Mila Resources (LON: MILA) shares are up 56% on London this morning. MILA shares have jumped on the back of news about a deal with Liontown and lithium exploration. What interests us here is that this is more than the usual little farm in agreement. Some thought has been put into how to organise this and a better than usual deal organised. Now, whether this will in fact create long term value still depends, as with every exploration campaign, upon what is found. But Mila seems to have been able to vary the agreement in a way that maximises that future potential value.
The deal itself from Mila Resources: “Following initial exploration, Liontown will have the option to acquire the right to extract lithium from the Licence Area ("Lithium Rights"). Liontown has the option to acquire up to 80% of the Lithium Rights from Mila and TPE for a total consideration of up to A$2,200,000 through a phased investment programme.”
OK, so far a pretty standard farm in agreement. Mila (and partners) have the rights to a property. They can either raise the capital to explore it themselves or sign up with someone who will use their capital to explore it and thereby take ownership of some percentage of what is found. That's just what a - very common - farm in agreement is. So far so normal.
Mila Resources share price from London Stock Exchange
But there's more to it. Liontown is developing a lithium mine right next door. Any lithium found would therefore feed straight through into their already extant processing and concentration plant and their offtake contracts. Liontown are therefore really interested in being able to do this exploration. Which is what leads to the other - and new - part of the agreement: “Mila, TPE and NGM will maintain ownership over the gold and other minerals on the Licence Area.” Normally a farm in includes anything found as a result of the activity which is the purchase price. But here Liontown is so interested in the lithium that they've agreed to - in effect - explore the property for everything else for free as well. Which is, we think, interesting and at least partial evidence of some sharp brains within Mila Resources.
Now, of course, for this to have any long term value there has to be lithium there for Liontown to extract. Or, if not, there has to be something else found that's of value. So we're still in this world of exploration, wondering what God's Engineer put under this specific piece of land. But it is an interesting variation on the usual sort of deal all the same.
