IGO share price drops despite exploration deal

The IGO share price dropped 4.35% today despite the mining company striking a new land exploration agreement

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The IGO Ltd (ASX: IGO) share price dropped more than 4% today as the company reported details of a deal with Boadicea Resources Ltd (ASX: BOA). The agreement is to secure key ground positions along the Fraser Range. The IGO share price closed 4.40% lower at $4.35 although this is likely as a result of today's sharp drop in the All Ordinaries Index (ASX: XAO) index.

What does IGO do?

IGO is an exploration and mining company with a portfolio of operating and exploration assets across Australia. The company also has an exploration joint venture in Greenland for copper, nickel, and other minerals. 

IGO's major operations are the 100% owned Nova nickel copper cobalt operation and the Tropicana Gold Mine joint venture in which it has a 30% interest. IGO shares have been listed on the ASX since 2002.

What is the deal for?

IGO Newsearch, a wholly owned subsidiary of IGO, has entered into an agreement with Boadicea to secure key ground positions along the Fraser Range, including the tenement immediately along a strike from the Nova Operation. The agreement involves Boadicea granting IGO the exclusive right to explore nine Fraser Range tenements for 5 years.

Under the deal, IGO must pay $5.5 million up front, with a $1.5 million subscription to purchase 2.35 million shares of Boadicea at 24 cents a share. IGO must pay an additional $50 million conditional on the company making a discovery and declaring a JORC Resource during the 5-year period. Finally, IGO will grant Boadicea a 0.75% Net Smelter Return Royalty to be paid on all revenues associated with mineral production from the tenure.

IGO CEO Peter Bradford said:

"As the dominant landholder along the Fraser Range and the operator of the Nova Operation, IGO maintains a strong conviction for the potential of the region to host multiple nickel copper sulphide deposits."

He noted that IGO was keen to explore this area for repetitions of Nova style nickel copper cobalt mineralisation that have been found nearby.

Foolish Takeaway

The IGO share price has been falling sharply since late July. This is in spite of a strong FY2020 report that saw a rebound in its share price. Shareholders will be hoping that this deal can catapult the IGO share price higher, although it must be noted the deal is subject to BOA shareholder approval.

Motley Fool contributor Daniel Ewing has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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