china deal?, page-15

Chalice agrees to sell remaining 60% of Zara Gold Project
Transaction will deliver to Chalice a significant cash balance to pursue growth opportunities in Eritrea and elsewhere
ABN 47 116 648 956
Chalice Gold Mines Limited, Level 2, 1292 Hay Street, West Perth, Western Australia T: +618 9322 3960 F: +618 9322 5800 E: [email protected] www.chalicegold.com
Chalice Gold Mines Limited (ASX:CHN)(TSX:CXN) announces that it has entered into a conditional shortform agreement (the “Agreement”) to sell its remaining 60 per cent stake in the Zara Project in Eritrea to China SFECO Group (SFECO), a subsidiary of Shanghai Construction Group Co. Ltd (www.scg.com.cn )(the “Transaction”). This follows the agreement in July 2011 pursuant to which Chalice agreed to sell a 30% interest in the Zara Project to the Eritrean National Mining Corporation (“ENAMCO”) (see ASX announcement 29 July 2011), which is in addition to the 10% carried interest in the project already held by ENAMCO.
Under the Agreement, SFECO will pay Chalice US$80 million in cash for Chalice’s share of the mineral resource at the Koka gold deposit. In addition, SFECO will pay Chalice a further sum, not to exceed US$20 million for the balance of the area falling within the Zara Project (including Zara North, South and Central). This figure is to be agreed between the parties and, failing agreement, will be determined by binding independent arbitration to a cap of US$20 million.
The Agreement with SFECO is subject to SFECO being satisfied with its due diligence which must be completed by 12 March 2012; however, SFECO has undertaken to expedite this. The Agreement is also subject to: the approval of Chalice shareholders and SFECO obtaining certain regulatory approvals within China including the National Development and Reform Commission, the Ministry of Commerce, the State Asset Supervision and Administration Commission and the State Administration of Foreign Exchange; there being no material adverse change or event of force majeure effecting the Zara Project; SFECO procuring a letter indicating suitable financing by completion of due diligence; and completion of the sale of the 30 per cent interest by Chalice to ENAMCO for US$32 million plus approximately US$2 million for the reimbursement of certain costs. This condition is for the benefit of Chalice which can waive the same.
Chalice has also agreed that it shall not solicit or be involved in discussions or negotiations concerning the sale of its shares in ZMSC until completion of SFECO’s due diligence or, until completion if the SFECO confirms it is satisfied with its due diligence, but subject to a carve out allowing the Chalice directors to discharge their fiduciary and statutory duties where there is a superior proposal.
The parties will prepare more formal transaction documents incorporating usual terms and reflecting the current short form agreement.
Assuming completion of the Transaction, Chalice would be liable to pay tax to the Eritrean Government on the SFECO and ENAMCO proceeds at a rate of 38%. This will be calculated after deducting the Company’s share of project-to-date costs of at least ~US$30 million (subject to audit).
The Transaction would end Chalice’s involvement with the Zara Project; however, Chalice will maintain an active presence in Eritrea by undertaking a significant exploration program at its Mogoraib North Project, which lies about 100km south of the Zara Project and immediately north of TSX listed Nevsun Resources’ Bisha mine.
A recent VTEM, magnetic and radiometric survey completed over Mogoraib North identified a series of conductive bodies with the potential to host mineralisation similar in style to the world-class Bisha polymetallic VHMS mine. An initial 5,000 metre drilling program is expected to commence in the first quarter of 2012.
Completion of the sale to SFECO, along with the proceeds from the sale of the stake to ENAMCO, will leave Chalice with a significant cash balance. Subject to the satisfaction of the conditions precedent and required approvals, Chalice anticipates settlement in the second quarter of calendar 2012.
Chalice Chairman Tim Goyder said successful completion of the Zara Project sale would put the Company in an attractive position with a substantial cash balance, enabling it to pursue other opportunities in Eritrea and around the world.
“On completion of the sales of its interests in the Zara Poject, Chalice would be ideally placed to identify, acquire and develop resource projects which could offer investors substantial leveraged growth prospects,” Mr Goyder said. “This is an extremely strong position that would enable the Company to take full advantage of growth opportunities.”
TIM GOYDER Executive Chairman