FLINDERS Mines has entered into an option agreement with a subsidiary of New Zealand-based Todd Corporation to sell the Pilbara Iron Ore Project (PIOP). TIO (NZ) Ltd will pay Flinders $10 million up front to purchase an option over PIOP and if it exercises this will be required to pay a further $55 million and enter a royalty agreement.
With the downturn in iron ore prices adversely affecting the ability of Flinders to raise capital for the PIOP and to generate economic returns, the Board investigated all options available in relation to the best path forward in maximizing the PIOP’s value. Flinders believes a process by which ownership of PIOP is transferred to Todd and operated alongside Todd’s ownership in the Balla Balla JV, in exchange for future cash and royalty payments, represents the most efficient method of adding value.
Todd, already a major Flinders’ shareholder, has the balance sheet strength that Flinders believes will allow the PIOP the best possible chance of future development.
Todd Minerals and Coal vice president Michael Wolley says Todd’s intention is to develop PIOP and the Balla Balla port and railway as an integrated project. “As the potential provider of independent rail and port infrastructure to other parties in the Central Pilbara, Todd also remains committed to evaluating other potential mining assets, port and rail haulage and shipment customers, and offtake opportunities.
“Todd remains firm in its view that its offer represents an attractive opportunity for Flinders’ shareholders to receive significant upside from PIOP without the need to contribute further capital to its development.”
He pointed out the following benefits to Flinders’ shareholders:
- The $10 million initial payment is non-refundable and does not result in any dilution. Even if Todd elects not to exercise the option, Flinders retains the payment, regains control of PIOP and obtains the benefit of all work completed at Todd’s cost.
- The $55 million payment upon exercising the option is non-refundable and does not result in any dilution.
- Two $10 million option extension payments are designed to provide Flinders with further compensation should Todd’s development plan be delayed beyond the anticipated timeframe. It remains Todd’s intention to deliver an FID decision on the integrated project by the end of 2016.
He said the net present value of the deal, should PIOP go into production, assuming the option was exercised before either extension and based on indicative valuation assumptions, would be about $220 million, or about 4.5 times Flinders’ current market capitalization.