Legacy Iron Ore (ASX: LCY) is advancing towards a confidence category upgrade for the current Inferred Resource of 1.6 billion tonnes at 30.2% iron (25% iron cut-off grade) at Mt Bevan.

Phase 3 of the resource definition drilling program is around 30% complete, consisting of essentially infill drilling designed to convert a substantial proportion of the Inferred Resource to Indicated status.

Two reverse circulation rigs and one diamond drill rig are on the task.

Drilling, which comprises 7,700 metres, is targeting a central 2 kilometre strike length of the 10 kilometre long magnetite resource at the Western banded iron formation target.

Besides targeting an upgrade of the resource, the program will also provide material for metallurgical test work.

Legacy expects drilling to be complete by late June. 

Mt Bevan is a joint venture between Legacy and Hawthorn Resources (ASX: HAW) whereby Legacy will earn a 60% interest in the project by expending a minimum of $3.5 million to develop the project to a Pre-Feasibility status.

Exploration at Mt Bevan has delivered solid results, the last phase of drilling returning an approximate 300% increase in JORC resources to 1.6 billion tonnes at 30.2% iron (25% iron cut-off grade) from the maiden 617 million tonnes at 32.1% iron (25% iron cut-off grade) returned in mid 2011. 

Resources are likely to substantially increase on the back of the 250 to 350 million tonne exploration target at Mt Alexander, and the unexplored Eastern banded iron formation which extends for some 20 kilometres within the project area. 


NMDC support

Legacy, in a first for an Australian explorer, has an investment and the backing of India’s largest iron ore miner NMDC.

This backing places the company in a strong position to fast track further exploration and mining studies at Mt Bevan.

Legacy is NMDC’s first ever foreign acquisition. NMDC has stated it intends to use Legacy as a foothold in Australia to acquire other mineral assets. NMDC has cash reserves of over $3 billion.


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Legacy Iron Ore (ASX: LCY) is ramping up exploration at the constantly evolving Mt Bevan iron or project, which already hosts a resource of 1.60 billion tonnes at 30.2% iron (25% iron cut-off grade).

A reverse circulation rig will commence the next stage of exploration at the project this week, with additional rigs including diamond expected to be onsite within a fortnight.

The phase three program will comprise around 7000 metres of reverse circulation and 600 metres of diamond drilling, which will initially target to covert a 2 kilometre strike length of magnetite mineralisation into the Indicated category from Inferred.

A second objective is to test several direct shipping ore hematite targets identified at the project. The total cost of this phase of exploration is budgeted at $2.2 million.

Mt Bevan is a joint venture between Legacy and Hawthorn Resources (ASX: HAW) whereby Legacy will earn a 60% interest in the project by expending a minimum of $3.5 million to develop the project to a Pre-Feasibility status.


NMDC support

Legacy Iron Ore, in a first for an Australian explorer has an investment and the backing of India’s largest iron ore miner NMDC.

Legacy has a platform to develop into a significant iron ore and bulk commodity company.

The Company is now in a strong position to fast track further exploration and mining studies at Mt Bevan. This should assist in promoting an outcome with joint venture partner Hawthorn Resources Ltd (ASX: HAW) with a 40% interest after Legacy’s farm-in.

Exploration at Mt Bevan has delivered solid results, the last phase of drilling returning an approximate 300% increase in JORC resources to 1.60 billion tonnes @ 30.2% Fe (25% Fe cut-off grade) from the maiden 617 Mt @ 32.1% FE (25% Fe cut-off grade) returned in mid 2011.

Resources are likely to substantially increase on the back of the Exploration Target of 250 – 350 million  tonnes at Mt Alexander, and the unexplored Eastern BIF which extends for some 20 kilometres within the project area.

Importantly, the Mt Bevan Joint Venture is located close to road, rail and an existing deep water port, mitigating the need for excessive investment in infrastructure, notably port facilities.  There is potential for early cash flows from DSO hematite.

Metallurgical work undertaken in 2011 also demonstrates the potential to fast track Mt Bevan with low strip ratios, coarse grind size, low silica and an average concentrate grades in excess of 69% Fe. 

A follow up 7,000 metres Phase 3 program is due to commence shortly. The next critical phase will include further metallurgical testwork.

Legacy is NMDC’s first ever foreign acquisition.  NMDC has stated it intends to use Legacy as a foothold in Australia to acquire other mineral assets.  NMDC has cash reserves of over $3 billion.

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INVESTMENT CASE

FUNDING FACILITY: Nearing completion of the A$200 million line of credit allowing Legacy to be a “cashed up” acquirer of projects and/or companies.

PROJECT ACQUISITIONS: Additional projects in iron ore, gold, phosphate and coal to be acquired with the assistance of the proposed A$200 million line of credit could be significant “value adding” events given the likelihood of NMDC higher thresholds for the scale of resource projects.

METALLURGY: Favourable metallurgical results (high concentrate grades, coarse grinding, low deleterious elements, low work index and low energy consumption) have the potential to significantly enhance project economics at Mt Bevan. Preliminary metallurgical testwork has shown the potential for a high grade concentrate (>69% Fe) with low deleterious elements, course grinding which has the potential to flow on to lower operating costs.

DIRECT SHIPPING POTENTIAL: Early production of DSO hematite from the Mt Mason area, where Jupiter Mining Limited’s (ASX: JMS) Mt Mason resource extends into the JV area should have a positive outcome on the value of LCY securities.

JORC RESOURCE UPGRADES: JORC Resource upgrades and a high probability of conversion of resources to reserves are likely to enhance the value of Mt Bevan.

CONSOLIDATED OWNERSHIP: We note that Legacy have held talks with Hawthorn Resources Ltd (ASX: HAW) with the aim of acquiring 100% of Mt Bevan. Any success in this is likely to result in a re-rating of the share price.

MINING STUDIES: A Positive Scoping Study results on par with or exceeding the findings of JMS is likely to see a substantial increase in the value of Legacy’s securities.

Background

Legacy is a Perth-based Australian exploration company, established to search for iron ore and gold deposits and was listed on the ASX in July 2008.

Since then, Legacy has expanded its exploration portfolio to include manganese (Robertson Range), gold (South Laverton), the east Kimberley Region (REE, manganese, gold, base metals) and Hamersley region (channel iron deposits).

The flagship project is the Mt Bevan Iron Ore Project situated in the Central Yilgarn Province. A second phase of RC drilling undertaken in 3Q 2011 at the Mt Bevan Joint Venture with Hawthorn Resources Limited (ASX: HAW) (Legacy earning 60%) was successful in upgrading the JORC Inferred Resource to 1.6 billion tonnes at 30.2% Fe (25% Fe cut-off grade).

Late CY 2011 also saw a number of significant developments including the Investment of A$18.9 million by NMDC, an India’s largest owned iron ore miner and owned by the Indian Government. Following several NMDC board appointments (including NMDC technical director Narenda Kumar Nanda as Chairman of Legacy), the Company isalso looking to put in place a A$200 million line of credit to fund further development and exploration activities.

RESOURCES AND RESERVES

The resource upgrade (8th February 2012) was completed by SRK Consulting and represented an almost 300% increase in JORC Inferred resources on the back of the third phase of drilling comprising a further 22 RC and two diamond drill holes.

The maiden 617 Mt @ 32.1% Fe JORC Inferred Resource was derived from 20 RC holes totalling 5,000 metres. Given the significant widths we believe there is likely to be a high level of conversion of resources to reserves down to perhaps 150-200 metres. Drilling results are derived from 42 holes consisting of 11 drill sections at an approximate mean strike spacing of 1,000 m and down dip spacing of 150 m.

The original drill hole sampling interval is 2 m, and the newer holes are on 4 m intervals. The resource envelope reaches a maximum depth of 300 metres.

Legacy is earning 60% in the Mt Bevan Iron Ore Project (E29/210/E29/713), from HAW via the expenditure of A$3.5 million with a view to completing a pre-feasibility study. The tenements, situated in the Central Yilgarn, are in close proximity to infrastructure (road, rail, port) and are prospective for Direct Shipping Ore (DSO) hematite and magnetite iron resources.

Second Phase Drilling Successful
The recently completed second phase of drilling was extended over the entire main target area of Mt Bevan project, situated immediately north of the significant magnetite and hematite resources held by JMS.


Favourable Metallurgical Results

Recent Davis Tube Testwork (DTR) by ALS laboratories (supervised by Calibre Global) based on 206, 6 metre RC composite samples (ASX Announcement 20 July 2011), demonstrated that the magnetite mineralisation at Mt Bevan has the potential to produce a consistent, high quality concentrate with low impurities.

Based on a 75 micron screen (yielding an approximate P80 of 45 – 50 micron) the average weight recovery was 44.63% with an average concentrate grades in the range of 69-70% Fe with high-weight recoveries of approximately 45%. Silica content was low (3-4%) together with low levels of sulphur and phosphorus.

In particular the silica content compares favourably with other magnetite deposits which typically grade in the range of 4.5 – 6%. Put simply, even with a coarse grind size, a premium concentrate with low silica can be produced.
These preliminary results give rise to the potential for either blast furnace grade pellets (silica <5.5%) which may be produced at a coarser grind size, or premium DR (Direct Reduction) grade pellets (silica < 3%) at a finer grind size. Ammtec have also demonstrated relatively low Bond Work Indexes of 11kWh/tonne which compare favourably to other Western Australian magnetite deposits. Preliminary energy calculations have also come in around 12kWh/tonne.

Infrastructure

The Mt Bevan project area is located close to existing road, rail and port facilities. One of the drivers of ongoing development of iron ore projects within the Central Yilgarn is the accessibility of port facilities at Esperance by local rail.

Development of Mt Bevan would hook into an existing rail line at Menzies, which would need to be upgraded; however, developers understand that infrastructure upgrades, to carry greater ore capacity can be completed at reasonable capital cost. The rail line runs south to Esperance, the export port for 9 million tonnes of DSO produced by U.S. group Cliffs Natural Resources at the Koolyanobbing operation, 50 kilometres south of Southern Cross.

It is believed that the government-owned Esperance port is an expandable hub. From a recent site visit with NMDC representatives, it is understood that the port authority would entertain assistance in the expansion of the port. NMDC has significant experience in the development of large scale projects including port logistics which would assist Legacy.

Aside from the infrastructure advantages with its proximity to Kalgoorlie/Southern Cross and potential to rail ore to either Kwinana (unlikely) or Esperance, the province is well endowed with hematite and magnetite mineralisation. Cliffs Natural Resources has announced in late 2010 its intention to spend over A$320 million in the district to ramp up production and further develop its resource inventory.

The JORC resource target is more or less in line with the Company’s exploration target of 1.50 to 2.0 billion tonnes with the current resource remaining open at depth. A follow up Phase 3 program comprising 7,000 metres is scheduled to commence shortly. The next critical phase will include further metallurgical testwork (see below).


Corporate
The period since our last report (Proactive Investors, Legacy Iron Ore Limited, 8/8/2011) has been dominated by a series of important corporate milestones. The most important development was the investment by NMDC, a series of board appointments representing NMDC and the agreement (and subsequent termination) of a proposed placement of A$5.0 million for a 60% interest Hawthorn Resources Ltd (ASX: HAW) to further consolidate the Mt Bevan Iron Ore Project.

Share Subscription Agreement with NMDC Limited and Board Changes
Legacy signed a Share Subscription Agreement with NMDC (which has subsequently received FIRB and shareholder approval) which has given NMDC a 50% interest in the Shares of the Company through a placement 282.3 million Shares at a deemed price of 11 cents per share (together with 155.6 free attaching options to acquire shares at 10 cents each on or before 31 December 2012) to raise A$18.89m.

As part of this transaction, NMDC technical director Mr Narendra Kumar Nanda was appointed to the board as Chairman (replacing Tim Turner-who was later reappointed in January as a non-executive director) together with, Swaminathan Thiagarajan and Subimal Bose as non executive directors (See Directors and Management).

Not only is the board and register of the Company controlled by India’s largest iron ore miner, NMDC, NMDC have publicly stated that they intend to use Legacy as the primary investment vehicle in Australia to increase its footprint in the resource sector. This will provide Legacy with a potentially funding source for existing and new projects together with a significant technical and marketing capability.

John Hebenton was appointed Chief Technology Officer of Legacy Iron Ore.

Line of Credit, SpringTree Funding and other Convertible Notes

Legacy recently terminated (Legacy, ASX Announcement, 27 January 2012) a A$7.0 million facility with US based SpringTree (which was drawn to A$3.55 million). A further A$1.0 million Convertible Note facility that was sourced from another fund associated with the founders of Springtree LLC has also been terminated.

At the same time the Company announced that it is planning to put in place a A$200 million line of credit to assist with further exploration and development including Minemakers Limited (ASX: MMK) Wonarah Phosphate Project (1,552Mt @ 11.9% P2O5) and the Ridley Iron Ore Project (2.0 billion tonnes @ 36% Fe) owned by AGO.

Mt Bevan Development

On 21 December 2011, Legacy and HAW executed a term sheet that would see Legacy acquire 60% of the issued capital of HAW for a placement of 333.3 million Shares @ 1.5 cents for a total of A$5,000,000 and take control of the board. Legacy announced on 23 January 2012 however that it intended to terminate this agreement and continue with its existing joint venture until an alternative pathway is agreed upon.

RISK ANALYSIS

- Exploration Risk: Mineral exploration is high risk and there is potential for Legacy’s upcoming drill programs at Mt Bevan to exceed or fail to live up to the market’s expectations. The recent resource upgrades by the Company appear to have mitigated this risk, however the conversion of resources to reserves may fail to meet expectations.
- Metallurgical and Processing Risks: Iron ore projects are highly dependent on favourable metallurgical characteristics to enable profitable exploitation. High levels of impurities (such as phosphorus) and fine grained magnetite BIF ore bodies have the potential to adversely affect project economics.
- Traditional Owners: Failure to execute agreements relating to access and mining with the traditional owners could impair the Mt Bevan Project moving forward.
- Financial Position: The Company does not currently have the financial reserves to bring Mt Bevan into production. The recent investment by NMDC however has provided an alternative funding source.
- Infrastructure Risks: The isolation of the tenements and associated lack of infrastructure may result in higher infrastructure costs. The likely port option would be Esperance (upgrade scheduled for completion 2015) and delays could hamper the Mt Bevan Project.
- Commodity Risks: The Company is primarily exposed to iron ore. Declines in iron ore prices may see more capital intensive iron ore projects such as Mt Bevan struggle to attract the required capital to enable development.
- Market Risks:  Further declines in equity markets may continue to put pressure on junior resource companies as investors switch out of “risk” into perceived safe haven investments such as cash, gold and counter cyclical equities.
- Currency Risks:  A strengthening Australian dollar (as funds flow back into riskier currencies) may make the price of iron ore in local (Australian) currency terms less attractive. This could have negative influences on Australian iron ore explorers/developers/producers.


CONCLUSION

The last six months has seen Legacy move from another junior magnetite explorer to a junior Company with a growing resource and some serious muscle on the register. The real significance of the NMDC investment is its intention to use the Company as its investment arm in the Australian resources sector.

Another way to look at it is Legacy’s major shareholder is the Indian Government which represent a growing force in the Australian mining sector, with a particular focus on bulk commodities – coal, manganese and iron ore. The potential for new project acquisitions, the ability to consolidate Mt Bevan (40% owned by HAW) and other merger and acquisition activity has placed Legacy in an enviable position in a market when many junior explorers are struggling to attract capital.

Proactive Investors is now looking ahead to the potential development of Mt Bevan which, as demonstrated by JMS (trading at an EV/T of iron ore of approximately 44 cents) could see Legacy re-rated in a much shorter time frame.

The short to medium term news flow is likely to include further resource upgrades, additional metallurgical results and further information on the proposed consolidation of Mt Bevan.

We also believe that Legacy is in a position to fast track a Scoping Study at Mt Bevan. Importantly, the project is located close to road, rail and an existing deep water port, mitigating the need for excessive investment in infrastructure, most notably port facilities.

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Disclaimer / Disclosure
This report was produced by Proactive Investors Pty Ltd (AFSL 291331). Proactive Investors may have received a fee for the compilation and distribution of this report. Proactive Investors has made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent
required by law, Proactive Investors does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities. The securities recommended by Proactive Investors carry no guarantee with respect to return of capital or the market value of those securities. There are general risks associated with any investment in securities. Investors should be aware that these risks might result in loss of income and capital invested. Neither Proactive Investors nor
any of its associates guarantees the repayment of capital.

WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.

DISCLOSURE: Proactive Investors and/or its directors, associates, employees or representatives may not effect a transaction upon its or their own account in the investments referred to in this report or any related investment until the expiry of 24 hours after the report has been published. Additionally, Proactive Investors may have, within the previous twelve months, provided advice or financial services to the companies mentioned in this report. As at the date of this report, the directors, associates, employees, representatives or Authorised Representatives of Proactive Investors and RM Capital may hold shares in Legacy Iron Ore Limited.

With India today signifying it may become a net importer of iron ore because of new projects stalling and steel demand growing this is good news for iron ore developers such as Legacy.

The Inferred Resource is now 1.6 billion tonnes at 30.2% iron (25% iron cutoff), with Legacy Iron soon to start work on increasing the confidence categories of the resource.

Although classed as an Inferred Resource, drilling to date has shown the mineralised body to have exceptional continuity both along the 10 kilometre of strike and down dip.

Sharon Heng, managing director of Legacy, commented on the positive outcome:

“This significant JORC resource increase provides further confirmation of Mt Bevan as a genuinely premier magnetite orebody with outstanding potential for extremely attractive project financials which are further enhanced by NMDC’s confirmed support.

"We continue to move forwards to defining a commercially viable resource.”

Mt Bevan is a joint venture between Legacy and Hawthorn Resources (ASX: HAW) whereby Legacy will earn a 60% interest in the project by expending a minimum of $3.5 million to develop the project to a Pre-Feasibility status.


Confidence category boost drilling underway

Legacy Iron remains extremely active at the project and later in the month will commence the phase three 7000 metre drilling campaign, which is targeted at upgrading the resource to the Indicated category.

So far drilling at the project has been conservative to only 300 metres, with the mineralisation remaining open - providing the opportunity for extensions to the strike being made.


Davis Tube Recovery

To date, extensive Davis Tube Recovery testing of mineralisation from phase two has produced very similar results to that of previous drilling.

Using a relatively coarse grind size of P80/50 – 55 microns, testing shows achievable grades of 69% to 70% iron and with high weight recoveries of around 45%. Silica contents at this relatively coarse grind remain low, averaging 3% to 4% with very low sulphur and phosphorus.

Analysis

With this announcement, Legacy is looking beyond the development of Mt Bevan, itself a sizeable undertaking.  However, with the backing of India's NMDC, has propelled Legacy into a new league as well as value adding for Legacy holders.

NMDC, which is the country’s largest iron ore producer, has a $4 billion war chest for acquisitions in bulk commodities.

NMDC is also pursuing acquisition of other mineral assets in Australia to secure future supplies of coking and thermal coal and rock phosphate for India's steel and fertiliser production.

Mt Bevan will be the initial target project of NMDC to expand its resource base.

An memorandum of understanding between NMDC and Minemakers (ASX: MAK) was executed in June 2011 and negotiations concerning a Joint Venture Agreement are in process.

In 2011, NMDC indicated it was likely to use Legacy Iron Ore as its investment vehicle to make acquisitions.

“The Board of Legacy met with NMDC officials during the week, and were encouraged that both parties could agree on a path forward to advance Legacy and increase value for all shareholders.”

Parallels have been drawn between Legacy and Jupiter Mines (ASX: JMS), whose project neighbours Legacy’s Mt Bevan iron ore project in the Yilgarn region.

Following a placement to Chinese investor Haoning Group of $3.7 million and an off-take agreement to cover 40% of future direct shipping ore produced, the funds under the placement were used to accelerate the development of their iron ore projects.

Since this investment and strategic alliance, Jupiter Mines' market capitalisation has increased from approximately $42m to $528m (undiluted) at present.

One potential benefit from the deal for Legacy would be the potential, particularly with regard to project financing, to take the Mt Bevan Project from exploration to production.

Mt Bevan is a joint venture between Legacy and Hawthorn Resources (ASX: HAW), with Legacy earning a 60% interest in the project by spending a minimum of $3.5 million on exploration.

The two companies are eyeing an upgrade to the JORC Inferred Resource, comprising 617 million tonnes at 32.1% iron at Mt Bevan after completing phase two drilling in November.

Intercepts from the drilling program included 140 metres at 34% iron.

In addition to Mt Bevan, Legacy has iron ore projects in a number of highly prospective regions of Australia, including the Central Yilgarn and the Pilbara.

SRK Consulting has been engaged to calculate a significantly increased inferred JORC resource at Mt Bevan by mid-January 2012.

Mt Bevan is a joint venture between Legacy and Hawthorn Resources (ASX:HAW) whereby Legacy is earning a 60% interest in the project by expending a minimum of $3.5 on exploration.

Legacy and Hawthorn are working towards the ongoing development of Mt Bevan and are exploring the best possibilities to achieve increased value for its shareholders.

This is a first for an Australian company with the financial backing of a major Indian government entity and is NMDC's first-ever foreign acquisition.

Legacy will receive a A$18.89m cash injection after a binding share agreement was executed with India’s National Mineral Development Corporation, (NMDC) to subscribe for 50% of the issued equity of Legacy, which is now subject to shareholder, regulatory and FIRB approval.

The deal is a first step in NMDC’s vision of using the company a vehicle to acquire large-scale bulk commodity projects in Australia, with the NMDC already indicating an intention to spend $500 million on overseas acquisitions.

An Independent Experts Report and Notice of Meeting on the transaction is well advanced, with an Annual General Meeting scheduled for the end of November 2011, to allow Legacy shareholders to vote on the Placement to NMDC.

The agreement provides for placement funds to be deposited into a trust account for immediate release and use following the completion of the key items.

NMDC seeks to expand

The proposed investment in Legacy will not be a passive one for NMDC, with NMDC chairman, Rana Som, confirming its commitment to develop and increase the value of their investment in Legacy through further acquisitions.

This commitment was highlighted earlier this month in India’s Business Standard:

“Talking about Legacy, NMDC’s first-ever foreign acquisition, Rana Som said this would be used as a foothold in Australia not only to develop the mines under Legacy but also for acquiring other mines in the country.

“Ultimately, Legacy will be our Australian arm,” he added.

Explaining that NMDC’s aim was to grow both vertically and horizontally, he said the company was setting up steel plants for vertical growth and acquiring mines for horizontal growth.

Discussions between Legacy and NMDC on the future acquisition and funding of resource projects in Australia, using Legacy as the vehicle, have been for:

- The enlarged Legacy/NMDC company to acquire a minimum of 50% and up to 100% of a project, using Legacy as the vehicle to hold that interest;

- NMDC to sole have responsibility for arranging project finance for the full development of the project, via debt financing; and

- The enlarged Legacy/NMDC company agreeing to repay the vendors of the projects certain development costs incurred to date.

The proposed acquisition model will see Legacy used to acquire a significant interest in resource projects, via the reimbursement of development costs incurred by project vendors to date, typically in the range of $20 to $40 million to begin, and NMDC charged with arranging 100% project financing through debt funding.

Significantly, NMDC will have sole responsibility for arranging project finance for the full development of the project, via debt financing.

NMDC director S Thiagarajan said that the project will be developed on 70:30 debt and equity ratio and the investment will start pumping in once formalities for acquiring 50 per cent stake in Legacy by NMDC are completed.

"Mt Bevan may need at least $1.3 billion capex investment. Equity part of NMDC and Legacy will be 30 per cent.

"As soon we complete the acquisition part we will take that up. As it is they are doing some exploration there. Once we pump in the money, the work will be stepped up."

Whilst debt financing will be used to reduce the dilutionary effects on shareholders for financing 70% of any capex requirements, it is envisaged the 30% equity component of such project finance could include a rights issue for all shareholders to participate in, including NMDC.

"In addition, loan facilities can be arranged by the newly enlarged Legacy/NMDC entity.

"Any debt finance arranged through NMDC will also have the added benefit of attractive project finance interest rates and conditions, given NMDC’s financial strength and international status, in its capacity as an Indian government owned enterprise.

Spin off of assets

The Board of Legacy has been investigating the potential for extracting greater value from these assets for shareholders via a spin off the company’s gold and iron ore assets.  This is part of a wider Legacy strategy by Legacy Iron Ore managing director Sharon Heng, where the placement to NMDC represents a starting point.

A spin off would create a suite of projects capable of achieving attractive Initial Public offerings. Significantly for Legacy holders, any shares would be returned to Legacy shareholders via an in-specie distribution.

A decision is likely to be announced on the spin-off by first quarter 2012.

By then, Legacy would have sufficient cash backing to warrant potential underwriting of those Initial Public Offerings, yet still allowing Legacy shareholders to have a priority entitlement.

Legacy is also reviewing opportunities for the purchase of metallurgical and coking coal projects in Queensland, where the development of projects by many companies has been hindered by the ability to find substantial financial backing.

It is proposed that should shareholders approve the Placement by NMDC, Legacy will seek to acquire a substantial interest in such projects, via the partial payment of incurred exploration costs and NMDC providing 100% of project financing.

Such projects will be held in subsidiaries of Legacy, also capable of being efficiently spun off and inspecied back to shareholders.

Sharon Heng said, “NMDC’s proposed equity in Legacy is of national significance, spearheading the first such investment by a major Indian state-owned company in an Australian listed entity.

"As India’s largest iron ore producer and rapidly expanding steel manufacturer, with $4 billion in cash reserves, NMDC has a logical demand for off-take as well as a range of other resources within their remit, for which Legacy will become its exclusive Australian acquisition entity.

"The global scale financial strength, the off-take demand and long-term investment strategy of NMDC will provide Legacy with unrivalled ongoing development security and opportunities which will underpin Company-changing growth."

Other benefits Heng saw were the provision of 100% project financing, including the 30% equity finance, from the 70:30 debt and equity ratio, as well as the ongoing development funding for all of Legacy’s own projects and joint-venture interests and to underwrite future capital raisings.

Meanwhile, drilling is on track at Mount Bevan with a goal to double resources and earn 60% Joint Venture interest by first quarter of 2012.

For its part NMDC would undertake an investment in Legacy and receive 50% of the equity in Legacy, in return for a $19 million investment. Legacy Iron Ore would become NMDC’s exclusive investment vehicle in Australia.

On September 30 Legacy said NMDC was committed to using Legacy for further acquisitions in bulk commodities.
Several projects have already been reviewed by NMDC and Legacy, including an established JORC coal project.

The samples assayed in the range 10.6 – 33.3% manganese (average 21.8%).

The most significant part of the discovery is the significant manganese mineralisation found at the Black Hill prospect – a low hill covering an area of approximately 300 metres x 100 metres.

There is extensive outcrop of the Balfour Formation shales that show strongly developed manganese mineralisation.

Further mapping and sampling is planned together with an IP geophysical survey. Grid RC drilling and drilling of IP conductors would follow as soon as possible.

Legacy chief executive officer, Sharon Heng said the discovery of significant but undrilled manganese mineralisation points to the potential of our large underexplored project area.

“This is one of several projects that will be aggressively explored with funding from the recently announced agreement with NDMC – India’s National Mineral Development Corporation Ltd.” 

The proposed agreement with NMDC is subject to necessary shareholder and regulatory approvals in both Australia and India.

Significantly, the tenement is located immediately south of the Nicholas Downs 20 million tonne manganese mine which is being developed by a joint venture comprising Hancock Prospecting and PMI (Mineral Resources Ltd).

There, mining has recently commenced of this high grade manganese orebody with targeted production of 600,000 tonnes per annum of 38% manganese ore.

Previous work at the tenement had shown that most of the tenement is underlain by Balfour Formation manganiferous shales, masked in part by surprisingly thin alluvial cover.

The shales are host rocks to the major Nicholas Downs manganese mine located some 25km along strike to the NNE.

Very little exploration is recorded on the tenement – a consequence of masking thin alluvial deposits, and a historic exploration model relying on weathering and supergene enrichment to produce viable manganese deposits on topographic highs.

Recent work, e.g. at the major Woodie Woodie mine to the north, has shown that manganese mineralisation has resulted from hydrothermal fluids moving upwards and precipitating along fault and fracture systems.

Several projects have already been reviewed by NMDC and Legacy, including an established JORC compliant coal project.

The strategy behind the proposed cornerstone 50% investment by NMDC in Legacy was outlined today.

NMDC also had the capacity to deliver large scale financing through lines of credit and off-take financing, provides Legacy with unrivalled long-term development security and access to additional opportunities.

NMDC Chairman Rana Som said recently, "With our expertise in iron ore mining and steel-making and their (Legacy's) exploration expertise, we will make a perfect synergy for both the companies. Simultaneously, it will provide us a ready-made foothold in Australia."

Chief executive of Legacy Sharon Heng said there were considerable benefits to shareholders.

“Legacy Iron Ore has taken a first mover advantage in securing a highly desirable cornerstone investor, who can contribute significantly to the company’s ability to grow value and develop ongoing assets and acquisitions, regardless of financial market conditions.”

The proposed equity participation by cornerstone investor NMDC "is a critical enabler and first step in executing on this strategy."

The investment by NMDC is an Australian first - providing Legacy with first mover advantage to drive shareholder value.

A parallel was drawn with Jupiter Mines (ASX:JMS) which neighbours Mt Bevan in the Yilgarn region.  Following a placement to Chinese investors, the Haoning Group of $3.7m and an off-take agreement to cover 40% of future direct shipping ore produced, te funds under the placement were used to accelerate the development of their iron ore projects.

Since this investment and strategic alliance, Jupiter Mines' market capitalization has increased from approximately $42m to $528m (undiluted) at present.

Specifically, the benefits for Legacy shareholders from the NMDC strategic plan were seen as:

- Unlocking hidden shareholder value, through the spin-off of core and non-core assets
- The acquisition of new projects. Potential projects are currently being assessed
- Project financing in general, but in particular, the potential to take the Mt Bevan Iron Project from exploration to production, once Legacy has secured its 60% Joint Venture interest from Hawthorn Resources Limited, after spending $3.5m. Significant work is underway to underpin this outcome, which will be the subject of a later release
- Ability to develop the necessary infrastructure in the Central Yilgarn area
- Development funding for a range of existing and potential projects
- Underwriting of future capital raisings to ensure funding is available to move projects forward, irrespective of global financial market cycles
- Practical experience in large scale iron ore resource development and production
- Mineral research and development capabilities
- Off-take access to proven and ready purchasers in Japan, South Korea and China

Mt Bevan is a joint venture between Legacy and Hawthorn Resources (ASX:HAW) whereby Legacy will earn a 60% interest in the project by expending a minimum of $3.5 million to develop the project to a pre-feasibility status.

Key aspects of the transaction

India’s National Mineral Development Corporation Ltd (NMDC) has presented an offer to subscribe for a significant investment in Legacy, subject to necessary shareholder and regulatory approvals in both Australia and India.

The offer is designed to provide NMDC with an interest in Legacy, on payment of the amount of A$18.89 million.

The offer presents an opportunity to provide the company with substantial funding and working capital, to continue to develop its various projects.

A relationship with NMDC brings to Legacy, a major shareholder with World class credibility in developing large scale Iron Ore projects.

The offer is subject to NMDC and Legacy entering into a binding subscription agreement.

NMDC has the right to nominate the majority of directors to the Legacy Board.

The offer also outlines key strengths NMDC brings, as a major shareholder, such as experience in large scale Iron Ore production, relationships with international Iron Ore customers, project management experience in developing Iron Ore resources, and financial strength, with over USD $4 billion in cash.

The Legacy board has recommended the NMDC offer to shareholders.

Sharon Heng, Legacy’s chief executive officer, said "after conducting extensive due diligence on Legacy, NMDC have concluded that we are the ideal entry point for them into the Australian iron ore and resource sector.

“NMDC is not only providing Legacy with funding through the placement, but their presence on the register will create additional opportunities for Legacy, such as the acquisition and divestment of various projects.

“Since announcing the Memorandum of Understanding (MOU) in May this year, and indicating that Legacy was actively seeking new projects, we have been inundated with offers to joint venture and fund numerous advanced resource opportunities, including several in gold, iron ore and coal, with JORC resources.

“With NMDC on the register, and significant financial backing, upon completion of the placement, Legacy will be in a position to actively acquire such projects, to further increase shareholder value.”

Analysis

The transaction has still to be played out but represents an interesting and unique twist that enables Legacy shareholders to participate more fully in the upside from development of Mt Bevan. 

Shorter term investors may recoil however for astute longer term investors there is plenty of upside potential, with alot more to be played out.