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Ironsands miner Trans Tasman eyes capital-raising of up to US$500M by mid-2014

Thursday 28th November 2013

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Trans Tasman Resources, which plans to mine ironsands off the southern Taranaki coast, is preparing to raise as much as US$500 million in debt and equity from a combination of existing and new shareholders, and prospective Chinese customers in mid-2014.

TTR chairman and chief executive Tim Crossley told BusinessDesk the company has just completed an interim capital-raising of US$11 million from existing shareholders to complete both project design and the approvals processes now under way for a mining permit and resource consents.

Assuming it gets the green-light from regulators, TTR expects to be chasing around US$500 million by the middle of next year, comprising around US$150 million of new equity and the balance as debt. An initial public offering is possible, but Crossley is targeting Chinese investors for most of the new equity.

TTR's application for consents to mine in New Zealand's Exclusive Economic Zone was accepted by the Environmental Protection Authority on Nov 8, triggering a 140 working day process to either accept or reject the plan.

It intends to take between 4 million and 5 million tonnes of iron ore annually for export, mainly to Chinese steel mills, with a target date of mid-2016 for mining operations to start in a 65.76 square kilometre area lying between 22 kilometres and 36 kilometres off the North Island coast, west of Patea.

The project requires construction of a mining vessel which will vacuum titano-magnetite sands off the seafloor in waters between 20 metres and 45 metres deep for trans-shipment to export vessels. Non-iron bearing sands will be returned to the seafloor in what is likely to be one of the more contentious elements for regulators to consider.

The project is shaping as dependent on investment by Chinese shipyards and steelmakers, which see the TTR project as a small but significant independent player in an international iron ore market dominated by three major players: BHP Billiton, Rio Tinto, and Vale.

"An elegant solution for us would be to have what we're calling a China solution," said Crossley. China traded more than 50 percent of seaborne iron ore exports and represented 50 percent of world steelmaking, "so TTR will be connected to China in some way."

That solution would see "a Chinese off-taker taking the ore and a Chinese shipbuilder building the ship and arranging the finance" and TTR leasing the purpose-built seafloor mining vessel on a 15 to 20 year lease, although other combinations were possible.

"That's what the Chinese like, to see jobs (from building the ship) and Chinese steel mills getting access to the ore,", said Crossley, who was in Shanghai and Beijing this week seeking potential partners. Among the company's non-executive director is Zhang Xianqing, chairman at the Chinese Rockcheck Steel Group and former New Zealand Prime Minister Jenny Shipley, who has specialised in directorships involving Chinese connections.

There was also interest from investors in Australia and the Middle East, Crossley said. If an initial public offering were pursued, it would probably see TTR list on the ASX, with a dual-listing on the New Zealand Stock Exchange.

The company would have a firmer idea of full costings by next March, with the Wellington-based team of engineers and project planners giving priority to lowering the US$500 million budget, if possible.

With close to NZ$18 million in cash reserves before raising the latest US$11 million, TTR may need a further US$5 million to get the project investment-ready, Crossley said. He expects no change out of NZ$10 million for the EPA process, which will include public hearings on the proposal, which has sparked opposition from environmental groups.

TTR's 40 percent shareholder, US private equity investor Denham Capital, supported the latest capital-raising but may not participate at that level in full project funding.

The economics of the project is driven by the low cost of extraction compared to land-based mining, with TTR expecting mining costs of around US$30 a tonne, against a projected US$80 a tonne for titano-magnetite.

That's a discount to the projected world price of iron ore just under US$110 because ironsands are an unconventional feedstock and an expectation that many current ore miners will be uneconomic at those levels.

"TTR's competitiveness comes from low-cost of extraction," he said.

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