Australian lithium developer Pilbara Minerals Limited (ASX: PLS) announced that it has entered into a Mine Gate Sale Agreement (“MGSA”) with Atlas Iron Limited (ASX: AGO) (“Atlas”) for the supply of direct shipping ore from its Pilgangoora Lithium-Tantalum Project, located near Port Hedland in in Western Australia’s Pilbara region.
The innovative mine gate sale and DSO arrangement will enable Pilbara Minerals to capitalise on current strong demand for lithium feedstock in the Chinese market and generate an early source of revenue and cash-flow from the Pilgangoora Project with minimal additional capital expenditure.
Under the MGSA, Pilbara Minerals will deliver a minimum of 1.0 million tonnes of unprocessed run-of-mine lithiumtantalum material from the Pilgangoora mine to Atlas on a mine gate sale basis, based on a delivery schedule which is designed to allow Atlas to ship 100,000 tonnes of DSO per month to off-take customers, commencing in the June 2018 Quarter.
Atlas will utilise its existing processing and logistics infrastructure in the Pilbara to crush the material at its Mt Dove operations and ship the DSO to customers through its Utah Port shipping facilities in Port Hedland, under one or more off-take agreements to be entered into separately between Atlas and Sinosteel Australia Pty Ltd and other potential off-take parties.
The overall agreement delivers an attractive fixed US$ base price per wet metric tonne of mine gate material sold, subject to adjustments in respect of the final product specifications shipped and the actual shipping costs realised. It is envisaged that the arrangement will deliver a healthy operating cash margin to Pilbara Minerals during the life of the DSO program.
Under the terms of the MGSA, Atlas will pay to Pilbara Minerals a Mine Gate Commitment fee of US$3 million to fund the Company’s upfront establishment costs associated with the DSO program. This fee will be repaid by way of US$500,000 offsets against the first six invoices issued to Atlas for material sales.
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