08/09/2009 - 09:56

China strikes $40m deals with WA juniors

08/09/2009 - 09:56

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China has today expanded its presence in the state's junior iron ore sector, striking placement deals valued at nearly $40 million with two explorers that hold projects in Western Australia.

China has today expanded its presence in the state's junior iron ore sector, striking placement deals valued at nearly $40 million with two explorers that hold projects in Western Australia.

State-owned steel buyer China Railway Materials Commercial Corp Group has entered deals to take substantial shareholdings in FerrAus and United Minerals Corporation, with shares in both companies surging on the news.

CRMC has also entered into iron ore offtake agreements with both WA companies.

Under the UMC deal, CRMC will take an 11.38 per cent shareholding after subscribing to 20 million shares at $1.35 each. Shares in UMC jumped 16 cents, or 15.7 per cent, to $1.18 at 11:52 AEST.

CRMC will also subscribe to 2 million UMC options at 10 cents each. The options are exercisable at $1.35 and will expire in September 2011.

The placement has been valued at $27.2 million.

Funds raised from the placement and a planned $1.5 million rights issue will be used to accelerate work on the Railway iron ore deposit in the Pilbara.

The placement deal is subject to the finalisation of a 10-year, 3 million tonnes a year offtake agreement between UMC and CRMC.

Meantime, FerrAus will issue 22.9 million shares, escrowed for 12 months, to CRMC for a price of 55 cents per share.

The placement is FerrAus' second largest behind a placement of a 9.9 per cent parcel of shares to China Western Mining last year.

Ferraus today said China Western Mining has the right to top up its shareholding to 12 per cent, the same deal also offered to CRM.

The CRM deal is subject to regulatory and shareholder approvals.

FerrAus has also invited a CRM representative to join its board.

After entering a trading halt yesterday ahead of the announcement FerrAus shares jumped up today, and at 1110 AEST were worth 64 cents, up 19.63 per cent, or 10.5 cents.

FerrAus said the agreement with CRM was a "landmark step" towards establishing local infrastructure to transport FerrAus iron ore to market.

Other iron ore companies have faced problems of taking their resources from the ground to ports for export.

Chairman of FerrAus, John Nyvlt, said the company hoped to send ore to an existing railway line, and CRM had agreed to help source finance for the move.

He said a loan from Chinese financiers would likely be on much better terms than a loan through an Australian lender.

The new rail link would have to be 25 to 80 kilometres long to join FerrAus operations with existing lines operated by either BHP Billiton or Fortescue Metals Group.

"Our best case is to link with existing rail and to use the (BHP Billiton-run) Mt Newman line," he said.

"It's the closest and would give us the best economic case."

He said if no agreement could be reached with Fortescue or BHP Billiton, FerrAus and other iron ore juniors may have to consider building their own line all the way to a proposed port.

Building a line costs about $2.5 million per kilometre, Mr Nyvlt said.

Mr Nyvlt defended the price of the FerrAus shares sold as part of the announcement, which are at a discount to Tuesday's opening price of 63 cents.

"Our share price has been higher, but it has been lower, too," he said.

"I believe that CRM working with Ferraus gives our iron ore project the credibility that will get an infrastructure solution. That is worth a lot," he said.

"FerrAus has one of the most promising iron ore resources in the region and is well positioned for consolidation of the region," said CRM president Song Yufang in a statement.

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