Cyclone Metals (ASX: CLE) has signed a binding commercial agreement with Brazilian mining powerhouse Vale SA for the joint development of Cyclone’s Iron Bear iron ore project in Canada.

The deal follows the non-binding memorandum of understanding the companies signed in November to collaborate on the project.

Iron Bear has a mineral resource of 16.6 billion tonnes grading 29.3% iron, with an inferred amount of 14.51Bt and an indicated 2.15Bt.

Development phases

Under the terms of the agreement, Vale will provide up to approximately $217 million in project funding over two phases at Iron Bear to earn a 75% equity interest in the project.

The Phase 1 work program will include a pre-feasibility study, mineral resource drilling and environmental baseline studies using an initial $28.3m in funding from Vale.

Vale can then elect to trigger Phase 2, which would see the parties form a joint venture (JV) – with Cyclone holding 70% equity and Vale 30% – to complete a bankable feasibility study and impact benefit agreements with First Nations groups.

JV funding

Vale will contribute up to $188.8m in JV funding, after which its interest will increase to 75% and it will be entitled to nominate directors to the JV’s board.

Vale will also have the right to elect to proceed to a decision to mine and acquire the remaining 25% of the project at fair market value.

Alternatively, it can elect to carry Cyclone through to production with no dilution.

If Vale does not elect to trigger Phase 2, it will not earn an interest in the Iron Bear project.

Strong Canadian presence

Vale has maintained a strong presence in Canada since acquiring the International Nickel Company in 2006.

Its base metals business employs more than 6,000 people, with key assets including the Voisey’s Bay nickel mine and refinery in Labrador and the Sudbury integrated mining and processing complex in Ontario.

The Sudbury operation produces nickel, gold, copper, cobalt and platinum group metals.

“Vale dominates the rapidly growing market for low carbon and direct reduction iron ore products and is an ideal partner and future operator for the Iron Bear project,” Cyclone chief executive officer Paul Berend said.