Latin Resources (ASX:LRS) has reduced the price it has to pay the Guadalupito Project vendors in Peru by US$7.2 million with no cash payments until after the release of a successful Definitive Feasibility Study.
The new terms facilitate the company’s goal of attracting direct investment in the project from a joint venture partner.
Guadalupito hosts a JORC Inferred Resource of 1.3 billion tonnes at 5.7% heavy minerals as well as a conceptual exploration target of between 3.9 billion and 5.1 billion tonnes grading 3.2% to 8.4% heavy minerals.
Besides the reduction in the purchase price, a new payment schedule has also been agreed with the pending amount paid in 5 annual instalments beginning 6 months after the release to market of a favourable DFS that the company has a maximum of four years to achieve.
In addition, 2 million ordinary shares will be issued to the vendor every 5th January in 2016, 2017 2018 and 2019.
Chris Gale, managing director, commented:
“Latin is confident that having eliminated any cash obligations to the vendor prior to completing a favourable DFS the project will attract the appropriate investment partner we have been seeking, allowing for all investment going forward being dedicated to the funding of DFS which is the next crucial step to bring the project into production.”
Sale agreement
Besides the reduction in the purchase price as well as the elimination of any cash obligations to the vendor until completion of the Definitive Feasibility Study.
Latin Resources has also agreed to increase the Royalty payment to the vendors from 1.5% NSR to 3.0% NSR, with 1.0% NSR able to be extinguished by Latin Resources by the payment of a further US$10 million at Latin’s option.
The new terms were accepted by the vendors in consideration of the current challenging investment environment, and with the full understanding that deferring cash payments beyond the DFS completion is required in order to achieve the direct investment sought by the company in the Project from a JV partner.
Finally, the letter agreement commits the parties to proceed as soon as possible to complete the required documentation to register the agreement as previous amendments have been under Peruvian law.
The revised cash payment schedule is:
- January 2020: US$250,000;
- January 2021: US$750,000;
- January 2022: US$1 million;
- January 2023: US$2 million; and
- January 2024: US$6 million.
Guadalupito Project
The Guadalupito Project covers 24,000 hectares and consists primarily of andalusite and magnetite.
Discrete liberated mineral grains of recoverable size of zircon, rutile and ilmenite have been identified.
It has established infrastructure, easy access to water and power as well as an attractive location just 25 kilometres from the port city of Chimbote and one of Peru’s largest steel smelters.
Analysis
Today's news of amendments to the Guadalupito sales agreement is significant, as Latin Resources will no longer have to continue with cash payments until completion of the Definitive Feasibility Study.
This paves the way for a potential joint venture partner to view the project on much more attractive terms.
If a partner farms-in to Guadalupito, Latin Resources would have positioned itself to advance the project at a minimal cash spend.
Key catalyst:
Latin Resources securing a joint venture partner to rapidly advance Guadalupito, or one of its other prospective projects.
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