Zanaga Iron (LSE: ZIOC) has signed a binding term sheet with Red Arc Minerals that could see up to $25 million invested to advance its namesake iron ore project in the Republic of Congo towards a final investment decision.
The agreement outlines a staged investment by Red Arc Minerals, a private group founded by former Xstrata CEO Mick Davis, starting with an initial tranche of up to $25 million in cash to fund engineering and other pre-production work.
That funding, to be paid in five equal parts, would earn Red Arc an aggregate 20% interest in Jumelles, Zanaga’s subsidiary and the project owner.
$125M option
A second tranche gives Red Arc the option, exercisable within 18 months of completing the first stage, to pay $125 million in cash to Zanaga for an additional 68% fully diluted stake in Jumelles, lifting its ownership to 88%.
If that option is exercised, Zanaga would retain a 1% net sales revenue royalty on iron ore concentrate sales, with Red Arc able to buy back half of the royalty for $50 million.
Zanaga said the structure leaves the listed company itself non-dilutive. The transaction allows the project to move through the pre-production stage and towards a final investment decision, CEO Martin Knauth said.
The deal remains subject to due diligence, the execution of definitive agreements, and approval from shareholders and regulators, as set out in the term sheet.
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