Kampala — RIO TINTO International Holdings has sold the Namekhara vermiculite mine in Manafwa to an Australian firm at $1m (about sh2.1b).

The firm was reported to have a $39b debt at the end of last year by western media and was carrying out a wider disposal programme.

Gulf Resources acquired the mine located near Mbale and Tororo towns recently. Namekhara is considered one of the largest high-grade vermiculite mineral deposits in the world, capable of supporting a low-cost, long-life operation.

"The acquisition of the Namekhara project from Rio Tinto fits with our strategy to seek early cash-flow opportunities," Scott Reid, the Gulf Resources chairman, said in a statement.

However, Joshua Tuhumwire, the commissioner of geological survey and mines, said the deal was subject to government approval. "Under the Mining Act, any transfer of a mineral right or share is subject to consent of the commissioner," he said.

The announcement comes at a time when Rio Tinto is engaged in a controversial $19.5b deal with Chinalco, a Chinese mining group. The firm has sold marginal businesses at a clip this year, most notably the January sale of Brazilian iron ore and potash assets to Brazil-based competitor Vale. Next on the list may well be Rio's talcs and borates businesses or Alcan Packaging.

Andrew Johnstone, the Gulf Resources chief operations officer, further commented: "The Namekhara operation is capable of producing export quality vermiculite products with substantial profit margins due to the low-cost nature of the operation and excellent existing infrastructure."

The sale agreement includes processing and power plants, mine office and all associated infrastructure and equipment.

Gulf intends to inject $500,000 working capital into the operation over the next 12 months to bring the operation to a sustained production rate of 8,000 tonnes per annum of vermiculite products, according to in sale and purchase agreement.

The firm also plans to expand the operation to produce 25,000 tonnes per annum by 2012. While the specific terms of the agreement are confidential, the cash consideration component of $1m can be paid on a deferred basis until March 31, 2012.

The sale and purchase agreement is subject to conditions usual to a transaction of this nature, including regulatory approvals. The Namekhara mineralisation was first documented in the 1950s, but it wasn't until 2002 that initial test production started with a small scale operation that produced 16,000 tonnes of ore between 2002 and 2006.