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Sparton
Resources Inc. (TSX VENTURE: SRI) (the "Company") reported today
that it has signed three key agreements in China which will position
the Company to become a significant producer of germanium and
provide the initial structure for uranium production in PRC. The
first agreement relates to the establishment of a new sino-foreign
joint venture operating company with a branch of the China National
Nuclear Corporation ("CNNC") to produce uranium from waste material
and coal ash in Yunnan Province. The second agreement relates to
Sparton and the new operating company obtaining exclusive rights to
test, process, and extract uranium from a large coal ash waste pile
in the Lincang Area of central Yunnan (see
Company news release dated January 3, 2008). The third agreement
is a share purchase agreement that will permit the company to
acquire 85% of the shares of the private Chinese company which is
the second largest germanium concentrate producer in the Lincang
area.
All
of these agreements represent milestones in Sparton's ongoing
program to begin uranium production from waste ash sources in China,
and to become an operating company in the rapidly expanding
international germanium market. All of the agreements have been
signed through the Company's wholly owned subsidiary Sparton Energy
Inc. ("SEI") which is registered in the British Virgin Islands.
NEW
JV OPERATING COMPANY
The
new operating company, Yunnan Sparton New Environ-Tech Consulting
Co. Ltd. ("YSN") will be structured as an environmental solutions
company utilizing waste coal ash or other waste industrial material
for the extraction of valuable materials. These activities are now
encouraged for foreign investment by the PRC Central Government and
are eligible for government and local financial institution funding
assistance. YSN partners are SEI, ARCN (the Remote Sensing Branch of
CNNC), and Beijing John Hanseng Investment Consulting Co. Ltd.
("JHIC").
The
initial share interests in YSN are: SEI 60%, ARCN 30%, and JHIC 10%.
These can diluted through non participation to SEI 90%, ARCN 5%
(carried), and JHIC 5% (carried). The new JV Company will have an
initial registered capital of 2,000,000 RMB (approximately
C$280,000) which will be contributed in tranches. YSN will be
responsible for all waste testing, development and production of
uranium from waste ash material in Yunnan including the current
programs evaluating the Lincang and Xiaolongtan waste ash deposits.
WASTE
ASH PROCESSING AGREEMENT LINCANG AREA
The
Company has made an exclusive agreement with Tianhao Group Ltd.
China ("TH") a Lincang germanium producer, to test and extract
uranium from the large government ash waste pile which was sampled
by the Sparton and results reported earlier (see news release dated
January 3, 2008). TH has exclusive rights to reprocess the material
in the government controlled waste ash area for germanium
extraction. The agreement provides for TH to receive either a
negotiated processing fee or royalty on any uranium production by
YSN from the waste ash or other process waste material it controls.
The average grade reported earlier for this waste ash is 0.64
lbs/tonne U3O8, and the main waste area is estimated to contain over
350,000 tonnes of ash. TH is also producing 60-80 tonnes of new
uranium bearing waste each day from its operations which contain
about the same U3O8 content as the main waste pile based on test
results recently received by Sparton. This agreement provides the
Company and YSN with the opportunity to begin successful uranium
production from the same ash used historically for successful
uranium extraction in the Lincang area. Samples for initial uranium
leach tests are currently in transit to the Company's process
engineering consultants Lyntek Inc. in Denver Colorado.
SHARE
PURCHASE AGREEMENT FOR 85% INTEREST IN HUA JUN GERMANIUM PRODUCER
Following
additional negotiations and initial due diligence evaluations with
Linjiang 306 Huajun Coal Co. Ltd. Lincang City ("HJ") after signing
the Memorandum of Understanding (MOU) reported on January 3, 2008,
the Company through SEI has entered into a preliminary agreement on
January 27, 2008 to purchase an 85% share interest in HJ for a total
consideration of 22,000,000 RMB (approximately C$3.06 million). This
total cost includes 2,000,000 RMB (C$278,000) in transfer fees and
taxes. HJ is a private PRC company founded and owned by two local
Lincang businessmen who will retain 8% and 7% share interests
respectively in HJ on completion of the transaction.
HJ's
current assets are valued at valued at 23,500,000 RMB
(C$3.26million) including infrastructure, and mining licences
covering three coal mines producing thermal and germanium coal
feedstock. HJ also owns an ash waste pile of approximately 100,000
tonnes averaging about 170 ppm U3O8 (0.4lbs/tonne) and is producing
50 tonnes per day of new uranium bearing ash.
The
germanium operation is very successful and currently produces
approximately 3500 kg per year of concentrate which is sold to
germanium refiners for prices which have varied from about 5000RMB
per kg to the current level of 9000RMB per kg. in the past 12 month
period. Net Profits after all taxes and costs averaged 1,100,000RMB
(C$153,000) per month during the third quarter of 2007.
The
current operations area has sufficient germanium coal feedstock for
approximately 10 years of production at current levels but is being
enlarged in view of the rapidly expanding germanium market.
The
purchase price will be paid in a series of tranches related to
completion of a 45 day final due diligence evaluation by the Company
and is tied to various government approvals required for the share
transfer. No payment was made on signing the purchase agreement.
Once
60 % of the total purchase cost has been paid to the current HJ
owners SEI will assume full operational responsibility for HJ. The
previous owners have also indemnified SEI against any and all legal
and environmental obligations incurred during their stewardship of
HJ.
A
final share purchase agreement is to be executed on or before March
31 2008.
DISCUSSION
These
agreements represent major progress in the Company's international
secondary uranium recovery programs. Additionally Sparton now has
the opportunity to become a profitable producer in the rapidly
developing germanium market. The purchase of a successful germanium
operation with significant scope for expansion and value added
technology applications for less than 2 times positive cash flow is
an attractive investment opportunity.
The
direct investment in the new uranium production operating company
YSN by CNNC's subsidiary ARCN, is also significant development in
the overall program and demonstrates the Chinese support for Sparton's initiatives in advancing the secondary uranium program to
production in PRC.
Due
diligence on HJ and further test work on HJ and TH samples are
currently underway. Results will be reported when available.
All
analyses reported here were done by SGS-CSTC Standards Technical
Services Co. Ltd. laboratories in Tianjin China, a member of the
international SGS Group.
If
leach test results are positive, feasibility studies will be undertaken to evaluate the commercialization of uranium production
from these waste ash areas. The initial leaching tests are expected
to shortly.
Sparton's
international exploration and evaluation programs are being carried
out under the direct supervision of A. Lee Barker, P. Eng., P Geol.,
the Company's President and CEO who is a Qualified Person under
National Instrument 43-101. |