VANCOUVER, BRITISH COLUMBIA -- (Marketwired) -- 06/27/13 -- Majestic Gold Corp. (TSX VENTURE: MJS) ("Majestic" or the "Company") is pleased to announce that it has entered into an agreement (the "Exchange Agreement") with Yantai Dahedong Processing Co. Ltd. ("Dahedong") pursuant to which Dahedong will exchange its 25% interest in the net profits of the Company's Chinese subsidiary, Yantai Zhongjia Mining Co. Ltd. ("Zhongjia"), for a 25% working interest in Zhongjia.
Zhongjia owns the Song Jiagou open pit gold mine (the "Mine") near the City of Yantai, in Shandong Province, China. Majestic indirectly owns a 96% interest in Zhongjia through its 96% interest Majestic Yantai Gold Ltd. ("Majestic Yantai"), which owns a 100% interest in Zhongjia.
In 2010, Dahedong entered into two arrangements with Zhongjia - (i) a cost sharing arrangement for the construction of a new mill at Song Jiagou and (ii) a profit sharing agreement pursuant to which Zhongjia agreed to pay 25% of its net profits from gold sales to Dahedong as compensation for the use using mining assets (the "Dahedong Mining Assets") owned by Dahedong and the reduced rate for its mining and milling services. These arrangements are described in greater detail below.
As noted in its February 1, 2013 news release, management is of the view that such an exchange will benefit the Company by obligating Dahedong to contribute 25% of future capital expenses at the Mine and, ultimately, to simplify the corporate structure of Zhongjia. The Exchange Agreement is subject to acceptance by the TSX Venture Exchange.
The Profit Sharing Arrangement
Under the original agreement with Dahedong (the "2010 Agreement"), described in the Company's February 17, 2010 news release, it was agreed that Dahedong would carry on all mining operations for Zhongjia for a set fee per tonne determined according to a sliding scale based on the grade of the ore delivered to the mills, ranging from yen 40/tonne for material grading 0.20 gpt gold up to yen 75/tonne for material grading higher than 0.50 gpt gold (the "Mining Arrangement").
Also pursuant to the 2010 Agreement, Dahedong provides Zhongjia with the use of the Dahedong Mining Assets, which include various land use contracts with the Chinese government for the operation of processing mills and disposal of tailings, water rights, two mills with processing capacities of 200 and 1,200 tonnes per day respectively, and related buildings and other mining facilities, machinery and equipment, were collectively valued at yen 120,000,000 (currently approx. C$18,700,000 @ C$1.00 : yen 6.4151). The land use contracts are particularly important to Zhongjia because under Chinese law, title to real property remains vested in the government. In addition, the tailings disposal facility and the water recycling facility for the mills are both the subjects of land use contracts held by Dahedong.
As compensation for the use of the Dahedong Mining Assets and the reduced rate for its mining and milling services, Dahedong is paid 25% of the net profits of Zhongjia (the "25% Net Profits Interest").
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