PERTH (miningweekly.com) – ASX-listed Australian Bauxite has signed term sheet agreements with Chinese aluminium producer Xinfa Group to develop the Tasmanian and Gouldburn bauxite projects.

Under the terms of the transaction, Xinfa would pay $500 000 as an exclusivity payment for a five-month due diligence period. This period could be extended to nine months through an additional $100 000 payment.

A memorandum of understanding would be executed at the end of the exclusivity period, which would see Xinfa pay an additional $2-million for a 5.8% equity in Australian Bauxite, through the issue of 6.58-million shares at 38c a share.

“This partnership combines the discovery skills of Australian Bauxite with the financial and operational strength of Xinfa in the bauxite/alumina/aluminium business so that new export businesses can be created in both Tasmania and southern New South Wales,” said Australian Bauxite CEO and MD Ian Levy.

He noted that as a supportive offtake partner, Xinfa would reduce the market risk of the first two projects, especially in the early years while each project established consistent production.

“The plan is for our Tasmanian project to be the first new bauxite mine in Australia for more than 35 years. Bauxite shipments are planned to start in the second half of 2014 when the bauxite market is expected to be favourable, as Indonesian exports of our type of low-temperature, gibbsite-rich bauxite are reduced, and Indonesian export taxes are increased from 20% to 50%."

Levy noted that by funding all the preproduction costs for the first mine of each project, including due diligence costs, evaluation costs, feasibility studies, lease payments and project development costs, Xinfa could earn a 50% shareholding in the assets.

Xinfa would also take at least 50% of the bauxite production from the projects, and up to 100% of the production, if so requested by Australian Bauxite.

Australian Bauxite, in turn, would manage the operation, the statutory and government relations, as well as the land and tenement administration. The ASX-listed company would further repay its portion of the development costs through an agreed mechanism that would ensure that the company received a positive cash flow while repaying its portion of the costs.

Australian Bauxite had a global resource of some 115.6-million tons.