Alderon Iron Ore
Big news in my space this week was the Labrador Trough deal struck by Alderon Iron Ore (AXX) with China’s top steel producer, Hebei Iron & Steel Group. The deal will give Hebei, through a private placement, a 19.9 % stake in Alderon; Hebei will also get a 25% interest in a new limited partnership that will be established to own Alderon’s flagship Kami project. Hebei additionally obtains the right to buy 60 percent of the iron ore produced annually from Kami, for the first fifteen years of the mine’s life. The Kami is expected to go into production in 2015.
For its part, Alderon gets both the capital for development costs and the China market access to bring the Kami to production. Hebei has agreed to assist in obtaining debt financing for the Kami project from financial institutions, including Chinese banks, and to share uncovered costs. Upon the closing of the private placement, Hebei will be entitled to nominate two directors to Alderon’s board. Alderon will be the manager of the Kami Project and will receive a fixed annual management fee during the construction period of the project. Once the Kami Project has reached commercial production, Alderon will receive a management fee on a per tonne of iron ore concentrate basis.
This is Hebei’s first significant overseas investment. Hebei is paying C$3.42 a share for its stake in Alderon. The price of C3.42 a share represents a 0.6% discount to the share price during the previous five days. In effect, shareholders such as myself forfeited a premium in order that Alderon would be able to meet all of its needs in one go: equity investment into the listed company, capital investment into the project, access to further debt finance and a long-term off-take agreement for the end product. Since it is now difficult to identify catalysts that might move share price up in the near to intermediate term, I suspect that my Alderon investment has become dead money for the time being.
Alderon was co-founded by Altius Mineral (ATUSF), which owns 32.9 million Alderon shares and a 3 percent gross sales royalty on the Kami project.
On Jan. 13, 2012 Liberty Metals & Mining Holdings (“LMM”) purchased, on a private placement basis, 14,981,273 common shares of Alderon at a price of C$2.67 per share, for a total subscription price of approximately C$40,000,000. Liberty Metals & Mining Holdings has indicated that it intends to exercise its pre-emptive right to maintain its 15.02% proportionate interest in the Company following the private placement. Upon closing of the private placement, Hebei will acquire approximately 25,828,305 common shares for gross proceeds to the Company of C$88,332,804, representing 19.9% of the issued and outstanding shares of Alderon, after giving effect to such issuance and the exercise by LMM of its pre-emptive right, and LMM will acquire approximately 3,805,576 common shares at the Subscription Price for additional gross proceeds to the Company of C$13,015,070. On Jan. 13, 2012 Liberty Metals & Mining Holdings purchased, on a private placement basis, 14,981,273 common shares of Alderon at a price of C$2.67 per share, for a total subscription price of approximately C$40,000,000.