PERTH (miningweekly.com) – Lithium producer Galaxy Resources has signed a binding term sheet with fellow-listed General Mining, giving that company the right to operate the Mt Cattlin project, in Western Australia, for a period of three years.

General Mining was expected to pay a lease fee of A$2.5-million a year to Galaxy, along with a 10% production royalty. The junior would also have the right to purchase the Mt Cattlin project outright for A$30-million and a 3% net smelter royalty return, at any time during the three-year period.

The Mt Cattlin project was placed under care and maintenance in July 2012, and had previously produced both spodumene and associated tantalum by-products. Galaxy has been looking for a way to extract value from the Mt Cattlin project, while concentrating its efforts on the Sal de Vida project, in Argentina.

Galaxy was also in the midst of selling its Jiangsu lithium carbonate plant, in China, to China’s Sichuan Tianqu Lithium Industries in a deal valued at $173.2-million.

“Since the management and board of Galaxy were restructured in 2013, the focus has been entirely on reducing the debt levels and realising value for its assets,” Galaxy chairperson Martin Rowley said on Monday.

“As well as the sale of the Jiangsu plant in China, management has been looking closely at ways of reducing fixed and overhead costs in order to preserve its cash resources and further strengthen Galaxy’s financial situation. The proposed arrangements with General Mining at Mt Cattlin will result in these assets becoming a net cash generator instead of a loss to the company.”

Rowley noted that the management team at General Mining had "extensive and appropriate" technical experience to operate the Mt Cattlin mine, and Galaxy believed that it had the best team to unlock the most value from the Mt Cattlin assets.

General Mining was expected to start tantalum production at Mt Cattlin within six months. At this point, the company would be responsible for all costs associated with the operation.

Meanwhile, Rowley said that Galaxy would continue to focus on transactions that would provide the best value recognition for the remaining assets of the company, either through development, joint venture or divestment.