Goldstone Resources Regulatory News (GRL)

3 Apr 2007 08:48

Goldstone Resources Ltd03 April 2007 GOLDSTONE RESOURCES LIMITED PROPOSED ACQUISTION OF AN INTEREST IN THE SWARTDORING DIAMOND PROJECT The Directors of GoldStone Resources ("GoldStone" or the "Company") announcethat the Company has conditionally agreed to acquire a 70 per cent. interest inXanadu Mining (Pty) Limited ("Xanadu Mining") from GeoQuest Holdings Limited ("GeoQuest") (the "Acquisition"). Xanadu Mining has, through its wholly-owned subsidiaries GrindStone Mining (Pty)Limited ("GrindStone Mining") and Multi-Direct Mining (Pty) Limited ("Multi-Direct Mining"), filed applications for prospecting rights over theSwartdoring Diamond Project, all of which have been accepted by the Departmentof Minerals and Energy ("DME") in the Republic of South Africa. Under theacquisition agreement dated 2 April 2007 (the "Acquisition Agreement"),GoldStone has conditionally agreed to acquire a 70 per cent. interest in XanaduMining from GeoQuest in consideration of the issue of 50,640,000 considerationshares ("Consideration Shares"). At the mid-market price of 1.1 pence per shareat the close of business on 2 April 2007, the Consideration Shares have a valueof £557,040. GeoQuest holds 40,000,000 ordinary shares of 1p each in the Company (the "Ordinary Shares"), representing approximately 30.6 per cent. of the existingOrdinary Shares. In addition, each of the Directors has an interest in theshare capital of GeoQuest which, in aggregate, represent 32.2 per cent. of theshare capital of GeoQuest. The Acquisition is therefore classified as a relatedparty transaction under the AIM Rules. A related party transaction for an AIMcompany does not ordinarily require the approval of shareholders, however, theDirectors considered it appropriate in this case. The Acquisition is conditional, inter alia, on the passing of a resolution at anextraordinary general meeting to be held on 19 April 2007 (the "EGM"). Acircular will be sent to shareholders today including notice of the EGM (the "Circular"). Sir Michael Oliver, the independent director, having consulted with HansonWesthouse Limited, the Company's nominated adviser, considers the Acquisition tobe in the best interests of the Company and shareholders as a whole. Background to the Acquisition GoldStone was admitted to AIM in March 2004 with the objective of continuing theexploration of two areas in Guyana in order to find economically mineable goldpalaeoplacers. Having undertaken an extensive exploration and evaluation programme, the Companysuccessfully discovered 21 palaeoplacers exhibiting similar geologicalcharacteristics to the Witwatersrand, an area in South Africa from which anestimated 50,000 tonnes of gold, or more than 40 per cent. of total worldwidegold production, has been derived. While a number of the palaeoplacers were found to contain anomalous quantitiesof gold, the low tenor of the intersections made during the drilling programmeled to the Directors concluding that the likelihood of finding economical gradeswas remote. Furthermore the Directors felt that high drilling costs madecontinued detailed exploration of the palaeoplacers prohibitive. A decision wastaken in August 2006 to cease all gold exploration in Guyana. A lateritic bauxite deposit is also located within permit areas held by theCompany. In September 2005, GoldStone entered into an option agreement with BHPBilliton ("BHPB") over the bauxite interests. BHPB launched an initialprogramme which confirmed the deposits previously identified by GoldStone.Further, more detailed sampling is planned. In September 2006, BHPB paid toGoldStone the fee of US$100,000 which is required to maintain the option until 6June 2007. In the event that BHPB elects to exercise the option after thatdate, further amounts would become payable to GoldStone. GoldStone currently has cash resources of approximately US$3.0 million. Withthe cessation of the gold exploration programme and the option agreement inplace with BHPB over the bauxite interests, the Directors decided to seek a newproject for the Company. The criteria for the new project were that it shouldbe relatively low risk and would provide early cash flow to the Company. TheDirectors believe that the Swartdoring Diamond Project has the potential tofulfil these criteria thereby rebuilding value for Shareholders. Independent Valuation of the Swartdoring Diamond Project An independent valuation report on the Swartdoring Diamond Project has beenundertaken by Snowden Mining Industry Consultants (Pty) Ltd ("Snowden"). InSnowden's opinion, the project value is between US$4 million and US$20 million,with a preferred value of US$12 million. On the basis of the preferred value, a70 per cent. interest would have a value of US$8.4 million. The full text ofSnowden's report is set out in the Circular. The Swartdoring Diamond Project Background The Swartdoring diamond deposit is a preserved diamondiferous palaeochannel ofthe Swartdoring river in the Northern and Western Cape Provinces of SouthAfrica. The first permissions for the exploration of the area, which consistsof a number of farms, were granted in 1997 to GrindStone Mining by the DME. Xanadu Mining, through its subsidiaries, has invested approximately US$500,000in the development of the Swartdoring Diamond Project since 1997. In order toadvance the project, the Directors estimate that an investment of approximatelyUS$500,000 will be required to fund direct exploration expenses. Theexploration will be conducted in order to complete a mining feasibility study onthe inferred resource of the project. The subsurface channel, which is buried beneath surficial sand cover, rangesfrom 400 to 2,000 metres in width and occupies an area of 1,345 hectares. Thisarea has been explored by means of outcrop mapping, ground-penetrating radar,630 reverse circulation drill holes, and by bulk-sample excavations at each endof the reach. An inferred resource of 12 million tonnes of loose, uncemented, diamond-bearinggravel, interpreted from drill hole records, lies beneath loose to slightlycemented sandy overburden at an average stripping ratio of 12.4. There is apossibility to extend this resource to approximately 49 million tonnes ofdiamond-bearing gravel after analysis of results from further drilling work andbulk sampling operations. Sampling at the eastern end of the preserved palaeochannel has recovered 220stones weighing a total of 177.73 cts, equivalent to an average size of 0.81 cts/stone. The last parcel of stones was classified as very good gem quality,weighed 16.98 cts, and was valued at US$343/ct in 1998. This equates toapproximately US$450 in current day terms. The largest stone in this parcelweighed 3.48 cts. Sampling at the western end of the preserved palaeochannel recovered 131 stonesweighing a total of 68.49 cts, equivalent to an average size of 0.525 cts. Thelargest stone recovered was 11.60 cts. Statistical analysis of the gravel bulk sampling results for samples collectedat either end of the palaeochannel indicates an average grade of 3.2 cpht forboth ends of the palaeochannel. Summary of Previous Exploration Results Grade (inferred) 3.18 cts per 100 tonnes Stone quality Size range = 0.2 to 11.6 cts Average size = 0.81 cts Value (2005) = US$475 per ct. Tonnage (inferred) 12 million tonnes Equating to in situ 360,000 cts Value in situ: US$181 million Potential In arriving at the in situ value set out above, the potential of the uppergravels and the gravels from the mid-channel section have not been taken intoconsideration. Although drill records show the existence of upper gravels andthe continuation of basal gravels in the mid-channel area, these gravels havenot been bulk sampled and tested and were therefore excluded from the inferredresource calculation described above. There are, however, no geological reasonswhy the grade and tonnage of the mid-section of the palaeochannel would differsubstantially from what was found on the eastern and western ends of thechannel. Upper Gravels Tonnage (estimated) 20 million tonnes Mid-Channel (not fully explored) 17 million tonnes Exploration Objectives Further exploration in order to complete a feasibility study on the inferredresource of 12 million tonnes of diamond bearing gravel is necessary. Thiswould require the completion of percussion drilling over and bulk sampling ofthe eastern and western sections of the channel. From drill log interpretation,the channel-reach will be subdivided into separate fluvial environments, each ofwhich will then be bulk sampled. Reverse circulation drilling will be used todelineate the final position of drill sites and a wide diameter drill will beused to extract bulk samples of gravel from those parts of the channel. Thebulk sampling would aim to get representative values of grades in variousenvironments and will assist in determining the global and regional graveltonnage and diamond value. Drill records of the entire channel will also beused to determine the average stripping ratio. A financial feasibility study will be made upon receipt of bulk sampling data.If this part of the project appears feasible, further commercialisation of theproject will take place, which may entail the development of a mine thereon or asale thereof. Should this be successful it may also encourage a later exploration phase of thediamond bearing basal and upper gravels in the mid-channel section. If so,similar percussion drilling and bulk sampling techniques will be applied to themid-channel section in order to enable a separate feasibility study thereon. Theuntested upper gravels in the eastern and western-channel areas will bedetermined from results obtained during the planned exploration. Company Structure and Current Status of Authorisations GrindStone Mining and Multi-Direct Mining were formed for the purpose ofexploring the Swartdoring Diamond Project. The companies are wholly-ownedsubsidiaries of Xanadu Mining. GeoQuest currently owns approximately 70 percent. of the issued share capital of Xanadu. The first permissions for the exploration of this project were granted in 1997by the DME and GrindStone Mining and Multi-Direct Mining have held a number ofpermissions since then. The DME has granted a prospecting right to Multi-DirectMining over one of the farms situated in the Western Cape and it is expectedthat the prospecting right will be notarially executed shortly. Theapplications of GrindStone Mining over certain properties in the Western andNorthern Cape Provinces have also been accepted and it is expected that theseprospecting rights will be granted soon. Terms of the Acquisition Under the terms of the Acquisition Agreement, GoldStone has conditionally agreedto purchase a 70 per cent. interest in Xanadu Mining from GeoQuest.Additionally, under the terms of the agreement, GeoQuest will assign toGoldStone 70 per cent. of the inter-company debt owed by Xanadu to GeoQuestcomprising of the amount as at 28 February 2006 and stated in the financialstatements and expenses approved by GoldStone and incurred in the normal courseof business. On completion the debt will amount to approximately £760,000. Theconsideration payable at completion will be the issue and allotment of50,640,000 Consideration Shares to GeoQuest. At the mid-market price of 1.1pence per Ordinary Share at the close of business on 2 April 2007, theConsideration Shares have a value of £557,040. The Acquisition is conditional, inter alia, on: • The passing of the Resolution by Shareholders which would grant the Directors authority to issue the Consideration Shares; • The granting and notarial execution of prospecting rights over all the farms comprising the Swartdoring Diamond Project by the DME in favour of GrindStone Mining and Multi-Direct Mining; • The successful listing of GoldStone on the AltX (the Alternative Exchange of the Johannesburg Stock Exchange), further information on which is set out below; • The approval of the Acquisition by the South African Reserve Bank; and • The passing of a special resolution by the members of GeoQuest approving the Acquisition Agreement. Completion of the Acquisition will not take place until satisfaction of all ofthe conditions, which must occur before 30 October 2007. The AcquisitionAgreement contains certain warranties given by GeoQuest to GoldStone. On completion of the Acquisition, GeoQuest will hold 90,640,000 Ordinary Shares,representing 49.95 per cent. of the enlarged share capital. The Directorsunderstand that the directors of GeoQuest intend that, at the time of thelisting of GoldStone on AltX and completion of the Acquisition, GeoQuest will beliquidated and the directors of GeoQuest will declare a dividend in speciecomprising the distribution of the Ordinary Shares held by GeoQuest to itsshareholders. Following this distribution, the shareholders in GeoQuest will hold 90,640,000Ordinary Shares, representing 49.95 per cent. of the enlarged share capital.The approximate anticipated interests of the Directors in the Company, all ofwhich arise as a result of the dividend expected to be paid by GeoQuest, are asfollows: Director No. of Percentage Ordinary Shares Sir Michael Oliver 1,599,915 0.9Nico van der Hoven 16,271,417 9.0Dr. Lawrie Minter 7,705,241 4.2Jurie Wessels 3,576,291 2.0 29,152,864 16.1 Listing on AltX and SARB approval As set out above, the Acquisition is conditional, inter alia, on a listing ofGoldStone on the AltX. The Directors are of the opinion that a listing on the AltX would open newavenues for fund raising for the Company and will provide improved liquidity forthe Company's shareholders at a relatively low cost. In addition, an AltXlisting will allow the Company to invest in the South African DemocraticCommunity, a region that is well known for its exploration opportunities. South Africa, in common with many other countries, operates a policy of exchangecontrol, which is administered by the South African Reserve Bank (the "SARB").During November 1999 and June 2003, the SARB approved the injection of fundsoriginating from GeoQuest in South Africa into GoldStone in order to fundGoldStone's exploration activities. During June 2003 the SARB also approved theexpatriation by GeoQuest from South Africa of sufficient funds in order tofinance the flotation of GoldStone on AIM. On 31 August 2006 GeoQuest appliedfor permission from the SARB to sell the Swartdoring Diamond Project toGoldStone. This application was refused because in terms of current exchangecontrol policy, the acquisition of the Swartdoring Diamond Project would amountto a "loop structure", namely an acquisition of property inside the SADC by aforeign (non-South African) entity originally financed by a South Africancompany. Under this SARB policy, GoldStone is precluded from investing oracquiring any assets within the borders of the SADC. Further submissions andproposals were made by GeoQuest and GoldStone to the SARB in order to allowGoldStone to acquire assets in the SADC and it was resolved during March 2007that the SARB would favourably consider an application by GoldStone to invest inthe SADC if GoldStone is listed on the AltX. An electronic copy of the Circular can be downloaded from the Company's website,www.goldstoneresources.com. Enquiries: GoldStone Resources Ltd 00 27 21 794 4004Nico van der Hoven (Chief Executive Officer) Hanson Westhouse Limited 0113 246 2610Tim Feather / Matthew Johnson This information is provided by RNS The company news service from the London Stock Exchange