PERTH (miningweekly.com) – Iron-ore developer Gindalbie Metals has decided to divest of its Shine hematite deposit, 40 km from the Karara project in Western Australia, in a A$15-million deal with fellow-listed Mount Gibson Iron.

Under the terms of the agreement, Mount Gibson would acquire the iron-ore rights over the Shine tenements for an up-front consideration of A$12-million. A further milestone payment of A$3-million was due on the first commercial sale of iron-ore, which effectively made it a nonrefundable prepayment on a price participation royalty.

Gindalbie said that under this royalty, on a month average, for every A$1 the Platt’s 62% price is above A$115/t, Gindalbie would receive an additional A$0.20/t sold, with the A$3-million having been prepaid under the milestone payment.

The parties had 90 days to conclude definitive agreements for the transaction, and to meet the conditions precedent.

Gindalbie MD Dale Harris said on Monday that the sale would crystalise significant upfront value for one of Gindalbie’s assets in the Midwest region, and presented a positive outcome for shareholders.

The proceeds from the sale would be used to strengthen the company’s balance sheet and to increase its cash resource, which was currently at A$35-million.

Harris said that the company had made substantial progress on the Shine project, with a feasibility study completed, while the approvals process was also well advanced. He noted that Gindalbie had been working for some time to evaluate Shine and assess a number of different options to realise value from the asset.

“The board has concluded that the outright sale negotiated with Mount Gibson represents the best outcome for our shareholders. Not only does it avoid any development and funding risk, but it also realises an immediate upfront cash return, which will further strengthen our balance sheet.”

Mount Gibson told its shareholders that the project offered potential for near-term low-capital expenditure development that could be partly offset by the scheduled closure of the company’s Tallering Peak mine, in the second half of 2014, at which point Mount Gibson would have available road and port capacity in the Midwest.

“Building our hematite iron resource in the Midwest is a key priority for Mount Gibson and this represents a low-cost near-term development opportunity that fits perfectly with our strategy,” Mount Gibson CEO Jim Beyer said.

“Given the advanced nature of the Shine project, its proximity to our existing operations and availability of existing infrastructure capacity as production from Tallering Peak winds down in the coming year, we will be looking to advance this development as quickly as possible.”

Harris, meanwhile, said that the transaction was also consistent with Gindalbie’s focus on completing the ramp-up of the Karara magnetite project to a full Stage 1 capacity.

“We will continue to progress our other 100%-owned projects in the Midwest region, including the Lodestone magnetite project, with a view to crystalising value for shareholders at some point in the future.