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Sheffield share price surges to retest 2020 high on JV deal

The Sheffield Resources Ltd (ASX: SFX) share price jumped to a seven-month high on the back of what management described as a “transformational” deal.

The SFX share price surged 51% to $0.32 in late morning trade after it signed a non-binding term sheet with a subsidiary of YGH Australia Investment Pty Ltd (“Yansteel”).

The agreement will see Yansteel pay $130.1 million to Sheffield for a 50% stake in the ASX miner’s Thunderbird mineral sands project.

Sheffield share price boosted by capital raising premium

If this agreement is finalised, it will represent a triple win for the Western Australian explorer. Not only will it have a large joint-venture partner to de-risk the project, Yansteel will also buy a 9.9% stake in Sheffield via a placement.

While most capital raisings are priced at a discount to the stocks’ current share price, this isn’t the case for Sheffield.

Yansteel is paying $0.376 a new share, which is a 131% premium to Sheffield’s 10-day volume weighted average price (VWAP). The placement will inject an extra $12.9 million into Sheffield.

Offtake agreement to underpin Thunderbird

Further, the Chinese steel group will sign a “take of pay” offtake agreement to buy all of the ilmenite produced in stage one of the project.

Yansteel will pay market prices for the mineral and will have first right of refusal to buy the commodity produced in subsequent stages of the project development.

There are a few more hoops that both parties will have to jump through to consummate the deal. They need to work out the final details for the JV partnership and the Foreign Investment Review Board (FIRB) will have to give its blessing too.

Thunderbird finally taking flight

“The Joint Venture with Yansteel, if completed, will provide the project equity presently estimated to fund Stage 1 of the Thunderbird Project,” said Sheffield’s chief executive Bruce McFadzean.

“To attract such a strong partner is testimony to the quality of the Thunderbird Mineral Sands Project.   

“This outcome achieves all of the objectives of the strategic partner process undertaken by Sheffield over the past 18 months and, if completed, will provide the means by which Sheffield shareholders can realise the underlying value of the Project.”

Who is Yansteel

Yansteel is a wholly-owned subsidiary of Tangshan Yanshan Iron & Steel Co., Ltd (“Tangshan”). Tangshan is a privately-owned steel manufacturer, which produces around 10 million tonnes a year of steel products and has annual revenues of circa $6 billion.

The JV agreement will underpin the Chinese partner’s entry into titanium dioxide production. Tangshan commenced construction on a 500,000 tonnes per year processing facility that will consume the ilmenite offtake from stage one of the Thunderbird project.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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