iron ore update, page-24

hey rizzla;

AVB has worked in some protective mechanisms to prevent a low ball offer. The way it works is that AVB has already banked a $350k fee on receipt of drill permissions. Vale then had the obligation to drill 2,500m within 1 year (they have drilled 2,600m) which they have now met.

For Vale to continue, they must now pay $US600k to extend the option for 1 year and $US1m to extend the option for an additional year. So the receipt of the $US600k is significant.

Post the receipt of the option fee, Vale will then pay Avanco a royalty for any in-situ JORC compliant iron ore resources in the measured and indicated categories. So this is solely based on results.

If a royalty & option fee of at least $US10m is paid following drilling/JORC, then finally Vale will have 'satisfied conditions precedent' and will have earned the right to complete the acquisition for sole ownership of Trindade North. This fee is capped at a maximum value of US$40m.

So the acquisition fee is a function of the resource discovered with at least $US10m worth needing to be found before Vale is in the game.

So at this stage all you can bank on is an additional $US600k - this assumes Vale management are as pleased with the results as Tony & Co!

From the original announcement.
'1. For a two year option term, Vale will pay Avanco a non-refundable fee of US$350,000 on signing and receipt of regulatory permissions to drill.
2. Vale should drill at least 2,500m at Trindade North within the first year.
3. After one year Vale must pay Avanco US$600,000 for the second year. To retain and extend the option for a third year, Vale must make a further payment of US$1,000,000 to Avanco.
4. Based on drilling results Vale will pay Avanco a royalty for any in-situ JORC compliant iron ore resources in the measured and indicated categories.
5. On Avanco receiving funds from Vale inclusive of 1, 3 and 4 (above) estimated at US$10,000,000 or more, Vale will have satisfied conditions precedent and will have earned the right to complete the acquisition for sole ownership of Trindade North. The total sum of all qualifying payments to Avanco is capped at a maximum value of US$40,000,000.
6. In the event economic mineralisation other than iron ore is discovered, both parties will renegotiate terms with Vale retaining preferential rights to first refusal.
7. Avanco can elect a representative to participate in the exploration programme. '