[miningmx.com] –– PETMIN, the R1.78bn junior mining firm, is to buy a one quarter stake in a South African based iron ore mine – Veremo – controlled by Anglo–Russian ferrometals group, Kermas.
Petmin will pay R49.7m which it will finance with the issue of some 15 million Petmin shares at a proposed price of R3.30/share. Petmin, which took a secondary listing in London this year, was about 1% higher in the first few hours of Johannesburg’s opening trading to some R3.85.share.
“When we looked at this a couple of years ago, the iron ore price was in good condition. We’re still very comfortable,” said Bradley Doig, COO of Petmin. “We’ll bed this down and look where we can play elsewhere.”
Petmin produces about 1.6 million tonnes/year of silica from its SamQuarz operation, and will produce 1.3 million tonnes of anthracite coal from its Springlake Colliery by end–2007. It hopes to produce a further 500,000 tonnes/year of anthracite quality coal from its Somkhele project.
In terms of the deal, Petmin will buy a 25% of Veremo Holdings from Framework Investments, a subsidiary of Kermas. Kermas will hold the remainder of Veremo and will contribute to the development of the R230m to R270m mine until production of some 700,000 tonnes/year of pig iron is achieved.
In addition to pig iron, Veremo will produce 2 million to 2.5 million tonnes/year of iron ore and additional titanium–bearing slag. The project is expected to fly on pig iron sales alone.
Iron ore prices have enjoyed double–digit contract price increases for the last five years owing to vaulting Chinese demand. A further 20% plus increase in contract prices between Australian and South American producers and Asian steelmakers is expected to be negotiated shortly, effective from April 2008.
The iron ore mine is estimated to have a 50–year life of mine although mineral consultants on the project are developing a 25–year life of mine. The project is expected to start production within four years of April, 2008, Petmin said.
For the first three years from this production date, Petmin will receive a warranted cash dividend of R65m or 25% of taxed profit from the mine, whichever is the greater. Petmin reported taxed profit of R74m in the year ended June, a 53% improvement year–on–year.
“It’s a good deal because we were appropriately positioned in the asset and we brought empowerment,” said Doig.
Some 30% of Petmin is owned by an empowerment consortium led by Dark Capital. Including existing Veremo empowerment shareholders, total BEE on the project will be 50% or more. The arrangement between Petmin and Kermas allows for a top up of empowerment should it fall below 50%, Doig said.
The project area has delineated 150 million tonnes of magnetite ore and a further 800 million tonnes of additional material that still requires testing.
© 2009 Petmin Limited