IMX Resources (ASX: IXR) is securing alternative sales agreements for magnetite ore production from the Cairn Hill iron ore and copper mine at better prices than those initially agreed.
Cairn Hill is operated by Termite Resources, which is owned by Outback Iron, a joint venture between IMX (51%) and Taifeng Yuangchuang International Development Co (49%).
Taifeng had previously agreed to purchase part of the magnetite ore production from Cairn Hill.
However, Taifeng recently advised that it was unwilling to pay the Phase 1 Life of Mine sales contract pricing for the 19th ore shipment from the mine, and requested a renegotiation of the terms of the contract.
IMX has advised that joint venture operating entity Termite Resources has signed new magnetite ore sales agreements with alternative customers, within 10% of the pricing under the Taifeng Contact.
These customers will conduct tests into the processing of the Cairn Hill magnetite ore which, if successful, could lead to long-term sales agreements on improved terms to the current shipments.
"The progress with securing alternative customers for the Cairn Hill magnetite ore has exceeded our expectations in both the number of customers and the pricing that we are receiving," IMX managing director Neil Meadows said.
"We now believe that we will be able to secure long term off take agreements on terms close to those of the Taifeng Contract."
IMX to fund Cairn Hill
Early this year IMX agreed to sole fund Taifeng's immediate operating costs for Cairn Hill until the end of January to allow Taifeng to undertake a review of the operations.
Taifeng requested time to consider the impact of recent Termite Resources management reviews of the operation, the generation of a revised work plan and an independent external review of the Cairn Hill mining operations, before approving the recommendations and making further contributions to the business.
This review has not been completed, and IMX says it does not expect Taifeng to contribute its 49% of cash calls to the joint venture company Outback Iron (IMX 51%, Taifeng 49%) until the review is finalised.
As such, IMX will continue to fund the project in the interim by way of secured loans to operator Termite Resources, limited to $20 million, which will cover the short term cash requirements of the project.
"The loan to Termite secured directly against the assets of the Joint Venture increases the certainty that these funds will be recovered," Meadows said.
Last month, IMX announced that it had intersected visible magnetite quartz and magnetite gneiss mineralisation 25 kilometres southeast of Cairn Hill, in South Australia.
All six holes of a reverse circulation drilling program at the Tomohawk target intersected visible wide intervals of mineralisation.
Tomohawk was identified from a 2011 airborne geophysical survey, and is the strongest magnetic anomaly in the area south of Cairn Hill.
Phase 1 of the Cairn Hill project is a unique magnetite iron-copper-gold direct shipping ore operation, producing a premium coarse grained magnetite product with a clean saleable copper-gold concentrate.
IMX has also announced a Phase 2 resource, which the joint venture project group is accelerating to begin production of a saleable iron intermediate concentrate of about 60%.
While the softening of iron ore and copper prices in recent months has seen the pricing of Cairn Hill magnetite copper ore under the Phase 1 Life of Mine sales contract reduce by 25%, operations at the mine site are performing at designed capacity with cash operating costs free on board trending towards the target of A$75 per tonne with opportunities for further improvement already identified.
Importantly, Cairn Hill is located close to the Darwin to Adelaide railway, 55 kilometres southeast of Coober Pedy.