Base and precious metals exploration and production company Cradle Arc has signed an agreement to divest its Matala and Dunrobin gold assets in Zambia to Singa Holdings Zambia.

Cradle Arc owns the assets via its subsidiary Luiri Gold Mines.

The arrangement grants Singa the option of purchasing the entire issued share capital in Luiri for a consideration of $2.5m.

Singa will be given until 1 July to exercise the share option.

The completed deal will see Cradle Arc receive a royalty of 1.5% of all gross revenue generated from the Matala and Dunrobin gold assets up to a maximum amount of the net present value of $2.5m at 8% per year from Singa.

"The completed deal will see Cradle Arc receive a royalty of 1.5% of all gross revenue generated from the Matala and Dunrobin gold assets."

Cradle Arc CEO Kevin van Wouw said: “The development of our Zambian gold assets has long been an important goal for the company.

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“We are, however, extremely mindful of the potential dilution that raising equity funds for the development of Matala could have on existing shareholders at the company’s current share price, and we therefore consider that this partnership with Singa represents the best path towards potential production in the near to mid term.

“Should the share option be exercised, the total amount payable to Cradle Arc would, in our view, represent fair value given the project’s current stage of development and will support the company’s future strategy.”

Additionally, the latest deal gives Singa an option to form a joint venture (JV) for the operation of the assets, which is valid until 30 June.

Singa will be required to pay an option fee of $30,000 to Cradle Arc in three equal monthly tranches under the arrangement.

The company can also seek an extension of the share option period by up to two months by paying a sum of $50,000 per month.

Cradle Arc is expected to transfer 75% of the shares to Singa once the payment agreed under the share option is completed.

The remaining 25% of the shares will be transferred to Singa upon the start of commercial gold production.

The proposed JV will be terminated once commercial production begins.