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IMX Resources Secures New Life Of Mine Contract For Cairn Hill, More To Come

IMX Resources (ASX: IXR) has finalised a life of mine (LOM) contract with Vingo Resources for 50% of all ore produced from the Cairn Hill iron ore and copper mine, and is in advanced negotiations with a number of other end-user customers.

Neil Meadows, managing director, said the contract with Vingo will remove much of the uncertainty associated with the Taifeng life of mine contract, which has weighed heavily on market sentiment toward IMX over the past six months.

"We have achieved pricing similar to the Taifeng LOM Contract and with the implementation of the revised work plan we expect Cairn Hill to generate EBIT of $40 to $45 million per year going forward," he said.

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 one life of mine sales contract pricing for the 19th ore shipment from the mine, and requested a renegotiation of the terms of the contract.

The sales contract between IMX and Vingo is based on industry standard iron ore and copper pricing benchmarks and has commercial terms comparable to the Taifeng contract.

IMX has confirmed that it is in advanced negotiations with a number of other end-user customers to finalise life of mine sales contracts for the remaining Cairn Hill direct shipping ore product.

Importantly, these contracts are also being negotiated at similar terms to the Taifeng contract.

Meadows said previously, "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."

Revised work plan

IMX and the Cairn Hill joint venture partners have agreed on a revised work plan, which was implemented at the end of March

The joint venture partners have deemed the mining contractor demobilising labour and equipment surplus to the requirements of the revised plan.

Under the plan, cash operating costs of $80 per tonne free on board are targeted, with these costs expected to be achieved in the current June quarter.

Cairn Hill - phase one

Phase one 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 two 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 one life of mine sales contract reduce by 25%, operations at the minesite 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.

Comment

Over the past year, IMX has gone from a high of A$0.61 on 12 April 2011 to its lowest point of $0.27 on 2 December 2011. It has since risen to a high of $0.35 intra-day today, with the market responding to the news.

With the offtake agreement secured with Vingo and more offtake agreements in the pipeline, this could be the catalyst IMX needs to shake off market uncertainty and set it on an upwards share trajectory once again.