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Richmond Mining lands financing from China's Hebei Iron & Steel Group for Buena Vista project in Nevada

Published: 06:14 23 May 2011 BST

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Richmond Mining (ASX: RHM) has signed a framework agreement with Hebei Iron & Steel Group Co., Ltd. (HBIS) to create a strategic alliance to accelerate the development of its 100% controlled Buena Vista Iron Project located in Nevada, USA.

The agreement is mutually beneficial for both companies, with Richmond gaining strategic support to secure 100% of the financing for project development, and HBIS obtaining a long term stable supply of product to be underpinned by its shareholding in the company.

Richmond is aiming to be in production by the December quarter 2012.

HBIS, one of the largest steel groups in China, has a combined annual steel output of 40 million tonnes (Mt) and is headquartered in Shijiazhuang City, the capital of Hebei Province, which is the largest steel making Province in China with estimated steel production for the current year of around 140Mt.

HBIS will assist in procuring the provision of debt financing on commercial terms reasonably acceptable to Richmond's US subsidiary Nevada Iron.

HBIS also will assist Richmond in securing financing for US$9 million to fund long lead time plant and equipment.

An initial A$2.5 million of capital will be injected into Richmond subject to certain preconditions.

Richmond’s managing director, Max Nind, said “this agreement is the culmination of around 9 months of negotiations and brings to the project an endorsement that steel producers see Buena Vista as being a long term provider of high grade magnetite to the steel making market.

“It is an exciting prospect to be working in partnership with HBIS to expedite the development of the Buena Vista project."

On the basis the US$161 million project financing is secured, HBIS will have the right to 80% of the iron concentrate production for a 10 year period, and priority over the balance.

Other principal terms of the alliance are:

  •  Relevant government approvals and processes
  •  A placement to HBIS of 6,250,000 shares, at an issue price of $0.40 per share, and the grant of that number of options that would, if exercised, result in HBIS owning 19.9% of the company’s issued share capital (as at the date of this announcement that number of options is 8,121,300) with each option being exercisable at $0.50 and expiring 24 months from the date of grant. The grant of the options is subject to shareholder approval
  • While HBIS hold at least 15% of the issued capital of the company they will be entitled to nominate one Director to the Board of Richmond.
  • Other than arising from the exercise of existing options or as may be necessary to complete the exercise of the option to acquire the Project from Kircher Mine Development LLC, Richmond has agreed not to issue any further securities during the “Exclusivity Period”. The Exclusivity Period shall expire on 31 August 2011, when signed loan documentation shall be in place, subject to earlier milestones also being met.


The Definitive Feasibility Study (DFS) at Buena Vista was announced earlier in the month, which demonstrated a positive technical and financial viability.

The key points from the DFS include:

  • US$133 million net present value after tax and capital expenditure at 7.5% hurdle rate;
  • 33% internal rate of return;
  • Free cash flow of US$478 million after tax from the first 10 years of operations;
  • Capital costs estimated at US$161 million, including cost of slurry pipeline;
  • Indicated Resource JORC of 65mt, initial Probable Reserves of 59 million tonnes; and
  • Underpins a 10 year mine life.


Significantly, the DFS is based solely on accessing ore from the West deposit and is for an initial output of 1.75 million tonnes per annum of concentrate, which will be produced on site.

Richmond Mining currently has a market capitalisation of $22.5 million and on  the strength of today's news, could see significant upside potential in months to come.

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