(MENAFN- ProactiveInvestors)
() has banked in the first royalty cheque from Timis Mining Corporation in relation to the Marampa Iron Ore Mine that could total A$12 million this year.
The payment of A$400000 was received for the first shipment of iron concentrate in December 2014.
Another $3 million royalty cheque is due in the March quarter.
This follows the acquisition of the mine by Timis Mining from the administrators of Plc in November 2014.
In October 2014 CFE had entered in to a $20 million funding agreement with Timis Mining to assist with the latter’s acquisition of the mine.
This included the US$12 million purchase of a US$2 per tonne royalty – payable on a quarterly basis – from iron concentrate exported from Timis Mining’s Marampa mine.
Timis also has exclusive rights to purchase 100 million tonnes of oxide material from Cape Lambert’s neighbouring Marampa Project.
The price at which the oxide material will be purchased from Cape Lambert is expected to be in the range of US$3 to US$5 per metric tonne potentially earning Cape Lambert between US$300 million and US$500 million over the life of the mine.
“Our first royalty from Timis Mining represents a significant milestone” executive chairman Tony Sage said.
“The Timis Mining Marampa Mine is planning to produce and sell 5.9 million tonnes of iron concentrate in 2015 which means a potential royalty income stream to Cape Lambert of $12 million for this year.
“The next royalty payment due to Cape Lambert is for the March 2015 quarter and forecasted to be approximately $3 million and will be received in April.”
Timis Mining Agreement
In October CFE agreed to provide Timis Mining with a US$8 million Bridging Facility and also paid US$12 million for the royalty.
The Bridging Facility is repayable in 12 months and incurs interest of 3 month US LIBOR (London interbank offered rate) + 6%.
This principal and interest will be repaid to Cape Lambert in one payment at the expiry of the 12 month loan period and can be extended by the parties on mutually agreed terms.
Oxide Ore Sale
Cape Lambert has also negotiated the sale of oxide material from its Marampa Project to Timis Mining or a greater amount as determined by further drilling of Cape Lambert’s other Sierra Leone Projects.
The project is located adjacent to the Marampa Mine.
Under the terms of the Agreement Timis Mining will have exclusive rights to purchase 100 million tonnes of oxide material or such greater amount as defined by further drilling from Cape Lambert’s other Sierra Leone Projects.
The price at which the oxide material will be purchased from Cape Lambert is expected to be in the range of US$3 to US$5 per metric tonne potentially earning between US$300 million and US$500 million over the life of the mine.
A drilling campaign to increase the upside of Cape Lambert’s oxide resources is planned to begin 12 months after Timis Mining commences mining at Cape Lambert’s Sierra Leone Projects.
This drilling campaign together with any costs associated with mining operations will be borne by Timis Mining and not Cape Lambert.
Analysis
With the receipt of the first royalty cheque from Timis Mining Cape Lambert is now a compelling ASX investment as an "annuity" income producing entity with exposure to additional development assets.
The company is poised to receive up to $12 million this year and potentially US$56 million (A$70.7 million) over the next four years.
Coupled with its cash on hand and deposits at call of $16.7 million it is clear that at its market cap of circa $46.4 million CFE is highly undervalued given the net present value of future income payments.
The re-tracement is share price to $0.074 provides a re-entry opportunity.
To top it off there is further growth in the pipeline through the sale of oxide material to Timis Mining which could result in earnings of between US$300 million and US$500 million over the life of its Marampa Project.
The recent on market buy back of shares by Cape Lambert will also tighten issued capital providing a platform for price appreciation.
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