Rio Tinto (NYSE: RIO) has entered into an earn-in and joint venture agreement with Vancouver-based junior Midnight Sun Mining (TSXV: MMA), under which the Anglo-Australian miner can earn up to a 75% interest in the latter’s Solwezi licenses.
The Solwezi licenses comprise two individual exploration licenses totalling 506 square kilometres (195 square miles) situated in the North-Western Province of Zambia, adjacent to First Quantum Minerals’ Kansanshi mine — Africa’s largest copper mining complex and one of the world’s biggest copper producers.
Other notable copper operations in the region include the Sentinel mine, also owned by First Quantum, and Barrick Gold’s Lumwana mine.
As part of the agreement, Rio Tinto will make an initial payment of $700,000 to Midnight Sun, as well as fund an initial work program on the Solwezi licenses by spending $3 million, of which $2 million is a firm commitment, within the next two field seasons.
On completion, a further $300,000 will be paid to Midnight Sun before Rio proceeds with the additional expenditures.
When the initial work program is complete, Rio would earn 51% ownership of the Solwezi licenses by incurring a further $16 million in work expenditures within four years and making a total of $1 million in additional scheduled cash payments to Midnight Sun.
The company can then earn an additional 14% ownership of the licenses by incurring another $14 million in work expenditures or completing a feasibility study within three years, and making an additional $1 million in cash payments to Midnight Sun.
Afterwards, Rio Tinto can earn a further 10% ownership by spending an additional $15 million on work within two years.
In total, Rio Tinto would spend $51 million to acquire 75% ownership of the Zambian copper deposits.
Shares of Midnight Sun opened 20.2% higher on Monday with news of the Rio Tinto agreement. The junior miner has a market capitalization of C$18.3 million.