Alien Metals Signs Earn-in for Donovan 2

Alien Metals Ltd. FOLLOW has executed an Earn-in Agreement (“Agreement”) with Capstone Mining Corp (“Capstone”) (TSX: CS) over its Donovan 2 Copper-Gold project (the “Project”) in Mexico. 

Figure 1: Location of Donovan 2 Project, Zacatecas Region, Mexico 

Further to the RNS dated 9 September 2020, Alien and Capstone had entered into an Exclusivity Agreement whereby Capstone, a mid-tier North American mining company, secured a 45-day period to undertake due diligence to their satisfaction with the aim of the parties executing a joint venture agreement for Capstone to acquire an interest in Donovan 2.   

Under the signed Agreement, Capstone will have the opportunity to acquire up to an 80% interest in Donovan 2 by sole funding the Project up to completion of a Prefeasibility Study, estimated to cost up to US$10m. 

Transaction Terms 

Under the staged terms of the agreement, Capstone can earn an initial 65% interest in Donovan 2 through a combination of cash payments and committed expenditure, consisting of US$290,000 in cash payments to Alien over three years; and US$3,600,000 in valid exploration expenditure over three years, including at least US$150,000 by 31 December 2020). 

Furthermore, Capstone can increase their interest from 65% to 75% by making a further cash payment of US$200,000 and funding the costs associated with a Preliminary Economic Assessment (“PEA”)  

Following delivery of the PEA, in the event Alien elects not to contribute pro-rata to its 25% interest, Capstone Mining has the ability to sole-fund the costs of a Prefeasibility Study (“PFS”) to earn an additional 5% in Donovan 2 (bringing their holding to 80% and Alien 20%)   

Thereafter, each party will fund their pro-rata interest in the Project or dilute according to industry standard mechanisms. In the event Alien dilutes to below 5%, it’s interest will convert to a 2% Royalty   

Under the terms of the Earn-in Agreement, Capstone has given Alien a right of first refusal to acquire the Project should Capstone choose to dispose of its interest. Alien will remain the Operator of the Project up until the end of Stage 1A. 

Capstone can accelerate work expenditure at their election Notes:  

1. If Alien chooses not to fund its pro-rata cost of the PFS, Capstone is entitled to a further 5% interest post-delivery of PFS 
2. If Alien dilutes to a 2% Royalty, Capstone has the ability to buy back 1% of the Royalty for US1 million 
3. The estimated cost of delivery of the PEA is US$1 million 
4. The estimated cost of delivery of the PFS is US$5 million 
5. Shares in UFO have increased more than 10x over the past three months from 0.2p in July to 2p in October with most of the gains occurring post the announcement on the 9 September 2020. 

UFO price chart

For Investors, the Transaction with Capstone delivers the potential for immediate advancement of the Donovan 2 Copper-Gold project, significantly lowering the project risk and preventing further dilution to shareholders, while allowing Alien management to focus its attention on its exploration activities across its wider project portfolio. 

Bill Brodie Good, CEO & Technical Director of Alien Metals, commented: “The Company is extremely pleased to have executed the Agreement with Capstone Mining. This transaction sees the potential for considerable expenditure to be invested into Donovan 2 over the next few years as the project progresses through to feasibility studies. I thank the team at Capstone Mining for their efforts over the last few months and I look forward to working with them.   

“Importantly, the transaction is in line with the Company’s model of unlocking value in its project portfolio; with Capstone overseeing exploration at Donovan 2, the Company’s management team can focus its exploration efforts at Hamersley and Elizabeth Hill in Western Australia and commence maiden drilling at Los Campos and San Celso.”