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Shree Minerals Clinches Offtake And Funding For Nelson Bay River Iron Ore

Shree Minerals (ASX: SHH) has entered into an offtake agreement for its Nelson Bay River Iron Ore DSO Project in Tasmania with Singapore based trader Frost Global.

Importantly, Frost will provide US$4 million in funding to progress development of the project by way of an advance towards the supply of iron ore.

This will be paid back over the first eight shipments of iron ore, or US$500,000 per shipment.

Gven that Nelson Bay River has low capital expenditure requirements and operating expenditure of about $58 per tonne for DSO product, which is not bettered by many iron ore producers, the funding advance will help progress the project towards production while allowing Shree to maintain a sizeable margin during payback.

The production schedule for the first stage of the project is to develop two relatively shallow open-cut mines to produce direct shipping grade hematite ore, which will require just crushing and sizing.

The second stage involves the continuation of mining of the second open-cut situated above the main magnetite orebody.

The hematite oxide cap consists of the central DSO ore section mined in stage one which is surrounded by lower grade ore considered to have potential to produce a commercial beneficiated oxide product.

Shree will then move to the third stage of the project, which involves open-cut mining of the deep magnetite orebody beneath the oxide cap.

Earlier studies have demonstrated that the magnetite ore can provide either a dense media magnetite product suitable for coal washery applications or a blast furnace pellet magnetite concentrate.

The mine life for the project based on the current mine plan is expected to be 10 years and has potential to increase with further exploration work.

Shree added the DSO project is planned as a contract mining operation based on contractor supplied plant and equipment including processing and transportation.

Frost Global is a Singapore based company trading in agricultural products, metals, minerals, petrochemicals and textiles.

Nelson Bay River Iron Ore DSO Project

Nelson Bay River is located in the west coast of Tasmania, in an area rich with infrastructure including proximity to roads and port.

Highlighting the prospectivity of the area, it hosts world class mines including Grange Resources' Savage River, Vedanta's Mt Lyell, Unity Mining's Henty and MMG's Roseberry and Avebury.

Nelson Bay River currently has a goethite-hematite Inferred Resource of 1.4 million tonnes, magnetite Resources of 7.8 million tonnes at 38.3 DTR.

Production is expected to be about 400,000 tonnes per annum.

The hematite ore is similar to ore found in Western Australia's Pilbara region; low alumina and a premium product and easy-to-extract.

DSO Project Economics

Production from Nelson Bay River should generate $110-$130 million for the mining of DSO+BFO material which will generate strong near term cash flows in 2013/14 and transform Shree Minerals from explorer to producer.

Projected earnings from Stage 1 NBR Project for Shree Minerals are compelling - with potential to earn between $16 million to $18 million over two and a half years.

Exploration

Upside potential also exists with the current resource being based on limited drilling at the north end of the aeromagnetic anomaly.

Initial results from reverse circulation drilling completed in March 2013 have returned iron grades of about 60% with notable intercepts of 7 metres at 60.21% iron, 9 metres at 59.13% iron and 3 metres at 62.06% iron.

Analysis

The offtake and funding agreement with Frost Global provides both certainty of buyer for the DSO iron ore to be produced at the Nelson Bay River project, it also deftly provides funding through a US$4 million advance against production to progress development.

Shree is steadily but surely ensuring each box is ticked on the road to iron production. That the current market cap. of $17 million does not factor in revenues and profits from near term DSO production is to understate the facts.

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