--adds broker, CEO comment--
Anglesey Mining (LON:AYM) shares shot ahead as it agreed an option to take control of the Grangesberg iron project.
Grangesberg, in central Sweden, closed in 1989 when it was the third largest iron ore mine in the country and had extracted more than 150 mln tonnes of iron ore to a depth of 500m.
Prior indications are that at least 115 mln tonnes of iron ore containing around 40% iron remain, said Angelsey, adding the old mine is adjacent to the Swedish national rail system with a rail line to port still fully operational.
Using a conventional underground bulk mining operation and processing, output is estimated at 2-2.5 mln tonnes per year of saleable iron ore concentrate for the European, Middle East and Asian steel markets.
Anglesey has already paid US$145,000 for 6% of Grangesberg Iron (GIAB), a private Swedish company that recently refinanced and holds a 25 year exploitation permit covering the underground mining operations.
Anglesey also has a 12 month evaluation option to acquire 51% of the enlarged share capital of GIAB for shares.
During the option period, Anglesey will run GIAB and appoint three out of five directors including the chairman.
The remaining 43% of GIAB is held by Roslagen Resources , a Swedish private company.
Anglesey’s option is exercisable through Eurang, a UK private company that will invest US$1.75mln into GIAB for a 51% stake.
Bill Hooley, Angelsey’s chief executive, said: "Grängesberg is a mine with a rich historical heritage and an exciting future potential.”
A programme of geo-mechanics and monitoring at the mine site will now get underway as a prelude to obtaining permission to dewater the mine.
A new compliant ore resource estimate will also be carried out alongside work on the pre-feasibility study on re-opening Grangesberg.
Hooley added the company had been aware of the attempt to re-start the mine for some time.
“The point is effectively we have a free option on a further 51% and have 12 months to look at it and see it makes sense.
“In the meantime we can act as if we have the 57% as we have three seats on the board and can make sure company is spending money wisely assessing how best to develop the project.”
A very preliminary timetable for when production might is for six years hence in 2019-2020.
But that time some of the issues affecting the iron currently may also look a lot different, he adds.
“We are looking longer term, to what the price will be in 2020 and onwards, and will try to take a view on that and especially what the situation in Europe will be like.
The deal put us in a good place physically with Sweden’s long mining history and because we not locked into a port that freezes and commercially because of the option we have not to go ahead”.
SP Angel said Grangesberg looks like a transformational deal for Anglesey Mining, posing the question how a company with an effective 260,000tpa of iron ore production is only worth £6.3mln.
RFC Ambrian added the agreements give it an extremely low-cost opportunity to review and potentially acquire a controlling stake in a substantial historic mining asset.
The company has control over the use of a US$1.25mln budget at the project and is expected to assess and upgrade existing resources and update the feasibility study completed by the previous owners.