Grange Resources has received the requisite Chinese Government approvals and the remaining conditions precedent to the merger with Australian Bulk Minerals (ABM) have been satisfied allowing for the transaction to be completed earlier today. Grange is developing the world class Southdown magnetite and Kemaman pellet project. Collectively, the $1.7 billion project is expected to produce 6.8 Mt/y of premium grade iron ore pellets from 2012. Expected production life of the project is potentially more than 35 years, with $1 billion in revenue potential per annum based on current DR Pellet prices. Annual EBIT potential is estimated at $400 to $500 million.
The project comprises a magnetite mine and concentrator at Southdown, Western Australia, a slurry pipeline from Southdown to the Port of Albany with storage and shipping facilities at the port and a pellet production plant at Kemaman on the east coast of peninsular Malaysia.
The final product produced at the project will be a premium direct reduction grade iron ore pellet (DR Grade Pellett), which commands a substantial price premium over Australia’s more common direct shipping iron ore products. Direct reduction steel making uses modern electric arc furnaces to produce a less capital intensive and more environmentally attractive carbon steel product. A substantial niche opportunity to supply this rapidly growing market exists for Grange.
A JORC compliant resource of 479 Mt of ore @ 37.3% magnetite is defined at Southdown, with a further target potential of approximately 500 Mt of ore on recently acquired extensions to the deposit. The project is well served by local infrastructure with the Southdown mine site within 100 km of the Port of Albany, which is expected to be expanded to handle Capesize vessels. Agreements for the supply of power and water are in place. The proposed location of the pellet plant in Kemaman Malaysia is adjacent to an existing deepwater port.
Grange Resources owns 70% of the Southdown project. A wholly owned subsidiary of the Japanese trading company Sojitz Corp has entered into a Joint Venture Agreement with the company to become a 30% equity participant in the Southdown project. Teams from Grange and Sojitz are working closely together to complete pre-commitment development activities and negotiate with other parties to complete the Joint Venture.
ABM owns the Savage River project in Tasmania. The Savage River mine covers approximately 2,400 ha. The current cut back will be complete in 2009 but implementation of the 16 year Mine Life Expansion project has commenced. A mineral resource of over 280 Mt and ore reserves of more than 55 Mt of iron ore have been identified. ABM expects to produce approximately 2.5 Mt/y of iron ore pellets. ABM is also considering an increase to the production capacity of the existing process plants and the development of other parts of the resource to extend the mine life beyond 2023. ABM has long term supply contracts with steel producers in Australia and Asia.
At completion, the ABM selling shareholders were issued with new shares in Grange as follows:
Shagang International Holdings – 47.2%
RGL Holdings Co. Ltd – 13.8%
Pacific International – 8.3%
Stemcor Pellets – 7.7%
Russell Clark will continue as Grange’s Managing Director and Chief Executive Officer, and the company will remain headquartered in Perth, Western Australia. Dave Sandy, ABM’s current managing director, will assist with integration for a limited period of time and will then become a Non-executive Director.
The new senior management team comprises a combination of Grange and ABM’s existing senior management teams, bringing over 130 years of combined commercial and mining experience in the production, processing and marketing of magnetite iron ore pellets and concentrate.