Savannah Resources – Joint Venture of the Decade.

I’ve been a fan of Savannah Resources since the company was first created, as such I have a reasonable sized holding in the company.

http://icebergshares.blogspot.co.uk/2015/01/

Above was my last blog at the start of the year.

For the world’s largest company to consider a joint venture with a small minnow on AIM is mind blowing. Its often talked about on the BB’s but is rarer than a hen laying golden eggs.

Savannah Resources have achieved this.

They have only achieved this due to the very high professional standards the company demonstrates and the expertise and experience of the management team and BOD (including of course David Archer).

A few nicely hidden bits of the agreement are that Rio can buyout Savannah, but only for a multiple of all the money that SAV have already invested.

Scoping to be completed hopefully 2015 earns SAV a 20% share in the combined JV.

A pre-FS gives SAV 35%

A full DFS gives SAV 51%.

The full JV seems to be “Rio Tinto's affiliate of the three areas suggests a combined potential contained ilmenite content of between 140 and 170 million tonnes with a further 10-15 million tonnes of contained zircon and rutile.” This gives us a combined resource value of around $2billion for the RIO licenses, with approx. a further $1bn (very conservative) from the SAV licenses. Total (conservative values of $3bn).

The aim is produce a mine in the near short term with approx. $200m of revenue’s per year. The cost of the mine will be low and 50% of this cost will be paid by Rio Tinto. Along with this Rio will buy everything that the min produces at commercially available prices…

One of the biggest barriers and risks to "wannerbe" miners are the funding uncertainties and selling your output when the mine is actively producing. Due to this many miners have DFS’s for their exploration areas which are mothballed.

The current JV effectively cancels out these risks. Any mine where 50% of the costs are being picked up by the world’s largest mining company will not struggle to get project finance.

Today’s announcement really does confirm that Savanah is on course to become a mid-cap producer with a £100m+ Mcap. I’ve already said that I held in 2013 – all the way through 2014 and will still be holding in 2016.

I’ll leave the sentiment plays-flip flopping and P&D’s to others.

Quality Shines though and even if it’s not seen by all PI’s has certainly been seen by Rio Tinto.

Well Done.