phantom162,That is certainly a possibility and I wouldn't be...

phantom162,

That is certainly a possibility and I wouldn't be suprised if some sort of earn in forms part of the deal (if there is a deal?).

There is another way it might be looked at also. Take the present position with Cockatoo. Pluton has 10.8Mt of indicated and inferred Resource calculated in accordance with the JORC code. Additionally, there are already a number of exploration drills that have been undertaken by previous owners showing that there is IO down to a couple of hundred metres with grades at 68.5% (or greater). While the extent of the drilling does not yet allow for the calculation of a JORC compliant resource, there is no argument that the IO is there, just whether it is enough to make an underground mine economic.

So we have a position whereby a buy in to Cockatoo could be pretty confident that the mine will be able to deliver at least 10Mt of high grade IO with the cream being that there is also a decent chance of another 80Mt (or more) of exceptionally high grade in the underground.

In really simple terms, the 10Mt of JORC Resource (assuming it is achieved and that is a reasonable assumption) is probably worth $500m if you allow a profit of $50/t (something that is also reasonable given the current and expected IO price and our understanding of the Cockatoo operating costs).

If a JV partner were willing to pay for the low risk mine value in order to get in ahead of the potentially large value increase that would result from confirmation of the underground, then they might just pay $100m for 20% of Cockatoo now.

If the underground does not come through then they have not really overpaid, but if it does come through with 80Mt then they will have made a motza given that they will have paid $100m for 20% of a JV that will generate more than $4.5b.

Again, very simplistic scenario and it might be that companies that can throw around $100m do not like to get in to the risky business of exploration, but you never know :)

Cheers

Badfish

So, if a JV wanted to pay market rate for the low risk resource might see value in paying