11/05/2015 - 14:11

Aurizon extends iron ore timetable, Todd buys up

11/05/2015 - 14:11

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The owners of two major iron ore developments in the Pilbara have flagged changes to their timetable and ownership structure respectively, as they seek to deal with the sharp fall in iron ore prices.

The owners of two major iron ore developments in the Pilbara have flagged changes to their timetable and ownership structure respectively, as they seek to deal with the sharp fall in iron ore prices.

Aurizon has announced that the owners of the West Pilbara iron ore project, which include Chinese giant Baosteel, will make a decision by the end of this year on whether to proceed to completion of definitive feasibility studies.

Aurizon has also been given extra time to develop a rail and port infrastructure solution for the project, which in 2012 was estimated to cost $7.4 billion.

Separately, private New Zealand company Todd Corporation has struck an option agreement to buy Flinders Mines’ Pilbara iron ore project (PIOP), and is also poised to gain control of Rutila Resources.

Rutila and Todd have jointly been developing plans for the $2 billion-plus Balla Balla project, which involves construction of a new railway and transhipment port, with Flinders’ Pilbara mine earmarked as the foundation customer.

Todd, which owns 19.9 per cent of Flinders, has struck an option agreement to buy the Pilbara mine project for $65 million.

Todd also owns 46.1 per cent of Rutila, which went into a trading halt today while it finalises the terms of a “proposed conditional change of control transaction”.

Flinders said the significant downturn in the iron ore price was adversely affecting its ability to raise capital for the Pilbara iron ore project, which has previously been estimated to cost $726 million.

“Flinders believes a process by which project ownership of PIOP is transferred to Todd and operated alongside Todd’s ownership in the Balla Balla JV, in exchange for future cash and royalty payments, represents the most efficient method of adding value for its shareholders,” the company said.

Chairman Robert Kennedy said Flinders had examined every possible project development path.

“Todd’s proposal of consolidating project ownership significantly improves overall operating efficiency thus lowering the ore price hurdle that is required to make PIOP an economic success,” he said in a statement.

“This, in conjunction with their very strong balance sheet, gives me great confidence that the option agreement will deliver significant benefits to our shareholders.”

Under the option agreement, Todd will pay $10 million up-front and has until the end of December 2016 to pay a further $55 million for full ownership of the mine.

If the project proceeds, Todd will pay a production royalty of between 60 cents per tonne and $1.40 per tonne, depending on the iron ore price.

The project valuation is well above Flinders’ current market value of $44 million.

The deal is subject to shareholder approval.

Todd’s investments in Flinders and Rutila are additional to its investment in Perth-based Wolf Minerals, which is developing the Hemerderon tin project in England.

Meanwhile, Aurizon said it had delivered an indicative tariff for a mine-to-ship supply chain solution for the West Pilbara project to other participating companies, namely Baosteel, South Korea’s POSCO and private investment group AMCI.

The rail operator said a key driver of the project’s competitiveness will be a significant reduction in the 2012 capital cost estimates, “which is expected to be achievable given the subdued market for major capital activity”.

The project participants have agreed on a new timeline for project studies.

Aurizon will provide an updated tariff, with a margin for error of 15 per cent, by the end of November 2015.

The project participants will meet by the end of December 2015 to review all studies for mine and infrastructure projects, to decide whether they continue with definitive feasibility studies.

A final investment decision is contemplated to occur late in calendar year 2016.

The project involves development of a deepwater port at Anketell Point, near Karratha, and a 280-kilometre railway linking to new mines.

The West Pilbara project is jointly owned by Aquila Resources, which is owned by Baosteel (85 per cent) and Aurizon (15 per cent), and AMCI (IO), which is a joint venture between American Metals & Coal International (51 per cent) and POSCO (49 per cent).

Aquila and Aurizon paid $1.4 billion for control of Aquila in July last year, prior to a sharp slide in the iron ore price.

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