Minerals explorer Sipa Resources (ASX: SRI) has signed a farm-in and joint venture agreement with Rio Tinto Exploration (RTX), a subsidiary of mining giant Rio Tinto (ASX: RIO), whereby RTX can earn an interest in Sipa’s flagship Paterson North copper-gold project in Western Australia.
The joint venture will allow Sipa to accelerate exploration activities at the project through committed expenditure from RTX.
The project area being covered by the agreement encompasses Sipa’s entire Paterson North tenement package in the Paterson Province, including those within the Great Sandy joint venture with Ming Gold, in which Sipa has earned an 89% interest.
Sipa managing director Pip Darvall said the company will benefit from RTX’s technical expertise as well as any potential operational synergies with Rio’s regional activities, including the Winu copper-gold discovery 10km west of Paterson North.
“Attracting a global major such as Rio Tinto to farm-in to [our project] reflects the enormous potential of the ground and the quality of the work which [our] team has completed over the past five years,” Mr Darvall said.
Under the terms of the farm-in agreement, RTX must spend a minimum $3 million on exploration activities within the first 30 months.
The work program is expected to comprise a required 4,000m of drilling plus ground geophysics to generate, refine and test targets of interest, with several of these areas already identified.
Once RTX has met the minimum expenditure requirement, it will have the option to sole fund a three-stage earn-in starting with another $3 million on exploration to earn an initial 55% interest in the project.
The total $6 million in exploration expenditure will represent stage one of the joint venture and must be completed within 54 months.
Stage two of the agreement will give RTX the right to earn a further 15% interest (for a 70% total interest) by sole funding $6 million of exploration within a three-year period, representing a total expenditure of $12 million.
Stage three will allow RTX to earn a final 10% interest in the project (for an 80% total interest) either by sole funding exploration to the definition of a JORC mineral resource with an in-situ value of at least $1 billion, or through the completion of an order of magnitude study in respect to tenements’ mineral deposits.
The study will define the extent and critical parameters of the deposits and the potential for development of a mining operation.
After the joint venture is formed and RTX is no longer sole funding, both companies will be responsible for contributing to expenditure proportionate to their equity levels or be subject to industry standard dilution of their interest.
If either company’s equity falls below 7.5%, the other party can elect to buy-out the interest at an independently-determined value or the interest will otherwise convert to a pre-determined net smelter royalty.
RTX will also subscribe to $250,000 in Sipa shares at $0.10 per share, representing a 14% premium to the 10-day volume weighted average price.
Settlement of the placement is expected to occur within a month of the farm-in agreement becoming unconditional.
At midday, shares in Sipa Resources were steady at $0.085, while shares in Rio Tinto were up 1.34% to $103.37.