Junior exploration company Arc Minerals has entered into an agreement with a subsidiary of diversified miner Anglo American, which formalises the parties’ intention to form a joint venture (JV) with respect to Arc’s copper/cobalt project in the North-Western province of Zambia.
Under the agreement, Anglo will have the right to earn a 70% interest in the JV for an aggregate investment of up to $88.5-million, including a cash consideration of up to $14.5-million, while Arc will retain the remaining 30%.
"This agreement represents a major turning point for Arc and follows many months of negotiations. I am delighted to be signing this agreement with Anglo American which will, upon execution and completion of the definitive agreements, result in the potential for significant investment by a reputable major mining company in the tenements in north-west Zambia," Arc executive chairperson Nick von Schirnding said on May 12.
Several key commercial terms of the JV have been agreed in principle under the agreement.
Among these terms is that Anglo will have the right to retain an ownership interest of 51% by funding exploration expenditures equal to $24-million on or before 180 days after the third anniversary of start of the JV.
Additionally, Anglo will need to make cash payments to Arc totalling $14.5-million in tranches. The first $3.5-million will be paid upon the official formation of the JV and signing of JV documents.
Thereafter, $1-million must be paid each year for three consecutive years.
Finally, a payment of $8-million is due by the project’s Phase 1 end date.
Following the completion of Phase I, Anglo will have the right to retain an additional ownership interest equal to 9% for a total ownership interest of 60% by funding $20-million of additional exploration expenditures within two years of the Phase 1 end date – the Phase 2 end date.
Upon the completion of Phase 2, Anglo will have the right to retain an additional ownership interest equal to 10% for a total ownership interest of 70% by funding $30-million within two years of the Phase 2 end date.
For as long as it holds the largest interest in the JV, Anglo will have the right to nominate three directors, while Arc will have the right to nominate two. All JV board decisions will be adopted by majority vote.
The agreement sets out the core principles under which the JV will be formed subject to satisfactory due diligence, a restructuring of Arc’s assets in preparation for the JV, negotiation and execution of definitive agreements, the approval of the transaction by the relevant boards of directors and the relevant government and regulatory authorities and other customary conditions.
An exclusivity period has been agreed for up to 90 days to allow for due diligence, and up to an additional 90 days for the negotiation and execution of the JV documents.