As iron ore prices run hot, Creasy’s CZR banks $102 million Pilbara pay day
As iron ore prices surged above US$140/t late last year Chinese buyers zeroed in on one of a handful of development-ready assets in the Pilbara, offering top dollar to mop up two small mines which could sell 5Mtpa from WA’s North West Coast.
Two separate but seemingly conjoined companies under the moniker of Miracle Iron will pay a combined $122m to secure Strike Resources’ (ASX:SRK) Paulsens East project, which was briefly mined and shipped through the junior Utah Point Facility in Port Hedland a couple years ago and CZR Resources’ (ASX:CZR) larger Robe Mesa, an extension of Rio Tinto’s (ASX:RIO) Mesa F deposit at its Robe River JV.
Coming a week after Strike revealed the sale of its proposed 1.5Mtpa Paulsens East for $20.5m, Mark Creasy backed CZR (53% owned by the prospecting giant) announced the $102m sale of its 85% stake in the 33Mt Mesa F.
That’s 43c a share in cash and more than double its $47m market cap before trade started today. Cue a 40% plus gain.
CZR and Strike were partners with infrastructure firm CSL in a project to develop a new iron ore hub at the Port of Ashburton. A DFS last year suggested Robe Mesa – producing a low grade, low alumina and low phosphorous product akin to Fortescue’s (ASX:FMG) Super Special Fines blend which is currently in high demand in China – could ship 3.5Mtpa for four years before exporting 5Mtpa for another four years over an eight-year life.
An investment decision on a DSO operation commencing next year was due in the second half of 2024. But the deal will see CZR shareholders, including those who aren’t Creasy – currently deliberating on the sale of his 15% minority stake in the asset – see a return on their investment years earlier than they would have if they had to spend $109 million to build the thing.
It is the latest example of the valuations those within the industry place on low grade iron ore assets as opposed to the market.
That is now a centrepiece of MinRes’ majority owned 35Mtpa Onslow Iron project, due to begin exports this year. Red Hill was worth $236m at the time — and that came after a 270% lift on the day of the deal, which enabled the Josh Pitt led company to become a regular dividend payer since.
When we got in touch about the sale CZR MD Stefan Murphy said no decision had been made yet on how the proceeds would be spent, with CZR continuing to hold exploration ground in the vicinity of De Grey Mining’s (ASX:DEG) Hemi gold discovery and Wildcat Resources’ Tabba Tabba lithium project, as well as Australian Vanadium (ASX:AVL) and Technology Metals Australia’s (ASX:TMT) Mid-West vanadium assets.
While Miracle Iron is based in Perth, including the involvement of Sino-Australian businessman Frank Yin, the deal will require Foreign Investment Review Board and Chinese outbound investment approval.
Parent company Shenzhan Naaojianglan Investment Co. Ltd is an investment subsidiary of titanium and iron ore producer Xinjing Jiangma Mining Corporation, which will pay 80% of the consideration on the completion of the deal and another 20% on the earlier of the first shipment or June 30 next year.
Murphy said the outlook for iron ore, including the forward curve, remained more attractive than analysts predicting prices to fall would suggest.
“Backwardation is not as big as what it has been over the past year or 24 months, so there’s still a lot of strength in the market,” he said.
“The property sector has been quite depressed in China … but there’s been very little drop in consumption and demand from steel mills.
“They have been focusing more on the lower grade products, closing up the margin between our product and a Pilbara Blend (Rio) or BHP (ASX:BHP) product.
“A lot of that steel’s being consumed in the manufacturing sector. Now as we start to see that stimulus coming into the property sector it’s not really anticipated we’re going to see too much reform in the iron ore price.”
According to its DFS, Robe Mesa will have a C1 cost per tonne of iron ore of US$49, against current prices in excess of US$130/t and a long term base case of US$90. While many low capex, high opex mines rose and fell in quicktime in the iron ore boom of 2021, those with lower cost bases were attractive to buyers, Murphy said.
“You need to come in at a lower cost base, that’s what we’ve been focused on and that’s why the port was such an important part of our planning,” he said.
“We’d be more than happy to take it and start production ourselves, but obviously when you get an offer which is twice you market cap you need to take that into consideration.”