CuFe Ltd (ASX:CUF) has struck a binding agreement to sell its iron ore rights at the JWD iron ore mine in Western Australia to Newcam Minerals Pty Ltd for A$12 million.
Now is the time
“With iron ore prices remaining volatile and with current price levels below our breakeven cost, we feel like now is the time to turn our focus to those assets which offer greater potential for value creation for our shareholders,” executive director Mark Hancock said.
The sale, executed through CuFe’s wholly owned subsidiary Wiluna Fe Pty Ltd (WFE), includes a A$500,000 deposit, with the remaining A$11.5 million payable upon completion, pending shareholder approval and other conditions.
Proceeds from this transaction will be used primarily to settle WFE's trade creditors, who remain WFE's responsibility. WFE retains the rights to certain on-hand inventory, existing hedges and debtors, and will be responsible for costs incurred until the transaction is completed.
Both CuFe and Newcam have agreed to suspend operations at the JWD mine during the ownership transition to preserve the value of the ore in the ground amidst challenging market conditions.
Simplified business operations
This transaction is expected to simplify CuFe’s business operations by removing the cash flow volatility associated with iron ore mining.
The company plans to focus on its portfolio of other prospective assets, including the Tennant Creek Copper/Gold Project and Yarram Iron Ore Project.
“We are pleased to have entered this agreement with Newcam Minerals to divest the JWD project," Hancock said.
“CuFe has been operating at JWD since 2021 and the mine has assisted us in funding the acquisition of the broad portfolio of prospective assets we are blessed with today.
“JWD’s distance from port has always been its major challenge as it makes the mine an inherently higher cost producer, with haulage cost comprising more than 50% of the mine’s C1 cost.
“In their attempts to reduce costs we have seen other iron producers in the region who have long road haul components expand their business into the haulage space to lower this cost.
“For CuFe we don’t believe it’s the right step to take given the scale of JWD and the upfront capital cost associated with such a change.
“We could suspend the mine as we have done before and wait for the market to improve but this consumes cash to ramp down and ramp up and having had the experience of operating it for more than three years we consider the scale of JWD means it is best run as a private business that is very flexible as to how and when the mine operates, which reflects Newcam’s model, so believe this sale is the best way forward.
“We look forward to working closely with the Newcam team to finalise the transaction and transitioning operatorship and thank all of those who have supported our efforts to date at JWD.”