logo-loader

Ferrex’s gold deal heralds start of new phase

Published: 05:08 30 Nov 2015 EST

gold_nuggets,_sized_565c216e57a2a
The plan is to have the Norton operations up and running by the second quarter of next year.

Even though it’s not a huge transaction in financial terms, Ferrex’s (LON:FRX) acquisition of a significant interest in an Australian gold project is undoubtedly transformational.

It signals the intent of the company not to be hidebound by the long-term prospect of developing its West African iron ore and manganese assets.

Rather, in the face of depressed iron ore prices, the company has shown it can be nimble and cut deals that provide cash flow.

And what’s more, it’s laid down a marker that more deals, and bigger ones too, could be on the way.

The new asset is a five year tribute agreement with a subsidiary of Norton Goldfields (ASX:NGF) covering certain defined gold deposits on Norton leases 30 kilometres north of Kalgoorlie.

Under the terms of the deal the gold remains the property of Norton while Ferrex mines it, with 22% of the revenue reverting to Norton and 78% returning to Ferrex.

To get up and running Ferrex will have to deploy around £300,000 in working capital, but the acquisition costs itself, equating to around £930,000, will be met by a two-staged all-share payment.

“This is a smallish deal,” concedes Ferrex’s Dave Reeves. “The EBITDA will amount to around US$10mln per year. It’s not going to set the house on fire.”

But that’s not its purpose.

“We can use the cash generated,” says Reeves, “to develop Togo and potentially another project that’s currently outside of the portfolio.”

It’s the old model, that’s been so well tried and tested in London over the years: supporting  a mining company with big aspirations with the cash generated by a small operation.

So, the Norton assets at this stage may only have a five year life. But a lot can get done in five years, and Ferrex aims to make it happen.

“We’ve had enough of hanging around at street corners and busking to get money,” says Reeves. “We need to be proactive and get on and do things. And Australian gold’s a very good place to be.”

With gold tipping towards ever downwards in US dollar terms that may seem a counter-intuitive remark to make.

But the Australian currency has lost around 30% of its value against the US dollar since 2011, a decline which has had a hugely beneficial impact on the cost bases of the Aussie miners.

Whether it’d be worth repatriating any of that cheaper money to the UK remains an open question, but since the plan is more about growth than yield at the moment, not one that the company will have to face any time soon.

Perhaps more pertinent is a passing remark from Dave Reeves that similar opportunities might be on offer elsewhere.

That, combined with his assertion that that a bigger deal might be on the cards sometime soon, certainly marks Ferrex out as a company to watch, after a prolonged period of relative quiet.

More immediately, though, the plan is to have the Norton operations up and running by the second quarter of next year.

At that moment, the first stage of Ferrex’s rebirth will be complete.
 

 

BenevolentAI advances novel ulcerative colitis treatment through Phase 1a trial

BenevolentAI (OTC:BAIVF) chief scientific officer Dr Anne Phelan joins Proactive's Stephen Gunnion with positive safety data from the Phase 1a, first-in-human, clinical study of BEN-8744 in healthy volunteers. Phelan explained that BEN-8744 is a potent, selective PD10 inhibitor, uniquely...

17 minutes ago