Apollo Minerals (ASX: AON) has executed a transformational deal with India's Jindal Steel and Power that will fast track development of its iron ore assets by spinning them off into a new ASX listed company.
Jindal, a US$8 billion market cap and major 11.7% shareholder in the company, will invest A$10 million in the new iron ore focused exploration and development company (NewCo) as well as assist in evaluating the mine development options available for each of its iron ore projects.
"This is a transformational event for Apollo and one that will allow us to unlock maximum value for our shareholders," Apollo chairman Tony Ho said.
"We are pleased to have a major partner of the calibre of Jindal Steel and Power involved in our iron ore projects and we believe we now have the key ingredients required to take Apollo's iron ore projects from exploration to production in the shortest possible time."
Apollo shareholders will receive shares in NewCo via an in-specie distribution that will result in Apollo shareholders holding about 49% of the NewCo shares as part of the demerger and after the Jindal investment.
This will allow Apollo shareholders to optimise their portfolios by providing them with separately tradeable equity in both the iron ore and base-precious metals assets.
Deal and partnership details
Under the non-binding term sheet with Jindal, Apollo's wholly owned subsidiaries which hold iron ore tenements in South Australia and Western Australia and interest in the Gabon iron ore project will be transferred into NewCo.
NewCo will in turn undertake an initial public offering and apply to list on the ASX.
NewCo will transfer to Apollo under a mineral rights deed, to be negotiated, exclusive rights to its highly prospective base-precious metals portfolio in the South Australian and Western Australian tenements.
Formal documentation and binding agreements for the partnership, which comes 10 months after Jindal's initial equity investment into Apollo, are expected to be signed over the next two months.
Jindal and NewCo will work together to assess the optimal mix of funding for the development of the iron ore projects, including the sourcing of capital from both Australian and its traditional investor sources and the expanding capital markets of India.
The Indian company's support will be beneficial in accessing high quality financial institutions.
Conditions include Foreign Investment Review Board and Department of Defence approvals, and Apollo and NewCo entering into the mineral rights deed.
Apollo Commonwealth Hill site in the Gawler Craton of South Australia is situated close to existing infrastructure including the Darwin-Adelaide railway line, highway, ports.
It contains the Sequoia iron ore project that has a JORC Inferred and Indicated Resource of 72 million tonnes at 25.9% iron at a 15% Fe cut-off. This also has a combined exploration target for the Ibis and Sequoia prospects of between 300Mt and 550 Mt at 25% to 35% iron.
In the Pilbara region, Apollo holds a 100% interest in the Mt Oscar Iron project located near Karratha while in Gabon, it has a 70% interest in the Kango North Iron Project.
An exploration target of between 200Mt and 300 Mt grading 30% - 45% Fe has been estimated for the south-eastern portion of Kango North with the vast majority of mineralisation modelled expected to outcrop or be located close to surface.
Jindal Steel & Power Limited was incorporated in 1979 and is a leading Indian company operating in sectors including steel, cement manufacture, power generation, mining, oil and gas and infrastructure development.
Jindal is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (NYSE:BSE) in India with a market capitalisation of about US$8 billion and forms part of the diversified O.P Jindal Group which has interests spanning across mining, power, industrial gases, port facilities and steel making.
The company is one of the largest steel producers in India, manufacturing and selling sponge iron, mild steel slabs, ferro chrome, iron ore, mild steel, hot rolled plates and hot rolled coil.
Jindal's investment into the new iron ore spin-off is a validation of the company's strategy of securing assets that have the potential to produce exceptionally high quality iron ore products at competitive costs.
The A$10 million investment and Jindal's assistance in securing financing on attractive terms will also go a long way towards bringing NewCo's iron ore projects across the finishing line into production.
Apollo also has enough cash to continue exploration of its base and precious metals assets with $1.49 million in cash as of 31 December 2012.
This cash balance will be further strengthened by the $650,000 that it has secured commitments for from institutional and sophisticated investors as well as the up to $1 million it is targeting through its share purchase plan.
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