If Cockatoo chooses to exercise the option, which is subject to due diligence, it will pay Metallica $5 million in cash plus 25 million of its shares.

If Cockatoo brings any of the tenements to production, Metallica will receive further shares in Cockatoo, and if mining commences on the Taabinga coal resource near Kingaroy, Metallica will also receive a 40c per tonne royalty of production.

Metallica’s coal projects cover 3000 square kilometres of coal bearing strata, including the Taabinga Project which has a measured and indicated resource of 163.8 million tonnes of thermal coal.

Other projects include the Kingaroy, Condamine, Injune and the Surat Project, which has the potential for opencut mining and a target in situ deposit of 200–400Mt.

Cockatoo said the potential acquisition will strengthen the company’s existing Surat Basin holdings, adding to its Guluguba project which is currently being core drilled and already has a 56Mt indicated resource defined.

The deal will also give Cockatoo a 20% interest in an underground coal gasification project with Cougar Energy and a 25% interest in a coal-to-liquids project with Eastern Mining Corporation.

For Metallica, the deal will boost its cash position to $10 million and allow it to focus on its NORNICO and Lucky Break nickel projects in North Queensland. It will also mean Metallica will continue to hedge its bets in coal by holding an 8.5% stake in Cockatoo.

Cockatoo shares were trading at 21c this morning while Metallica was trading at 88c.