12th Oct 2015 10:16
LONDON (Alliance News) - Savannah Resources PLC on Monday said it has agreed with mining major Rio Tinto PLC to extend the deadline by which the pair must complete the proposed joint venture agreement concerning both companies' heavy mineral sands projects in Mozambique.
AIM-listed Savannah and FTSE 100-constituent Rio Tinto have extended the deadline to March 31, 2016 from the original deadline date of October 19 to "to enable further time to fulfil the applicable approval processes", said Savannah.
The company said even that lengthy extension could be extended further if both companies agree.
Under the deal agreed in June, Savannah's Mutamba, Dongane and Jangamo prospects, together called the Jangamo project, will be combined with Rio Tinto's Chilubane project.
Those prospects border one another, and Savannah will operate the joint venture and have the ability to earn up to a 51% stake in the newly combined project by conducting the scoping, pre-feasibility and feasibility studies.
For Savannah to earn up to a 51% stake in the project, it will have to complete a three-phase work programme. Once the scoping study has been completed Savannah will be awarded a 20% stake, which will rise to 35% once the pre-feasibility study is finished. Once the feasibility study is completed, Savannah will obtain a controlling interest in the project before it enters production.
Rio Tinto, which has worked on the Chilubane project since 2000, already had an exploration target at Chilubane of 7.0 billion to 12.0 billion tonnes at a grade ranging between 3% to 4.5% total heavy mineral sands. Savannah's inferred mineral resource of 65 million tonnes at 4.2% total heavy mineral sands will be added to the mining giant's resource once the deal is completed.
Savannah, as operator, will have access to Rio Tinto's existing camp, facilities and equipment to speed up the development of the combined project, which will be able to produce for over 20 years.
Rio Tinto also has agreed to enter into offtake sales contracts to purchase the entirety of heavy mineral sand concentrate production from the combined project.
Savannah has an initial inventory of 200 million tonnes of ore to target at around 7% heavy mineral sands, which will "provide sufficient scale for the initial mine development" to produce over 600,000 tonnes of ilmenite and 40,000 tonnes of rutile per year. It will also produce zircon concentrate.
Rio Tinto has the right to cancel the joint venture at any time, but the company would have to surrender its entire interest in the combined project to Savannah.
More importantly, Rio Tinto has the right to acquire the entirety of the project from Savannah. If that right is exercised before the pre-feasibility study is completed by Savannah, Rio Tinto will have to pay a fee, including for costs incurred on Jangamo before the joint venture was formed.
Savannah shares were down 5.7% to 2.08 pence per share on Monday morning whilst Rio Tinto shares were trading down 0.5% to 2,586.75p.
By Joshua Warner; [email protected]; @JoshAlliance
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