Iron ore developer, Ascot Resources (ASX:AZQ) has defied the current iron ore market sentiment, executing a $5 million capital raising for its Wonmunna DSO Project adjacent to Rio Tinto’s (ASX:RIO) West Angelas and Hope Downs iron ore mines in the Pilbara region of Western Australia.
If location, location, location is key in exploration, then the eagle has landed for Ascot as it locks in $5 million from global commodities trading firm, Gunvor Group at a placement issue price of $0.25 per share.
This is a 19% premium to last sale of $0.21 and the raising says a lot to the quality and advanced nature of the Wonmunna project and Pilbara address near iron ore majors.
Investment fund Resource Capital Funds LLP has put up its hand to acquire 20 million shares also at $0.25 per share and reaffirmed its commitment to the funding.
With an early resource of 84.3 million tonnes of iron ore resource at an average iron grade of 56.5% at Wonmunna it is a good time to have an iron ore project in the Pilbara. Given the location, this will drive potentially low operating costs and early production options for the project.
The Gunvor Group generated 2013 revenues of US$91 billion on trading volumes of 131 million tonnes so it packs some firepower and scale to arrange end buyers and offtake.
Gunvor’s commitment is subject to certain conditions, none of which appear to be problematic: completion of the proposed acquisition of Wonmunna by Ascot; completion of full form documentation; and RCF subscribing for its shares in Ascot.
In addition to becoming a substantial shareholder of Ascot, Gunvor will assist Ascot with product and marketing-related services for the sale of product and have the right to appoint a representative to Ascot's Board.
Collectively, commitments by RCF, Gunvor and other sophisticated investors participating in the Wonmunna capital raising process total $11.2 million ($0.25 per share).
More than enough to progress the development of Wonmunna to a construction-ready state by mid-2015. That is how advanced this project is right now.
Understandably, Ascot’s executive chairman, Paul Kopejtka was excited about the deal:
“To have the backing of Gunvor, a leading global commodities trader, reflects our ability to execute on our project development strategy for Wonmunna and to meet an expedited production timeframe. As a potential off-taker and financier, Gunvor’s involvement alongside RCF is welcomed by our team."
A General Meeting of shareholders of project owner Ochre Group (ASX:OGH) is scheduled for 5 September 2014 to approve the terms for the sale of the Wonmunna project to Ascot. Ochre directors and its major shareholder intend to vote in favour of the transaction.
If the transaction is approved, completion could occur in the week commencing 8 September 2014.
Wonmunna Project
Wonmunna is located 80 kilometres northwest of Newman and 375km south of Port Hedland, and is intersected by the Great Northern Highway. The Project comprises exploration licence E47/1137 and mining leases M47/1423, M47/1424 and M47/1425.
Wonmunna is strategically positioned adjacent to two major mines (West Angelas and Hope Downs) operated by Rio Tinto Iron Ore and which are within 20 kilometres of the lease boundary.
The Project comprises four primary direct shipping ore (DSO) deposits hosted by the Marra Mamba Iron Formation, namely North Marra Mamba (NMM), South Marra Mamba (SMM), Central Marra Mamba (CMM) and East Marra Mamba (EMM) (the Deposits).
Analysis
While it has taken time to bed down the Wonmunna acquisition and funding in the current capital market environment, the Gunvor investment (and RCF investment) is a pivotal step and value creating, risk reducing inflection point for Ascot Resources.
Ascot is aiming to develop Wonmunna into a construction-ready state by mid-to late 2015; clearly Gunvor has no qualms about forward iron ore prospects and ability of the project to produce a product at a price that generates options toward monetising future out put - which could include mine gate sales.
Look at the "ticked boxes" that Ascot can reel off with the project already:
- Majority of consideration in the form of deferred payment
- Strategically located adjacent to existing, established Pilbara producers – RIO, BHP and FMG
- Available solutions to lucrative, established export market
- Mining leases - granted
- Environmental studies – well progressed
- Groundwater studies - completed Mining Proposal
- Includes Environmental Impact Statement (EIS) To be lodged shortly to DMP
- Feasibility studies will be commenced in 2014
- Previous mine plans investigated up to 5Mtpa production
- Potential for low capital intensity
- Mine gate sales scenario to surrounding producers to be investigated
- Mineralisation occurs in the same ore-body as West Angelas
- Mineral Resource Estimate above water table and relatively ”dry”
- Blended with ”wet” ores can provide increased plant utilisation
The project is positioned within 20km of two major mines (West Angelas and Hope Downs) operated by Rio Tinto Iron Ore and the tenement is neatly intersected by Great Northern Highway providing ready access to Port Hedland.
Based on mine plans within existing historical scoping studies, Ascot is aiming to produce up to 5 Mtpa of lump and fines products, demonstrating the advanced nature of Wonmunna.
All these facts have drawn both Resource Capital Fund and Gunvor Group to invest $10 million in Ascot Resources (at a premium to share price), no small feat in this market.
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