Mundoro Capital (MUN.V) has announced is has established an alliance with Vale Exploration Canada, a subsidiary of Vale (VALE), the well-known iron ore and copper producer. The term sheet has been signed and a definitive agreement is expected to be signed in the current quarter.
The alliance has an initial term of two years wherein Vale will fund all the generative work performed by Mundoro in the pre-determined area of interest (which are the states of Arizona and New Mexico), whereby Mundoro will earn a management fee. Once an exploration project has been confirmed as a ‘Designated Project’, Vale can subsequently earn a 100% interest in the project by spending US$1.5-2.5M over a 2-3 year period, make property payments to the tune of US$500,000 per project during a three year period and make additional payments totalling US$9M upon the completion of four milestones (which for instance include resource calculations and receiving all permits to bring the projects to production).
The most interesting feature would be the 2% NSR which would be granted to Mundoro on the Designated Projects. Not only could those end up being very valuable (as Vale isn’t interested in small-scale or even mid-scale projects), but Vale has also committed to make annual advance royalty payments of US$200,000 per project. So even if the alliance comes to an end and for instance two projects have received the Designated Project status, Mundor will receive in excess of C$500,000 in cash on an annual basis which will help to cover the annual cash burn of the company.
Disclosure: The author has no position in Mundoro nor Vale. Please read our disclaimer.
