Shares in gold explorer DiscovEx Resources vaulted more than 28 per cent on intraday trading following an announcement it had executed two binding-option agreements with Rio Tinto that allow the mining behemoth to acquire 100 per cent of the iron ore rights for four tenements within the Sylvania project, 15km southwest of Newman in WA.
According to DiscovEx, the first agreement permits Rio Tinto the right to explore, evaluate and develop iron ore mineralisation at the previously defined Spearhole detrital iron ore deposit, whilst the second agreement allows the miner access to a trio of tenements across the venture’s larger exploration area.
DiscovEx previously outlined several outcropping banded iron-ore ridges and potentially obscured detrital iron deposits at the latter and interestingly, Dynasty Metals Australia previously announced an inferred resource of 1400 million tonnes at 23.5 per cent iron at Spearhole more than a decade ago.
The key terms of the Spearhole agreement will see Rio outlay an initial $67,500 for a two-year option period, with the company handing over an additional $180,000 for two additional years and another $225,000 for a further two.
The Spearhole deal contains an option exercise fee of $7.2 million, payable at any point during the option period. Once it is exercised Rio will pay a free on-board royalty of 0.9 per cent for the first 20 years of iron ore production at the venture.
All four tenements of the Sylvania Agreement are held by a wholly-owned subsidiary of DiscovEx called Lighthouse Resource Holdings. However, a royalty is held by Gateway Mining Limited over two tenements.
The fundamental conditions of the Sylvania agreement include a $50,000 fee for a two-year option period, with an additional $50,000 option paid to extend the option by a further four years.
Under both scenarios DiscovEx will pocket $40,000 whilst its subsidiary, Gateway Mining will pick up $10,000.
The Sylvania deal contains an option exercise fee of $1.15 million payable at any point during the option period.
If the option is exercised, DiscovEx will bank $1.05 million whilst Gateway Mining will walk away with $100,000.
Management says Rio’s move to evaluate Sylvania’s iron ore potential underlines the quality of its tenements and believes the miner’s infrastructure and experience could drive success at the operation.
Importantly, the transaction could allow DiscovEx to boost its bottom line without going to the market and funnel the funds into its principal activities – namely sniffing out high-value gold and base metals resources.
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