THE BOURSE WHISPERER: Australian Bauxite (ASX: ABZ) has executed a term sheet with major Chinese aluminium company, Xinfa Group for two State-Significant bauxite projects.
The parties have commenced an exclusive negotiation and due diligence period (Exclusivity Period) to finalise formal agreements.
Australian Bauxite (ABx) and Xinfa have agreed to commercial terms with respect to the early development and operation of the Tasmanian and Goulburn South bauxite projects.
The two companies will also share information concerning the prospective Binjour project in Queensland.
ABx project locations. Source: Company announcement
A data room was established and publically announced in December 2012.
The participants executed confidentiality agreements and were given access to a database and field visits.
The data room is now closed during the Exclusivity Period with Xinfa.
Preparation of the Mining Lease Application for ABx’s first mine in Tasmania is well underway, with the expectation that mining will commence in the second half of 2014.
“This partnership combines the discovery skills of ABx with the financial and operational strengths of Xinfa in the bauxite-alumina-aluminium business so that new export businesses can be created both in Tasmania and southern New South Wales, Australia,” Australian Bauxite CEO and managing director Ian Levy said in the company’s announcement to the Australian Securities Exchange.
“As supportive offtake partner, Xinfa will greatly reduce market risk for our first two projects, especially in the early years whilst each project establishes consistent production.
“The plan is for our Tasmania project to be the first new bauxite mine in Australia for more than 35 years.
“Bauxite shipments are planned to commence in the second half of 2014 when the bauxite market is expected to be favourable as Indonesian exports of our type of low-temperature, gibbsite-rich bauxite are reduced and Indonesian export taxes are increased from 20 per cent to 50 per cent.”
Under terms of the agreement Xinfa will pay $500,000 by 8 April 2013 as an exclusivity payment for a five-month due diligence period to 31 August.
The Exclusivity Period can extend to a maximum of nine months through an additional payment by Xinfa of $100,000 per month for each month beyond August.
An MOU is to be executed at the end of the Exclusivity Period, at which time Xinfa will pay an additional $2 million for 5.8 per cent equity in ABx through the issue of 6.58 million shares at 38 cents per share.
The Exclusivity Payment will fully convert to shares as part of this placement.
The $500,000 Exclusivity Payment is half-convertible to 657,900 shares in the event Xinfa elects not to proceed. These shares will be escrowed until 31 December 2015.
In the event that ABx elects not to proceed after the Exclusivity Period, ABx will, at Xinfa’s election, either pay a $250,000 termination fee to Xinfa or issue Xinfa with 657,900 shares, escrowed until 31 December 2015.
Negotiations concluding in an MOU are to be conducted under the principal of mutual benefit.
“Xinfa has operated bauxite mines in China, Indonesia and Fiji to supply low-temperature bauxite to Xinfa’s low-temperature alumina refinery in Shandong, which in turn, supplies alumina to Xinfa’s several large aluminium smelters across China,” Xinfa Group Chairman Zhang Gang said in the ASX announcement.
“Additional production from Australia has been an objective for Xinfa and it is hoped that bauxite projects in Tasmania and Goulburn South can be successfully developed.”