Fe Limited (ASX:FEL) has received strong validation of its iron ore production strategy at the JWD Iron Ore Project in Western Australia with leading global trading house Glencore executing an offtake agreement for 100% of the product.
Glencore International AG has signed an exclusive agreement with FEL subsidiary Wiluna FE Pty Ltd for all of the product, including iron ore lumps and fines, over the life of the company’s operations at JWD.
FEL executive chairman Tony Sage said: “We are pleased to have secured a major company such as Glencore as our offtake partner for JWD.”
US$7.5 million prepayment
The terms will see Glencore provide FEL with a US$7.5 million prepayment within five working days of signing to assist in meeting the company’s working capital requirements during the JWD ramp-up phase.
This prepayment will be repaid by FEL in five instalments of US$1.5 million, plus applicable interest, from shipments two to six, or within six months of the prepayment being received, whichever is the earlier.
“Great vote of confidence”
Sage added: "It is a great vote of confidence in our project and the team, particularly given they have been willing to make a prepayment.
"The prepayment facility will provide us valuable liquidity as we ramp up our operations to full capacity.”
Sales to Glencore will occur on a Free on Board basis and this will further assist FEL’s cashflow in that it will not have to fund the cost of freight.
The agreement is an agency style arrangement whereby Glencore funds the purchase of the product upfront and the parties work together to optimise placement of the product with end-users to achieve the best price.
This process will utilise Glencore’s substantial global distribution capability, supplemented by existing relationships between end-users and the FEL team.
Operations ramping up
JWD operations are continuing to ramp up toward full capacity with finished product stocks accumulating at the Port of Geraldton in advance of the company’s first export shipment.
This comes after FEL made the first haulage of iron ore from JWD to Geraldton Port earlier this month.
Haulage operations are being carried out by David Campbell Transport Pty Ltd on a 24/7 basis with the contract allowing for the transportation of at least 1,200 tonnes of JWD product per day, making up around 60% of the intended initial volumes.
Loading of the company’s first shipment at the port is targeted for the second half of August.