Latin Resources in transformational funding deal with Hong Kong's Junefield Group

Latin Resources (ASX: LRS) has struck an agreement in a very difficult funding environment with Hong Kong listed Junefield Group, the founder with a worth of over $3 billion, should see Latin Resources largely de-risked from a funding viewpoint.

The investment agreement was struck by Latin Resources managing director Chris Gale at a 51% premium to market price, itself an achievement.

Significant investment by major mining companies including BHP Billiton (ASX: BHP) and Antofagasta (LON:ANTO) in the Ilo region of Peru have re-cast valuations and investment multiples significantly.

In addition, the deal which could see Junefield invest up to $52 million in Latin Resources, casts the company's project potential in a new light.

Latin will place 10 million shares to Junefield at $0.28 to raise $2.8 million.  After shareholder approval, a further placement of 20 million shares will raise an additional $5.6 million.

Funds raised through the placement will be allocated to the acceleration of activities at Latin’s Guadalupido Iron Sands Project and to fund other highly prospective Ilo concessions at the company's operations in Peru.

The next stage of the potential total funding investment into Latin is the Junefield backed Total Genius Iron Mining SAC, which has signed an earn-in option agreement covering up to 70% on Mariela and the newly optioned Dylan concessions, by funding all activities up to completion of Bankable Feasibility Study or to a total cost of A$35 million.

Chris Gale, managing director of Latin, said “Attracting a cornerstone investor that is as reputable and experienced as Junefield is a major achievement and a key milestone in the advancement of our Peruvian assets. The premium paid over the current share price is an indication of the value in which our new investor Junefield places on Latin Resources.”

Placement breakdown

The placement will comprise two tranches and represents around 16.8% of the issued capital of Latin. Tranche one is 10 million shares and 3.34 million options under the placement capacity, with tranche two 20 million shares and 6.67 million options - which is subject to shareholder approval.

The options have an exercise price of A$0.30 with an expiry date of June 20, 2013.

These funds will be allocated to accelerate the current exploration and drilling campaign at Guadalupito, where a maiden JORC Resource is forecast to be announced to the market in the March quarter of 2012.

Funds will also be used to fast-track exploration activity on the company’s 110,000 hectares of granted tenements in the highly prospective Ilo district of southern Peru.

The southern Peruvian coastal zone is highly prospective and home to some of South America’s largest mining projects, including Phelps Dodge’s Cerro Verde copper mine, Southern Copper Cuajone and Quellaveco copper mines along with the major iron mine at Marcona owned by Shougang, and the US$745 million Mina Justa copper project recently acquired by Glencore.

Earn-in option breakdown

In addition to the placement the earn-in agreement covers the Mariela and Dylan concessions, located in the Islay Province of Arequipa in Southern Peru.

The key terms are:

- A$700,000 in cash payable to the company’s wholly owned subsidiary, Peruvian Latin Resources SAC at date of signing of the agreement.

- Iron Mining to earn-in up to 70% on Mariela and newly optioned Dylan concessions, by funding all activities up to completion of Bankable Feasibility Study or to a total cost of A$35 million.

- In the event that Junefield fails to implement the exploration program for the project in accordance with the Agreed Program within four years from the date of the agreement, Peruvian Latin Resources will have the right to terminate the formal agreement and retain 100% ownership of project.

Gale added, “We are delighted to welcome Junefield as a strong partner in the development of the highly prospective Mariela and Dylan concessions, and look forward to taking the project into production and unlock the value for our shareholders."

The agreement is subject to regulatory approval and the conditions precedent including; Execution of Placement Agreement by Junefield and the company; and any required Latin shareholder approvals.
Analysis

That this is a significant milestone for Latin Resources goes without saying.  The founder of Hong Kong's Junefield has built a $2 billion fund to invest in resources and in Peru.  Junefield has been drilling itself at a property around Latin's Ilo project and Mariela and is known to be bullish on the potential.

Recent M&A activity and acquisitions by major mining companies in the area is a testament to the potential of the area.  Together, they signal the potential for significant valuation lift in Latin Resources in 2012.
Originally published at: http://www.proactiveinvestors.com.au/companies/news/22783/latin-resources-in-transformational-funding-deal-with-hong-kongs-junefield-group-22783.html