Legacy Minerals Holdings Limited (ASX:LGM) has entered into a binding Heads of Agreement with Red Hill Minerals Limited (ASX:RHI) under which Red Hill may sole-fund up to $6 million of exploration at Legacy Minerals' 100%-owned Thomson Intrusion-Related Gold and Copper Project in north-western New South Wales, covering tenements EL9190, EL9194 and EL9728.

Key Points

  • Stage 1 requires Red Hill to sole-fund and manage a $2 million exploration program over 12 months on EL9190 and EL9194, including a minimum of 1,500m of diamond drilling targeting at least two targets.
  • Completion of Stage 1 extinguishes Legacy Minerals' right to buy back Red Hill's existing 1.5% Net Smelter Royalty, which was previously exercisable for A$6 million.
  • Stage 2 gives Red Hill the option to earn a 75% interest in the entire Thomson Project by sole-funding a further $4 million over up to 48 months, including a further minimum of 1,500m of diamond drilling.
  • Legacy Minerals retains 100% ownership through Stage 1, does not contribute to exploration expenditure during the farm-in, and holds a 25% participating interest on formation of a joint venture.

Stage 1 Exploration Program and Royalty Buy Back Right

Under Stage 1 of the Heads of Agreement, Red Hill will sole-fund and manage an initial exploration program comprising $2 million of in-ground expenditure on tenements EL9190 and EL9194 over 12 months from satisfaction of conditions precedent. The program includes a minimum of 1,500m of deep diamond drilling aimed at testing at least two targets. If Red Hill completes the minimum drilling but does not reach $2 million of in-ground expenditure, it may pay the shortfall to Legacy Minerals in cash. On completion of Stage 1, Legacy Minerals' existing right to buy back Red Hill's 1.5% Net Smelter Royalty for A$6 million will be extinguished and the royalty will remain uncapped. If Red Hill withdraws or does not complete Stage 1, the Buy Back Right remains in place.

Stage 2 Farm-In Option and Joint Venture Formation Terms

Within 30 days of completing Stage 1, Red Hill may elect to earn a 75% interest in the entire Thomson Project by sole-funding a further $4 million of in-ground expenditure over a maximum of 48 months. Red Hill must incur a minimum of $2 million of in-ground expenditure and complete a further minimum of 1,500m of diamond drilling within the first 24 months of the farm-in period before it may withdraw. On completion of the earn-in, an unincorporated joint venture will be formed with Red Hill holding a 75% participating interest and Legacy Minerals a 25% participating interest. Red Hill will be the initial manager, with a management fee of 5% of joint venture expenditure, and programs and budgets approved by an operating committee voting in proportion to participating interests.

Thomson Project Drill Targets and Formal Agreement Timeline

The exploration program will target the Thomson Project's drill-ready "bullseye" magnetic anomalies, including follow-up of a broad gold intercept of 377m at 0.1g/t Au (no cut-off) from 225m at Cut-Ai. Priority drill targets identified in the filing include Cut-A, Cut-AC and Cut-Ciii. The parties will execute a formal agreement reflecting the Heads of Agreement within 30 days of signing, with the HOA remaining binding in the meantime. The formal farm-in and joint venture agreement will be based on the ER Law example two-party exploration joint venture agreement. Expenditure under the HOA is measured as in-ground exploration expenditure claimable under the Mining Act 1992 (NSW), including tenement holding costs and a deemed 10% allowance for administration.