Metals explorer Cradle Arc said on Monday that it has entered into an option agreement with Singa Holdings Zambia to establish a joint-venture or offload its subsidiary Luiri Gold Mines.
The first option agreement will allow Singa to acquire Luiri, which holds Cradle Arc's Matala and Dunrobin gold assets in Zambia, for $2.5m until expiry on 1 July, with Cradle Arc to receive a royalty of 1.5% of gross revenue generated from the two assets.

The royalties can run up to a maximum aggregate amount of the net present value of $2.5m discounted at 8%.

Kevin van Wouw, chief executive of Cradle Arc, said: “On exercise of the share option, the company will receive $2.5m, which will contribute towards the cost of the planned dense media separation (DMS) upgrades at the group's Mowana Copper Mine, together with the potential future royalty stream.”

Alternatively, Cradle Arc has granted Singa the option exclusive option form a joint venture for the operation of the Matala and Dunrobin assets, expiring 30 June.

Any joint venture will terminate in the event of commercial gold production and Cradle Arc has the right to require Singa to exercise the share option.

“The development of our Zambian gold assets has long been an important goal for the company. We are, however, extremely mindful of the potential dilution that raising equity funds for the development of Matala could have on existing shareholders at the company's current share price, and we therefore consider that this partnership with Singa represents the best path,” said van Wouw.

As of 1603 BST, Cradle Arc PLC's shares were unchanged at 6.98p.