Tambourah Metals (ASK: TMB) shares are up 45% today. TMB shares jumped on the news of an earn-in agreement with SQM, the global lithium giant. The net effect here is to substantially derisk that Julimar project - the capital spend to find out whether the project is worth proceeding with is now to be carried by SQM.
The news itself from TMB: “Tambourah and the Chilean lithium producer Sociedad Quimica y Minera de Chile S.A. (SQM) (NYSE: SQM) have entered into an agreement providing SQM with an exploration earn-in across six of Tambourah's Julimar Nth projects in Western Australia. SQM has been granted the right to earn an initial 50% interest (and can earn a maximum of 70%) in all mineral rights at Julimar Nth project by sole funding a minimum of A$1.5m and up to $3m of exploration and development activities.”
To walk through this - Tambourah has the mineral rights at Julimar. It looks like there is something interesting there. Pegmatites, lithium in spodumene, all that good stuff. At which point Tambourah has three choices. Do nothing - which is obviously not a good idea. Or, raise money, hire people, and go and do that next stage of exploration work to confirm what is really there. Finally, it can sell a part of the project which is what it is doing.
Tambourah Metals share price from ASX
However, it's very common at this stage in mining to not sell a claim for actual cash. Instead, sell an interest in a claim, yes, but the payment comes in the buyer undertaking that exploration work and also paying for it. And that's what Tambourah is doing here. SQM spends $1.5 million on checking for lithium, they then get 50% of the project as a whole. Spend another $1.5 million and earn another 20% (obviously, you only spend the second amount when the first exploration makes it look worthwhile, equally obviously the project is worth more at that point because it looks more worthwhile).
The net effect of this is that Tambourah isn't going to - well, not for this reason at least, the cost of exploration at Julimar - have a rights issue to pay for that more work. Shareholders can therefore relax while also knowing that world best engineers will be doing that further exploration work.
These sorts of deals are entirely common at this level of mining. The other value additive part here is that if Julimar does end up being a good lithium prospect then one of the world's leading lithium companies is already involved. Finding a partner for final development isn't, therefore, going to be all that difficult.