Key Highlights

  • Manda Resources can earn up to 35% of Jundee South by sole-funding up to A$10 million of exploration.
  • Avenira Gold keeps 65% of the project and control during the earn-in.
  • The agreement settles Manda’s objections and forfeiture applications in the Warden’s Court.
  • Stage 1 requires A$4 million of spending within 24 months for a 14% interest.

Avenira (ASX:AEV) and its Subsidiary Avenira Gold have signed a binding term sheet with Manda Resources, an unlisted public company backed by Emerald Resources (ASX:EMR), covering the Jundee South gold project in Western Australia. Under the deal, Manda can earn up to 35% of the project by sole-funding A$10 million of exploration, while Avenira Gold keeps 65% and control.

The agreement also settles a dispute. Manda had lodged objections and forfeiture applications in the Warden's Court over several Jundee South tenements, which Avenira opposed. Following the signing, Manda has withdrawn all of them and undertaken, for itself and its associates, not to lodge or assist any further forfeiture application, plaint, objection or competing application over any Avenira tenement. That undertaking continues even if the earn-in ends or Manda sells its interest.

How the earn-in works

Manda can earn its interest in three stages. Stage 1 requires A$4 million of spending within 24 months for a 14% interest, and is a firm commitment. Stage 2 requires a further A$3 million within 12 months for another 10%, and Stage 3 a further A$3 million within another 12 months for 11%.

Stages 2 and 3 are at Manda's election, and the terms penalise stalling. If Manda does not proceed to or complete Stage 2, it forfeits its Stage 1 interest. If it completes Stage 2 but not Stage 3, it keeps its 14% but loses the Stage 2 interest.

During the earn-in, Manda will manage exploration through a joint venture committee it initially chairs. After completion, Avenira Gold will appoint the manager, chair the committee and control decisions on a 65:35 basis.

Why Avenira agreed

Chairman and chief executive John He said the arrangement provided exploration funding while preserving Avenira's majority interest, allowing it to focus resources on its Wonarah phosphate project in the Northern Territory. Wonarah is supported by funding facilities from Hebang of up to A$85 million.

For a company with a small size and a large development project elsewhere, having a partner fund gold exploration is an efficient use of capital. The removal of the forfeiture claims also eliminates a title risk that could otherwise have absorbed management time and legal costs.

The trade-off is dilution at project level. If Manda completes all three stages, Avenira will have given up 35% of Jundee South in exchange for A$10 million of exploration it did not have to fund.

Because Manda must spend money to earn its interest, and loses earned interests if it stops early, it has a reason to explore actively. Avenira, meanwhile, retains upside from any discovery through its majority stake without contributing cash during the earn-in period.

Location and listing options

Jundee South comprises exploration and prospecting licences in the Yandal greenstone belt, south of Northern Star Resources' Jundee operation and north of the Bronzewing and Darlot mines. That is well-endowed ground, although proximity to established mines does not guarantee discoveries.

Avenira may elect to list the project interests on the ASX through Avenira Gold or another vehicle, in which case Manda could subscribe on the same terms as other investors, capped at 19.9%. Avenira and its associates may also subscribe for up to A$4 million in Manda's own proposed IPO. Manda intends to lodge a prospectus shortly and seek ASX admission this year; it is not currently listed.

Risks and next steps

The parties must use best endeavours to sign definitive agreements, and any party can terminate the term sheet if they are not executed within 45 days. Avenira flags the risk that final terms are not agreed or that Manda does not meet its spending obligations. The definitive agreements and the progress of Manda's IPO are the next items to watch.