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  • Dragon Energy Clinches Farm-In With Shandong Energy For Ashburton Project 0 comments
    Apr 29, 2013 10:15 PM

    Dragon Energy's (ASX: DLE) managing director Gang Xu has signed a farm-in and joint venture agreement in China for the Ashburton Project in Western Australia's Pilbara with Shandong Energy and Shandong Lunan.

    The two Chinese state owned entities will fund $2 million in exploration on the project in exchange for a combined 65% interest.

    The deal has been executed with Shandong Energy Australia, a wholly China state owned Australian entity of Shandong Energy Linyi Mining Group, and Shandong Lunan Geo-Engineering Exploration Institute.

    Shandong Energy Linyi Mining Group is among the seven largest Chinese coal companies, created from the merger of six existing coal mining companies in March 2011. The company owns 29 mines.

    Shandong Lunan Geo-Engineering Exploration Institute is a wholly China state owned exploration institution and is the biggest branch under the Shandong Geological Bureau.


    The Ashburton Project, which is located in the Ashburton basin south of the Pilbara region in Western Australia, is prospective for iron, base metals and/or gold mineralisation.

    The project is strategically located around 10 to 40 kilometres from rail and other infrastructure associated with the Paraburdoo iron ore operations of Rio Tinto (ASX: RIO).

    Drilling of the high priority iron ore targets is planned for late 2013.

    About 50% of the project area has a Cainozoic cover which potentially conceals channel iron mineralisation within the braided drainages of Turee and Seven Mile Creeks, which drain the ranges of the Brockman Iron Formation near Paraburdoo.

    Elevated alluvial gravel beds are evident with the ground surface dominated in parts by iron (hematite) gravels.

    Small outcrops on E08/2211 of weakly mineralised, foliated and ferruginised sediments have been interpreted as a possible shear or gossan in the basement sediment. These outcrops returned up to 51% iron, 555 parts per million zinc and 292 parts per million nickel.

    These outcrops may be related to a mantle tapping structure, the Baring Downs Fault, which was identified in a 2011 regional seismic transect in the Ashburton Basin. This structure may act as a pathway for fluid flow to mineral systems.

    A field trip during the March quarter located optimal access and pegged drill sites for a planned reconnaissance drilling program to test for potentially buried channel iron mineralisation.

    Key terms

    Under the terms of the agreement, Shandong Energy and Shandong Lunan will jointly fund $2 million of exploration activity on the Ashburton Project within a three year period to earn a combined 65% interest in the project.

    In stage one, the two companies will jointly fund an initial $300,000 of exploration expenditure to earn a combined 30% interest in the project.

    In stage two, Shandong Energy and Shandong Lunan will jointly fund an additional $700,000 of exploration expenditure to earn an additional 20% combined interest.

    In the final stage, the two companies can earn an additional 15% combined interest by jointly funding an extra $1 million of exploration expenditure, or exploration and development expenditure up to discovery of a JORC Resource and the completion of a Bankable Feasibility Study.

    Shandong Energy and Shandong Lunan must transfer the first $300,000 for the stage one commitment to a joint bank account within 60 days subject to relevant approvals. Dragon Energy will act as project manager in stage one.


    The farm-in and joint venture with two large Chinese state owned entities provides Dragon Energy certainty over exploration funding to advance the Ashburton Project.

    It also allows the company to allocate its current cash resources to its flagship Pilbara Iron Project in Western Australia which is the most advanced project in Dragon Energy's portfolio and potentially the Pilbara region's next producing iron ore mine.

    This is an impressive deal in the current market environment. Significantly, with the Ashburton Project located close to established infrastructure the appeal of the project to the new farm-in partners is readily apparent.

    Dragon Energy's Rocklea Project, with a resource of 182.6Mt at 52.7% iron is well placed to be one of the Pilbara region's next producing iron ore mines. The next phase of feasibility studies are underway.

    Dragon had a cash balance of about $3.19 million at the end of March 2013.

    Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX "Small and Mid-cap" stocks with distribution in Australia, UK, North America and Hong Kong / China.

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