The alliance said it would fund $5 million for exploration over a five-year period as well as another $3 million for a feasibility study.

A royalty of $1 per tonne will be provided to the party selling the option, hinging on coal sales and the alliance will maintain the right to recover its costs in the deposit’s acquisition and development from 60% of the royalty income.

Under the deal, the 1600-hectare Pelaya prospect will become a designated project and Kiwanda will earmark a $5 million investment over a four-year period for exploration and development, which will increase its interest to 65%.

Once complete, Kiwanda can elect to further raise its alliance interest to 75% upon delivery of the property’s National Instrument-compliant feasibility study within two years.

The companies said the prospect, which is located on the southern end of a principal coal producing basin, had not been previously drill tested and the coal-bearing Umir formation was not exposed in the prospect area.

“[It] is interpreted as being present, based on the stratigraphy that is exposed, historical oil and gas drilling in the district and seismic surveys lines run across the prospect,” officials said.

“Furthermore, the Umir formation is interpreted as lying at relatively shallow depths, under thin Quaternary age cover sediments.

“The alliance is targeting coals seams of the mid and upper sequences of the Umir formation, which reach thicknesses of up to 5 metres.”

If present, the venture partners said the property could be amenable to large-scale open pit mining.

Lara holds a diverse portfolio that includes properties in Brazil, Peru, Colombia and Chile.

Last week, the Toronto Stock Exchange-listed company signed an agreement to acquire an additional 6.6% stake in Colombia-based producer Carbhid, holder of the Escalones concession in the Boyaca district, which will bring its stake to nearly 20%.

The company said it was investing about $C187,000 over six months to take up its rights as 13.3% shareholder and also to buy shares of some of the founders not participating in the round – which will, in turn, give it ownership of 19.91%.

Carbhid is developing underground operations for Escalones, targeting thermal and metallurgical-grade coal.