Ascot Resources lands in Pilbara with advanced iron ore project acquisition
Ascot Resources (ASX: AZQ) has emerged with an iron ore project adjacent to Rio Tinto’s West Angelas and Hope Downs iron ore mines in the Pilbara region of Western Australia.
The binding acquisition is a game changer propelling Ascot into an advanced iron ore project setting in the premier iron ore producing region in the world.
The project to be acquired, Wonmunna (DSO) has a 84.3 million tonnes of iron ore resource at an average iron grade of 56.5%.
Consideration payable by Ascot for Wonmunna is the issue of 88 million fully paid ordinary Ascot shares plus a maximum A$2 million cash consideration payable on completion. Further payments are tied to milestones.
Ascot has secured commitments from sophisticated investors for A$9.7 million at an issue price of A$0.25 per share subject to transaction completion.
In a coup, specialist mining private equity firm and existing cornerstone investor Resource Capital Fund V L.P. will invest A$5 million at A$0.25 per share in addition to the capital raising.
Binding agreement
The agreement is binding to wholly acquire the Wonmunna Iron Ore Project from Ochre Group Holdings (ASX: OGH).
Location
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).
Strategy
Ascot's strategy was always to develop projects that have the potential to deliver steel-making raw materials over a ‘near-term production’ horizon which Wonmunna fits, similar to its Colombian coal project.
Target
Ascot has already a production target in mind based on historical studies and completed by previous owners of the Wonmunna project,
Ascot will aim to establish a 5Mtpa operation which will target the production of both lump and fines products
Transaction terms in detail
The consideration payable by Ascot to Ochre in respect of the transaction is:
- 88 million fully-paid ordinary Ascot shares, to be issued on completion (and post Ascot completing a two for one share consolidation, the details of which are set out below);
- cash consideration of up to A$2 million, payable on completion;
- a further A$29.75 million payable at any time prior to the date that is five years from completion
- a 1% gross revenue royalty payable on all product produced and sold commencing 12 months after Ascot completes the first shipment of product.
In addition, Ascot will assume Ochre’s obligation to Talisman Mining Limited to pay a 1% gross revenue royalty beginning from first shipment.
Conditions
- Approval by the shareholders of Ascot
- Approval by the shareholders of Ochre
- Final due diligence by Ascot over the Wonmunna Project
Ascot must also raise a minimum of A$10 million in new equity at an issue price of at least A$0.25 per share (post consolidation).
Capital Raising - binding commitments already received
Ascot will seek to raise at least A$10 million in new equity at an issue price of A$0.25 per share (on a post-consolidation basis).
As part of the raising, Ascot has received subscription commitments from sophisticated investors for a total of A$9.7 million at the prescribed issue price of A$0.25 per share.
The commitments are subject to completion of the transaction by no later than 30 June 2014.
In addition to the A$10 million capital raising, Ascot’s largest shareholder, Resource Capital Fund V L.P., has indicated it will make a further A$5 million investment by subscribing for new shares at an issue price of A$0.25, subject to completion of its own due diligence on the Project.
Capital Structure
On completion of the proposed two for one share consolidation and assuming A$10 million is raised at $0.25 per share, Ascot will have 163.3 million ordinary shares on issue.
This includes the recent A$750,000 equity placement to Resource Capital Fund V L.P. and the issue of 11 million shares to nominees of Ascot Equities Pty Ltd and Andrew Caruso in connection with the recent satisfaction of a milestone of Deferred Consideration criteria for Titiribi.
Board changes
With immediate effect, Ascot’s current executive chairman, Andrew Caruso, will assume the role of managing director, while Paul Kopejtka will become executive chairman.
Ascot’s Executive Chairman, Paul Kopejtka, commented on the acquisition:
"The transaction represents an opportunity to combine a quality advanced stage iron ore project in Western Australia’s established Pilbara region with a proven management team that has successfully developed greenfield exploration projects into producing assets.
"The proven track record of management in successfully managing and delivering high quality iron ore projects of similar type will prove invaluable to the development of Wonmunna.
The acquisition also provides diversification for the Company’s existing bulk commodity asset portfolio in Latin America, and complements the Company’s objective of pursuing bulk commodities for supply into global steel-making industries.
Following completion of the transaction, the company will focus on accelerating project development to ensure key milestones are delivered on time and within budget.”
Analysis
This is a hugely value accretive acquisition for Ascot Resources and will propel its $3 million market cap significantly today.
This is a defining step-change for Ascot Resources, with an acquisition of an advanced JORC-ed DSO iron ore project in the Pilbara close to infrastructure and with completed scoping studies and environmental studies.
The project is intersected by the Great Northern Highway providing direct road access to Port Hedland.
Wonmunna hosts 84.3Mt of iron ore at an average iron grade of 56.5% with 64% of the estimate in the Indicated Resource category.
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 "see through" advanced nature of Wonmunna.
It is rare to acquire an advanced DSO iron ore project in the premier iron producing region of the Pilbara; Resource Capital Fund has recognised this by upping their investment commitment to Ascot Resources, sending a signal to investors.
Today's acquisition will firmly place Ascot Resources on the potential Pilbara iron ore producer's map.
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