Key Highlights

  • Red Hill can earn 75 per cent of the Thomson gold-copper project in a two-stage earn-in.
  • Up to A$6 million of exploration will be funded, with Stage 1 at A$2 million and diamond drilling.
  • Completing Stage 1 extinguishes Legacy's right to buy back the royalty.
  • Red Hill already holds a 1.5 per cent net smelter return Royalty over the project.

Red Hill Minerals (ASX:RHI) has agreed terms to fund up to A$6 million of exploration at the Thomson gold-copper project in New South Wales, which is owned by Legacy Minerals Holdings (ASX:LGM), in return for the right to earn a 75% interest. The earn-in is structured in two stages.

Red Hill already holds a 1.5% net smelter return royalty over the project. Under the existing arrangements, Legacy had the right to buy that royalty back for A$6 million. A key feature of the new agreement is that completing the first stage of the earn-in extinguishes that buyback right, leaving Red Hill with an uncapped royalty over any future production from the project area.

Stage 1: A$2 million and diamond drilling

In Stage 1, Red Hill will sole-fund A$2 million of exploration on exploration licences EL9190 and EL9194. That spending must include at least 1,500 metres of diamond drilling across two or more targets, to be completed within 12 months of the agreement's conditions being satisfied.

The first stage gives Red Hill an early, defined commitment that results in drilling on the ground rather than solely desktop work. For Legacy, it means exploration on part of its portfolio is funded without the company drawing on its own cash for that work.

Stage 2 and the joint venture

Once Stage 1 is completed, Red Hill has a 30-day window to elect to proceed to Stage 2. That stage requires a further A$4 million of spending over a maximum of 48 months across the full three-tenement project. Within the first 24 months of Stage 2, Red Hill must spend at least A$2 million and complete 1,500 metres of diamond drilling before it can withdraw.

If both stages are completed, a joint venture would be formed with Red Hill holding 75% and acting as manager, and Legacy retaining 25%. The joint venture would be subject to the royalty and to dilution provisions, meaning a party that does not contribute its share of future spending could see its interest reduced.

Why it matters

For Red Hill, the structure links two exposures to the same ground: a direct Equity path through the earn-in and the royalty, which would no longer be subject to buyback once Stage 1 is completed. That combination means any future discovery could benefit the company through both its project interest and its royalty. For Legacy, the arrangement brings in a funding partner while preserving a 25% stake, although its share of future costs and any dilution would depend on how the joint venture develops.

Earn-ins of this kind are common in early-stage exploration because they allow a project owner to advance ground without issuing shares, while the incoming partner commits Capital in stages and can reassess at each decision point. For Red Hill, the staged approach limits its firm initial commitment to A$2 million while opening a path to majority ownership and management control, should early results justify further spending.

Risks and next steps

The agreement is subject to conditions, and the 12-month Stage 1 timetable runs only from when those conditions are satisfied. Red Hill is not obliged to proceed beyond Stage 1, and can withdraw from Stage 2 once its minimum commitments are met, so the full A$6 million is not guaranteed to be spent.

The immediate next step is satisfaction of the conditions and planning of the Stage 1 diamond drilling on EL9190 and EL9194. Drill results from that work will be the first real test of the targets and will likely inform Red Hill's decision on whether to commit to the second stage.