Atlas to export 3MT pa for the term of the agreement. The term is 5 years with a 3 year option.
• Atlas is to contribute a fixed sum of $15 million as prepayment of facilities charges in two installments. Notional interest accrues from the date of payment to PHPA at a rate equivalent to current Bank Bill Rates.
• Atlas relieved from payment of facility charges until, on the basis of tonnes shipped, Atlas would have otherwise accumulated charges totaling the amount prepaid of $15 million + interest.

Background

Atlas Iron Limited is working to complete environmental approvals and commence shipping of direct shipping grade (DSO) iron ore from its Pardoo Project by October 2008. The company is targeting export of 1 million tonnes of DSO iron ore during the first 12 months of operations with production growing to 3 million tonnes per annum by 2010. Together with the development of the Abydos project, the company is targeting annual production of 6mtpa
of DSO by 2012.

The Chalice announcement is pasted below

Atlas Iron Limited (ASX: AGO) is pleased to announce that it has entered into an option to acquire the iron ore rights to the Yandeearra Project from Chalice Gold Mines Limited (Chalice).

Summary of the Agreement

1. Payment of $250,000 to Chalice in cash or Atlas shares valued at the Atlas VWAP for the 5 days prior to date of acceptance of this offer (at the election of Chalice) upon execution of a formal agreement. Chalice and Atlas have agreed to work to complete a formal agreement within 60 days.
2. Payment of $1,000,000 in cash or Atlas shares valued at the Atlas VWAP for the 5 days prior to the exercise of its option (at the election of Chalice) upon Atlas exercising it's option to purchase Fe rights, which will occur no later than 12 months after the date of the formal agreement.
3. Clawback - On the definition of an iron ore resource exceeding 5 Mt, Chalice will have a one off right to clawback 30% for four times total exploration expenditure across the tenement group.
4. In the absence of exercising its one off right to clawback, Chalice retains a 2% Gross Sales Royalty (GSR) royalty. Atlas retains a first right of refusal to acquire this royalty.
5. Atlas has agreed to spend a minimum $200,000 on exploration on the Chalice tenements during the option period.

Typical of such arrangements, the Agreement includes conditions regarding the continued good standing of the subject tenements.

"This is a great opportunity for Atlas to apply its iron ore exploration expertise on a larger prospective landholding less than 120km from Port Hedland in the Pilbara of WA." Atlas Managing Director, David Flanagan commented "We like the geology and we think we have a very good chance of finding something" he added.