Key Highlights

  • Red Hill has granted Arrow Minerals an exclusive 12-month option to acquire its 100 per cent owned Pannawonica Iron Project.
  • The upfront option fee is $150,000, to be satisfied by the issue of shares in Arrow calculated on a 20-day VWAP.
  • On exercise, Red Hill would receive $1,000,000 plus an uncapped 1.5 per cent gross Revenue Royalty over the tenements and 0.25 per cent over the wider area of influence.
  • Completion remains subject to conditions, including a binding $5 million Capital raising by Arrow and ASX and ministerial approvals.

Red Hill Minerals Limited (ASX:RHI) has entered into a heads of agreement with Arrow Minerals Limited (ASX:AMD) for the proposed divestment of its Pannawonica Iron Project in the West Pilbara region of Western Australia. The arrangement, announced on 10 November 2026, gives Arrow an exclusive option over seven tenements while allowing Red Hill to retain a royalty interest in the project and surrounding ground. The structure places the development risk with the purchaser while preserving exposure to future iron ore production.

Option Terms and Upfront Payment

Arrow has a 12-month exclusive option to acquire 100 per cent of the tenement package, which comprises seven tenements near the township of Pannawonica. The option fee of $150,000 will be satisfied through the issue of Arrow shares priced at the 20-day Volume weighted average price immediately before the heads of agreement was signed. During the option period, Arrow is responsible for minimum expenditure, rents and rates on the tenements and will complete its own technical and commercial assessment.

The company may withdraw during the option period, subject to spending a specified minimum amount on the tenements. Because the upfront payment is in shares, its value to Red Hill will move with Arrow's share price until the shares are sold, which introduces market exposure that is not present in a cash payment.

Royalty Consideration and Area of Influence

If Arrow exercises the option, Red Hill will receive $1,000,000, payable in cash or shares at the purchaser's election, together with an uncapped 1.5 per cent gross revenue royalty on future iron ore sales from the tenements. An additional uncapped 0.25 per cent gross revenue royalty applies to iron ore produced from certain deposits outside the tenements but within a 100-kilometre area of influence. Red Hill also holds a matching right over any sale of a tenement by Arrow after completion.

Gross revenue royalties are calculated on sales rather than profits, which means they are payable regardless of the operator's cost position. The trade-off is that royalty income is only realised if the project proceeds to production, and the timing of any revenue will depend on the purchaser's development decisions.

Project Background and Existing Royalty Portfolio

The Pannawonica project contains a reported Mineral Resource of 62.5 million tonnes grading 53.4 per cent iron on granted Mining leases. Red Hill has previously completed technical and environmental studies, and the project benefits from granted haul road tenure and other infrastructure approvals. The company notes that the proposed transaction gives the project an opportunity to advance under a party focused on its development, without Red Hill directly funding that work.

Red Hill's existing royalty portfolio includes a 0.75 per cent free-on-board royalty over the Onslow Iron Project, which has been generating royalty income since May 2024. It also holds a 2 per cent gross revenue royalty over 1.3 million ounces of gold at Brightstar's Sandstone Gold Hub and a 1.5 per cent net smelter royalty over the Legacy Minerals Thomson project. If the option is exercised, the Pannawonica royalties would be added to this group.

Conditions, Risks and Open Questions

Completion is subject to a number of conditions precedent. Before the option is exercised, Arrow must have received binding commitments from investors for a capital raising of at least $5 million. Completion also depends on approvals required by the ASX, ministerial consent and other conditions usual for transactions of this kind. The announcement does not indicate the likelihood of these conditions being satisfied.

The project's future depends on Arrow's ability to fund and advance development. The royalty income Red Hill would receive is also tied to decisions that sit outside its control, including production timing, Commodity prices and operating costs. The Mineral Resource figure is a reported estimate, and the announcement notes that the company's ability to convert it into production will depend on further technical work.

Final Word

The option agreement provides Red Hill with an upfront payment, a potential cash or share return and a long-dated royalty interest in a project it has previously studied extensively but has not advanced to production. Whether the transaction reaches completion will depend on Arrow raising capital, completing its assessment and satisfying regulatory requirements. Until those steps are resolved, the value of the royalties to Red Hill remains contingent, and the outcome of the option period will provide the clearest indication of the project's direction.