Mineral Resources to unlock stranded iron ore asset with A$400M Red Hill deal

Mineral Resources Ltd. signed a A$400 million deal to acquire Red Hill Iron Ltd.'s 40% stake in the Red Hill iron ore project in Western Australia, in line with its strategy to develop stranded iron ore assets in the state's Pilbara region.

As part of the deal, Mineral Resources agreed to grant Red Hill Iron a 0.75% royalty on free on board revenue from the Red Hill project as well as from Mineral Resources' Bungaroo South iron ore tenement, if developed. The deal is expected to close in early September.

Shares in ASX-listed Red Hill Iron closed 269.09% higher in Aug. 2 trading following the July 30 deal announcement.

The remaining 60% of the Red Hill project is owned by the Australian Premium Iron Joint Venture, which is equally owned by Aquila Resources Inc. and AMCI (IO) Pty Ltd.

In June, Mineral Resources acquired Aurizon Holdings Ltd.'s 15% stake in Aquila. The remaining 85% is held by Baosteel Resources Australia Pty Ltd., a subsidiary of steelmaking giant China Baowu Steel Group Corp. Ltd. AMCI is a joint venture owned 51% by American Metals & Coal International Inc. and 49% by South Korea-based steel producer POSCO.

Red Hill Iron said July 30 that the deal follows the inability of its project partners to reach an agreement to advance the development. In 2005, the Australian Premium Iron Joint Venture farmed into the Red Hill project, which is part of the larger West Pilbara iron ore property. A decade later in 2015, a development decision on the West Pilbara project was postponed and feasibility studies were halted amid market uncertainty.

Red Hill Iron's board recommended shareholders approve the transaction in a Sept. 2 meeting as it touted Mineral Resources' ability to "consummate the arrangements needed for a development decision and to ensure that a mining proposal can be funded and implemented."

In a same-day release, Mineral Resources Managing Director Chris Ellison said the deal aligns with the company's strategy "to build, own and operate infrastructure assets to unlock stranded iron ore deposits in the Pilbara."

With the Red Hill project, Mineral Resources intends to expand the resource inventory for its own Ashburton Hub property, which is expected to export up to 30 million tonnes per year of iron ore.

The Red Hill project hosts 820 Mt of measured, indicated and inferred resources grading 56.44% iron, according to a January 2020 estimate. The development includes the construction of a rail link that will connect the property to the proposed Anketell Point port.