12/06/14 – Petmin to up its stake in Canadian pig iron project

CAPE TOWN – Diversified miner Petmin announced on Wednesday that the pre economic assessment conducted on its Canadian pig iron joint venture had produced positive results. The board has therefore approved a further investment into the project.

Petmin has already invested R210 million for a 32.5% stake in the North Atlantic Iron Corporation (NAIC), which was set up to develop a low-cost pig iron business in Newfoundland. It will now be investing a further $6 million to lift its interest to 40%.

Once this transaction is completed, Petmin will exchange its entire stake for 40% of Canadian Stock Exchange-listed Musket Minerals Incorporated (MMI). MMI is the primary shareholder in Grand River Iron Sand, Petmin’s joint venture partner. Once the transaction is completed, MMI will also seek a secondary listing on the JSE.

To unlock value for its shareholders, Petmin will distribute its MMI shares, which will be worth around R300 million, through a special dividend before the end of this year. The dividend will be approximately 50 cents per share.


The venture

Petmin said that the project in Labrador aims to produce 810 000 tonnes of pig iron a year from the mineral sands mined in the nearby Goose Bay deposit, or around 915 000 tonnes a year using iron ore fines purchased from other producers.

Its projections are that it will be able to produce the pig iron at $305 per tonne. This is as much as 25% lower than its principal competitors, which deliver cost ranges between $375 per tonne and $425 per tonne.

The low cost projections are due to the low cost of the raw material, the potential for favourable electricity prices from a nearby hydropower plant, and its proximity to markets. Currently North American steel mills import most of their pig iron from Brazil and Russia.

The pre economic assessment showed a potential after tax investment rate of return for the project of 19.3%.

“Petmin is creating value from a high potential opportunity driven by what we see as the reindustrialisation of the US, where we are accessing extremely cost-competitive energy and industrial incentives to deliver merchant pig iron to the US market at the bottom end of the cost curve,” said Petmin business development director Bradley Doig, who is responsible for NAIC.

Petmin added that it will continue looking around the world for quality projects that produce commodities used in the steel industry. Apart from NAIC, it is already involved in exploration and development projects relating to iron ore in Liberia, copper and zinc in Turkey, and pig iron in South Africa.


Source – Moneyweb