Utah also operates open pit iron ore mines near Cedar City, Utah, owned by CF&I Steel Corporation, pursuant to a contract with such owner which requires delivery of iron ore as directed by CF&I through August 31, 1979. Mount Goldsworthy MineAustralia Utah's first mining venture in Australia was the development of the Mount Goldsworthy iron ore deposits located 70 miles east of Port Hedland on the northwest coast of Australia. The participants in the venture are UDC, Cyprus Mines Corporation and Consolidated Gold Fields Australia Limited, each of which has an undivided one-third interest in mineral leases, mine plant and mine equipment. The participants hold the mineral deposits under leases from the State of Western Australia for a period of 21 years from 1965. Such leases are renewable for an unspecified number of additional 21-year terms at the option of the participants. The participants in the venture are licensed to export iron ore from the leasehold area provided that the terms of each sale of ore are approved by the Commonwealth of Australia. Each of the participants markets its own respective portion of the iron ore produced. All shipments made heretofore have been in commingled cargoes to the same buyers at a common destination at substantially the same unit price. However, any of the participants may make its own transportation and marketing arrangements. Agreement in principle recently has been reached under which two of the present participants in the venture, Cyprus Mines Corporation and Consolidated Gold Fields Australia Limited, will sell their interests in Mount Goldsworthy to MIM Holdings Limited and Consolidated Gold Fields Limited. Upon completion of the transaction, 33 1/3% of the venture will be held by UDC, 20% by MIM Holdings Limited, and 46 2/3% by Consolidated Gold Fields Limited. UDC has agreed to direct the management of Goldsworthy and its sales organization. Further changes in ownership are contemplated, including Japanese participation, if the Mining Area "C" ore reserves described below are developed. Following initial shipments in 1966, the operations have been expanded on several occasions to include new mining locations and have a current annual production capacity of approximately 8 million tonnes. Mine operations over the five fiscal years ended October 31, 1975 and the nine months ended July 31, 1976 are summarized below: Nine Months Ended 1971 1972 1973 1974 1975 July 31, 1976 Tonnes of ore mined and crushed .. 6,578,000 5,429,000 8,154,000 7,740,000 7,640,000 5,233,000 Shipments: Lump Ore Tonnes.............................. 4,058,000 3,741,000 4,709,000 4,116,000 4,185,000 2,702,000 Grade (% iron content)... 64.52 64.50 64.16 64.20 64.23 64.06 Fines Tonnes.............................. 2,595,000 2,369,000 3,395,000 3,577,000 3,599,000 2,467,000 Grade (% iron content)... 62.66 62.95 61.89 62.23 62.09 62.17 Total Shipments Tonnes.............................. 6,653,000 6,110,000 8,104,000 7,693,000 7,784,000 5,169,000 Grade (% iron content)... 63.79 63.90 63.26 63.30 63.24 63.15 Mount Goldsworthy's ore reserves (excluding Mining Area "C" discussed below) as of October 31, 1975 were approximately 68.7 million tonnes averaging 63.5% iron content, of which 35.2 million tonnes have been committed for sale to Japanese steel companies under long-term contracts. Inflationary pressures on operating costs have severely reduced the project's profitability. Although extra-contractual price increases have been obtained in prior years to relieve this problem and are again being sought, current contract provisions do not provide for price reviews until 1977. The extent to which the remaining reserves (not committed for sale) will be mined depends upon future market developments and ability of the participants to obtain sales of iron ore on a profitable basis. Development of the remaining reserves would require additional expenditures. 56 Exploration work in an area known as Mining Area "C" has resulted in the discovery of approximately 750 million tonnes of iron-bearing material containing about 62.5% iron content. This discovery is located about 210 miles south of Port Hedland, the port through which Mount Goldsworthy ore is now shipped. It is in an area in which the joint venturers have prospecting rights under an agreement with the State of Western Australia. Studies have been made to determine the technical and economic feasibility of mining the deposits in Mining Area "C", and marketing efforts currently are underway to determine whether markets can be developed. The extent to which the deposits will be mined primarily depends upon the development of such markets. SamarcoBrazil On September 10, 1976, Utah acquired the interest of Marcona Corporation ("Marcona"), in which Utah has a 46% equity interest, in a Brazilian company, Samarco Mineracao S.A. ("Samarco"). Samarco is a joint venture with S.A. Mineracao da Trindade, a major Brazilian open capital company ("Samitri"). Samarco is developing large iron ore deposits, including the Germano deposit, in the state of Minas Gerais, Brazil. Samarco is owned 51% by Samitri and 49% by Mineracao Marex Ltda. ("Marex"), a wholly owned Brazilian subsidiary of Utah. Plant construction began in 1975. The open-pit mine and flotation concentrator being built by Samarco are designed for an initial production capacity of 7 million dry metric tons a year of concentrates. The concentrates will be transported in slurry form by a 250-mile pipeline to Point Ubu on the Atlantic coast where 5 million dry metric tons per year will be converted into iron ore pellets which will be delivered to steel mills in the United States and Europe under existing long-term contracts. These contracts contain provisions which tie pellet prices to U. S. and Brazilian quotations for sales of pellets. Shipments are scheduled to begin in mid-1977. No sales contracts have been executed to date for the sale of filtered concentrates from the remaining two million dry metric tons of production capacity. Samitri holds the mineral rights to large deposits of iron ore in Minas Gerais and currently operates mines in such area and produces and exports ore therefrom. Under the terms of its agreements with Utah and Marex, Samitri has transferred to Samarco its governmental concession to the Germano deposit and has agreed to transfer to Samarco additional iron ore reserves which, together with the Germano deposit, will assure the supply of at least 300 million metric tons of iron ore concentrate of at least 66% iron content for use in the production of iron ore pellets. The extent to which this amount can be furnished by such concessions remains to be determined. Exploration, metallurgical testing and feasibility studies were carried out on the Germano deposit in three phases through the years from 1969 to 1973. Ore reserve calculations by Samarco's engineers based upon extensive core drilling indicate reserves of approximately 150 million metric tons of ore (average grade of 53% iron) which, it is estimated, will produce about 108 million dry metric tons of recoverable concentrate of approximately 66% iron content. Utah has made no independent verification of such reserves. Limited additional drilling below the 960 meter level indicates further mineralized zones. However, insufficient exploratory drilling or other studies have been undertaken to enable a determination to be made as to what degree this additional mineralization may be commercially mineable. The Samarco project is expected to require initial capital expenditures of nearly $600 million through 1977, financed by approximately $294 million of long-term third-party debt under certain credit agreements ("Credit Agreements") and $12 million of housing financing entered into in early 1976 with the balance to be provided through a combination of equity and subordinated shareholder loans. The current estimate of capital expenditures reflects an increase of nearly $250 million since the first estimate was made in 1973. The increase has been due principally to inflation. The debt under the Credit Agreements is jointly and severally guaranteed by Utah and Samitri during the construction period and thereafter until certain operating and financial conditions are met. Marcona and Marcona International, S.A. will remain liable to Utah with respect to the indebtedness under the Credit Agreements. Utah and Samitri have also guaranteed completion of the Samarco project. The Samarco project is expected to require an investment by Utah of approximately $143 million, including approximately $49 million payable to Marcona for its investment at cost at the date (October 1975) the purchase of Samarco from Marcona was agreed upon. 57