Flinders Mines (ASX:FMS) has announced it has entered into an agreement with the Todd corporation whereby the latter will purchase an option to acquire Flinders’ Pilbara Iron Ore Project (‘PIOP’). Todd will be paying A$10M in cash to secure the option which can be exercised by paying a lump sum of A$55M for a total acquisition price of A$65M. On top of that, Flinders will be entitled to receive up to A$1.40 per tonne of produced iron ore, depending on the iron ore price but with a minimum payment of A$0.60 per tonne.
Todd will have to decide by the end of 2016 whether or not it wants to exercise the option, but Flinders Mines could give Todd twice a two year extension in return for anonther A$10M payment per extension.
This seems to be a very fair deal, especially when looking at the recent shaky history of the iron ore price, this deal is as good as it gets for an iron ore project in this market. Flinders’ shareholders will have to approve this transaction during a shareholders meeting, but we’d expect this vote to be a non-event.
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Disclosure: The author holds no position in Flinders Mines. Please see our disclaimer for current positions.
