Lindian Resources (ASX: LIN) will pick up between $1 and $2 a tonne by way of a royalty over its Woula bauxite project in Guinea, with Guinea-based firms Enterprise Generale d’Entretien & Construction and Lancinet Dabo set to lease and mine the project.
Lindian says Woula will likely churn out about 2m tonnes a year and notably, production should commence within 12 months, setting up a handy income stream for Lindian as it looks to commercialise its massive Kangankunde hard rock rare earths asset in Malawi.
The lease deal is for 10 years and Lindian will continue to receive the royalty for as long as the project produces bauxite.
The Guinean parties to the agreement have committed to advancing the Woula bauxite project to construction within 8 months.
According to Lindian they are well-established in-country, with strong interactions and relationships with government and the mining ministry.
The US$1 to US$2 per tonne of bauxite royalty will be determined definitively once the ownership structure of the producing entity is locked down. The Woula deposit boasts some 19 million tonnes at 41.7 per cent aluminium oxide.
The agreement also provides for Lindian to transfer the Woula leases to the lessees following the production of 10 million tonnes of bauxite - or after 5 years - whichever comes first, with Lindian’s royalty to continue for as long as bauxite is produced from the tenement area.
An additional fillip to the deal comes with Lindian securing preferential rights to port facilities in northern Guinea where the lessees have excess capacity.
This has come about because of their recent role in a consortium which has undertaken positive feasibility studies and agreed to government protocols for the establishment of an independent export terminal in the Boké region in Guinea’s south-west.
The port project was led by SIG Infrastructure and the lessees, in collaboration with STS Group, with the aim of resolving existing challenges related to the exportation of mineral resources from the country, which comprise mainly bauxite.
The proposed new port feasibility study was undertaken to international standards and confirms the site’s capacity to support a multi-user terminal, capable of long-term handling of up to 20 million tons of bauxite per year and also includes supporting infrastructure such as barge piers, loading systems, and storage facilities.
The lessees are currently securing an Exploitation Licence - a right to develop resources under the Guinea mining legal framework for the project - while simultaneously launching initial project works, including mine planning and developing site access.
Lindian is also involved in ongoing negotiations on development of its two other bauxite assets in Guinea with existing parties – with whom it already has MOUs in place - and also with new groups.
The other two projects comprise Lindian’s 83.8 million tonne, 58.4 per cent aluminium oxide Gaoual project and its 900 million tonne, 45 per cent aluminium oxide Lelouma project, both of which lie about 100 and 175km north-east of the Boké township, while Woula lies 42km to the north-west of Boké.
Boké lies about 45km upstream from the mouth of the Nunez River where the main port at the river-mouth, Kamsar, handles a significant part of the world’s bauxite production.
Ships calling at Port Kamsar and heading direct to the quay of Guinea Bauxite Company for loading bauxite are limited to an overall length of 229m, which has led to a new dry bulk carrier category known as Kamsarmax.
The port features a standard gauge railway line which brings bauxite to the port from the country’s Sangarédi mine, about 58km north-east of Boké and 108 km north-east of Kamsar.
This binding lease and royalty agreement with a well-established Guinean company and executive will deliver a meaningful passive annual royalty stream to Lindian. It marks the first step in the Company monetising its bauxite assets and importantly, does not require us to make any capital contribution. Lindian is making good progress on multiple fronts particularly with respect to financing Kangankunde with a number of negotiations ongoing and some at an advanced stage. This reinforces our commitment to the asset as a top priority. Lindian’s leadership is united in this commitment to deliver optimal results for all investors and stakeholders.
Lindian Executive Chairman Asimwe Kabunga
Lindian owns 61 per cent of Woula Natural Resources SARL which owns 100 per cent of the beneficial interest in the Woula.
If minerals of value other than bauxite are found on the tenements, the lessees and Lindian will negotiate and enter into a further royalty deed in relation to those minerals under terms consistent with royalty arrangements usually adopted for such minerals.
Under the new lease agreement, the lessees have the option to buy-out the royalty, and Lindian’s interest in Woula at any time, by paying Lindian a buy-out price which is structured so if the buy-out is exercised in Year 1, the price is US$15 million and for each following year, the price would reduce by US$1 million per year until Year 10, where the buy-out price would be US$6 million.
Thereafter, the buy-out price for Year 11 and for each subsequent year is US$5 million.
Lindian’s flagship project is its Kangankunde hard rock rare earths project in Malawi which is one of the world’s biggest rare earths deposits and regarded as a top-tier project in terms of its high rare earths grade, low impurity levels and low radioactive mineral content. It is also notable for its 1000m long high grade mineralised intersections showing grades as high as 2.7 per cent TREO.
While Kangankunde is the main game for Lindian, the monetising of its bauxite assets in Guinea could not come at a better time and will provide some handy financial support as the company looks to get probably the highest quality hard rock rare earths deposit on the planet into production.
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