Royal Resources inks watershed MOU with Sin-Tang to fast track...

Royal Resources inks watershed MOU with Sin-Tang to fast track Razorback iron project
Thursday, October 08, 2009 Australian magnetite explorer Royal Resources (ASX: ROY) received a giant shot in the arm today, after it inked a memorandum of understanding with Singapore based investment
and trading company, Sin-Tang Development Pte Ltd.

The agreement is expansive toward fast-tracking development of the Razorback iron project in South Australia via a joint venture with Sin-Tang.

And investors liked the vision, pushing the Royal share price up by 42.5% at one stage.

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Subject to shareholder approval, Sin-Tang will also receive an additional 5 million ordinary shares in Royal at a 15 cents per share; an additional 5 million shares in Royal at 10 cents per share and 3.3 million new options with an exercise price of 10 cents each and an expiry date of 31 October 2011.

Royal will undertake initial resource assessment at Razorback.

On Royal defining a minimum 250Mt of Inferred Resource, Sin-Tang will pay A$10 million into the JV to earn a 13.64% interest in the JV. The funds will be used by the JV towards the completion of a Pre-Feasibility Study and further resource definition drilling of the deposit.

A A$20 million payment will be made by Sin-Tang to the JV once the PFS is delivered to earn an additional 18.18% interest in the JV. A final A$20 million payment will be made by Sin-Tang to the JV on the delivery of the BFS to earn an additional 18.18% interest in the JV. These funds are to be used to pay the final A$20 million consultancy fee to FeRUS. Sin-Tang will have earned 50% of the JV.

Royal acquired Razorback from Mintech Resources, which was 97 per cent owned by former politican Peter Lewis, for $5 million.

Mr Lewis has said in the past that estimates based on state government exploration drilling in the 1960s put the amount of iron ore at Razorback in the vicinity of 220 million to 230 million tonnes.

Royal has stated that it would be targeting 500 million to one billion tonnes of ore, as the basis for a 10 million tonne a year mining operation at 25% to 65% Fe.

In addition, Royal has secured the lease over the deposit in addition to in excess of 1,450 square kilometres of surrounding leases held by Goldus Pty Ltd. Further upside for Royal investors exists via the Goldus ground, with over 100 strike kilometres of untested magnetite host rock.

The acquisition provides Royal with a real prospect of developing a near term major megnetite ore body in Australia, close to existing open access under-utilised rail and port. The project occurs only 40 kilometres to the south of the Broken Hill to Port Pirie section of the Indian-Pacific railway and 170 kilometres north-east of Port Pirie.

With the port one of few that is under-utilised in Australia, potential appears strong for early export of iron concentrate.

Clearly, access to existing infrastructure sets Royal's Razorback apart from many other budding magnetite projects in Australia. This should entail less future capital expenditure and faster project development for Royal hareholders.

Contaminant elements, such as alumina, phosphorous, and titanium are also low, rendering potential Razorback product very attractive to end-user steel makers.

And a near-zero stripping ratio and potentially good rock fragmentation also suggests a low mining cost.

With execution of the MOU, Royal should be able to fast track both resource development drilling and feasibility studies. And a better than even chance of bringing Razorback into production in a short time span, with commodity timing at its back.