ASX ANNOUNCEMENT 21 March 2007 The Manager Company Announcements Office Australian Stock Exchange Limited 4th Floor, 20 Bridge Street SYDNEY NSW 2000 Dear Sir/Madam AUSTRALASIAN CONCLUDES LANDMARK PROJECT FINANCING AND DEVELOPMENT AGREEMENTS WITH MAJOR CHINESE STEEL PRODUCER FOR AUSTRALIAN IRON ORE PROJECT Highlights • Share subscription agreements executed with entities associated with major Chinese steelmaker, Shougang Corporation to raise A$56 million with attaching options to raise a further A$42 million on exercise. • Project Agreement executed with Shougang Holding (Hong Kong) Limited (“Shougang Holding”) to complete studies suitable for the financing and development of its major Balmoral South Iron Ore Project (“Project”) in the Pilbara region of Western Australia. • Following an election to proceed with full-scale project development, Shougang Entities shall: - finance 100% of the Project funding (estimated at US$2.1 billion) through an interest free project loan; - guarantee the purchase of 100% of iron ore products from the Project; and - construct the Project via a related Shougang entity or guarantee construction by other suitable constructor. • Poised for reinstatement to trading on the ASX. Australasian Resources Ltd (“Australasian”) is pleased to announce that it has entered into landmark agreements with entities associated with major Chinese steelmaker, Shougang Corporation, for the development of its major Balmoral South Iron Ore Project (“Project”) in the Pilbara region of Western Australia. Shougang Corporation and its associated companies are among the largest steel producers in China and have significant long-term experience and technical expertise in the construction and operation of iron ore concentrate and pellet plants. The agreements, coupled with Shougang and Australasian’s respective capabilities, provide a solid platform to progress the world-class Balmoral South Iron Ore Project in a way that enhances value and minimises risks for Australasian shareholders. Australasian Resources Limited Page 2 Key agreements: • Share and option subscription agreements for the issue of 56 million shares and 28 million options in Australasian; and • A Project Agreement governing each party’s roles and obligations for the ensuing study period, the subsequent financing conditions, provision of a construction contract, offtake agreements, the acquisition by Shougang Holding’s subsidiary of a 50% interest in International Minerals Pty Ltd (“IM”) and a joint venture agreement governing the joint ownership of IM; Further details of these agreements are provided below. Parties to the Agreements Australasian, and its wholly owned subsidiary IM, have entered into agreements with Shougang Holding, and a subsidiary of Shougang Holding (together the “Shougang Entities”), APAC Resources Limited (“APAC”) and Timefull Investments Limited (“Timefull”), a wholly owned subsidiary of Shougang Concord International Enterprises Company Limited (“SCIEC”),. • Shougang Holding is 100% owned by major Chinese steelmaker, Shougang Corporation; • Shougang Corporation is a major Chinese steelmaker that is based in Beijing and is owned by the Chinese government; • APAC is a Hong Kong Stock Exchange listed company, 18% owned by Shougang Holding (Hong Kong) Limited; and • SCIEC is a Hong Kong Stock Exchange listed entity owned approximately 47% by Shougang Holding; Timefull is a wholly owned subsidiary of SCIEC; and • IM is a wholly owned subsidiary of Australasian that holds Australasian’s interest in the Project. Australasian recently completed the purchase of IM from Professor Clive Palmer earlier this year. A$56 million Placement Australasian has entered into share and option subscription agreements with each of APAC and Timefull to raise a total of A$56 million (A$28 million each) for Australasian, through a placement of 56 million Australasian shares at A$1.00 each (representing 12.8% of Australasian’s expanded issued capital) with 28 million free attaching options exercisable at A$1.50 each within 3 years from date of grant (“Options”). The exercise price of the Options has been struck at a premium of approximately 30% to Australasian’s last closing price and have the potential to inject a further A$42 million into the Company in the next three (3) years. The placement funds will be utilised to: • fund the outstanding studies on the Project by contributing A$15 million; • repay the working capital loan from Mineralogy Pty Ltd, which is currently drawn down to A$2 million; • payment of stamp duty assessed (if any) on the acquisition by Australasian of IM; and • provide general working capital and funds for progressing Australasian’s other projects, including its Sherlock Bay Nickel Project whose economics have improved substantially due to a successful acid test work program and the higher nickel price. Australasian Resources Limited Page 3 The Placement to APAC Under the APAC share subscription agreement, APAC will deposit their A$28M of subscription funds into a special deposit account held by Australasian within the next 5 days. The placement will then be completed and funds released upon confirmation from the Australian Stock Exchange (“ASX”) that subject only to the completion of the placement to APAC, all other conditions for the reinstatement to quotation of Australasian shares to the ASX have been met. Upon completion of the placement to APAC, APAC will have the right to nominate a director to join the Australasian board. APAC have not yet advised Australasian who their nominee will be. The Placement to Timefull (SCIEC) Under the Timefull share subscription agreement, the placement to SCIEC’s subsidiary Timefull is subject to both Foreign Investment Review Board (“FIRB”) notification and Australasian shareholder approval (as the total placement shares and Options will together comprise over 15% of Australasian’s current issued capital). Upon satisfaction of these conditions, which are expected to be occur within 2-3 months of this announcement, A$28 million subscription funds will be received from Timefull and the placement completed. Following completion of the placement, Australasian will have a total of 439.8 million shares on issue and APAC and Timefull will each have an interest in 6.4% of Australasian’s expanded issued share capital on an undiluted basis. Project Agreement The Project Agreement between Australasian, IM and the Shougang Entities provides for the following matters: • the Shougang Entities shall be entitled to appoint two (2) members to the Board of IM and Australasian shall appoint four (4) members on the Board; • IM shall establish an operating committee (with equal representation by Australasian and the Shougang Entities); • for a period of up to 15 months, IM shall undertake studies suitable for the financing and development of the Project, including a full turn key construction proposal. Following an election to proceed with full-scale project development, within a maximum period of 18 months from the signing of the Project Agreement: • the Shougang Entities, Australasian and IM shall enter into a shareholders agreement which will govern the operations of IM during the development and operation of the Project; • the Shougang Entities shall appoint three (3) directors to the board of IM and Australasian shall appoint three (3) directors to the board of IM; • the Shougang Entities shall acquire a 50% interest in IM by fully funding the development of the Project (estimated by Australasian at US$2.1 billion) through an interest free project loan to IM that is repayable only out of set percentages of the Project’s free cash flow; • the Shougang Entities shall guarantee the purchase of 100% of iron ore products (5 Mtpa of pellets, 5 Mtpa of concentrate and 1.5 Mtpa of Hot Briquette Iron (“HBI”)) for 25 years based on world benchmark iron ore prices, pursuant to offtake agreements in an agreed form; Australasian Resources Limited Page 4 • IM shall enter into a construction contract for the Project; the construction contractor shall be a related entity of Shougang Corporation or other suitable contractor whose performance is guaranteed by the Shougang Entities; • Shougang Holding or its nominee shall execute a marketing agreement with IM which will provide for the payment of 2.5% of the FOB value in relation to all production from the Project. Upon the election to proceed, APAC will be entitled to receive a commission fee of US$1 per tonne of product under a commission agreement between IM and APAC. These agreements confirm Australasian’s view of the merits of the Balmoral South Iron Ore Project and provide a mechanism for Shougang Entities to secure a long term supply of high quality iron ore products at an attractive total cost that is independent of the major producers. The Balmoral South Project As set out in previous announcements by Australasian, the Balmoral South Iron Ore Project comprises rights to mine 1 billion tonnes of magnetite iron ore from part of the Susan Palmer deposit within the larger Balmoral deposits in the Pilbara region of Western Australia. The current proposed development plan involves the production and export as final products of 5 Mtpa of iron ore concentrate, 5 Mtpa of iron ore pellets and approximately 1.5 Mtpa of HBI. This is after allowing for the internal usage of concentrate for pellets and pellets for HBI. The Project has a number of key competitive advantages, including: • a coastal Pilbara location, which enables conveying of products to port and which is close to Asian markets; • indications from metallurgical test work that iron ore products with very high iron content (+70% Fe concentrate grade, 68% Fe pellets) and low impurities could be produced from the Project’s magnetite iron ore and the proposed processing facilities; • favourable infrastructure access including conditional rights to shared use of a proposed port under an infrastructure sharing agreement between IM and Mineralogy Pty Ltd and positioning adjacent to a major gas field on the North-West shelf; • the ability to produce high quality pellets and the availability of competitively priced natural gas allows the production of value added iron products such as Midrex HBI briquettes; • being party to a State Agreement in respect of the Project; and • the ability to fast track the Project feasibility and development as Australasian will have access to the extensive feasibility work already completed by Mineralogy on the adjoining George Palmer deposit and extensive work completed by Australasian over the last 15 months. Australasian has already delineated a Mineral Resource in excess of 1.1 billion tonnes and announced a 346 Mt Ore Reserve estimate in accordance with JORC guidelines. A significant update to the Ore Reserve is expected shortly. Shougang Corporation and its associated entities Shougang Corporation is a major Chinese steelmaker that is based in Beijing and is owned by the Chinese government. Shougang Entities currently import over 20 million tonnes of iron ore into China for use in their steelmaking facilities and are in the process of developing a substantial new integrated steelmaking facility on a large site at Tangshan, on the northern China coast. Construction at Tangshan has commenced and will produce close to 10 Mt of steel a year starting in 2010. Australasian Resources Limited Page 5 The principal Shougang Entity that is party to the Project Agreement is Shougang Holding (Hong Kong) Limited, which is 100% owned by Shougang Corporation. SCIEC is a company listed on the Hong Kong Stock Exchange and has substantial assets and operations in their own right. Shougang Holding currently owns 47% of SCIEC issued shares. The wholly owned subsidiary of SCIEC, Timefull is the party completing the share and option placement with Australasian. APAC is a company listed on the Hong Kong Stock Exchange which is building a portfolio of steelmaking raw material assets and investments. Shougang Holding currently hold approximately 18% of APAC’s issued shares. APAC has an interest in approximately 19% of the ASX listed Mt Gibson Iron Ore Limited. APAC has also recently entered into an agreement for the acquisition of a significant iron ore deposit in Mongolia. APAC is the party completing the share and option placement with Australasian, but is not a party to the Project Agreement. APAC will receive a commission assuming the project commences production through a formal commission agreement. Board restructure In parallel with the process of concluding the transactions with Shougang, the composition of the Australasian Board was critically appraised in order to best suit the Company’s requirements. During the period between 8 March 2007 and the execution of the abovementioned agreements, a series of changes were made to the Board. The Board now comprises: Mr Dominic Martino Chairman Mr Clive Mensink Deputy Chairman Mr Darren Hedley Managing Director Mr Paul Piercy Non-executive Director Mr Vimal Sharma Non-executive Director Upon completion of the placement to APAC, APAC will have the right to nominate a director to join the Australasian Board. APAC are yet to advise who the nominee will be. As a consequence of these changes, Mr Ian Love leaves the Board and the Company would like to thank him for his valuable contribution. The Company would like to welcome Mr Vimal Sharma to the Board. Mr Sharma manages Mineralogy's Western Australian operations which involves various iron ore and mineral resources. He plays key roles in planning corporate strategies to maximise returns from projects. Mr Sharma has over 20 years experience in both the public and private sectors in a variety of national and international trade, investment and business development portfolios. Mr Sharma has also set up and conducted product development and quality control and marketing for numerous enterprises including in the mining and manufacturing sectors. Reinstatement to Trading on the ASX With substantial funding in place, Australasian will now seek for its shares to be reinstated to trading on the ASX. This will principally involve the completion and release of a prospectus or information memorandum containing full details on the company, including on the agreements with APAC and Shougang Entities. This prospectus style document is well advanced and Australasian expects that its shares will be reinstated to trading within the coming weeks. Australasian’s board and management would like to thank shareholders for their patience while these agreements were negotiated and welcomes APAC and SCIEC as major new shareholders. Australasian Resources Limited Page 6 Australasian looks forward to working with the Shougang Entities to rapidly progress the Balmoral South Iron Ore Project towards development and to add further value for shareholders through its suite of other quality projects. Any queries can be directed to Darren Hedley on +618 9322 2288.
ARH Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
