In a potentially “game-changing” development, Fenix Resources Ltd (ASX:FEX) will boost its iron ore position in Western Australia’s Mid-West by acquiring the iron ore and port assets of Mount Gibson Iron (ASX:MGX) Ltd in that region.
A binding agreement with Mount Gibson will see Fenix obtain the Shine Iron Ore Mine, an operating mine that is on care and maintenance and which hosts a mineral resource estimate of 15 million tonnes at 58% iron.
This will give Fenix a 15-million-tonne increase in its iron ore resource base which will underpin production growth.
Fenix’s assets in Western Australia’s Mid-West.
Port capacity increased 400%
Another key aspect of the transaction is a 400% increase in Fenix’s capacity at Geraldton Port which will be secured through two storage sheds at the port with total capacity of 360,000 tonnes and two Mid-West rail sidings.
Storage sheds 4 and 5 also have excellent on-wharf infrastructure with in-loading access via truck or rail while the sidings provide access to the main Mid-West rail network connecting to Geraldton Port and assembly locations for product storage and blending activities.
The Mount Gibson transaction also includes assets at the Extension Hill Iron Ore Mine, including a large-scale operational crushing and screening plant, associated equipment and interests in an operational 138-bed mining camp, all currently on care and maintenance.
“Transformational event”
“These acquisitions are a transformational event for Fenix and will drive material economies of scale, provide flexibility to expand iron ore production and operate new projects concurrently,” chairman John Welborn said.
Expansion of the mine-to-port business positions Fenix as a fully integrated Mid-West bulk commodity logistics and supply chain operator and is expected to provide C1 cost savings of $5 per tonne on production from its Iron Ridge operations.
Welborn said that acquiring Mount Gibson’s Mid-West iron ore and port assets was a game changer for the company.
“Regional legacy”
"Since 2003, Mount Gibson has mined and shipped more than 50 million tonnes of iron ore in the Mid-West using robust rail and port infrastructure," he said.
"We are delighted to continue this successful regional legacy and to have Mount Gibson as a significant shareholder as we work to create exceptional future value."
The consideration payable to Mount Gibson consists of $10 million cash and 60 million ordinary shares in Fenix upon completion.
Mount Gibson will also receive 12.5 million 5-year options exercisable at $0.25 per share and 12.5 million 5-year options exercisable at $0.30 per share, subject to the satisfaction of certain transaction-related conditions, which are expected to be satisfied within six months from issue.
From completion of the transaction, Mount Gibson will be entitled to appoint a nominee director to the Fenix board while it holds at least a 10% shareholding in Fenix.
“Cashflow accretive”
“The investment by Fenix will be immediately cashflow accretive to our existing business, allowing for cost savings in port and haulage costs for Iron Ridge operations of approximately $5 per tonne,” Welborn said.
“The Shine Iron Ore Mine is a shovel-ready mining project. We are excited by the potential to recommence mining and investigate the potential to market high-quality blended iron ore products.
“The substantial port and rail assets we are acquiring have an assessed replacement cost of more than $80 million.
“The assets provide Fenix with valuable Mid-West rail transportation and Geraldton Port unloading, storage and ship loading facilities which are required by regional bulk commodity producers and exporters, allowing Fenix to diversify our revenue base by becoming a third-party logistics provider."
Geraldton Port Shed 5 has 240,000 tonnes of storage capacity.
Benefits to Fenix
The acquisition of Mount Gibson’s Mid-West iron ore and port assets provides Fenix with the opportunity to:
As part of the transaction, Fenix has negotiated new arrangements with the Mid-West Port Authority (MWPA) which, when executed, will combine Fenix’s existing facilities, consisting of Shed 13 and related truck and rail in-loading infrastructure, together with Shed 4 and Shed 5 to enable Fenix to operate a combined and integrated port business covered by one set of arrangements that provide incentive for Fenix to grow production tonnages.
These new arrangements are consistent with the MWPA’s growth and expansion objectives which aim to grow export volumes through Geraldton Port by more than 10 million tonnes per annum over the next few years.
Extension Hill camp infrastructure.
"In expanding a mine-to-port logistics solution for ourselves and other producers in the Mid-West, we also create employment opportunities which will strongly support regional economic growth,” Welborn added.
About Shine
Shine is an open pit iron ore mine 230 kilometres east of Geraldton and has similar mining scale and operational characteristics to Iron Ridge, which is to the north.
It provides an opportunity for Fenix to leverage the company’s low-cost haulage and logistics capabilities.
The ore body and expected product grades provide an ideal blending product, reinforced by the high iron grades available at Iron Ridge and the low alumina content from Shine.
Mount Gibson CEO Peter Kerr said: “Mount Gibson is pleased to have found a logical buyer who can make best use of the significant infrastructure position we have established over 20 years of operations in the Mid-West.
"Fenix is a successful miner and logistics provider in the Mid-West and we look forward to supporting Fenix as a large shareholder and continuing to participate in the successful development and operation of its integrated mining and logistics bulk commodity business.”
The company will host an investor briefing to explain the acquisition at 10am AWST (12 noon AEST) today. Register here.