Aim-listed Zanaga Iron Ore Company has announced a strategic transaction with private investment company Red Arc Minerals (RAM), which is focussed on the development of strategic-scale high-grade iron-ore assets.

Zanaga and its wholly owned subsidiary Jumelles have signed a binding term sheet for a proposed strategic investment by RAM in the company’s Zanaga iron-ore project, in Congo-Brazzaville. Jumelles currently holds a 100% interest in the project.

The proposed strategic investment by RAM would enable the completion of essential technical work to advance the project towards a final investment decision (FID).

It would also secure additional upside value potential and further optionality linked to the successful development of the project for the benefit of ZIOC shareholders and stakeholders in country, Zanaga posits.

As a result, the board believes the transaction has the potential to deliver meaningful value to company shareholders both in the short and long term, while also being non-dilutive to them.

The transaction is subject to the completion of due diligence, the conclusion of definitive documents, as well as approval by shareholders and regulators, as set out in the binding term sheet.

The sheet sets out the principal terms of proposed staged investments in the Zanaga project in two tranches.

Tranche one is an investment of up to $25-million in cash to advance the Zanaga project to FID and acquire an aggregate 20% interest in Jumelles (to be funded in five equal sub-tranches).

Tranche two is an investment of $125-million in cash to Zanaga (at RAM’s option) to acquire an incremental 67.5% fully diluted ownership of Jumelles from the company (resulting in aggregate RAM ownership of Jumelles of 87.5%), exercisable within 18 months of completion of the full $25-million tranche one.

The transaction also sets out a royalty to be granted to Zanaga on the closing of tranche two of 1% of net sales revenue on all iron-ore concentrate sales from the project, subject to a partial buy-back at RAM’s option ($50-million for 0.50%).

From the closing of the transaction, RAM will have the right to representation on the Jumelles board and to reserved matters.

Upon reaching 50.1% or more ownership of Jumelles, RAM will be granted the right to majority board representation.

From the closing of the transaction, the company shall have the right to require RAM to exchange its Jumelles shares for Zanaga shares at a price of 15 pence apiece if RAM does not complete each Tranche one and Tranche two closings within a defined period.

RAM is backed by, among others, certain individuals and groups who participated in Zanaga’s fundraising last year, including Sir Mick Davis and Heeney Capital.

Zanaga CEO Martin Knauth says that the transaction represents a major acceleration of the company’s growth strategy by providing the non-dilutive capital required to advance the Zanaga project through the pre-production phase and towards an FID.

“The transaction aims to deliver significant value to Zanaga Iron Ore Company shareholders, in the short and long term, by creating a clear pathway to retaining a strategic ownership stake and securing a compelling royalty interest in a world-class producing iron-ore asset.

“Through our extensive strategic partnering process, we believe this proposal provides the greatest opportunity for the company and its shareholders to participate in the success of the project as it advances towards production,” he highlights.

“Red Arc Minerals brings both financial strength and deep industry expertise that enhances our ability to deliver the project. Our established relationship with some of the mining industry's most respected leaders continues to mature, and this transaction is indicative of their confidence in the project’s world-class technical and financial credentials,” Knauth adds.