Ann: Western Areas Farms-In to Fowlers Bay Nickel Project, page-2

Important news for me, I've been very interested in seeing Fowler's Bay explored for nickel sulphides.

First up, great partner. I don't think we could ask for much better than WSA - proven nickel explorers and successful producers. Big tick BB, well done.


Structure. Fairly standard really for a minnow working with a major.
- free carry. We don't have to do any fundraising for Fowlers Bay for some time, until a JV is declared with $1.2 million to be expended by WSA before that occurs. This is positive given the cash flow drain it's been just maintaining title to tenements let alone meeting minimum expenditure requirements. That leaves more of the current capital raising for our other assets. Plus, we get to participate in any market excitement on discoveries which, because this is complete blue sky, may be a significant lifter.

- dilution. I've been thinking about this for some time. 10% position at likely JV stage with option to dilute or convert to 1% smelter royalty is orthodox although not generous. It is a cheap deal for WSA. In my personal better case scenario I was hoping for 20-30% ownership and maybe 2-3% royalties but to be honest that's a pipedream and it would never get a quality partner on board like WSA at virgin exploration stage especially with how weak our bargaining position is.
Considering the scale of capital required to get a potential mine running it's unlikely we could ever contemplate being able to maintain a 20-30% position, I just would have liked the number. Practically speaking, 10% is a statement up front of what management thinks reflects a stake that a minnow like us (ignoring what may happen with our mineral sands) might have some chance of maintaining AND they could fight for in negotiations from our very weak capital position. Am i disappointed not to get my pipedream? A little however, while the deal is not generous it is sound enough and it's better to still be in the game than dealt out entirely plus I like the idea of being associated with a reputable explorer/producer. The pluses comfortably outweigh the minuses for me.

- options. In the long run, in the speculative event of a feasible project our options will be open. Pragmatically between maintaining 10%, diluting or smelter royalty it's probably going to be the latter. Usually it seems small partners go for the smelter royalty - it's easier and can be more valuable depending on price cycles because it's effectively a cost of production for the miner, as I see it.

let's dig!