Montezuma Mining Company (ASX: MZM) has entered into an option agreement with Resource and Investment NL (ASX: RNI) to sell the its Peak Hill Project for a consideration comprising cash and shares.
Montezuma will use the additional capital from the disposal of the Peak Hill asset to support the company's ambition of bringing the wholly owned Butcherbird manganese and copper project into production.
The option agreement
The option agreement is with RNI's wholly owned subsidiary Grosvenor Gold Pty Ltd to acquire 100% of Montezuma’s interest in the Peak Hill Project by the acquisition of Peak Hill Metals Pty Ltd (a wholly owned subsidiary of Montezuma).
Key terms of the deal include:
- Grosvenor to pay an initial option fee of $100,000 for an exclusive option until 29 March 2013;
- Grosvenor may exercise the option at any time prior to expiry by paying to the Company $2.8M in cash and issuing 8,400,000 fully paid ordinary shares and 2.1M 75 cent options in RNI;
- If it exercises the option, Grosvenor must also grant the company a 1% Gross Royalty, capped at $1M, on all revenue it receives from production from the Peak Hill Project;
- Grosvenor must meet minimum expenditure commitments on the project during the option period; and
- Grosvenor may extend the option period to 28 June 2013 by paying Montezuma an additional $50,000.
Option agreement benefits for Montezuma
Importantly for Montezuma - the combined cash and script structure of the deal, (subject to Grosvenor electing to exercise their option), delivers an up front return for the company.
Another plus is that Montezuma will maintain exposure to future upside as RNI realises their ambitions to recommence gold production in the region, centred around their processing plant at Fortnum.
Montezuma can utilise the additional capital to support the company's ambition of bringing its wholly owned Butcherbird manganese and copper project into production.
Montezuma remains very well funded with $8.6 million in cash at the end of the June 2012 quarter, yet the company currently has a market cap. of just $17 million.
The company also has additional key share positions in Auvex Manganese, Buxton Resources (ASX: BUX), Lithex Resources (ASX: LTX) and Exterra Resources (ASX: EXT) worth around another $2 million - therefore the Enterprise Value of its projects is around just $7 million.
It is also worth noting that the Butcherbird Project hosts the largest onshore manganese occurrence in Australia, which occurs in shallow flat lying zones with the ore occurring as discrete high grade bands interbedded with clay waste.
These zones are often overlain by a cap of high grade ore which is being targeted as potential direct shipping ore material.
Importantly - the style of the mineralisation at Butcherbird is amenable to relatively low cost beneficiation which contributed to the positive outcome of a Scoping Study completed in 2011.
Taking this highly prospective nature of the project into consideration, along with Montezuma's additional interests in other projects such as Durack (earning 85%) gold, copper and Mt Padbury (100% of gold) gold, manganese, iron - Proactive Investors considers that the Montezuma valuation is slight with the potential for a near term re-rating. We believe the share price should be trading in the $0.30 - $0.45 range.
Highlighting the possible Montezuma upside, the company is currently trading at just $0.25 a share, down from the 12 month high of $0.80 in November when the company announced some very impressive high grade copper intersections at Butcherbird.
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