Investor group takes 30% stake in Lake Giles iron ore project

Australian junior Macarthur Minerals (MMS-V) is capitalizing on Asian steel companies seeking to set up long-term supply arrangements for iron ore.

The company’s Lake Giles iron ore project in Western Australia is just 125 km away from a major rail line linked to port facilities that export the metal to China and other Asian markets.

At the end of January, Macarthur Minerals air-freighted a 3 million tonne bulk sample from Lake Giles to China to be tested by an end-user company.

Now it has successfully wooed an investor group with key contacts in China to take a 30% stake in the company.

In an announcement today, Macarthur Minerals said LPD Holdings is buying a 30% stake in its Lake Giles magnetite iron ore project for C$9 million.

Under the arrangement, LPD will own 30% of the shares in Internickel Australia, a subsidiary of Macarthur Minerals, which owns Lake Giles.

LPD is a company that facilitates transactions between Australian and Chinese interests in a range of businesses including infrastructure, mining resources and commodities. LPD is associated with a number of Chinese metal-trading corporations and steel producers.

News of the investment sent the stock up 10% in mid-day trading to $2.04 per share just above its 52-week high of $2.00.

LPD could eventually acquire an 80% interest in the iron ore project. Under a proposed C$110 million deal announced last November, the deadline for LPD to purchase its additional interest is Sept. 30.

That deal is likely to go ahead given skyrocketing prices for iron orethe basic raw material used in steel production and a key ingredient in global infrastructure build.

Earlier this year, the largest iron ore producers in the world completed client negotiations with contract iron ore price hikes of 65% to 70% for 2008.The Lake Giles project is in the Yilgarn iron ore province — an area that has started to attract interest from Asian markets.

Macarthur’s Lake Giles tenements cover an area of 1,155 sq km about 150 km northwest of Kalgoorlie and about 450 km northeast of Perth in the North Coolgardie mineral field of Western Australia’s Southern Cross province.

“The Yilgarn province is not a significant producer of magnetite at this time but there exists a number of large magnetite iron ore projects in the area that are in the early development stage,” Macarthur Minerals stated in a May 2007 press release. “Magnetite iron ore projects have largely been overlooked because of the preference for hematite, a close mineral cousin.”

The Lake Giles project has a National Instrument 43-101 compliant estimated in-situ inferred resource of 82.5 million tonnes at a grade of 24.6& iron, representing magnetic concentrate of 18.46 million tonnes at a grade of 63.1% iron.

The company says it is spending more than $400,000 per month on drilling in hopes that it can identify a 500-million-tonne resource of in situ magnetite iron ore.

With the C$9 million payment, Macarthur Minerals will have more than C$12 million to advance its project. The lion share of the funds from LPD will be channeled into additional drilling and an exploration program of identified but untested iron ore targets.

So far about 1,000 meters of diamond drilling have been completed and the company is finalizing its sixth stage of reverse circulation drilling.