Cape Lambert will provide Timis with $US20 million ($A22.7 million) via an $8 million 12-month bridging loan and a $12 million royalty purchase.

The royalty comprises $2 per tonne of iron concentrate exported from the Marampa mine in Sierra Leone, payable on a quarterly basis over four years.

Cape Lambert estimates the royalty could be worth as much as $56 million over its duration.

The package is conditional on Timis securing the Marampa mine from the administrators of London Mining.

As reported in MiningNewsPremium’ Global Wrap column, the falling iron ore price and a lack of liquidity and funding forced AIM-listed London Mining into administration on October 16.

Administrators Russell Downs and Peter Dickens of PricewaterhouseCoopers said at the time the priority maintain the mine as a going concern.

"The collapse in iron ore prices and the resulting impacts on this business have been very dramatic and our focus is to ensure that a buyer is found for the Marampa mine operations given it is such an important part of the Sierra Leone economy,” Downs said.

“We are liaising with key stakeholders and asking for a short window of forbearance as we look to conclude a transaction."

It is unclear how much Timis will be paying for the asset.

Timis’ African Minerals owns the nearby 20 million tonne per annum Tonkolili iron ore mine, while Cape Lambert’s Marampa project is next door to the London Mining asset of the same name.

African Minerals is also Cape Lambert’s largest shareholder with a 19.5% stake and the two companies have infrastructure deals in place.

As part of the deal, Timis will have the exclusive right to buy up to 100Mt of oxidised friable hematite ore from Cape Lambert’s Sierra Leone iron ore projects at $3-5 per tonne, which could potentially earn the company $300-500 million over the life of the mine.

If Timis decides to sell Marampa, it will use its “reasonable endeavours” to incorporate the sale of Cape Lambert’s Sierra Leone projects.

Cape Lambert has long been trying to monetise its own Marampa project, flagging the site for demerger or sale, valuing it at $250-500 million earlier this year.

Sage, Cape Lambert’s executive chairman, said the funding agreement was a good deal for the company and its shareholders.

“The Timis Mining-owned Marampa mine is expected to produce between 5 to 7 million tonnes of iron concentrate per annum which means a potential income stream to Cape Lambert of between $10-14 million per annum or up to $56 million in total over the term of the royalty,” Sage said.

“With the proposed income stream from the royalty agreement and sale of oxide material, Cape Lambert is contemplating continuing its long standing dividend policy, where appropriate, of returning any surplus cash to shareholders.”

Cape Lambert shares jumped 14% to A10.5c.