Northern Energy secures life of mine off take agreement with Xinyang Iron & Steel
Northern Energy Corporation (ASX: NEC) has announced an agreement with Chinese steel maker Xinyang Iron & Steel Group Company Ltd (Xinyang) with the signing of a life of mine off take agreement for 65 per cent of project production commencing with the Colton Mine.
This off take agreement would deliver approximately $700M in sales revenue to NEC over 10 years at current coal prices at the initial planned production rate.
Xinyang has also agreed to invest $23M in NEC.
NEC's Managing Director Mr Keith Barker said the alliance with Xinyang marked a significant milestone for the Maryborough Hard Coking Coal Project in Queensland.
"The Board of Northern Energy welcomes Xinyang as both an investor in the company and as a future customer through the off take agreement which represents the commencement of an anticipated long term relationship with the Chinese steel industry."
"China represents an increasingly important market for coking coal and this off take agreement will underpin the market for Burrum Hard Coking Coal which is to be produced from the Colton Mine - the first development within the Maryborough exploration areas EPCs 923 and 1082."
NEC has reached agreement with the Xinyang Group for the following:
- A subsidiary of Xinyang has entered into a long term coal off take agreement to purchase 65% of the coking coal output of any mine development associated with the Maryborough Hard Coking Coal project including the proposed Colton Mine for which the company has applied for Mining Leases.
- NEC will place 16,315,000 shares equivalent to approximately 12.7% of NEC's expanded capital to Xinyang at $1.41 per share to raise approximately $23M.
- Xinyang will be offered a seat on the NEC board.
"The introduction of Xinyang as a substantial shareholder in NEC is expected to result in benefits to the company that are broader than the Maryborough marketing arrangement and which may include enhancing the prospect for development of the company's other projects," Barker said.
"The $23 million raised provides a substantial base from which to progress the Colton mine project through early commitments and fund ongoing exploration and evaluation work at Maryborough, Elimatta and the Company's other prospects."
Barker said the substantial capital injection and off take agreement also provided the company with a firm base from which to pursue a number of options for funding the Colton Mine's total development capital requirement.
"The agreement with Xinyang provides us with the capital to take the next step in the development of Colton while retaining 100 percent of the project as we fully evaluate the size of the Maryborough resource base and the potential for further mine expansion," Barker explained.
"The size of the resource identified to date has exceeded our original expectations and the ongoing evaluation work provides us with confidence that additional resources will be defined which will in turn enable us to ultimately increase production beyond the 500,000tpa currently planned for Colton."
"Expansion of production will require additional mining lease areas and will be subject to a separate approval process to that applicable to Colton," he added.
The agreement with Xinyang is not subject to any government approvals and settlement of the placement agreement is expected to take place within 30 days with a $2M deposit being lodged immediately.
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