Hannan Metals Limited (CVE:HAN) (OTCPINK:HANNF) (FRA:C8MQ) unveiled Monday a milestone deal with Japanese state-owned group JOGMEC, which sees the latter able to earn up to a 75% stake in Hannan's giant Peruvian project by spending up to US$35 million.
The partners will advance the San Martin asset, which spans over 656 square kilometres (sq km), in a bid to make a new discovery in what is believed to be a new, basin-scale high-grade copper-silver system.
The binding option and joint venture deal grants JOGMEC an initial option to earn 51% of the project by spending US$8 million on exploration over four years. The minimum commitment is to fund US$8 million between April, 2020 and March 31, next year. The Japanese group will backdate and reimburse Hannan for all project-related costs from April 1 this year.
"JOGMEC are the perfect partner for such a large and prospective early-stage exploration project, that will need significant budget and time commitments," Michael Hudson, the chief executive of Hannan, told investors in a statement.
"JOGMEC's exploration funding, of up to US$35,000,000, will allow a focused and accelerated exploration program in Peru, thereby maximizing the chances of success while minimizing shareholder dilution.
"We look forward to a long and successful relationship with JOGMEC, as we work together with local stakeholders, with a common aim to make a significant copper-silver discovery in Peru. Concurrently, Hannan will continue to progress exploration on its other projects."
JOGMEC can then earn 67% by achieving a pre-feasibility study or incurring US$12 million of project costs.
It can then earn a further 8% interest for 75% by generating either a feasibility study or funding a further US$15 million in project expenditures.
After the US$35 million has been spent, and before a feasibility study, both parties will fund expenditures pro-rata. If the participating interest of either firm is diluted to less than 5%, it will automatically be converted to a 2% net smelter royalty (NSR), and the other party may at any time purchase 1% of the 2% NSR for cash of US$1 million.
Should JOGMEC not proceed to a pre-feasibility study or spend US$20 million in total, Hannan can buy a 2% participating interest for US$1.
Hannan Metals' participating interest will be increased to 51% and JOGMEC's will be reduced to 49%.
San Martin enjoys good access and comprises 87 concessions and lies in the foreland region of the eastern Andes. Analogues include the Spar Lake sediment-hosted copper-silver deposit in Montana and the vast Kupferschiefer deposits in Eastern Europe, said Hannan.
Mineralized outcrops and boulders have been discovered with consistent geology over 120km of combined strike.
Results from outcrop channel sampling, located 20km apart, from the southern Sacanche area have included 3 metres (m) at 2.5% copper and 22 grams per ton (g/t) silver and 2m at 5.9% copper and 66 g/t silver.
Hannan says the exploration potential for the area is highlighted at four separate areas at Tabalosos, located 80km north of Sacanche, where high-grade copper and silver has been discovered over 15km of strike within at least two structural corridors.
Initial exploration under the JOGMEC deal is set to include mapping and prospecting, geochemical rock chip, soil and stream sediment sampling and trial geophysical surveys with the first phase expected to end in March 2021.
Shares in Toronto advanced over 12% to C$0.45 each.
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