GOLD Coast-based minerals explorer Cannindah Resources (ASX:CAE) has taken the first steps to shake off the resources blues by tapping into a new booming commodity sought by the Chinese, namely infant formula.
The copper-gold explorer has signed a memorandum of understanding with Snap Powder Pty Ltd and Little Treasure Investments Pty Ltd (LTI) to secure a foothold in the burgeoning sector.
Australian-sourced infant formula has become hot property for new Chinese parents in recent years, driven by food security issues in China following revelations that contaminated milk products sourced locally had caused multiple deaths and the hospitalisation of thousands of infants over the past decade.
Cannindah has declined to reveal the nature of the agreement with Snap Powder and LTI, a 50-50 joint venture with Camperdown Dairy.
LTI is the licensed distributor of the Little Treasure infant formula brand produced by Little Treasure Australia (LTA) and LTI owns a 50 per cent stake in the company.
Camperdown Dairy produces about produced about 25 million cans of infant formula a year and last month secured a $19 million a year deal to export its products into Vietnam.
Cannindah is currently undertaking a 60-day due diligence process before revealing further details of the proposed deal.
"LTI is currently exporting products to China through a licensing arrangement and this arrangement will be the initial focus of Cannindah's due diligence enquiries," says Cannindah's executive chairman Tom Pickett.
"The MOU does not form the basis of a binding agreement and therefore there is no certainty that a deal will be entered into or completed.
"Cannindah anticipates formalising transaction documentation, subject to it being satisfied with its due diligence investigations, within the exclusivity period."
The Southport-headquartered Cannindah Resources announced plans to diversify its business at last year's annual general meeting. The declared focus is on products with strong growth prospects targeting Chinese consumer markets.
Pickett says while other opportunities may be pursued pending the outcome of the latest proposal, the company still remains focused on its copper-gold exploration activities near Gladstone.
"We are not dropping the ball in terms of exploration activities, but we are implementing on the diversification plan," he tells Business News Australia.
Cannindah Resources secured a $2 million loan from a private investor in March last year to further its exploration activities. Earlier this year the company extended the terms of the loan for repayment in March next year.
The company had an undrawn lending capacity of $1.03 million at the end of December.
Cannindah's planned business diversification is a growing trend among resource minnows that have struggled to secure capital for exploration activities due to poor sentiment towards the sector.
Last year, shareholders in Adelaide-based Naracoota Resources voted to transform the company into Australia's newest health technology company, Alcidion (ASX:ALC) which resumed trading on the ASX under its new moniker last month.
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