PERTH (miningweekly.com) – Diversified miner South32 has struck a strategic alliance agreement (SAA) with ASX-listed AusQuest to develop a pipeline of exploration opportunities.

Under the terms of the SAA, AusQuest will generate and secure prospective early-stage exploration opportunities, which will then be offered to South32 over a three-year timeframe.

The company has been mandated to target copper, zinc and nickel targets in Australia and Peru, with possible associated gold, silver and lead credits.

The potential projects secured by AusQuest will be offered exclusively to South32, and will undergo a staged evaluation process which will see these projects classified as either exploration or drill-ready opportunities.

If the potential projects are rejected under each category, they will no longer be subject to the SAA.

AusQuest on Monday told shareholders that the parties will agree on a work programme and budget to advance each exploration project to a drill-ready stage, with South32 to make payments to AusQuest of at least $250 000 per project to fund these programmes.

The parties may also agree to undertake programmes costing in excess of $500 000, with funding amounts above $500 000 reducing South32’s earn-in expenditure under a joint venture (JV) agreement to earn a 70% equity in the projects.

Once the project is accepted by South32 as drill ready, the diversified miner can elect to earn a 70% interest in the project by contributing $4-million per JV project. The miner can take this interest to 80% by completing a prefeasibility study.

On the establishment of a JV, South32 must pay AusQuest a second payment, which will be the difference between $500 000 and the money already contributed by South32 to advance the project towards drill-ready status.

AusQuest noted that five of its current projects, two in Peru and three in Australia, have already been tipped by South32 as being of interest. Four of these projects have been accepted by South32 as exploration opportunities, while the fifth has been accepted as a drill-ready opportunity and is currently the subject of a separate JV agreement.

“This is a unique and exciting opportunity for AusQuest to work alongside one of the world’s most successful diversified miners, leveraging our skills as an explorer targeting provincial-scale discovery opportunities,” said AusQuest MD Graeme Drew.

“The immediate injection of exploration funds across a number of projects in our portfolio will allow us to get on with the job of generating and evaluating prospects, advancing them to drill-ready status, which is where the real value will be.

“We are looking forward to working with South32 to build a quality pipeline of exploration opportunities which we hope will deliver significant benefits for both companies, while also establishing an excellent model for strategic cooperation in the exploration industry to unearth the next generation of discoveries.”

The SAA also sets out that South32 will pay AusQuest a $500 000 bonus generation fee in the event that at least three exploration opportunities are accepted in one calendar year.

In respect of the four exploration opportunities already accepted, a bonus generation fee will apply when JV agreements are executed for three of these exploration opportunities, including the Blue Billy project, which was accepted as a drill-ready opportunity.

Further, South32 will also provide AusQuest with a $1-million unsecured, interest-free facility for the next 24 months to help fund project generation activities.