A historic exploration joint venture inked with $3.4 billion market cap miner Oz Minerals could potentially see explorer Red Metal funded all the way to a mining decision.

And investors liked the news, sending the Red (ASX:RDM) share price up about 20 per cent to 11.5c in early trade.

These tie-ups between cash-strapped junior explorers and established miners are becoming more common.

The Red Metal announcement follows similar deals between Antipa and Rio Tinto, Encounter and Newcrest, Lefroy and Gold Fields, and AusQuest and South32, to name a few.

Oz Minerals (ASX:OZL) will shell out $8 million over two years to fast track the search for major new discoveries at six of Red Metal’s early stage base and battery metals projects in Western Australia and Queensland.

Red Metal managing director Rob Rutherford told Stockhead all six projects have exciting potential.

“Yarrie [copper-gold-cobalt], Three Ways [zinc-lead-silver], Gulf [copper-gold] and Lawn Hill [zinc-lead-silver] contain real Tier 1 opportunities in proven provinces,” Mr Rutherford said.

“Nullarbor [copper-gold-nickel] is an exciting new frontier play and that gets my imagination and geological juices flowing.

“While Mount Skipper [zinc-lead-silver] is a simple, walk-up bullseye magnetic target,  just like the geophysical signature over the giant Cannington deposit [the world’s largest silver and lead producer] 90km to the north.”

Under the so-called ‘Greenfields Discovery Alliance’ agreement, Red Metal will continue to manage these exploration programs to the end of the initial two years.

After spending the minimum amount on a project – and if something is found — Oz can trigger the formation of a joint venture on any of these projects (51 per cent Oz, 49 per cent Red Metal).

Under the agreement Oz could spend the first $15 million to earn 51 per cent of a project.

At this stage, Red Metal can start funding its portion of future exploration and development costs and retain a 49 per cent interest.

If Oz sole funds a project right up until a decision to mine, Red’s interest will be diluted to 30 per cent.

The Red Metal share price over the past 12 months.
The Red Metal share price over the past 12 months.

Any expenditure incurred on its behalf by Oz from the commencement of a project joint venture up until a positive decision to mine will be treated as a loan — repayable from Red Metal’s share of future production.

Oz will make an up-front cash payment to Red Metal of $1.8 million, $300,000 for each of the six nominated projects.