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Fe Limited aims to add $7 million to bank balance with sale of iron ore royalty

The proposed sale to a Trident Resources subsidiary will be put to a vote of shareholders at a general meeting next month.

Fe Limited - Fe Limited aims to add $7 million to bank balance with sale of iron ore royalty
The Evanston iron ore royalty is over part of the Koolyanobbing mine

Fe Limited (ASX:FEL) is seeking to add $7 million in cash to its bank balance through the proposed sale of the Evanston royalty interest over a portion of the wider Koolyanobbing Iron Ore Mine in WA.

After consultation with the ASX, the company will seek the approval of its shareholders to the sale at a general meeting on May 22, 2020.

This is one of the conditions of a sale and purchase agreement signed last month with TRR Services Australia Pty Ltd, a wholly-owned subsidiary of Trident Resources PLC (LSE:TRR).

Sale would provide certainty

If approved, as expected, the sale will provide certainty over the company’s financing position as the royalty stream is variable and depends on a range of factors such as the iron ore price, currency and production rates over which FEL has no control.

The agreement provides for cash consideration to be paid in two instalments with the first $4 million payable upon completion of the transaction and the remainder payable one day after the first anniversary of completion.

FEL’s Evanston iron ore royalty is a 1.5% dry metric tonne, FOB royalty over two tenements, one of which is within Mineral Resources Limited’s (ASX:MIN) Koolyanobbing project in the Southern Yilgarn Iron Province.

This tenement covers one of the current pits in the Koolyanobbing Iron Ore Project, known as Deception.

FEL has received a total of $1.829 million in the last 12 months from the sale of 1.228 million tonnes following the recommissioning of the mine in December 2018.

Sale “in best interests”

The company is of the view that royalty streams are often undervalued when held as a non-core asset in a vehicle focused on other assets such as FEL is with its Pilbara exploration portfolio.

It believes that specialist royalties funds, such as Trident, tend to attract shareholders who are more comfortable with that type of investment and value it more fully.

As such, FEL directors believe that following an assessment of the advantages and disadvantages, the sale of the Evanston royalty is in the best interests of the company.

Potential advantages

Apart from providing financial certainty, potential advantages of approving the resolution are:

  • The transaction provides the company with $7 million in cash (before costs associated with the transaction);
  • The transaction will allow the company to consider other acquisitions which may increase shareholder value; and
  • The transaction provides the company with working capital to explore its prospective Pilbara landholding, including following up the recent copper drilling program completed at Hillside.

FEL’s general meeting will be held at 9am (WST) on Friday, May 22, 2020, at 32 Harrogate Street, West Leederville, Western Australia.

In light of COVID-19 restrictions, shareholders are encouraged to attend the meeting by proxy or virtually.

Quick facts: Fe Limited

Price: 0.024 AUD

ASX:FEL
Market: ASX
Market Cap: $11.74 m
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