WPG Resources (ASX: WPG) has signed an agreement with Brisbane-based Maosen Australia for the iron ore rights covering EL 3945 at Giffen Well, marking WPG's re-entry into the iron ore business in South Australia.
The company withdrew from the iron ore sector when it sold its iron ore assets to OneSteel in October 2011 for around A$320 million.
Executive chairman Bob Duffin told Proactive Investors today WPG has been trying to get exposure to Giffen Well since 2008.
"It is a first class prospect, so we are very pleased to have pulled off this deal," he said.
"Our port assets at Port Pirie, which were not sold to OneSteel, can be easily utilised for the export of iron ore products from Giffen Well. We do not need someone else to build a port."
Giffen Well is just 25 kilometres from the Carnes siding on the Central Australian railway line. There is direct rail access to WPG's port facilities at Port Pirie, a distance by rail of 550 kilometres.
The exploration licence was originally part of the South Australian Steel and Energy Project (SASE) but had been relinquished by the time WPG acquired the Peculiar Knob and Hawks Nest tenements from SASE in 2006.
Giffen Well lies within the Green Zone of the Woomera Prohibited Area, not in the more sensitive Red or Amber Zones.
Ground geophysical and drilling programs carried out as part of the SASE project outlined a significant deposit of magnetite banded iron formation (NYSE:BIF) at Giffen Well.
The licence area lies adjacent to the large north-east trending Bulgunnia Shear Zone along with a number of other significant mineral deposits and prospects including OZ Minerals' (ASX: OZL) Prominent Hill copper-gold project and Hawks Nest.
Previous drilling at Giffen Well focused on the magnetite BIF. However, the BIF is in places in contact with granite of the Hiltaba Suite, a similar geological setting to Peculiar Knob where high grade massive hematite is located adjacent to Hiltaba aplite and granite in the footwall.
A defining factor of the project is that these contact zones have the potential for the discovery of direct shipping ore haematite orebodies such as that at Peculiar Knob and Buzzard at Hawks Nest.
Significantly, the grades are much higher than many of the magnetite deposits elsewhere in South Australia, and in particular those for the Braemar iron formation in the Peterborough-Broken Hill area, and the Eyre Peninsula.
WPG has outlined an exploration target of 390-500 million tonnes at between 33% and 38% iron.
Another plus for the project is that preliminary beneficiation tests carried out as part of the SASE project suggest that a high grade iron concentrate of about 69% iron, with very low levels of alumina and phosphorous, may be readily produced from the Giffen Well magnetite BIF.
WPG now plans to begin a substantial program of systematic resource development drilling that will provide the basis for a preliminary Feasibility Study.
Following a positive outcome, a joint venture will be formed with Maosen to develop the project.
As part of the agreement with Maosen, WPG will hold its interest in Giffen Well through its subsidiary Giffen Iron.
Giffen Iron will pay an access fee of $200,000 and WPG will allot $330,000 worth of WPG shares when the last of the conditions of the agreement are satisfied.
The WPG subsidiary can earn up to an 82% joint venture interest in the project with a A$5 million payment and funding of a Bankable Feasibility Study.
On a decision to mine, Giffen Iron will pay a further $10 million, at which time Maosen has the right to decide whether to retain its equity interest in the project or exchange it for a royalty of $0.70 per tonne of ore mined.
Maosen will retain the non-iron rights at Giffen Well.
Giffen Iron will carry out a drilling program aimed at outlining a 500 million tonne Resource, and will complete a Pre-Feasibility Study.