Strategic Minerals (LON:SML) this morning received a "huge tick in the box" for its Cobre iron ore project in New Mexico in the form of a supply agreement with Glencore International (LON:GLEN), the world's largest commodity trader.
Under the terms of the deal, SML will “make available” a total of 800,000 wet metric tonnnes of magnetite ore.
Initial deliveries will begin next month with a shipment of 60,000 wet metric tonnes.
SML chairman Steven Sanders said: “We are delighted to have entered into this long-term agreement with one of the world’s leading commodity suppliers.
“It demonstrates not only the strength of our business model and our ability to acquire projects that can deliver shareholder value, but also the ability of our management to execute on those projects.”
Indeed, it is a major endorsement of the project and the work carried out to turn Cobre into a commercially attractive venture in a very short space of time.
The key has been the construction of a spur onto the main railroad, which should be complete later this month.
This will allow the magnetite to be transported by train to the Port of Guaymas in Mexico, where it will be unloaded for shipping.
In total 1.57 million tonnes of magnetite iron ore at an average grade of almost 61 per cent is stockpiled at Cobre, which is owned by mining giant FreeportMcMoran.
It is one of a number of stockpile opportunities open to operationally and financially agile young companies such as SML.
The tie-up with Glencore suggests AIM-listed Strategic has the wherewithal to make the most of these opportunities.
And of course the commodities trader will have carried out its own due diligence on the project to ensure SML can supply the iron ore in the quantities required.
Speaking to Proactive Investors, director Matthew Bonthrone said: “This (agreement with Glencore) is a huge tick in the box for us, for Cobre and hopefully what we can do in future.
“What it says is we can get these projects up and running quickly and very efficiently.”
However he wouldn’t be drawn on whether the Glencore relationship might extend to future stockpile deals.
Analysts say SML could generate as much as US$30 million in revenue over the 22 months of the project’s life, after spending US$3.5 million to rehabilitate a rail spur.
SML’s interests span two continents – North America and Australasia – and its strategy ought to, if successful, catapult the group up a division into the mid-caps.
The company’s acquisition in August of Ebony Iron for an initial £10 million was transformational.
Ebony’s rights to explore on six exploration tenements in the Northern Territory and Western Australia made for a snug fit with the existing Iron Glen magnetite project in Queensland.
Based on the site of an existing mine which operated in the 1950s, Iron Glen covers 9,100 hectares, with applications in for a further 30 sub-blocks.
The beauty of the project is its proximity to the nearest rail line, less than two kilometres away, which links to the deepwater port of Townsville, 40 kilometres to the north.
With all important infrastructure so close to the site, capital costs of the project are likely to be a fraction of those of other similar scale mines.
The Mount Moss project in Queensland potentially provides the blue print for Iron Glen. It started with 600,000 tonnes of magnetite proved up and now has 50 million.
The plan for Iron Glen is more detailed exploration next year before application of mining permits for the site, necessary feasibility and capital construction.