Proposed Meekatharra Asset Acquisition

MERCATOR GOLD plc
(“Mercator Gold”, “Mercator” or “the Company”)

AIM: MCR

US OTC: MTGDY

 

LONDON: 3 NOVEMBER 2005 - Mercator Gold plc (AIM: MCR/MCRW) is pleased to confirm, further to the announcement on 28 October 2005, the terms of the agreement to acquire St Barbara Mines Limited’s (“SBM”) entire gold exploration and mining assets in the highly prospective Meekatharra Belt of Western Australia, subject to shareholder approval. The total purchase consideration will comprise of AU$18 million (£7.56 million) in cash and new ordinary shares plus the adoption of environmental bonding requirements of approximately AU$3 million (£1.26 million).

The acquisition will consolidate Mercator’s position as the dominant player in the Murchison Gold Province and has the potential to transform the Company from explorer to producer by providing 100% ownership of the mining tenements and infrastructure required to commence any significant gold production.

The acquisition will comprise:

HIGHLIGHTS

  • The current 55% balance of SBM’s interest in the Annean Joint Venture with Mercator;
  • The 3 million tonne per annum Bluebird (Yaloginda) mill and gold processing facility, together with associated plant, equipment, 250-person camp and tailings dams located 10km south of the Meekatharra township within the Annean Joint Venture area. The mill is currently on care and maintenance and Mercator considers that it has a replacement value in excess of £20 million;
  • Approximately 123 granted exploration tenements and 92 tenement applications in the Meekatharra region (“the Meekatharra Tenements”), bringing Mercator’s total holding to 439 granted and pending tenements totaling 1,970 sq km;
  • The SBM joint venture interest and benefits (currently 100% but reducing to potentially 35%) in the Pollelle joint venture with Elara Mining Pty Ltd (subject to Elara Mining’s first right of refusal);
  • Land and property assets in and around Meekatharra and an option on pastoral leases covering a portion of the tenement area.

 

Managing Director, Patrick Harford, said: “This acquisition provides 100% ownership of the emerging and highly prospective Annean Joint Venture ground, significant additional gold resources, and a large mill and gold processing plant. Outright purchase of these assets means Mercator will have acquired without debt all the assets required to commence significant gold production at Meekatharra. This acquisition marks an important milestone in Mercator’s short life.”

 

Meekatharra assets strategically located near the Bluebird gold processing facility

The acquisition will consolidate and enlarge Mercator’s holding over the highly prospective Meekatharra Belt in the Murchison Gold Province, more than double the Company’s gold resource base and add significant additional exploration ground to the Yaloginda project area currently yielding significant exploration success for the Company.

Ownership of the Bluebird mill and gold processing plant along with the enlarged resource base are integral to giving the Company the capacity to commence significant gold production during 2007 should it reach its resource base criteria.

Exploration of the Meekatharra Tenements by St Barbara has outlined significant gold resources (greater than 1.5 million ounces in indicated and inferred categories) which require significant geological input and drilling to convert to mineable ounces. This represents an excellent exploration opportunity for the Company’s geology team to apply the same process of validation and drilling which has seen resources of 120,000 ounces at Bluebird and Surprise rise to 470,000 ounces of indicated and inferred resources over comparable areas.

The enlarged tenement package gives Mercator the largest land holding in the Murchison Gold Province. In addition to the above tenements, the company is acquiring the rights to a number of Miscellaneous and General Purposes Licenses providing access, water, waste dump and tailings dam rights.

The Bluebird gold processing plant has a capacity of 3 million tonnes per annum of oxide ore, dependent on ore hardness and leach residence time required. The Bluebird plant has a standard layout with single stage crushing, open stockpile, SAG and ball milling, emergency feed, pebble/scats reject conveyors, leach and adsorption, elution, gold recovery, reagents, tailings and services areas. The plant is in excellent condition and has the potential to produce in excess of 170,000 ounces of gold per annum at a 2g/t Au feed rate and 90% recovery.

The Bluebird mill and associated infrastructure located 12 Km from Meekatharra could be re commissioned at a relatively low cost as and when Mercator commences mining operations. The plant has a flexible configuration which allows for the treatment of different ore types and throughput rates.

A large production facility with no attached debt significantly lowers the total operating costs associated with the treatment of gold bearing ores and as consequence enhances any exploration success achieved by the Company.

Mercator considers that the replacement cost of the plant and associated infrastructure, including a 250 person camp, would be in excess of AU$48 million (£20 million).

In addition to the tenements, resources and plant, the company is acquiring:

  • data and intellectual property related to exploration, mining and ore processing on the tenements;
  • a residential camp capable of housing up to 250 people;
  • offices, warehouse, workshops, vehicles, spare parts and consumables;
  • a six month option to purchase the Annean (1686 sq km), Norie (213 sq km) and Cullculli (584 sq km) pastoral leases.

 

Purchase consideration

The purchase consideration is as follows:

  1. Cash consideration of AU$5 million (£2.1 million), including a non-refundable cash deposit of AU$250,000 (£105,000);
  2. The issue to SBM of AU$13 million (£5.46 million) of fully paid ordinary Mercator shares at completion at an issue price equal to the price at which the Company raises new capital to fund the acquisition;
  3. Mercator to assume approximately AU$3 million (£1.26 million) in Environmental Bonds presently held by SBM and to assume the obligations under existing production royalties over the acquired tenements (principally the 1.5% production royalty owned by Resource Capital Fund III LP over all of the SBM tenements that are the subject of this sale).

Conditions Precedent

The Sale Agreement is subject to the following conditions precedent:

  • Mercator completing to its sole satisfaction due diligence on the Meekatharra assets on or before 28 November 2005.
  • Mercator obtaining all necessary regulatory and shareholder approvals, and completing the acquisition by 31 January 2006. (Mercator has an option to extend completion to 28 February 2006 by paying a further non-refundable deposit of AU$500,000 (£210,000), such deposit to be subtracted from the purchase price on successful completion.)
  • Mercator raising a minimum of £8 million cash through a placing of new shares prior to 31 January 2006. (The company has received expression of interest from suitable qualified broking institutions in support of this proposed capital raising and has appointed Loeb Aron & Company Ltd as investment adviser in respect of the acquisition and capital raising.)

Capital Structure

Management intends to raise between £8 and £12 million in the placing, which is considered sufficient to fund the payment of the cash portion of the acquisition (£2.1 million) and increase exploration activity targeting additional quality resources, the conversion of resources into reserves as well as working capital leading to commencement of gold production at Meekatharra.

The proposed transaction will result in SBM becoming a 20% shareholder in Mercator. This structure recognises SBM’s desire to maintain an interest in the prospective tenement holdings.

In consideration of the proposed new capital raising and the proposed transition from explorer to producer, shareholders will also be asked to approve a consolidation of the share capital of the Company on the basis of one share for every ten held. Warrants and options will be consolidated on the same basis.


Board Change

Paul R. Loudon, a director of Loeb Aron & Co. has tendered his resignation as a nonexecutive director of Mercator so that he can act impartially as an adviser to the Company in relation to the acquisition and capital raising.


Share Suspension.

The acquisition represents a “reverse” transaction under the AIM Rules and accordingly the existing Mercator ordinary shares and the warrants of the Company have been suspended from trading until either:

  1. The Company posts to its shareholders an admission document and circular for shareholder approval of the acquisition (expected to be a date no later than 31 December 2005), or
  2. The Company decides not to proceed with the acquisition in accordance with the terms of the agreement with SBM.

Warrants – expiring 7th November 2005

Although the shares and warrants will be suspended from trading, warrant holders are still able to exercise the warrants up until the expiry date 7th November 2005 if they so desire. The Company has written to warrantholders informing them of this ability and copies of that letter, together with this announcement, are available, free of charge, for a period of one month from the offices of the Company at Peek House, 3rd Floor, 20 Eastcheap, London EC3M 1EB.


Anticipated timetable

The anticipated timetable for completion of the acquisition and the balance of the matters referred to above is set out below:


Event Date
Announcement of transaction 28 October 2005
Completion of Due Diligence 28 November 2005
Posting of admission document and circular to shareholders 30 December 2005
Extraordinary General Meeting and completion of capital raising and of acquisition of Meekatharra assets By end of January 2006

For further information please contact:


For further information please contact:

Mercator Gold plc    
Patrick Harford, Managing Director Tel: +44 (0) 20 7929 1010
Email:This email address is being protected from spambots. You need JavaScript enabled to view it.    
   
   
   
Beaumont Cornish Limited    
Roland Cornish Tel: + 44 (0) 20 7628 3396
     
     
     
King & Shaxson Capital Ltd    
Nick Bealer Tel: + 44 (0) 20 7426 5986
     
     
     
Ocean Equities Ltd    
Will Slack Tel: + 44 (0) 20 7786 4375
     
     
     
Parkgreen Communications    
Justine Howarth / Ana Ribeiro Tel: + 44 (0) 20 7493 3713

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