A strategic four-stage plan has underpinned Reach Resources’ (ASX: RR1) successful bid to consolidate its share position, negotiate a farm-in deal, raise cash and focus its attention on multiple targets at its Wabli project in Western Australia’s Gascoyne region.
Earlier this year, the company had more than three billion shares on issue, about $1 million in the kitty and a highly-prospective lithium operation in the Gascoyne region that was likely to require significant funding to properly explore.
Then, an earn-in and joint venture (JV) agreement on its Morrissey Hill and Camel Hill projects in the Gascoyne with neighbouring giant Delta Lithium (ASX: DLI) took care of ongoing expenditure at the two operations. The two companies agreed to a non-refundable cash payment of $3.2 million from Delta, which can earn an initial 51 per cent interest by spending $3 million on exploration within the first two years of the deal.
If Delta earns the 51 per cent interest, the parties have agreed to form an unincorporated JV to further explore the tenements making up the two projects. Delta can then earn a further 29 per cent interest under a stage-two earn-in, taking it up to 80 per cent, upon spending a further $6 million worth of exploration in the two years after stage one completion.
Reach says that upon the stage two earn-in being completed, it can elect to either maintain its 20 per cent JV interest by co-contributing on a pro-rata basis to further costs, or dilute its interest.
The two companies have also agreed to negotiate the terms that could lead to Delta buying out Reach’s 20 per cent interest, assuming the former has either earned its 80 per cent interest or the latter has diluted to 20 per cent. The value of that deal may be determined by an independent expert.
Reach says Delta will be required to pay it $10 million – in cash, shares, or a combination of both – if it delineates a mineral resource estimate equal to or greater than 7.5 million tonnes at 0.8 per cent lithium oxide on the tenements covering the two projects any time within eight years of the agreement’s start date.
In April, the second stage of Reach’s financial overhaul saw it tighten its share structure with a consolidation on a five-for-one basis basis, reducing the amount of issued paper from more than the three billion shares down to about 800 million.
The company also engaged shareholders in a rights issue offer to raise up to $2.1 million, with some $800,000 coming from existing shareholders. The fourth stage involved the announcement of a one-for-one option issuance as a swap for existing holders whose options were set to expire.
The strategy has two key benefits – it keeps longstanding shareholders on side as their options won’t expire and it also keeps the value of the options alive for Reach as they are still exercisable down the track.
The four-stage process has ultimately delivered a far leaner share structure and lower exploration costs for its Morrissey Hill and Camel Hill projects, while still maintaining a vested interest, and improves the company’s bank balance ahead of a planned exploration campaign at its Wabli Creek operation. Just last week, the company identified a magnetic intrusive it believes may be linked to the source of niobium, yttrium and rare earths mineralisation at Wabli Creek.
The oval-shaped target is coincident with previous high-grade results from eluvial samples and soil geochemical anomalies including 32 per cent and 13.3 per cent niobium oxide, 0.72 per cent yttrium oxide and 2.6 per cent total rare earth oxides (TREO). Geophysical consultants Southern Geoscience highlighted the anomaly after a comprehensive review of airborne magnetic and radiometric data.
Management says its existing three highest-priority geochemical targets, highlighted from a tenement-wide soil geochemical survey last year, have been confirmed to be associated with structures at the margin of the newly-identified magnetic intrusive feature.
So, with cash in the bank, the potential for more to come from developments at its Delta JV and future options, and a project with 27 defined targets waiting to be drilled, a well thought-out four-step process has Reach sitting in an enviable position compared to many junior explorers.
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