Ascot Resources (ASX:AZQ) announced yesterday that it had completed the purchase of the Wonmunna DSO Iron Ore project in the Pilbara Region of Western Australia, from Ochre Group Holdings (ASX:OGH), but only after Ochre had agreed late last week to significantly reduced terms. The deal positions Ascot firmly as a steel industry raw material supplier, with the Wonmunna deal providing some diversification to its existing Titiribi Coking Coal project in Columbia. The Wonmunna deal was originally announced on the 18th of March 2014, when Ascot and Ochre agreed terms, subject to due diligence. The deal was structured with several upfront cash and share payments, with a large second cash tranche and trailing royalty:
- 88m Ascot shares issued to Ochre
- First payment of A$2m payable on completion of the deal
- Second payment of A$29.75 within five years of completion
- A 1% gross revenue royalty, commencing 12 months after first shipment of product
The Wonmunna project is located 80 km of the iron ore mining town of Newman, and 370 km due south by road from the major iron ore port of Port Hedland. The project is intersected by sealed public road to Port Hedland, and surrounded by several large iron ore mines operated by Rio Tinto and BHP Billiton.The deposit has been well drilled for a JORC resource of 84.3Mt @ 56.5% Fe with low impurities, with all of the resource sitting near surface above the water table, and therefore offering a relatively simple mining scenario. Previous work on the project has flagged a 5 million tonnes per annum operation producing high quality fines at low cost, and the company has not yet suggested any variation to this, but will instead carry out its own work programs to decide on the optimal size in coming months as it moves through feasibility. Transport however, as always, seems the issue. Capacity at Port Hedland is probably achievable, but access to third party rail has to date proven problematic for other small players. The project sits directly on the Great Northern Highway, giving sealed road access to Port Hedland, but the cost would be high, and there would likely be limits placed on annual tonnages allowed on a public road. The company has thus indicated that it will be looking at a variety of integrated options up to and including mine gate sales. In the meantime, Ascot's Columbian coal project seems to be on something of a slow burn as it progresses through the permitting process. The deal then, would seem to be a cheap price for a quality asset, if a way can be found to get it to market. That is the key plank that the company must address in coming quarters, but at less than $80/t for iron ore, the market may take some convincing. The positive however is the significant level of financial support from major resource investor RCF, a group with a reputation for investing in quality assets at cheap prices, and with a longer term view.
Securities Disclosure: Brad George does not hold any investment interest in any of the companies mentioned. Ascot Resources Completes Wonmunna Acquisition after Harder Bargain from Iron Investing News