South Australia’s State Government will be asked to refund almost $6 million in stamp duty after minerals explorer Centrex’s decision to wind back its iron ore project near Tumby Bay on the West Coast.

The decision is a setback for the prospects of developing an iron ore province in the region.

Centrex announced today that it had signed a new memorandum of understanding with its project partner Wuhan Iron & Steel (Group) Co. (WISCO) for proposed amendments to the partners’ Eyre Iron Magnetite Joint Venture of which Centrex holds a 40 per cent interest.

“The MOU’s focus is the joint venture’s flagship Fusion project which is sought to be re-scoped and rescheduled to take into account recent changes in iron ore market conditions,” Centrex said in a statement today.

“The MOU sets out key amendments to the joint venture that will be incorporated into a binding supplementary deed to be negotiated and executed in the coming months.”

Hopes for the project’s future were boosted in 2010 when WISCO, one of China’s top five steelmakers, paid $A78 million to Centrex for 60 per cent of the iron ore rights to five exploration licences on the Eyre Peninsula.

Today’s announcement re-sets the terms and conditions of how to proceed with the project, including Centrex having to relinquish its entitlements to any resource incentive payments payable under the original agreement.

These entitlements represented four potential tranches of $27 million each should the joint venture inferred resources reach agreed levels.

“Centrex paid stamp duty on the resource incentive payments for the sum of $5.9 million in 2010,” the statement said.

“An application will be made to the South Australian Government for a refund of this amount on execution of the eventual Supplementary Deed.”

The new deal pushes the project back to pre-feasibility status and shifts funding commitments.

“This will see the project move back into a pre-feasibility study over the next 12 to 24 months to assess the expanded project.

“Given the uncertainty over triggering the resource incentive payments, with the joint venture still quite some way from the first milestone mark, and land access constraints in the area, Centrex believes in the current market the priority is for a bankable feasibility study funding path that is isolated from its current cash reserves,” Centrex said today.

“If WISCO does not wish to proceed after completion of any resulting pre-feasibility study then  Centrex and WISCO will work together to conduct a trade sale for the joint venture.”

Under the MOU, WISCO and Centrex agreed in principle to begin an exploration program at new deposits within Fusion to allow greater mining selectivity and reduce estimated mine production costs.

The Fusion project is a 50km long magnetic banded iron formation on the Southern Eyre Peninsula.

It revolves around numerous satellite magnetite ore deposits feeding into a centralised processing facility to produce a magnetite concentrate.

Under the proposed project the concentrate was planned to be transported via a slurry pipeline to the proposed Port Spencer export facility.

“Centrex and WISCO have now agreed in principle to commence exploration of additional deposits within the Fusion project area to reduce the required mining depths for the initial mining life, in order to lower estimated production costs, and hence to increase project returns creating greater investment certainty given recent iron ore price fluctuations,” the company said.

The amended deal aims to find a funding solution through to the end of a bankable feasibility study at Fusion that is isolated from Centrex current cash reserves.

The company said there were two options, if WISCO and Centrex wanted to progress the project after the pre-feasibility study was complete:

• Option 1 – The joint venture would be incorporated and a listing sought on the ASX for an Initial Public Offer to raise funds for the completion of a Bankable Feasibility Study
• Option 2 – WISCO and Centrex to work together to bring a third party investor into the joint venture.

In return for this new funding path direction for the bankable feasibility study, Centrex will relinquish its entitlements to any resource incentive payments payable under the original agreement.

Shadow minerals sesources minister Martin Hamilton-Smith said the changes to the Fusion project might be a time to re-assess the best way forward for mineral development in the West Coast region.

“With costly infrastructure requirements it may be a good time to consider aggregating the needs of some of these projects,” he said.

“I’ll be talking with the stakeholders in the coming weeks.”

Hamilton-Smith met with WISCO officials in China last week.

“There have been a lot of problems with land approvals and that needs to examined.”

InDaily is seeking comment from Mineral Resources Minister Tom Koutsantonis.