The term sheet encompasses a committed equity agreement which would provide funding by way of a 10% annual interest credit facility loan and preferred shares.

Under the terms, Sigur will immediately subscribe for $A500,000 worthy of Gulf’s redeemable convertible 10% notes, and will appoint a representative to the company’s board.

Gulf will then list the subsidiary company holding the manganese smelter – International Manganese Group – on the Nasdaq stock market in the US.

The subsidiary will be issued a 10% annual interest four-year senior credit facility loan worth $US10 million to be secured by the project, and to be drawn over a two-year period.

A total of $10 million worth of preferred shares in the subsidiary will also be issued at $2.50 per share – a convertible strike price equal to 85% of the market price, or redeemed at $5 per share after 24 months.

Gulf chairman Graham Anderson said the agreement was a milestone for the company.

“This achievement is a watershed moment in the company’s development of the manganese smelter enterprise and is the culmination of the past 12 months of focused effort by the directors and senior management,” he said.

“We are pleased to be working with Sigur Holdings as they maintain a global presence and long-standing relationships with international resource companies.”

Gulf last month reached agreement over a 50-year lease in West Timor for the smelter and access to power for the first stage of development following a series of discussions with senior officials.

Environmental clearance and smelter licence approval for the project are expected to take within two and three months respectively.

Shares in Gulf were steady today at 4c.