14th Oct 2015 08:25
LONDON (Alliance News) - Ferrum Crescent Ltd Wednesday said it has entered into a legally binding farm-in and joint venture agreement with Business Venture Investments No. 1709 (Proprietary) Ltd to complete the bankable feasibility study for the Moonlight iron ore project in South Africa.
As a result, the previously signed memorandum of understanding with Principle Monarchy Investments (Proprietary) Ltd has been terminated. Ferrum was set to bring Principle Monarchy into the project to complete the study, but waited several months for the first payment from the company, which in the end was never received.
Business Venture Investments is a sister company of South African black-economic-empowerment investment house Ovation Capital.
Under the agreement, the pair will complete the bankable feasibility study for the project, which will be fully funded by Business Venture Investments in return for a 43% stake in the project. Work on the first phase will start during the fourth quarter of 2015.
Although investors will welcome the company's move to secure a partner, Ferrum is giving away 43% of the project equity compared to the 39% equity it had agreed to give to Principle Monarchy.
"It has been a very long road in extremely difficult market conditions but finally we now have a fully committed and binding agreement in place for completion of the Moonlight project bankable feasibility study," said Ferrum Managing Director Tom Revy.
"Restarting of the bankable feasibility study phase one activities should commence by the end of 2015, and I look forward to reporting on a regular basis as to the status of the project as the various planned key BFS milestones are progressed," he added.
Business Venture Investments will complete a capital and operating cost study for Moonlight under the first phase, which must be completed within 12 months. Once completed, it will be awarded a 14% stake in Moonlight.
Importantly, Ferrum has the option to plough ZAR8.3 million into the first phase work, which would result in Business Venture Investments only being awarded a 10% stake.
Business Venture Investments will then move into the second phase, when it will complete a more detailed financial study on the project which can be used by Ferrum to secure finance to begin building the project. It will have 24 months to complete the second phase and it will be awarded a 29% stake in the project.
That means Business Venture Investments will hold between a 39% and 43% stake in the project if it completes both phases of work, dependent on whether Ferrum implements its option to contribute some funds into the first phase. If Ferrum took that option, the 39% stake held by Business Venture Investments would match the 39% stake Ferrum planned on giving Principle Monarchy under the terminated deal.
The deal with Principle was signed back in May, and the first payment due from Principle of ZAR2.0 million, which would have made the deal legally binding, was due to be received by the start of June but still had not been received by Ferrum as of Wednesday, leading it to terminate the deal in favour of Business Venture Investments.
Ferrum shares were trading up 8.4% to 0.515 pence per share on Wednesday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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