Pluton Resources announced that it has executed a legally binding term sheet agreement with Timeone Holdings for the off take of all iron ore pre concentrate produced at Pluton's flagship Irvine Island iron ore project in Western Australia. The agreement follows the announcement on August 4th 2011 of the selection of Timeone as a strategic investor and partner for the Irvine Island project.
Under the terms of the agreement, Timeone will manage the barging of Irvine Island pre concentrate to a trans shipment facility located adjacent to Irvine Island from where it will be shipped to Rizhao Port, China. Rizhao is the world's largest iron ore import terminal located in Shandong Province, China, with close proximity to a number of Chinese steel mills.
Timeone has secured a separate agreement to extend existing beneficiation facilities at Rizhao Port to produce a 67.5% premium iron ore concentrate. Timeone will market the concentrate to end users at market prices, utilizing its strong end user relationships and existing routes to market.
Agreement Summary
Pluton will retain 100% ownership of Irvine and Cockatoo Islands (subject to the completion of the proposed Cockatoo Island acquisition) and will be responsible for all capital and operating costs through to loading ships bound for Rizhao Port.
Timeone and its partners will retain 100% ownership of an extended beneficiation plant at Rizhao Port and be responsible for all capital and costs associated with freight from Irvine Island to China through to production of the final end product.
From the sales proceeds, Pluton will be reimbursed costs which include mining, pre concentration, barging and transshipment, royalties (third-party and State), marketing fees, all taxes (including MRRT, if any, but excluding company tax), capital costs, financing costs and overheads.
Timeone will also be reimbursed its costs which include freight from Irvine Island to Rizhao Port, beneficiation, all taxes (excluding company tax), a capital charge and overheads. A capital charge rather than full capital cost reimbursement is considered more appropriate as the extended beneficiation plant is expected to continue to operate after the conclusion of mining on Irvine Island.
After all cost reimbursements the remaining sales proceeds will be shared, with 70% paid to Pluton and 30% paid to Timeone.
Timeone will provide, at an arm's length commercial rate, barging and trans shipment facilities and services (with costs being reimbursed to Pluton as above). Timeone will also receive a fee of 2.5% of revenue (with costs being reimbursed to Pluton as above) to market the iron ore concentrate and to assist in funding 100% of the development costs on Irvine Island.
Specifically, Timeone has committed to assist Pluton with:
Obtaining vendor finance for all assets that are capable of vendor finance. This will include infrastructure on Irvine Island including the pre concentrator plant, power plants and trans shipment facility that represent a high proportion of development costs
Utilizing surplus cash flow from stage 4 of the Cockatoo Island Project (subject to completion of the proposed Cockatoo acquisition)
Seeking the balance of finance (if any) from end-users of the iron ore concentrate
Mr Tony Schoer MD of Pluton said that "We selected Timeone as a strategic partner and investor due to the combination of financial capacity, logistics and beneficiation expertise, and their strong relationship with providers of large capital items, other mining companies and end users. This agreement leverages all of those attributes."
He added that "Timeone has also reached agreement with Rizhao Port Group Co Ltd, and Rizhao Sanmu Mining Metallurgy Co Ltd, (a subsidiary of Rizhao Sanmu group Co Ltd) to extend Sanmu's current beneficiation facilities at Rizhao Port to process the Irvine Island pre concentrate."
Mr Schoer said that "Timeone's commitment to 100% of the pre concentrate to produce a high grade iron ore concentrate provides the project with certainty and the structure of the agreement moves us towards production. The partnership with Timeone is already proving beneficial in optimizing capital and operating costs. Timeone is working with us to source a pre concentrator and other equipment in China with potential to significantly reduce the capital requirements of the Irvine Island project."
He added that "This agreement provides us with an efficient structure for financing the project and gives Pluton a robust path to market. Vendor finance is encouraged in China at competitive rates and is a common source of funding. We are now able to progress with confidence and certainty to a Definitive Feasibility Study and final investment decision. Final funding commitments will be agreed as Pluton move closer to development."
Mr Elly Wang, a director of Timeone, said that "Irvine Island is an exciting iron ore project and we see strong demand for its premium iron ore concentrate in Asian markets. Our commitment of USD 30 million to the company and reaching agreement to extend beneficiation capabilities in China, before the project has been approved, is evidence of our commitment to Pluton and the potential we see in the project. We look forward to working closely with Pluton for the benefit of all Pluton shareholders."
