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PYBAR AND EXTERRA EXECUTE TERM SHEET TO JOINTLY DEVELOP THE SECOND FORTUNE GOLD MINE
April 2016
Exterra Resources Limited (ASX:EXC) ("Exterra") is pleased to advise that a binding term sheet ("Agreement") has been signed with nationwide hard
Exterra Resources Limited
ACN 138 222 705
ASX Code: EXC
www.exterraresources.com.au Issued Capital:
Ordinary Shares: 201.2m Options: 12.5m
Directors and Management: John Davis
Managing Director
Justin Brown
Non-Executive Director
Peter Cole
Non-Executive Director
Dennis Wilkins
Company Secretary
rock mining contractor PYBAR Mining Services Pty Ltd ("PYBAR") for the establishment of a joint, profit share based development of the Second Fortune Gold Mine as follows:
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PYBAR to provide all funding to develop the Second Fortune Gold Mine under a life of mine Mining Services Contract based initially on the Main Lode Probable Reserve of 56,300 ounces at 9.7 g/t Au1 (see Figures 1 and 2).
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PYBAR will pay Exterra a Net Profits Interest ("NPI") at a rate of 30% until PYBAR has recovered its peak cash drawdown and EXC will be paid at a rate of 55% thereafter.
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PYBAR will advance an initial $250,000 to Exterra as a pre-payment under the NPI no later than three months from Commencement, subject to the satisfaction of Conditions Precedent.
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Exterra to retain 100% of the exploration upside exposure outside of an agreed Mining Area around the Second Fortune Mine.
Managing Director John Davis said: "We look forward to welcoming PYBAR on board as partners to participate in developing the Second Fortune Gold Mine via a strategy that minimises the dilution and risk profile for shareholders, takes advantage of a strong Australian Dollar gold price and maintains 100% of the upside exposure from potential future exploration success funded from production cashflows.
PYBAR are a well-respected underground mining contractor with projects throughout Australia, including at Red October and Deep South for Saracen Mineral Holdings. These projects are within 25km of the Second Fortune mine and will provide important logistical benefits for the Second Fortune Project development."
Figure 1: Second Fortune Main Lode long section showing mineralised zones, Resource and Probable Reserve1 outlines and schematic decline design from existing Feasibility Study.
This joint development strategy with PYBAR is an important step for the Company, as it allows the development of Second Fortune to be fast tracked during an otherwise very difficult period in the broader market, but at a time when Australian dollar gold prices are strong. Importantly, this approach allows the required capital to be brought to bear on the project whilst minimising dilution for existing Exterra shareholders.
The Agreement with PYBAR is for a 4 year Term with mining to commence within 6 months of receipt of all approvals necessary to commence production or Exterra may terminate the transaction. During the Term, PYBAR will have an exclusive right to exercise all gold mining rights with respect to the Mining Area and the current outlined Main Lode Resource (Fig 1). Further economic resources outlined within the Mining Area can be included in the mine plan subject to agreement between Exterra and PYBAR. Exterra retains 100% of the exposure to the exploration upside outside the agreed Mining Area.
The Agreement includes the negotiation of a Mining Services Contract which will include a mine plan and production schedule, prepared by PYBAR and agreed by both parties.
1http://www.exterraresources.com.au/images/uploads/Second_Fortune_PFS_ASX_Release_July_2014.pdf
The NPI will be calculated by subtracting all capital, operating and other agreed costs under the Mine Plan and Financial Model. The NPI will be paid to Exterra within 14 days of each calendar month end during which production was ongoing.
Main Lode
F/Wall lode
West Lode
H/Wall Lode
Figure 2: 3D model showing multiple stacked lodes at the Second Fortune Gold Mine. Planned drilling aims to add further ounces to the Reserve by better defining these secondary lodes.
The proposed transaction is subject to an exclusivity period of 4 weeks from execution of the Binding Term Sheet (Commencement) (which may be extended by mutual consent) within which the parties will negotiate definitive documentation including the Mining Services Agreement and with Conditions Precedent including legal, technical, financial due diligence, toll treating Agreement, to be satisfied within 3 months of Commencement or Exterra has the right to terminate the transaction (see Annexure 1).
The Agreement includes a defined "Mining Area" (refer Figure 3 and Figure 4), which encompasses the Second Fortune mine area and Main Lode Mineral Resources as currently outlined, and sufficient ground for required infrastructure, but does not include the balance of the Linden project tenement package. This arrangement allows Exterra and PYBAR to jointly participate in the Second Fortune mine development within the Mining Area, but also allows Exterra to continue exploring the highly prospective Linden tenement package, in which Exterra maintains a 100% equity.
"Mining Area"
Second Fortune Gold mine
Figure 3: Linden Project Tenement Plan.