PERTH (miningweekly.com) – The share price of ASX-listed Capital Mining doubled on Monday as the company announced plans to divest of its exploration assets in favour of becoming the first ASX-listed company to hold a stake in a licensed cannabis grower.

Capital Mining entered into a heads of agreement to acquire a 49% stake in Canadian medical cannabis grower and distributor Broken Coast Cannabis (BCC), which currently has the capacity to produce 720 000 g/y of cannabis.

The cannabis grower receives between C$7/g and C$10/g of cannabis sold, depending on the customer’s perceived quality of the cannabis.

Capital Mining, which owns gold, base metals, platinum and uranium exploration assets in New South Wales and South Australia, is hoping to tap into the booming North American medical marijuana market. A number of Canadian junior mining companies are reinventing themselves after Health Canada last year enacted changes that opened the door to new opportunities in medical marijuana. The use of medical marijuana is already legal in many states in the US.

Capital Mining director James Ellingford said on Monday that the company’s investment in BCC would provide an opportunity for shareholders, with the investment capital used to expand BCC’s production and sales facilities to two-million grams a year, in the near term.

“BCC’s operations are highly and easily scalable, and the use of cutting-edge manufacturing processes will ensure we are well placed now and into the future to grow this business substantially in what is a well regulated market.”

Capital Mining would initially acquire a 24% stake in BCC for a cash payment of C$1.5-million and the issue of 12.5-million of its own shares, as well as a further 10-million options, exercisable at 30c each with a two-year expiration date.

Capital Mining would also subscribe for 28 001 common shares in BCC and would pay a total consideration of C$5.98-million in cash for the placement shares in aggregate.

Furthermore, Capital Mining would be granted an exclusive one-year option to increase its stake from 24% to 49% for an additional C$18-million investment.

Capital Mining would be given one management position in BCC and upon that person being appointed, the appointee would also be offered a seat on the BCC board.

In addition to the BCC investment, Capital Mining has also signed a heads of agreement to acquire all of the issued shares of Cannan Growers, which is a distributor of bulk wholesale cannabis, industrial hemp and respective by-products and derivatives.

Capital Mining would seek shareholder approval for the transactions, and considering the change of nature and scale of the company’s activities, would seek to re-comply with the ASX-listing requirements.

Should the transactions proceed, the company would divest its mining interests in South Australia and New South Wales.