Chairman of African Minerals Frank Timis is seeking to acquire London Mining's Marampa mine in Sierra Leone through his privately owned company.
Through Timis Mining, founder of African Minerals Frank Timis has agreed to borrow $20m from Australia's Cape Lambert Resources to support acquisition of the mine, which is located about 120km from African Minerals' Tonkolili operation.
Financing includes a 12-month $8m loan and a $12m royalty purchase, which gives Cape Lambert $2 for each tonne of iron concentrate sold by the mine.
Cape Lambert executive chairman Tony Sage said: "This funding agreement represents a very good deal for the company and for its shareholders.
"The Timis Mining-owned Marampa mine is expected to produce between five to seven million tonnes of iron concentrate per annum, which means a potential income stream to Cape Lambert of between $10m to $14m per annum, or up to $56m in total over the term of the royalty."
Given its significant infrastructure in the region, African Minerals seems to be the natural buyer of the Marampa mine, Investec analysts quoted by Bloomberg.
Investec analysts said: "It is interesting that it is Timis' private company purportedly doing the bidding, perhaps because it can more readily realise the funding to make the offer."
Earlier this month, London Mining went into administration after struggling with mounting debts following a slump in iron ore prices.
Similar to London Mining, African Minerals has been facing a 40% drop in the iron ore price.
As part of a financial rescue, African Minerals reported in September that it was open to sell a minority stake in its only mine.
Around 1,300 people are employed at the Marampa mine and is claimed to have iron ore reserves sufficient for 40 years of mining.