Leading mid-tier Australian mining and exploration company, Sandfire Resources NL (ASX: SFR) has exercised its option under the subscription agreement which was announced on 10 July 2018 to enter into a Joint Venture Agreement with White Rock regarding White Rock's globally significant high-grade zinc and precious metals VMS Red Mountain Project in central Alaska. Following this news, the share price of the company increased by 3.006 percent as on 27 December 2018.
White Rock first entered into a strategic relationship with Sandfire Resources in July 2018 by entering into a subscription agreement in relation to the Red Mountain Project. The strategic relationship was comprised of an AUD$2.5 million equity placement in which Sandfire placed around 208 million fully paid ordinary shares in White Rock at A$0.012 per share and also issued 104,166,667 unlisted options to raise the total amount of A$2.5 million. Under the terms of the strategic relationship’s subscription agreement, Sandfire was having the right and an exclusive option to enter into an earn-in joint venture (JV) agreement with White Rock in relation to the Red Mountain Project. As of now, Sandfire has exercised its option to enter into to the Joint Venture, and this Joint Venture will allow White Rock to benefit from Sandfire’s significant technical expertise for the development of White Rock's Red Mountain Project.
As per the terms of the Subscription Agreement, in stage 1, Sandfire will fund a total of AUD$20 million over four years to earn 51 percent, with a minimum expenditure by Sandfire of AUD$6 million in the first year. In the next stage (Stage 2), Sandfire will fund a further AUD$10 million and deliver a pre-feasibility study (PFS) over an additional two years to earn up to 70 percent interest in the Joint Venture.
In Stage 3, White Rock will have an option to contribute to the JV. However, If White Rock elected not to contribute, Sandfire can sole fund Stage 3 to earn 80 percent interest in JV by completion of a definitive feasibility study and can subsequently earn 90 percent interest in Stage 4 if White Rock remained on its decision to not contribute. At Stage 4 White Rock's 10% interest will be earned from the project cash flow.
As per the agreement, White Rock is entitled to continue managing the project for at least the first year of the earn-in and to be paid a management fee equal to 10 percent above all project expenses. Half of the fees will be paid on signing of the Joint Venture and the other half will be paid in three equal installments and each installment will represent 16.67% of the management fee) on a quarterly basis thereafter.
In the September quarter of 2018, Sandfire Resources NL produced 17,924t of contained copper and 11,141oz of contained gold at C1 cost of US$0.89/lb. In FY 2019 the company is expecting to produce 63-67kt of contained copper and 37-40koz of contained gold with C1 costs of around US$1.00-1.05/lb.
Meanwhile, in the last six months, the share price of Sandfire decreased by 33.96 percent as on 24 December 2018 and traded at a PE ratio of 8.120x. SFR’s shares traded at $6.510 with a market capitalization of circa $1.01 billion as on 27 December 2018 (AEST 12:20 PM).