Today, Alderon Iron Ore, the Canadian iron ore development company with a solid footprint in Western Labrador via their 100% owned Kami Project, announced signing of a major, definitive subscription agreement with China’s steel producing juggernaut, Hebei Iron & Steel Group Co., Ltd. (formed from the merger of Tangsteel and Hansteel in Hebei province back in 2008), which turns out some 30M tonnes annually and is the second largest producer in the world.
Hebei Iron & Steel, in addition to a C$194M strategic investment into AXX and the Kami Project (in exchange for 19.9% of outstanding AXX shares at C$3.42/share, as well as a 25% interest in a newly formed limited partnership created to own the Kami Project), has come to terms with Alderon Iron Ore regarding all other material agreements governing the relationship, in addition to the agreement to buy iron ore concentrate output from Kami. These definitive agreements will be executed upon closing. In accordance with dictates thus set forth, the entire C$194 (which will be contributed within 15 business days of Hebei receiving the feasibility study) will go to exploration/development at Kami, as well as associated corporate expenses.
Chairman of Hebei Iron & Steel, Wang Yifang, hailed the formation of this “long standing partnership” as a key move in the larger bid to expand into overseas mining assets, characterizing Kami as high-quality, containing abundant resources, and being strategically located. Locking down a continuous stream of high-quality iron ores is precisely what Hebei Iron & Steel needs to ensure growth projections and the partnership with AXX, securing project financing for Kami is seen as naturally leading to the evolution of a world-class iron ore mine in the heart of Canada’s premier iron ore district.
President and CEO of AXX, Tayfun Eldem, echoed these sentiments roundly, saying of the deal that it would be a major catalyst for the company, as Alderon moves to further validate, and gain material leverage over risks associated with developing the Kami Project. Eldem explained that this deal provides a significant component for the projected equity requirements needed to build Kami, viewing the ability of AXX to finance the remainder as well within reason, especially with access to more financial institutions with Hebei being at the table, including Chinese banks.
Hebei has agreed to fully assist in securing any debt financing and should prove indispensible as an ally when approaching Chinese banks.
Executive Chairman of AXX, Mark Morabito, cited the roaring Chinese economy and vast experience of Hebei in the steel industry as primer for an explosive combination that should propel the company to world-class status. Developing the Kami Project in conjunction with such a senior steel industry titan will give every opportunity for success and AXX is ready to hit the ground running now that sufficient capital has been obtained.
Upon acquisition of the 25% interest in Kami, obligations call for purchase of 60% of annual output (up to a maximum of 4.8M tonnes of the first 8M) by Heibei, as soon as commercial production starts. Hebei will get a good deal on the ore (monthly average price per DMT for iron ore sinter feed fines quoted by Platts Iron Ore Index), at what is essentially a 5% discount from the Platts Price, making this arrangement a shoe-in for Hebei’s team. Hebei Iron & Steel has been looking for precisely this kind of setup and the quality of the ore coming out of Kami is superb, so the approvals required on the agreements by the PRC government should go very smoothly.
Alderon has agreed not to solicit or approve any other transactions for 75 days and is entitled to terminate both the subscription agreement and transactions proposed in the definitive agreements if Hebei can’t get the PRC to sign off in the next 90 days (and Alderon enters into an alternate transaction proposal, provided Alderon pays Hebei a termination fee of C$10.25mm). The subscription and definitive agreements are also subject to approval by the TSX and NYSE Amex. Hebei obtains the right to nominate two directors to the AXX Board via the private placement and Alderon has also granted a pre-emptive right for Hebei to maintain its interest in the company in certain circumstances.
For more information on the Kami Project, the agreements, or to learn more about Alderon Iron Ore Corp., please visit the company’s website at: www.AlderonIronOre.com
About MissionIR
MissionIR is committed to connecting the investment community with companies that have great potential and a strong dedication to building shareholder value. We know our reputation is based on the integrity of our clients and go to great lengths to ensure the companies represented adhere to sound business practices.
Sign up for “The Mission Report” at www.MissionIR.com
Please see disclaimer on the MissionIR website http://www.missionir.com/disclaimer.html
