Galena Mining Ltd (ASX:G1A) has secured the equity needed to develop its globally significant Abra Base Metals Project in WA’s Gascoyne region through a $90 million agreement with Japan’s Toho Zinc Co Ltd (TYO:5707).
A Terms Sheet executed with Toho will result in it gaining 40% ownership of Galena’s wholly-owned subsidiary, Abra Mining Pty Ltd (AMPL), which owns the project.
The agreement involves the international zinc and lead smelting company investing $90 million in three tranches.
READ: Galena Mining boosts Abra lead reserves by 8% and adds a year to mine life
Galena’s managing director Alex Molyneux said, “This is a great transaction that provides the equity required to develop Abra, recognising the strategic value of the project.
“Furthermore, Toho is a key player in the global lead and zinc industry and an experienced miner, so we look forward to the benefits of a true partnership in the development of Abra.”
Assuming conditions are satisfied and each tranche of Toho’s investment is completed, Galena will retain a 60% controlling shareholding in AMPL.
This will result in Galena appointing three out of five directors on its board.
Procuring project financing debt
Toho also proposes to assist AMPL to potentially procure a contribution to project financing debt through the attractive programs available from policy financing for Japan-related projects.
READ: Galena Mining’s final permit on track for Abra project
Galena continues to target the start of construction at Abra in 2019, with initial production in 2021 and the first full-year of steady-state commercial production in 2022.
As part of the agreement, Toho and Galena will each have a right to off-take their percentage share of Abra production on arms-length, benchmark terms, and then on-sell to third-parties.
An initial tranche of $20 million is to be paid on closing the transaction and a further $10 million will be paid on completion of the Abra DFS.
First two tranches for early development
Galena and Toho have agreed to apply the majority of the first two tranches to pre-development and early development works at Abra, thereby substantially advancing and de-risking the project.
The final $60 million tranche will be paid on confirmation of project financing debt.
Based on timelines for confirmatory due diligence and third-party regulatory approvals, Galena anticipates the definitive documentation to be executed and the first payment to be made in April 2019.
READ: Galena Mining optimises PFS ahead of publishing DFS in mid-2019
Galena remains on track with work at Abra including the proposed delivery of an optimised pre-feasibility study in coming weeks and completion of the definitive feasibility study in mid-2019.
10.3-million-tonne reserve
Abra hosts a JORC-compliant probable ore reserve estimate of 10.3 million tonnes at 8.8% lead and 24 g/t silver.
This is within an indicated and inferred mineral resource estimate at a 5.0% lead cut-off of 37.4 million tonnes at 7.5% lead and 18 g/t silver.
Significant zinc-lead player
Toho was founded with the establishment of the Annaka Zinc Smelter and Refinery in 1937 followed by its zinc and lead mine operation in Japan.
With the addition of further smelters and refineries, Toho has grown to account for 20% of the Japanese domestic market share for zinc production.
Concentrate produced in tests of Abra ore.
It is also the Japanese leader in lead production, is a leading domestic producer of silver and has the only primary lead smelter in Japan.
In 2010, Toho acquired the publicly-listed Australian mining company CBH Resources Limited to increase Toho’s self-sufficiency for zinc and lead ore.
Through CBH, Toho continues to be a significant miner of lead, zinc and silver in Australia via the Rasp mine in Broken Hill and the Endeavor mine near Cobar.