THE BOURSE WHISPERER: Avalon Minerals (ASX:AVI) has signed a binding Heads of Agreement (HOA) with Hannans Reward (ASX:HNR).
Avalon has agreed to buy Hannans’ Discovery Zone and Tributary Zone prospects as well as the exploration area surrounding the Discovery Zone located in the Kiruna district of Sweden for $4 million.
The Discovery Zone has a current JORC Inferred Mineral Resource of 10.9 million tonnes at 0.31 per cent copper, 38.7 per cent iron and 0.08 grams per tonne gold, reported above a 20 per cent iron cut-off.
The prospects are currently 100 per cent-owned by Hannans subsidiary, Kiruna Iron.
Source: Company announcement
The acquisition is conditional upon the completion of legal and technical due diligence by Avalon on the Discovery Zone prospect, to be conducted by 23 November 2012.
If the company is not satisfied (Condition Precenden), the HOA will terminate and the acquisition will not proceed.
“The acquisition of the Discovery Zone prospect provides an exciting opportunity to expand the company’s exploration portfolio and complements Avalon’s strategy to deliver significant long term growth opportunities to its shareholders,” Avalon Minerals managing director Jeremy Read said in the company’s announcement to the Australian Securities Exchange.
“The location of the Discovery Zone prospect, approximately 10 kilometres from the Viscaria copper project, offers the potential to add up to $100 million in value to Viscaria, bringing the total project Net Present Value to potentially US$300 million, by trucking mineralisation from Discovery over to the planned processing plant at Viscaria, extending the life of the overall project to 9.5 years and allowing an increase in the mining rate.
“The copper-iron mineralisation at the Discovery Zone is very similar in nature to the copper-iron mineralisation at Avalon’s existing D Zone Mineral Resource.
“Therefore, we believe that the Discovery Zone mineralisation will be processed through the processing plant planned for Viscaria and this is the main reason that this acquisition is such a value adding opportunity for Avalon.”
Under the HOA, Avalon will be required to make the following payments to Hannans:
– A non-refundable cash deposit of $100,000 when the Condition Precedent is satisfied;
– A non-refundable cash payment of $300,000 when a formal sale and purchase agreement for the acquisition is executed by Avalon and Hannans. This formal agreement is required to be signed within 30 days of the First Payment unless otherwise agreed by the parties and will be consistent with the terms set out in the HOA and will contain customary terms and conditions for a transaction of this nature;
– $1.6 million when written notification from the Mining Inspectorate of Sweden is received, noting that the Mining Inspectorate of Sweden formally approves the complete transfer or assignment of the Discovery Zone prospect to Avalon on conditions (if any) acceptable to Avalon; and
– $2 million when Avalon receives full, unencumbered title to the Discovery prospect. Up to $1 million of this final payment may, at Avalon’s sole and absolute discretion, be paid by Avalon issuing Hannans or its nominee up to $1 million worth of Avalon shares.
The HOA also allows Avalon to take over responsibility for an existing Net Smelter Royalty of 1.5 per cent for the Discovery Zone prospect.