The agreement with Heavy Metals Exploration includes an option to acquire 25 percent of the project for a cash payment of AU$150,000 and AU$200,000 worth of ordinary shares.
Australia-based Eastern Iron (ASX:EFE) has entered into a call option agreement with Heavy Metal Exploration to acquire an interest in the Mount Cobalt Corridor project in Queensland, the company announced on Tuesday (August 28).
“The project is in one of the few areas globally with a history of high grade primary cobalt production,” the company said in a statement.
According to the company, previous works in the region were mainly for copper and gold. However, cobalt mineralization was identified and cobalt production of about 800 tonnes (t) at Mt Cobalt occurred in two periods: 1919 to 1943 (778 t) and 1996 to 1997 (21.5t).
Before Eastern Iron can complete the deal to acquire an interest in the copper-cobalt sulphide project, it will have to pay a call option fee of AU$10,000 by September 11.
The agreement will include an option to acquire 25 percent of the project for a cash payment of AU$150,000 and the issue of AU$200,000 worth of ordinary shares.
The deal also considers an option for Eastern Iron to buy 100-percent interest in the asset by launching a farm-in agreement with Heavy Metals and agreeing a royalty payment.
The farm-in agreement will include a stage 1 period, in which the company must spend AU$650,000 on the project within the first 24 months to acquire an additional 35-percent interest in the asset.
To be able to buy the remaining interest, in stage 2, Eastern Iron must spend an extra AU$1.5 million on the project within 3 years after stage 1 is completed.
Meanwhile, Eastern Iron will negotiate a royalty payment, which will include a 0.5 percent net smelter return royalty for Heavy Metal on all the copper produced at the project, capped at 30,000 t and as long as copper prices stay above US$6,000 per tonne.
The deal is expected to close 30 days after receiving shareholder and government approvals.
Aside from Mount Cobalt Corridor, Eastern Iron is evaluating and exploring a number of mineral projects in the eastern states of Australia, including the Nowa Nowa iron and copper project in Victoria.
On Wednesday (August 29), shares of Eastern Iron closed at AU$0.008.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.