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Richland Resources (LON:RLD) has expanded its gemstone activities with the announcement of a new joint venture.
It has entered into a tanzanite joint venture agreement (JVA) with a group of Tanzanian individuals who own government mining licences for exploring and mining an area 2.5 km south of its existing mine, the firm said.
If successful, it will mean feedstock from the new area, which consists of three tenements, will be fed through the firm's existing processing and sorting plant. The area is currently believed to contain an estimated 500 metres of strike.
Chief executive Bernard Olivier said: "Over the previous 12 months we have entered profit and created one of the most advanced coloured gemstone mining operations in the world.
"This agreement builds on that consolidation of strength and brings Richland a potential new feedstock source of Tanzanite, a finite coloured gemstone found in only one region of the world near Mount Kilimanjaro."
Richland said it planned to begin on the tenements covering 18.75 hectares with mapping, sampling and trenching and will then advise on a further plan.
The terms of the agreement include that ore will initially be processed at Richland's existing facilities.
It will contribute all costs relating to the exploration and mining of ore, but will recover 40 per cent of these costs prior to apportionment of profits realised from sale of gemstones.
The profit after tax from the sale of gemstones will be split 60 per cent to Richland and 40 per cent to the licence holders.
This year has seen the firm change its name. Richland was formerly called Tanzanite One – which reflects the company’s shift in focus from being solely a miner and seller of Tanzanite to a broader based coloured stones group.
"This is encouraging news for Richland. After exploration of the tenements, if the decision is made to mine the property the JV offers Richland the potential to increase its overall mined and processed volumes," said Ambrian analyst Nick Mellor in a note.
"The effect of this would be to provide its marketing department with a larger share of global production. This feature, in such a small market, should help the company to have greater control over the prices it derives for its product.
"The company returned to profitability last year, then rallied strongly off the back of this positive news, but since the beginning of this year (like the rest of its gemstone peers in the space) its share price has suffered. It is the cheapest profitable miner on AIM."
The broker maintains its price target on Richland, with a price target of 33 pence per share (current price: 8.5 pence).