Atlas Iron has sold the Balla Balla magnetite, vanadium and titanium project to Forge Resources for $40 million plus a capped royalty from future production.
The Sydney-based company will make an initial payment of $17.5 million by February and a $22.5 million final payment 12 months later.
Atlas will receive a 4 per cent royalty on the first 5.5 million tonnes of iron and 200,000 tonnes of titanium, and a further 1 per cent royalty on the remaining 36 million tonnes of iron and 1.2 million tonnes of titanium.
Forge said in a statement it will now commence a capital raising of at least $15 million through the placement of 30 million shares to make the initial payment to Atlas, with Riverstone Capital to act as advisor.
Balla Balla is located 120km south-west of Port Hedland and was acquired by Atlas via its takeover of Aurox Resources in August 2010.
It is one of Atlas' three magnetite projects, with the iron ore producer more focused on its direct shipping ore (DSO) projects.
The Balla Balla project was carried at a value of $73 million in Atlas' books, meaning the sale will result in an accounting loss for the company on the transaction.
Atlas managing director David Flanagan said the divestment allowed Atlas to retain access to the upside of the project via a potentially significant royalty stream while enabling it to focus on developing its Pilbara direct shipping ore business.
A definitive feasability study on Balla Balla conducted by GR Engineering in February 2010 projected a three-year engineering and construction period with a capital cost estimate of $1.2 billion for phase one.
Phase one target production was 6 million tonnes per annum of magnetite concentrate.
Forge said mining tenements and major approvals had been granted at the Balla Balla project, and water and conditional gas agreements were in place.
The feasability study assumed construction of a slurry pipeline to Port Hedland, however Forge is working with an experienced operator to assess nearby Balla Balla harbour for loading barges for trans-shipment to an ocean going bulk carrier anchored offshore.
The Balla Balla harbour option could debottleneck port access and reduce captial expenditure.
Forge said the Balla Balla project was a compelling opportunity with requirements that were well suited to the experience of the board and executive team, and it had already received a letter of interest from a major Australian bank for project financing.
Forge shares were steady at 33 cents at 9.30am WST.
