Cazaly Resources has pencilled in a deal to sell its long-stalled Parker Range iron ore project, amid signs of life at the junior end of the iron ore sector.

The Nathan McMahon-led company announced today it had drafted an agreement to sell the project in the Yilgarn region near Marvel Loch to Yuzheng Xie’s Gold Valley Group for $13 million plus a royalty stream.

Parker Range is considered the deposit closest to development in the region, with full State environmental approval granted to develop the 4.2 million-tonne-a-year direct-shipping ore proposal until 2022.

Cazaly recently dusted off plans for Parker Ridge on the back of surging iron ore prices and excess capacity at the port of Esperance after MinRes restarted mining at Koolyanobbing late last year, shipping ore at half the annual rate of its predecessor Cleveland-Cliffs.

Iron ore was trading at US$100.30 ($144) per tonne yesterday for benchmark 62 per cent fines product, well above the US$38 ($55) per tonne, which the market dropped to about three years ago.

Deep discounts for lower-grade ore like that from Parker Range have also narrowed sharply in recent times.

The Parker Range hematite ore body is also very low in phosphorus, a deleterious element that endures discounts from ore buyers.

Cazaly said it would grant exclusive rights to Gold Valley to evaluate the 35.1 million tonne project over three months in exchange for an upfront payment of $50,000 and subscribing for 10 million new shares at 3c.

The deal provides for $5 million upon signing and a further $8 million when production begins.

Cazaly will be also paid a royalty of between 50c and $1 a tonne, subject to Platts prices for 58 per cent ore.

Mr McMahon said the agreement realised some immediate value from Parker Range in an iron ore market that had recently shown signs of recovery.

“Following completion of the proposed transaction, the company will receive a significant cash injection and provide shareholders further upside by way of additional payments and a royalty from production,” he said.

“We are highly confident that the project will grow further and are confident Gold Valley has the requisite technical, managerial and importantly, marketing skills to develop the asset.”

Yilgarn Iron Ore Producers Association Secretary David Utting said the junior iron ore sector was coming to life on the back of the buoyant iron ore price.

“There is quite a bit of activity in developing and buying and selling projects,” he said.

“All indications are that the Brazilian imbroglio will have some duration.”

Mr Utting was referring to the closure of iron ore mines in the South American country in the wake of a deadly tailings dam disaster in January which killed hundreds.

Gold Valley has interests in agriculture, energy and mining including the Yarram iron ore deposit in the Northern Territory and has the right to mine the Ridges iron ore deposit owned by Kimberley Metals Group.

Today’s announcement follows news last week that Gina Rinehart would develop Atlas Iron’s long-stalled Corunna Downs project near Marble Bar.