Why the Magnum (ASX:MGU) share price edged higher today

An agreement with a global mining company sees Magnum shares close in positive territory today.

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The Magnum Mining and Exploration Ltd (ASX: MGU) share price closed the day in positive territory. This came after the mineral miner announced an agreement with global mining company, Anglo American.

At the end of market trade, Magnum shares finished up 2.86% to 18 cents.

Magnum progresses on Buena Vista iron ore project

Investors pushed the Magnum share price higher after coming out of a trading halt today.

According to its release, Magnum has signed a mandate letter and an indicative term sheet with Anglo American. This will see both parties exclusively negotiate definitive documents for the offtake and prepayment financing for Magnum's Buena Vista iron ore project.

The mandate letter provides for a 60-day period to finalise a binding agreement.

Should both companies come into an offtake arrangement, Magnum will sell its entire direct shipping ore (DSO) from Buena Vista to Anglo American. This includes Magnum's iron ore concentrate, hot briquetted iron and pig iron.

Pleasingly, Anglo American has proposed to buy a minimum of 560,000 tonnes of Magnum products. Furthermore, subject to due diligence, Anglo American may purchase up to an estimated 800,000 tonnes on a secured prepayment basis. The DSO however would require a payment beforehand of US$8 million, and possibly an additional US$4 million for vessel costs.

The company noted the prepayments would support fund infrastructure and working capital, along with increasing DSO operations.

Magnum managing director Dano Chan said:

Magnum is systematically delivering on its strategy of shipping ore in 2021 and the proposed agreement with Anglo American of a long-term offtake and financing is intended to be a key step in this process.

Magnum said it would provide a further update to investors when the formal agreements were complete.

More on the project

Located in Nevada, in the United States, the Buena Vista mine is an advanced magnetite iron ore project wholly owned by Magnum.

In the short term, the mine is expected to produce around 232 million tonnes of export-grade DSO at 62% and 65% fines. At the longer-term end of the scale, DSO quality is expected to increase to 67.5% of iron magnetite concentrate.

The mine has good access to rail, water, port, and power facilities.

About the Magnum share price

A strong 12 months has driven up Magnum shares by about 250% on the back of investor excitement in the sector.

Based on valuation metrics, Magnum has a market capitalisation of around $90 million, with approximately 478 million shares outstanding.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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