Ascot Resources Completes Wonmunna Acquisition after Harder Bargain

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 original deal envisaged completion in early June, and with due diligence completed by Ascot and its major funding partner Resource Capital Funds (RCF) in early April, that target seemed on track - up until the iron ore markets fell away in May, presumably triggering calls for a renegotiation.

The completion deadline passed without word, until an announcement last week outlining a significant downward revision in the agreed terms, as both parties settled on a compromise. The upfront cash payment and trailing royalty remain unchanged, but share consideration has been reduced to 50m shares in Ascot, and the second tranche payment has been reduced by almost A$10m to A$19.95m, and timing pushed out to within five years of first production.

The new terms in effect wipe about A$17.5m from the purchase price and add at least two years to the payment deadline of the large second tranche. Shares in Ascot remained largely unchanged, reflecting perhaps the current malaise in the iron ore market, however Ochre fell 20 percent on news of the completion.