Mount Gibson Iron Limited announced that it has agreed settlement terms on behalf of its two operating subsidiaries with Rizhao Steel Holding Group Co Ltd in relation to two arbitral awards delivered in Mount Gibson’s favor in August 2010.

Under the awards, which were delivered following arbitrations between the parties and announced to ASX on 17 August 2010, Rizhao Steel was ordered to pay Mount Gibson USD 114 million in damages plus interest of 6% from the date of award plus Mount Gibson’s costs of the arbitration.

The awards have to date remained wholly unmet. Mount Gibson has sought recognition and enforcement of the awards in various jurisdictions, including in the People’s Republic of China. These efforts have culminated in a settlement on terms favorable to Mount Gibson and its shareholders.

Under the settlement, Rizhao Steel will enter into two offtake agreements with Mount Gibson, the first of which is in respect of an agreed quantity of mineralized waste material from Koolan Island, and the second for Extension Hill hematite.

Under the Koolan Island agreement, Rizhao will purchase 1,700,000 tonnes of mineralized waste material (<54% Fe and high contaminant) from Koolan Island over a two to three year period. As a consequence, Mount Gibson will realize near term value for material that had been categorised as waste. Total cash proceeds before crushing, ship loading and royalty costs will be approximately USD82 million.

In addition, Rizhao Steel has agreed to purchase 25% of annual production from Extension Hill at a market clearing price plus an agreed premium, over a period of 5 years.

As a condition precedent to the settlement, Rizhao Steel will pay Mount Gibson a non refundable deposit of USD 15 million, to be applied in reduction of the price payable for material purchased under both the Koolan Island agreement and the Extension Hill agreement over their term. The settlement and performance of the off-take agreements will result in Mount Gibson recovering a proportion of the awards, the bulk of which being derived in the first three years.

While Rizhao Steel performs the offtake agreements, all legal proceedings commenced by either party will be stayed. The parties will be fully discharged from all liability upon performance by Rizhao Steel of all its obligations under the offtake agreements. If Rizhao Steel were to breach an offtake agreement in a manner that entitles Mount Gibson to terminate the agreement, Mount Gibson may elect to either enforce the awards by re-enlivening enforcement proceedings or commence fresh proceedings under the terms of the offtake agreements themselves.