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LONDON (Alliance News) - Savannah Resources PLC Monday said it has established a joint venture with FTSE 100-listed mining giant Rio Tinto PLC, which will result in both companies combining their heavy mineral sands projects in Mozambique.
Under the deal, 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.
Rio Tinto already had an exploration target at Chilubane of 7.0 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 now be added to Rio's resource.
Savannah, as operator, also 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 said it will initially target 200 million tonnes of ore 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.
"In order to meet these development objectives the joint venture considers a consolidation of the Mutamba and Jangamo projects to be a sensible strategy as the mineralised system runs across both projects," said Savannah.
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 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.
Earlier in June, Savannah Chief Executive David Archer told Alliance News that Jangamo could potentially be spun off in the longer term because it "will not sit well" next to its gold and copper project in Oman. He also said that Jangamo was a "much more modest" financial requirement compared to Oman.
Savannah has formed the joint venture with Rio Tinto through its subsidiary, Matilda Minerals Ltda, in which it currently owns an 80% stake. That subsidiary holds the rights to Jangamo, and Savannah has agreed to acquire the remaining 20% stake in Matilda as part of the deal.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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