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Rio Tinto unit inks option for 75% stake in Sipa's Kitgum-Pader project

Sipa Resources Ltd. said May 14 that it signed an earn-in and joint venture agreement enabling Rio Tinto subsidiary Rio Tinto Mining & Exploration Ltd. to earn up to a 75% interest in the early stage Kitgum-Pader nickel-copper project in Uganda.

The deal, which is subject to Rio Tinto completing due diligence within three months, will see Rio Tinto funding up to US$57 million of exploration over 11 years.

In the first stage of the option agreement, the Rio Tinto unit can earn an initial 51% interest by spending US$12 million on exploration within five years, with at least US$2 million required. Within the subsequent three years, the unit will spend another US$15 million on exploration to increase its interest to 65%.

In the third stage of the deal, Rio Tinto can increase its interest to 75% within a further three years by spending another US$30 million on exploration or defining JORC-compliant resources containing at least 250,000 tonnes of nickel or nickel equivalent.

The earn-in also includes cash payments totaling US$2 million, comprising US$250,000 upon execution of the deal and forming part of the project expenditure, another US$250,000 within 18 months and US$1.5 million at the start of the second stage of the deal.

Sipa will manage the joint venture initially, and Rio Tinto reserves the right to become manager after 18 months. The companies will also form a management committee with two representatives apiece, and Rio Tinto will have exclusive marketing rights over producing mines within the project area.

Upon completing the earn-in, the companies will fund project expenditures according to their participating interest or the stake will be diluted. If either company's interest decrease to less than 10%, it can choose to convert the interest to a 1.5% net smelter royalty capped at US$60 million.

According to Sipa, exploration at Kitgum-Pader will initially focus on detailed gravity surveying over several regional prospects followed by drilling later this year.