Legacy Iron Ore to acquire 60% of Hawthorn Resources

Tuesday, December 27, 2011 sourced: Proactive Investors

Legacy Iron Ore (ASX:LCY) will acquire a 60 per cent stake in Hawthorn Resources (ASX:HAW) and so enable the Mt Bevan iron ore joint venture in Western Australia to be developed under one entity.

Investors may recall that India's NMDC, the largest iron ore producer and a Government of India owned enterprise, committed to developing Mt Bevan through Legacy. NMDC has cash reserves of A$4 billion.

Legacy and Hawthorn signed a term sheet for the deal which is expected to be finalised following an upgrade to the current inferred resource at Mt Bevan, which is likely to be announced in mid-January 2012.

Key deal points are:

- Legacy agreeing to subscribe for a placement of $5,000,000 at an issue price of $0.015 in Hawthorn, being a premium over the last ASX trade of $0.009, upon completion of the transaction.
- Hawthorn agreeing to acquire the interest currently being earned in the Mt Bevan project by Legacy, and agreeing to terminate the Joint Venture agreement, in return for scrip consideration in Hawthorn.
- Upon completion, 100% of Mt Bevan will remain in Hawthorn for development and commercialisation
- Legacy will have the right to appoint a majority of directors to the Hawthorn board

The deal is subject to the completion of satisfactory due diligence by Legacy, and obtaining the necessary regulatory and shareholder approvals.

The $5m placement into Hawthorn will be funded by Legacy, out of current cash reserves. Legacy shareholders recently approved an $18.9m placement to NMDC for 50 per cent of Legacy. Three NMDC directors have joined the Legacy board including NMDC chairman Rana Som.

Australia’s Foreign Investment Review Board (FIRB) as well as the Legacy shareholders have given their approval to the NMDC-Legacy deal.

Analysis

Clearly, this is a significant step forward for Legacy and allowing an accelerated development of Mt Bevan, as this deal paves the way for effective control of Mt Bevan to reside with Legacy. It would also have likely been a key point for NMDC to open its wallet further with project financing and access to debt funding of Mt Bevan.

In a plus for Legacy shareholders, subject to successful completion, Legacy is likely to look to an in-specie distribution of the 60% shareholding in Hawthorn back to Legacy shareholders.

Legacy and NMDC are on record as seeking to secure additional resource projects using Legacy as its investment vehicle. Sources in India told Proactive Investors that high on NMDC's list is to acquire a stake of up to 50 per cent stake in phosphate company Minemakers (ASX: MAK) and its Wonarah phosphate project. This could occur as soon as the Legacy deal is wrapped up. However, it is understood that due diligence has not yet been completed on the Wonarah project.

NMDC has put aside up to $400 million for overseas investments like Legacy and Minemakers.