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Fe Limited exercises option to lift JWD interest to 60% in strong iron ore market

Published: 12:01 28 Jul 2021 AEST

Fe Limited exercises option to lift JWD interest to 60% in strong iron ore market
Earlier this week the company signed an offtake agreement with Glencore International AG.

Fe Limited (ASX:FEL) has increased its exposure to the producing JWD Iron Ore Joint Venture in Western Australia during a strong iron ore market by lifting its interest in the project to 60%.

The company has exercised its option to purchase an additional 9% interest in the JV for consideration of A$2.5 million after receiving shareholder approval at an Extraordinary General Meeting on July 12, 2021.

This approval allowed FEL to issue equity to complete the transaction with the company settling payment via the issue of 43,859,649 shares.

A $1 million refundable deposit has now been repaid by the JV partner to FEL and the shares have been issued.

“Further exposure”

FEL executive chairman Tony Sage said: “With our JWD operations progressing well and iron ore prices remaining high it was a simple decision for us to exercise our option to increase our JWD interest to give our shareholders further exposure to this exciting project.”

Glencore offtake

This follows hot on the heels of the company this week executing an offtake agreement with leading global trading house Glencore for 100% of the product from JWD.

Glencore International AG 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.

READ: Fe Limited (ASX:FEL) has “great vote of confidence” through Glencore offtake contract for JWD iron ore products

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.

“Vote of confidence”

Sage said: “We are pleased to have secured a major company such as Glencore as our offtake partner for JWD.

"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.

This 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.

The offtake arrangement with Glencore is subject to GWR Group (ASX:GWR) (ASX:GWR) Ltd’s existing right to elect to purchase up to 50,000 tonnes of fines product at the mine gate.

Shares trend higher

On the back of strong recent news flow, including the start of production, FEL shares have been trading higher.

Today securities have been as much as 4.8% higher to 11 cents and since the start of July have traded from 5 cents up to 13.5 cents, a new high of more than 10 years.

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