Golden West secures iron offtake deal

12/08/2008 - 16:54

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Golden West Resources Ltd has entered into a 15-year offtake agreement with a Chinese steelmaker, which will also subscribe to nearly $27 million worth of shares for an 11 per cent stake.

Golden West secures iron offtake deal

Golden West Resources Ltd has entered into a 15-year offtake agreement with a Chinese steelmaker, which will also subscribe to nearly $27 million worth of shares for an 11 per cent stake.

The Osborne Park-based company will supply Hunan Valin Steel Tube & Wire Co Ltd with up to 4.5 million tonnes of iron ore each year from its Wiluna West project in the Mid West region.

Hunan is 33.02 per cent owned by steelmaking giant Arcelor Mittal and 33.92 per cent controlled by Hunan Valin Steel and Iron Group, with the public holding the balance.

The company is listed on the Shenzhen Stock Exchange.

GWR said the prices for the iron ore will be set at the completion of the Oakajee port to the lowest published benchmark iron ore price as negotiated between BHP Billiton and Rio Tinto with Asian steel mills.

Additionally, Hunan will subscribe for 14.4 million shares priced at $1.85 each, raising a total of $26.6 million and representing about 11.4 per cent of GWR's issued capital.

GWR said Hunan had already applied to the Foreign Investment Review Board in June.

On completion of the placement, GWR will have over $45 million in cash reserves.

The offtake and share placement agreements come ahead of a shareholder meeting, requisitioned by major shareholder Portman Ltd, at the end of the month.

Portman has called for the removal of GWR chairman Con Markopoulos and director Michael Wilson, and the appointment of its managing director Richard Mehan and Paul Piercy to the board.

Portman has previously said its call for the appointments was boost the iron ore experience and knowledge of GWR's board.

Portman, which is 85 per cent controlled by US company Cleveland Cliffs, holds a 19.9 per cent stake in GWR and has repeatedly said it was not launching a takeover of the company.

Shares in Golden West closed one cent lower at $1.69.

 

Below is the full announcement:

 

Golden West Resources Limited ("GWR") is pleased to announce that it has entered into an off-take agreement and a share placement agreement with Hunan Valin Steel Tube & Wire Co., Ltd, of China.

Offtake Agreement

GWR has contracted to supply Valin with up to 4.5Mt of direct shipping iron ore annually for a period of 15 years. Prior to the commencement of shipping from the proposed Oakajee Port, the price for each shipment will be determined by both parties and shall in no event be higher than 80% of the prevailing spot price or lower than 110% of the applicable, lowest published benchmark (FOB) price as agreed between the major Australian iron ore producers (BHP Billiton and or Rio Tinto) and the major Asian Steel mills for high grade hematite iron ore produced in the Pilbara.

Upon completion of the port of Oakajee, the price will be set according to lowest published benchmark (FOB) price as agreed between the major Australian iron ore producers (BHP Billiton and or Rio Tinto) and the major Asian Steel mills for high grade hematite iron ore produced in the Pilbara.

Share Placement

Valin have undertaken to subscribe for 14.4 million shares at a price of $1.85 per share, raising a total of $26.64 million, conditional on Chinese government and Australian FIRB approval. Valin made application to the FIRB on the 25th of June 2008 and the FIRB decision is expected shortly. The price represents a 12% premium to the market over the last 5 days trading. Upon issue, Valin will hold approximately 11.4% of GWR's issued capital.

GWR will apply the funds from the Valin placement to continue its aggressive exploration and development program at the Wiluna West Iron Ore Project. Following the placement, GWR will have total cash reserves in excess of $45 million.

These agreements represent a major milestone in the development of the Wiluna West Iron Ore Project, and provide the Company with a cornerstone partner and customer in the world's most significant steel market.

Valin is listed upon the Shenzhen Stock Exchange and is 33.02% owned by Arcelor Mittal, which is the largest steel company in the world and 33.92% owned by Hunan Valin Steel and Iron Group, with the balance held by the public. Valin's principal activities are manufacturing, processing and selling smelted steel, rolled steel, thread steel, small and medium-scale steel materials, ferrous metals, non-ferrous metals and related products. Products of the Group are available in the People's Republic of China and are exported to the United States, Korea, Thailand, Vietnam, Singapore, Malaysia, Hong Kong and Taiwan.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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