METRO Mining has signed an MoU with Xinfa Group covering bauxite offtake from the Bauxite Hills project in on Cape York, Far North Queensland, about 95km north of the town of Weipa. Xinfa is one of the largest integrated aluminium companies in China with significant refining and smelting operations in Shandong, Guangxi and Xinjiang provinces. Xinfa is currently a 7.2% shareholder in Metro.

The agreement contemplates a minimum contract tonnage of 1 million tonnes a year up to a maximum of 1.2 million tonnes a year over the initial five years term with an option to extend by mutual agreement. This represents around half of Bauxite Hills’ annual production.

The project has an ore reserve of 48.2 million tonnes with high grade total alumina of 50.2% and reactive silica of 6.3%, which is typical of Western Cape York bauxite deposits destined for export. ASX-listed Metro forecasts total annual production of up to 2 million tonnes from the project, which remains on track for first production next year.

The MoU provides for FOB pricing to be determined, subject to market conditions and bauxite quality. The quality requirements have been agreed, within defined parameters. A shipping schedule is to be agreed by the parties annually in advance.

It is the intention of both parties to produce a binding long term agreement within four months of the MoU, which was signed in early August.

The MoU is the latest significant event in a year of great progress for Metro Mining. In June it announced a 398% increase in its ore reserve at Bauxite Hills from 12.1 million tonnes to 48.2 million tonnes, enough for a 27 year mine life. An update of the geological model resulted in the resource upgrade.

The project could be in construction mode in the second quarter of 2016 and producing by the fourth quarter of 2016 at an annual rate of up to 2 million tonnes of Direct Shipping Ore (DSO), which allows the development of a mine with lower capital and lower operating costs.

In terms of transportation, the ore would be hauled and trucked 5-10km to a stockpile and barge loading area. Then the ore would be barged 10km down the Skardon River ready to be transhipped to a bulk carrier for export.

The location of the project at Cape York is ideal as it is close to international shipping routes with low relative freight costs to China.