Chinese backer for Aurox's Balla Balla

Pilbara iron ore developer Aurox Resources has secured an agreement with China's leading mining engineering services provider for the provision of engineering, procurement, and construction (EPC) services and assistance in financing its Balla Balla project.

MCC Overseas LTD, which Aurox said is one of the most experienced Chinese providers of EPC services in Australia having been involved in Sino Iron, Cape Lambert, and now the China First projects, has signed on to assist Aurox in securing debt finance from Chinese banking institutions as a condition of EPC.

Aurox managing director, Mr Charles Schaus said the time spent over the past two years advancing the Balla Balla project was instrumental in attracting such a high quality partner.

"Aurox is delighted that the quality of Balla Balla has been recognised by a leading Chinese multinational, and we look forward to working with MCC to bring Balla Balla to fruition," Mr Schaus said in a statement.

"MCC has a strong track-record in delivering both quality EPC services and in assisting with the arranging of debt finance as we've seen with their other projects both in Australia and overseas. This is a very positive step towards the full financing and construction of the world-class Balla Balla project."

"Today's announcement also validates management's view that the original cost estimates for the project could be significantly reduced, and also the value of having a strong EPC partner in China such as MCC."

MCC and Aurox have agreed that Balla Balla must be financed in such a way as to have a superior long-term competitive advantage in order to meet its goal of becoming one of the most cost competitive suppliers of iron ore to China.

In November 2009 Aurox announced that it had completed its engineering and cost study for the two-phase development of the Balla Balla iron ore, vanadium and titanium project, stating it was undertaking an optimisation review of the capital estimate including exploring the use of alternative key equipment suppliers.

The agreement with MCC has confirmed Aurox's view that the capital cost estimate could be significantly reduced.

As part of the agreement, MCC has provided Aurox with an EPC Proposal that provides an indicative non-binding EPC cost estimate to build the Balla Balla project.

Full announcement below:

AUROX SIGNS AGREEMENT WITH CHINA'S MCC FOR ENGINEERING SERVICES AND FINANCE

- Binding Heads of Agreement signed with MCC Overseas LTD. ("MCC") covering arrangements for the provision of Engineering, Procurement, and Construction ("EPC") services and assistance in financing Balla Balla
- MCC to assist Aurox in securing debt finance from Chinese banking institutions as a condition of EPC
- MCC's EPC cost estimate affirms potential to reduce the capital cost estimate for Balla Balla by A$233 million

Pilbara iron ore developer Aurox Resources Limited (ASX: AXO) today announced it has entered into a binding Heads of Agreement (the "Agreement") with MCC in relation to proposed arrangements for the provision of EPC services and assistance with the provision of debt finance for the development of the Balla Balla project. A summary of the key terms of the Agreement is attached to this announcement in Annexure 1.

Strong EPC Partner

MCC is China's leading mining engineering services provider. MCC is heavily involved in EPC contracting, development of natural resources, equipment fabrication and related services. In particular, MCC is the most experienced Chinese provider of these services in Australia having been involved in Sino Iron, Cape Lambert, and now the China First projects.

Importantly, MCC has existing strong relationships with the key equipment suppliers required for Balla Balla. A short profile on MCC is contained in Annexure 2 to this announcement.

Managing Director of Aurox, Mr Charles Schaus, said the time spent over the past two years advancing the Balla Balla project was instrumental in attracting such a high quality partner.

ASX Announcement

"Aurox is delighted that the quality of Balla Balla has been recognised by a leading Chinese multinational, and we look forward to working with MCC to bring Balla Balla to fruition," Mr Schaus said.

"MCC has a strong track-record in delivering both quality EPC services and in assisting with the arranging of debt finance as we've seen with their other projects both in Australia and overseas. This is a very positive step towards the full financing and construction of the world-class Balla Balla project," he said.

"Today's announcement also validates management's view that the original cost estimates for the project could be significantly reduced, and also the value of having a strong EPC partner in China such as MCC," he said.

The Agreement provides a clear framework for the refinement of a scope of work for the provision of EPC services and financing milestones. It is expected that MCC's services will be supported by Australian construction and design contractors.

Financing of Balla Balla

As part of the Agreement, MCC will assist Aurox in procuring suitable debt finance from a Chinese banking institution to support the development of the Project. Aurox has already been provided with a formal indication of interest from a leading Chinese banking institution.

MCC and Aurox have agreed that Balla Balla must be financed in such a way as to have a superior long-term competitive advantage in order to meet its goal of becoming one of the most cost competitive suppliers of iron ore to China. The procurement of finance is a condition precedent to the provision of the EPC services by MCC.

Aurox has already begun a process to secure equity financing for the development of the Balla Balla project. It is engaged in discussions with a number of parties including having participants conducting due diligence in an electronic data room.

Potential to Reduce Capital Cost

In November 2009 Aurox announced that it had completed its engineering and cost study for the two-phase development of the Balla Balla iron ore, vanadium and titanium project. Aurox also stated it was undertaking an optimisation review of the capital estimate including exploring the use of alternative key equipment suppliers. The Agreement with MCC has confirmed Aurox's view that the capital cost estimate could be significantly reduced.

As part of the Agreement, MCC has provided Aurox with an EPC Proposal that provides an indicative non-binding EPC cost estimate to build the Balla Balla Project.