[miningmx.com] – DIVERSIFIED mid-tier mining company, Petmin, is to invest R86m ($8m) in North Atlantic Iron Corporation (NAIC) taking its shareholding to 40% ahead of listing the company and unbundling the firm to shareholders.
Funding for the increase in investment would be from Petmin’s own resources, the company said in an announcement to the Johannesburg Stock Exchange (JSE). Further funds for NAIC would be raised by the company itself.
“To this end, Petmin is contemplating exchanging its 40% in NAIC for 40% of the shares in a Canadian company which will own 100% of NAIC and will be listed on the TSX (Toronto Stock Exchange) and JSE,” it said.
“Should this occur, Petmin intends to unbundle these shares to its shareholders,” it said, adding that Petmin directors would continue to be involved in the business which intends producing merchant pig iron from operations in the US, or Canada.
Petmin said in September 2012 that NAIC was its preferred development play and that it could be developed into a 500,000 tonnes/year producer in a market of 70 million tonnes a year (mtpa) to 80mtpa.
However, Ian Cockerill, a non-executive director of Petmin, said that while the asset was interesting, the decision to unbundle the investment was based on the view its profile didn’t suit Petmin shareholders.
Asked if NAIC was likely to be cash-hungry, Cockerill said: “It’s more a question of Petmin being a mature, cash-flow generating business. That appeals to a certain type of investor,” he said. “And in all honesty, Petmin’s share price doesn’t get any value for NAIC,” he added. Shares in Petmin are down 23% on a one-year return basis.
Based on a recent smelt campaign, NAIC is hoping to produce between 810,000 to 870,000 tonnes of merchant pig iron at some 25% the current lowest cost producer. It expects to meet Petmin’s 20% internal rate of return based on a preliminary economic assessment which is due to be published at the end of March.
Cockerill said, however, that Petmin wanted to focus on potential growth in the South African thermal coal market. “We are still interested in the steel value chain but at the moment prices are not where we’d like them to be. If we get involved in the thermal coal business it will give us greater flexibility,” he said.
Petmin’s main asset is its Somkhele anthracite mine which it has expanded over the years to 1.2mtpa from 250,000 tonnes/year. As part of its latest expansion, it has been able to extract some 400,000 tonnes of thermal coal.
“The recovery yield from Somheke is about 40%, but without increasing overheads we can get thermal coal recoveries of 60% plus,” he said. “The construction and running of Plant 3 at Somkhele has been a technical and a financial success,” he said.
Petmin shares NAIC with Grand River Iron Sands, a North American company. It has declined to take up the full option to increase its total stake to 49.9%. Petmin has spent R144m to date on NAIC – an investment motivated by a desire to diversify into the steel feed market which includes ferrous metals.
