THIS STORY BELOW FROM WA BUSINESS NEWS
The appreciating Australian dollar was the main reason Cape Lambert Iron Ore Ltd today decided to terminate its sale agreement with a Chinese investor, who had dragged his heels in making instalment payments.
Under a deal entered into in late March, the investor, Mr Ding Liguo, was to take a 70 per cent interest in the company's namesake iron ore project in Western Australia's Pilbara region for about $250 million.
Cape Lambert said Mr Ding had failed to satisfy a condition of the sale agreement and breached a memorandum of understanding with the company.
Executive director Tony Sage said Mr Ding requested a third extension of time to make payment instalments, which was unacceptable.
"He said it was the final request the first time and we just lost patience," Mr Sage said.
"We wouldn't have gotten our second payment, under Mr Ding's terms, until March next year and under our original contract, it was (due in) December."
The contract was in US dollars and could not be hedged, Mr Sage said.
"The $250 million deal at today's Australian dollars is $210 million, so that's a $40 million loss on the deal - that was a big contributor in our decision to cease negotiations.
"Some say the Australian dollar will hit parity with the US dollar and we would have lost more funds the longer it goes out.
"There's no way you can hedge it because there's not a fixed end point because you don't know if the guy was going to pay."
Another factor in deciding to cease negotiations was the value of a new discovery recently made at the project.
"It looks like it's twice the size of what we've got and he would have ended up with 70 per cent of that for nothing under the terms of the original deal," Mr Sage said.
Cape Lambert's lawyers are undertaking a cost-benefit analysis on whether to take legal action against Mr Ding.
Mr Sage said the company had started renegotiating new sales agreements with three major groups, which were conducting site visits in the next few days.
"All the way through, we've had three major groups that have been hounding us, saying they would pay a high price ... but the agreement with Mr Ding was exclusive, so we couldn't (enter into other deals)".
Mr Sage said the upside for Cape Lambert was that Mr Ding had effectively funded about $5.6 million out of about a $7 million extensive drilling program by exercising options in the company and losing a deposit.
Cape Lambert closed down 7.5 cents at 51.5 cents.
I think the smart ones will see the opps here.