London-listed diversified metals producer Xtract Resources’ shares rose by more than 88% on Wednesday after it announced the conclusion of a collaboration agreement with Mutupa Mining and Processing (MMP) for mining and mineral processing of the company’s Manica hard rock gold deposits, in Mozambique.

MMP will also work with JSE-listed chemicals specialist Omnia’s mining division on the various gold-bearing mineral deposits on Xtract’s mining concession in the country.

The agreement provides for MMP to build and operate a carbon-in-leach (CIL) plant. It will also be responsible for financing and conducting mining operations, including all capital and operational costs.

Xtract will receive between 20% and 23% of operating profit, depending on the prevailing gold price.

Xtract chairperson Colin Bird noted that the agreement allows for the extraction of CIL-amenable resources to be started in the mid-term, while alluvial operations continue.

“The income to Xtract, once commercial levels of production are achieved, is expected to be significant and continuing for more than six years. During the construction period, we plan to process those mineral resources which are amenable to gravity processing and continue with the alluvial operations.

“We will initiate a concession exploration programme with a view to enlarging the currently known resource, by drilling at depth and testing areas not yet investigated. The CIL plant will undoubtedly open up new feed material sources outside the concession and, where appropriate, we will strike deals with the concession owners to treat their ore on a commercial basis," he elaborated.

Xtract was satisfied that MMP has the necessary technical and operational capability to execute the proposed development plan at Manica, including the installation, commissioning and operation of the proposed CIL.

MMP agreed to provide Xtract with a schedule of purchases and an activity chart indicating initial production and a target date for commercial production of no later than July 1, 2020.

Additionally, MMP stated that it would start construction on the CIL plant no later than November 1, but a long stop date has been set for February 1, 2020. Commercial production has a long stop date set for October 1, 2020.

In consideration for the granting of exclusive rights to act as the appointed hard rock mineral processing contractor at Manica, MMP will pay Explorator – Xtract’s wholly-owned Mozambique subsidiary – an arrangement fee of $20 000 for every month of commercial production achieved.

MMP will receive 77% of all the operating profit produced from the permitted area through the performance of the contract by MMP when the prevailing price of gold is greater than $1 250/oz.

MMP's entitlement shall be increased to 78.5% at a prevailing gold price greater than $1 175/oz and to 80% when the prevailing price of gold is less than $1 100/oz.

The companies will collaborate on exploration activity on a case-by-case basis.