Alex Williams Interviews David Archer of Savannah Resources

“It blindsided the market,” says David Archer, chief executive of Savannah Resources. “There was no speculation around it, everyone was surprised and people were impressed that we were able to negotiate a deal with Rio Tinto.”

Shares in Savannah shot 98.8 per cent higher on Monday on news that the company, an AIM-listed minnow valued at £7.5m ($12m), has struck a joint-venture with Rio Tinto, the mining mega-cap valued at £51bn.

The two companies have agreed to combine their heavy sands tenements in Mozambique into a single project, a coup for Savannah, which also holds copper blocks in North East Oman.

The deal also marks a subtle shift by Rio Tinto, suggesting it backs Savannah’s management and wants to keep exposure to the underlying project. Rio has previously been accused of either hoarding acreage in inventory, or dumping non-core assets outright, selling its coal fields in Mozambique last year for $50m, despite paying nearly $4bn for the asset only 3 years prior.

“Rio’s vey mindful of reputation-risk and they’re sensibly cautious about who they team up with,” Archer says, “so it’s a major endorsement.” Originally a barrister from New South Wales, he launched the initiative by approaching Rio 18 months ago.

“They understand us well, we understand them well and I suppose we speak the same language,” he told Master Investor this week. “Even though we’re a small company, our approach and corporate ethos is very similar to that of Rio’s, so it is a very good match of cultures.”

Archer is Savannah’s largest shareholder, holding 9.8 per cent of the stock, having personally injected £500,000 into the company on joining its board in 2013. He has since overseen a board refresh, a company name-change and Savannah’s move into heavy sands in Mozambique.

After this week’s deal, the combined project covers a mineralised system 20km long and 6km wide, making it illogical to develop two separate mines, Archer says. Rio and Savannah have amalgamated their two teams and are aiming to announce a JORC Resource before the end of the year.

Analysts have described the agreement as a “win-win”, with Savannah gaining “greater scale”, whilst Rio gets to “advance a project that will be way off its list of priorities.” Archer says it is too early to put a timeline on production, but aims to apply for a mining licence in 2017.

The question for investors is whether Savannah will use its share price pop to launch a snap equity raise, boosting its cash position. Archer says the response from shareholders to this week’s deal has been “very supportive”, calling Savannah’s treasury “adequate.”

As of February, cash is sitting at £2.9m; shares traded Thursday at 2.9p, up 49 per cent this month.