FORGE RESOURCES TO PURCHASE BALLA BALLA MAGNETITE, VANADIUM AND TITANIUM PROJECT FROM ATLAS IRON LIMITED (ASX:AGO)

Transcription

1 16 December 2011 Australian Securities Exchange Exchange Centre 20 Bridge Street Sydney NSW 2000 FORGE RESOURCES TO PURCHASE BALLA BALLA MAGNETITE, VANADIUM AND TITANIUM PROJECT FROM ATLAS IRON LIMITED (ASX:AGO) 1. Key Points Forge Resources has signed binding documentation with Atlas for the acquisition of the Balla Balla Magnetite, Vanadium and Titanium Project for $40 million plus a capped royalty payment structure based on tonnage sold. The $40 million payment is split into 2 stages: an initial $17.5 million payment by end of February 2012, and a final $22.5 million payment by end of February Balla Balla contains a large-scale Resource of 456 million tonnes at 45% Fe, 0.64% V 2 O 5, and 13.7% TiO 2, located close to the Pilbara coast in Western Australia. Mining tenements and major approvals have been granted, and water and conditional gas agreements are in place. A Definitive Feasibility Study (DFS) was completed in February 2010 showing robust project economics. The DFS considered an onsite processing plant with a phased production process as follows: o Magnetite concentrate: Phase 1 at 6,000,000tpa, Phase 2 at 10,000,000tpa o Ilmenite concentrate: Phase 1 at 280,000tpa, Phase 2 at 470,000tpa o Ferro Vanadium: Phase 2 at 7,000tpa FeV-80 The preferred export path options for the product are trans-shipment from Balla Balla harbour, which appears viable and would negate the need for a slurry pipeline, or a slurry pipeline to Anketell Point, which is proximate to Balla Balla. Two sales contracts were signed in 2007 for a total of 10Mtpa of magnetite concentrate, which require validation with the customers. The Balla Balla Project is a compelling opportunity with requirements that are well suited to the experience of the Forge Board and executive team. Forge has already received a Letter of Interest from a major Australian bank for project financing. 1

2 1. Overview The Board of Forge Resources Ltd (ASX:FRG; Forge ) is pleased to announce that the Company has signed legally binding agreements with Atlas Iron Limited (ASX:AGO; Atlas ) to acquire a 100% interest in the Balla Balla Magnetite, Vanadium and Titanium Project ( Balla Balla ) in Western Australia. Atlas acquired the Balla Balla Project with its acquisition of Aurox Resources ( Aurox ) in August Balla Balla is located near the Pilbara coastline, approximately 100km east of Anketell Point and 120km south-west of Port Hedland, on the North West Coastal Highway and adjacent to the Pilbara Energy Gas pipeline and the grid power line between Karratha and Port Hedland. Figure 1. The Balla Balla Project Location Map The Balla Balla Project JORC compliant Resource is 456 million tonnes at 45% Fe, 0.64% V 2 O 5, and 13.7% TiO 2, located on granted mining tenements, with Environmental Ministerial Approval. There are two sales contracts for a combined 10,000,000tpa magnetite concentrate off-take, which require validation with the customers. A Definitive Feasibility Study (DFS) was completed in February 2010 that confirmed strong project economics using historical commodity prices (i.e. A$68/t 58% Fe concentrate grade and A$152/t 45% TiO 2 concentrate grade, compared to current prices of approximately US$120/t and US$225/t respectively). This DFS assumed an onsite processing plant and a slurry pipeline to Port Hedland for: Magnetite concentrate: Phase 1 at 6,000,000tpa, Phase 2 at 10,000,000tpa Ilmenite concentrate: Phase 1 at 280,000tpa, Phase 2 at 470,000tpa Ferro Vanadium: Phase 2 at 7,000tpa FeV-80 The DFS projected a 3-year engineering and construction period, with a capital cost estimate of A$1,229 million for Phase 1, as at February 2010 costing. Inclusive of an ilmenite by-product credit, assuming current ilmenite pricing, the February 2010 DFS estimated operating costs of approximately A$35 per tonne of magnetite production on a FOB basis. 2

3 The Board of Forge Resources believes the Balla Balla Project is an exciting opportunity for four key reasons: 1. Advanced nature of project with low technical and resource risk: The project is at the DFS stage and has a mineral reserve on an approved mining lease. The resource is well defined and with potential for extension. Processing is simple and well understood. The magnetite process is a crush, grind, and magnetic separation. The ilmenite circuit is further gravity and magnetic separation, followed by flotation. 2. Compelling economics driven by low operating costs for magnetite production: a. Ilmenite by-product credits, assuming current pricing, would contribute $10 per tonne of magnetite as a by-product credit. Commodity analysts are forecasting a tightening market upon increasing ilmenite demand, especially from China. Any potential resulting price increases would further decrease the net operating cost per tonne of magnetite concentrate. b. The project location, close to the coast, gives the project a transportation cost advantage compared to inland iron ore projects. c. The largest component of process operating costs for magnetite concentrate production is power used in milling and processing. The Balla Balla project will benefit from the ability to produce a relatively coarse grained magnetite concentrate, thus having relatively lower power and milling cost. 3. Competitive advantage for steel mill customers: The steel mills able to process high vanadium and titanium iron ores enjoy a significant competitive advantage through either realising value from vanadium and titanium by-product revenue, or through direct use of vanadium and titanium in high quality and price steel production. 4. Growth in demand for Ti V magnetite: Steel standards are increasing in China, driven by legislation, requiring alloying elements such as vanadium to meet these higher specifications. The technology to capture vanadium and titanium by-product credits is already proven, and new steel mills are looking to incorporate this technology and are seeking long-term stable supply of iron, vanadium, and titanium. The potential indicative Phase 1 project economics are compelling: Item Phase 1 Production Target Assumption/Potential Economics 6 Million tpa of Magnetite Concentrate 58% Fe Magnetite Concentrate Pricing US$105/t FOB (based on 120/t CFR for 62% fines)* AUD/USD Exchange Rate 0.90 Potential Annual Revenue (AUD) $700M per annum for magnetite concentrate Ilmenite by-product credits Operating Costs (after Ilmenite credits) Royalties payable Potential EBITDA (AUD) 280,000tpa equal to US$63M (assuming current prices of US$225/t for ilmenite) A$35/tonne magnetite concentrate, FOB basis, based on DFS operating costs, to be verified 5% W.A. Government, Atlas Royalty, $0.5/t ore original vendor royalty ~$435M per annum * Goldman Sachs 62% Fines forecast price CFR China for 2015 as at 15 December

4 Phase 2 in the DFS considers expansion of both magnetite and ilmenite production and adding a Ferro Vanadium plant, offering further growth potential. The key project risks appear to relate to funding, product marketing, and building organisational capacity to deliver and operate this project. The Board of Forge feels the experience and skills of the Board and Executive team are well matched to address these key project risks for the Balla Balla Project. 2. The Project The Balla Balla deposit may be described as a titanomagnetite orebody, the dominant composition of which is iron with elevated levels of titanium and vanadium oxides. The ore zone is tabular and extends across an 18.5km strike length, is 20m-30m thick and dips at an angle of 20 and 40 degrees. Oxidation within the titanomagnetite horizon occurs to depths of between 10m to 20m, which is relatively shallow in comparison to comparable projects. The magnetite is seldom completely oxidised and even in the most oxidised surficial material 5% to 10% relict magnetite is observed. The gabbroic rocks of the hangingwall and footwall show slightly greater depths of oxidation, typically to 15m to 25m depth. Figure 2. Simplified Cross Section of the Balla Balla Project Ore body. As shown in Figure 2, vanadium content is greatest at the base of the horizon near the sharp footwall contact where grades up to 1.1% V 2 O 5 are recorded. Vanadium grade gradually declines moving upwards through the horizon. The JORC compliant Mineral Resource for the Balla Balla Project is defined over 18.5km of strike, to depths of 300m, 200m and 100m in the Central-East, Western and Far West tenements respectively, from a total of 56,000 metres of drilling. There is reportedly significant potential for the Mineral Resource increase. 4

5 Balla Balla Magnetite Mineral Resource Estimate (Dec 09) Resource Tonnes Classification (Mt) Fe (%) V 2 O 5 (%) TiO 2 (%) Measured Indicated Inferred TOTAL Table 1. Balla Balla JORC Compliant Mineral Resource Estimate. Figure 3. Balla Balla Deposits Location Map. The JORC compliant Reserves for the Balla Balla Project are established only in the Central- East and Western pits. There is potential for additional reserves from the upgrade of Mineral Resources in the Far West area and drilling of down dip extensions. Balla Balla Magnetite Mineral Reserve Estimate (Jan 10) Reserve Tonnes Classification (Mt) Fe (%) V 2 O 5 (%) TiO 2 (%) Proved Probable TOTAL Table 2. Balla Balla JORC Compliant Mineral Reserves Estimate. The Definitive Feasibility Study completed by GR Engineering for Aurox Resources Ltd (Aurox) in February 2010 proposed two construction phases: Phase 1 is the establishment of open pit mining operations, processing facilities and associated infrastructure to produce 6,000,000tpa of iron concentrate and 280,000tpa of ilmenite concentrate. 5

6 Phase 2 is expansion of the Phase 1 open pit mining operations and processing facilities to produce 9,000,000tpa of iron concentrate and 425,000tpa of ilmenite concentration plus the installation of a vanadium plant to process higher grade vanadium ore and associated infrastructure to produce an additional 1,000,000tpa of iron concentrate, 45,000tpa of ilmenite concentrate and 7,000tpa of ferrovanadium. Mining will be by conventional open pit methods, with potential to utilise contract mining operations or an owner operator approach. A mine plan has been completed by Orelogy of Western Australia. The deposit has a strip ratio of 5:1 over the proposed life of the project. The process route proposed for the production of magnetite concentrate is shown in the block flow diagram in Figure 4. The flow-sheet includes milling, magnetic separation, thickening and filtration. Iron recovery is predicted to average 74.5%, with a DFS average grade from process test-work as shown in Table 3. Distribution Fe V 2 O 5 TiO 2 SiO 2 Al 2 O 3 P CaO MnO S Average Grade (%) Table 3. DFS Average Magnetite Concentrate Specification. The process route proposed for the production of titanium concentrate from the iron tailings is also shown in the block flow diagram in Figure 4. The flow-sheet includes magnetic and high gradient separation, flotation, thickening and filtration. Titanium grade is forecast at 45% TiO 2, with recovery predicted to average 20%, however it has been recognised that the titanium circuit has optimisation opportunities. Figure 4. Magnetite and Titanium Concentrate Flow Sheet as per Q DFS. 6

7 The Balla Balla Project has access to important infrastructure, including: a gas pipeline (conditional agreement in place), electricity grid power line, highway infrastructure, and an abundant local water supply and licence for 6.5GLpa. On 24 April 2009, the Western Australian Minister for Environment and Youth issued the Ministerial Statement approving development of the Balla Balla 6,000,000tpa magnetite Project. The DFS flow sheet, shown in Figure 4, assumes construction of a slurry pipeline to Port Hedland. The project is short-listed for capacity at Anketell Point Port (when built) and tenure applications for a pipeline to Anketell are well advanced. Note, Atlas shall utilise the 10mtpa Port Hedland capacity historically earmarked for Balla Balla for their DSO operations. Therefore a value adding opportunity for the Balla Balla Project is the potential use of a trans-shipment option from the small Balla Balla harbour historically used for copper exports, located less than 10km from the project, as shown in Figure 1, which would negate the need for a slurry pipeline. Forge is working with an experienced operator to assess Balla Balla harbour for loading barges for trans-shipment to an ocean going bulk carrier anchored off-shore. This transshipment operator is already operating in northern Western Australia, and such operations are extensively employed for bulk commodity resources in South America and Indonesia. This option could debottleneck port access and reduce capital expenditure. A scoping study has indicated operational costs are cost effective. Further work on draft depth, hydrographic data, permitting risk and economic assessment is on-going. Should this option prove viable the slurry pipeline, with an estimated expenditure within the DFS of $244 million inclusive of contingency, could be very substantially reduced. Forge recognises that both the capital costs and operating costs reported in the February 2010 DFS will require updating, and that project costs in Western Australia may have escalated since that time. The review and update of the DFS, together with a process of value engineering with the aim of removing costs, will be a priority activity for Forge. Upon completion of this review Forge shall seek project finance for Balla Balla. The company has received a Letter of Interest regarding project finance of Balla Balla from a major Australian bank that knows the project well. It is estimated that approximately $100 million has been spent on the Balla Balla Project to date. 7

8 3. Transaction Terms for the Acquisition of the Balla Balla Project Forge has been in negotiations with Altas Iron Limited and the parties have signed a legally binding agreements setting out the commercial terms upon which Forge shall purchase the tenements and other assets comprising the Balla Balla Project. Pursuant to the terms of the agreements there are essentially four phases of payment for the Balla Balla Project: 1. $17.5M Initial Payment: Forge shall pay $17.5 million to Atlas by the end of February 2012, subject to any required Forge shareholder approvals and a successful capital raising of at least $15 million by Forge; 2. $22.5M Final Payment: 12 months after the initial payment Forge shall pay a further $22.5 million to Atlas; 3. Royalty payments; a. 4% Royalty: A 4% royalty on revenue, after government taxes and royalties, shall be paid to Atlas from the initial 5,500,000 tonnes of contained Fe within magnetite concentrate sales and 200,000 tonnes of contained TiO2 within ilmenite sales. The value of this royalty stream will be determined by the price achieved at the time these tonnages are sold by Forge. b. 1% Royalty: Upon completion of the 4% royalty tonnages the royalty shall drop to 1% of revenue, after government taxes and royalties, on remaining tonnages up to a total of 36,000,000 tonnes of contained Fe within magnetite concentrate sales and 1,200,000 tonnes of contained TiO2 within ilmenite sales. The value of this royalty stream will be determined by the price achieved at the time these tonnages are sold by Forge. 4. Next Steps The key next steps for the Balla Balla project are reviewing and updating the DFS, validating with the customers the existing off-take contracts, followed by securing project finance, after which Forge would be in a position to submit documents related to the Mining Proposal and Works Approval to the appropriate Government departments. The Directors believed it prudent for the Company to seek shareholder approval at the recent Annual General Meeting (AGM), on 24 November 2011, to have a share placement facility available so that additional equity funds can be raised if considered necessary. Hence the Company has secured shareholder approval for a share placement facility of up to 30,000,000 shares. The Board has resolved to utilise this share placement facility to raise funds to meet the conditions precedent of the initial payment to Atlas. The Board shall mandate Riverstone Capital Pty Ltd (Riverstone), as Forge s advisor, to lead the capital raising which will be undertaken in the future. The Board is confident in the ability of the market to support such a capital raising. 8

9 For an interview on the acquisition of the Balla Balla Project with Dr. Matthew James, Managing Director of Forge, please copy the following link into your browser: For further information please contact Dr. Matthew James, Managing Director, or Mr. Nicholas Curtis, Chairman, on For all media enquires please contact Michael Vaughan from FTI Consulting on About Forge Resources: Forge was established in 2009 as a resource and energy exploration company. The Company s primary objective is to build a resource and energy company at a time when the global demand for resources and energy is high. Forge is currently farming-in to a mineral sands exploration project within the Eucla Basin. In addition, Forge in conjunction with its Joint Venture partners is advancing the exploration and development of its prospective gold and base metal projects located in New South Wales, Australia projects and in accordance with its charter will also seek to acquire or participate in additional resource and energy projects in Australia and overseas. ASX Codes: FRG, FRGO Issued Capital: Ordinary Shares: 27,777,667 Options (Exp 7/14, Ex $0.20): 19,855,905 Options (Exp 6/15, Ex $0.67): 600,000 Options (Exp 12/15, Ex $0.54): 4,500,000 Performance Shares: 24,000,000 Principal Place of Business Level 24, 56 Pitt Street Sydney NSW Directors Mr Nicholas Curtis: Chairman Dr. Matthew James: Managing Director Mr Emmanuel Correia: Non Exec Director Mr Harold Wang: Non Exec Director Company Secretary Mr Shane Hartwig Competent Person Statement Note on Resource estimates: The Resource estimate for the Balla Balla Western, Central/Extension and East Block B deposits are sourced from Golder Associates report reference L Rev2 dated 5 August 2009 and are contained within Domain 1 (main Fe zone modelled at 35% Fe cut-off) and Domain 7 (modelled at 0.85% V2O5 cut-off) combined. Resource estimates for the Balla Balla Far Western Area are sourced from Golder Associates report reference L Rev1 dated 8 December 2008 and are contained within Domain 1.1 (lower main Fe zone) and Domain 1.2 (upper main Fe zone), both modelled at 35% Fe cut-off. For all deposits, tonnage estimations are reported at a cut-off grade of 0.001% Fe within the modelled domains. The Fe resource includes in-situ Febearing minerals that are not amenable to magnetic recovery. Magnetic recovery factors or assumptions have not been applied to these Mineral Resources. In August 2009, Aurox reported an increase to Measured, Indicated and Inferred Resources of the Western and Central-East Pit areas of the Balla Balla magnetite deposit. In December 2008, Aurox upgraded the Balla Balla Far West area Resources from 100% Inferred to Measured, Indicated and Inferred Resources. The information in this announcement that relates to Minerals Resources is based on information compiled by Matt Chinn who is a member of the Australasian Institute of Mining and Metallurgy. Matt Chinn is a consultant of Atlas. Matt Chinn has 9

10 sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity that he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Matt Chinn consents to the inclusion in this announcement of matters based on this information in the form and context in which it appears. Notes on Reserve estimates: The Balla Balla Reserves are defined at a 35% Fe cut-off grade. The figures in this announcement refer to fresh ore only, no oxide material is included. The Balla Balla Ore Reserves in this announcement were estimated by Mr Steve Craig, a member of the Australian Institute of Mining and Metallurgy and a full-time employee of Orelogy Pty Ltd, who has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as a Competent Person as defined in the Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Steve Craig consents to the inclusion in this announcement of the above Resource information in the form and context in which it appears. 10