Terrace has a 12 month option period to complete studies required to establish viability of a copper-cobalt-silver extraction process.
It will then have a right to earn a 51% participating interest by completing a Bankable Feasibility Study and/or incurring project expenditure of $2.5 million.
"We are delighted to have entered into this agreement with the very experienced team at Terrace Mining," Gunson managing director Bill Bloking said.
"It is entirely consistent with our stated strategy of using farm-outs to share risks, complement our internal skills, and accelerate development of our resources."
The MG14 and Windabout Copper-Cobalt-Silver deposits were excised from the Mount Gunson Farm-in and Joint Venture Agreement with Xstrata subsidiary, Noranda Pacific, in June 2009, and are currently wholly-owned by Gunson.
Terrace has a 12 month option period to conduct a Metallurgical Test Study and any other tests or studies they deem necessary to determine the viability of a process to economically extract copper, cobalt, and silver metal from the deposits.
Upon successful completion of the activities to be carried out during the option period, Terrace will have the right to earn a 51% participating interest in the Excised Area by either delivering a Bankable Feasibility Study within 18 months of the end of the option period or spending a total of $2.5 million.
Upon earning its participating interest, Terrace will have the right, but not the obligation, to become project manager.
The agreement is conditional upon Gunson obtaining a waiver of Noranda Pacific's pre-emptive rights over the Excised Area within 30 days.
In the event that Terrace's total expenditure is less than $2.5 million at the time of earning its 51% participating interest, Terrace will continue to carry all project development expenditure until Terrace has expended $2.5 million.
"The proposed metallurgical test program has the potential to create significant shareholder value if it is able to establish the viability of extracting the copper, cobalt and silver metal from the host mineralisation," Bloking added.
The Excised Area overlaps and lies just north of the old Mt Gunson mining centre, close to key infrastructure including the following distances from the MG 14 deposit:
- Port Augusta to Olympic Dam power line - 7 kilometres;
- Stuart Highway - 9 kilometres; and
- Trans Australia Railway - 12 kilometres.
The regional centre of Port Augusta lies some 135 kilometres south-east along the Stuart Highway and the Woomera township is 40 kilometres to the north.
The Woomera to Port Augusta water pipeline runs along the western side of the Stuart Highway and is a potential source of potable water.
The farm-in agreement with Terrace Mining could see up to $2.5 million worth of expenditure on the MG14 and Windabout Copper-Cobalt-Silver deposits that had previously being excised from the Mount Gunson Farm-in and Joint Venture Agreement.
This expenditure, which includes a Bankable Feasibility Study, de-risks the deposits for Gunson while maintaining meaningful exposure to any success.
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