Baraka Energy & Resources (ASX: BKP) has entered into a Commercial Secured Loan Agreement with an Iron Sands Investment (Titaniferous Magnetite) venture in the Philippines that could provide early cash flows to add a new leg to the Georgina Basin projects.
Importantly, the investment may lead to further investment opportunities when the final structures and negotiations are resolved.
The loan agreement includes interest payments and a profit sharing arrangement with an unlisted public company.
Baraka had also assisted the company in renewing the permits covering the venture for a further two years to allow further exploration of the highly potential areas and has recently funded the acquisition of unique equipment to carry out very economical assessment of the permits under an exploration program currently underway.
Iron Sands Project
The project was introduced to Baraka by Cervantes Corporation Ltd (ASX:CVS) who will as a result be entitled to certain fees, profits and or the right to back in to the investment at a later date subject to particular goals being achieved.
While the agreements between the parties are currently subject to confidentiality clauses, Baraka noted that data it has been provided indicates the project contains a large tonnage, low cost production of titaniferous magnetite sands.
Notably, the project also has an offtake agreement in place with a Chinese mill.
Baraka noted that a major benefit of iron sands projects is that the material has already been ground down to fine material and no crushing, road transport, rail or other major infrastructure costs are involved.
It added that only a simple low cost dredging and separation process is required to produce high margin, low capital and production cost material.
The project compares favourably with other listed and unlisted projects it had reviewed in carrying out due diligence on projects in New Zealand, Fiji and Indonesia in terms of export restrictions, CAPEX requirements, depth of material and, more importantly, low cost labour and operating expenses and especially closeness to China for shipping times and cost.
Current information indicates an exploration plan and budget considerably lower than normal exploration programs to produce a mining permit and in particular considerably lower CAPEX and earlier production times.
Baraka believes, subject to the current exploration programs verifying historical data, that the project will equal if not rival the Georgina Basin potential cash flows for Baraka shareholders in the same time frames and for capital investment.
Baraka's interest in the Philippines iron sands project offers its shareholders a second investment after its Georgina Basin assets.
Activity in the latter is expected to pick up in 2014 as operator Statoil ramps up its activities while the iron sands project and the potential for further investments also offers much for investors to follow over the balance of this year and beyond.
Baraka also continues to monitor current and future resource regulations and changes in Indonesia, which has enormous natural resources despite the current regime being less attractive for foreign investment then before.
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