Mutiny Gold (ASX: MYG) has identified a way to reduce reliance on gold, disclosing it is in "advanced" negotiations to commercialise iron ore assets within the Gullewa Project area, which could see it earn cash flows in six to eight months.
This would be a timely filip for Mutiny in current volatile gold markets and a means to also help fund the Deflector gold project.
The negotiations are with an as yet un-named local iron ore producer are over ways to monetise the iron ore assets, known as Rocksteady Direct Shipping Ore (DSO) project.
The Gullewa Project area is located within the Murchison Region of Western Australia.
- The iron ore assets and their development could enable:
- Mutiny to receive cash flows within 6-8 months
- Mutiny to be cash flow positive
- Allow the company to develop a valuable asset;
- Allow it to continue to build the Deflector Gold-Copper Project with less recourse to volatile gold market financing
History of Rocksteady DSO assets
The Gullewa tenements contain significant iron mineralisation within numerous banded iron formation ("BIF") units.
These BIF units are interpreted to have a total length of approximately 150 kilometres. The BIF units are underexplored having been previously drilled for iron ore mineralisation at only two locations being the Rocksteady and Brandy Hill Prospects.
At both of these prospects significant iron mineralisation was intersected. The BIF units are typical hematite of those found elsewhere in WA's growing Mid-West iron region that are currently being mined.
The development of the iron assets and their proximity to key infrastructure, has been attractive to Mutiny since it acquired the Gullewa tenements in June 2010.
Critically, the project is strategically located approximately 50 kilometres from a railway, and 200 kilometres from the Port of Geraldton.
The local iron ore producer would then sell the D.S.O hematite overseas from the development of the Rocksteady Iron Project contained within our Gullewa tenements.
Mutiny Gold is also in detailed negotiations with a local mining services company to form a potential partnership to develop the Rocksteady asset.
In fact, John Greeve, said of the iron ore initiative, "the company has always highlighted the mineral endowment contained within its Gullewa tenements and the variety of development opportunities they contain and maintained a strongly announced objective of being a multi-mine operator.
"A Rocksteady development has always been one of our key, early stage development options at Gullewa and right now a 'window of opportunity' has opened up for Mutiny and we intend taking advantage of it, with the very real potential for Mutiny Gold to be earning cash from this development by early to mid 2014.
"Ideally, Rocksteady is located on an already granted Mining Lease and there is sufficient evidence to suggest that there is significant upside for adding substantial quantities of DSO quality hematite. In this regard we have also entered into discussions to quickly begin a significant new drilling programme there," Greeve said.
Deflector Gold-Copper Project
Meanwhile Mutiny has not been idle looking at ways to develop the Deflector Gold-Copper Project in a brutal funding environment.
Mutiny has also identified a potential new strategy for developing the high-grade, low cost Deflector Gold-Copper Project.
The strategy it's currently working on is to have the construction of the Deflector Gold-Copper processing plant partly funded by a leading mining services company and this would entail:
- A mining construction company carrying a large portion of the cost of constructing the Deflector Gold-Copper processing plant
- A separate mining services company being awarded the Deflector mining contract on the basis they provide equipment and funding required for the mine development
"We have already entered into detailed discussions with a major mining construction company and a leading mine contractor. With the mining services sector enduring a significant slowdown in activity and beginning to lay off workers, Mutiny Gold and our potential development and operational partners have identified an option that is a win/win opportunity for all," Greeve said.
Deflector Finance Package
Originally, four significant banks were short-listed to potentially participate in a bank financing syndicate - and after significant due diligence - all four banks have provided initial approval for Deflector development Funding.
Up until Wednesday 19th June, matters were progressing towards a successful conclusion for a funding package of around $40 million with two banks (plus $40 million from Sandstorm).
However, gold and equity markets currently in a state of turmoil, Mutiny has elected to investigate other development funding opportunities.
"It has become quite clear since the latest price fall that it is going to be very difficult in this current market to quickly conclude a financing package for Deflector which retains shareholder and project value. Several emerging producers have announced similar conclusions over the past few weeks," Greeve said.
"While we, and our financial advisers, strongly believe that Deflector's credentials put it at the leading edge for development proposals of its size in Australia, the fact is that for every step forward we have made in concluding a financing package, we have been pushed back just as much by market developments out of our control.
"While we are continuing to maintain Deflector financing discussions with a number of banks, it will no longer be our sole focus for funding future developments.
"Our key objective now is to be cash flow positive and to create shareholder value as rapidly as possible and the opportunities we have announced today is a clear outline of the strategy to achieve that outcome."
The capacity to generate cash flows from iron ore assets within the Gullewa project in fast fashion would set Mutiny on a cash flow generative, then cash flow positive path. To have that ability in the current market shows the vast mineral endowment within the Gullewa project area.
Mutiny is also not waiting around for capital markets to improve on for the Deflector gold project, looking at innovative steps to maintain momentum despite volatility in the gold price.
John Greeve MD of Mutiny, is no stranger to iron ore himself, if he can pull the iron ore rabbit out of the hat and get to cash flows from iron is a Houdini.
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