News Column

Mungana Goldmines Ltd. - Shareholder and Market Update

June 27, 2014



ENP Newswire - 27 June 2014

Release date- 25062014 - Mungana Goldmines Ltd (ASX: MUX) is pleased to advise that it has embarked on a zinc exploration and development strategy in North Queensland underpinned by the $15 million acquisition of a base metal and gold portfolio which includes one of Australia's most significant undeveloped zinc deposits.

As previously announced, the Company has entered into a binding agreement with Kagara Limited (in Liquidation) to acquire the Northern Region base metal and gold assets, located around Chillagoe, 210km west of Cairns in North Queensland.

The transformational acquisition - which follows the recent sale of the Company's South Australian gold assets for initial cash consideration of $1.5 million - will put Mungana on track to become a significant new player in the Australian zinc sector over the next few years.

The Company has convened a shareholder meeting for 24 July 2014 to approve the acquisition.

The consideration is $15 million, payable through the issue of two Secured Convertible Note instruments for $7.5 million each. The first instrument is automatically convertible at 10 cents per share upon payment of all duty on the acquisition and the second is convertible at 20 cents per share at the election of the note holder at any time up to five years from the date of issue of the instrument.

Interest on the convertible notes is at 7.5% payable in cash or shares at Mungana's election. The notes are redeemable at the option of Mungana at any time prior to conversion. The obligations under the convertible notes will initially be secured over all of the base metal assets in the Chillagoe region including the gold rights, but once the first tranche notes are converted (which is expected to occur shortly after completion of the acquisition), the security will be released.

Following completion, Mungana will have 100% ownership of a high quality portfolio of emerging zinc assets in the highly prospective Chillagoe region, as well as the Mungana Gold Project (following termination of the previous Gold Rights Agreement).

The Company has cash reserves of approximately $4 million following the recent sale of its South Australian gold assets and receipt of $2.27 million in refunds under the Federal Government's Research & Development Tax Concession Scheme. A previous stamp duty liability to the Queensland Government has recently been resolved in Mungana's favour with a refund received following overpayment of a previous assessment and no further liability remaining.

The proposed acquisition has the potential to increase Kagara's shareholding in Mungana from 59.25% currently to 79.07% assuming conversion of both Convertible Notes in full and payment of the maximum amount of interest in shares.

High Quality Zinc Portfolio

The key asset within the Chillagoe portfolio is the King Vol zinc deposit, a high-grade undeveloped zinc project which includes a JORC 2004 Indicated Resource of 899,000 tonnes grading 16% Zn, 0.9% Cu, 0.9% Pb and 41g/t Ag for 144,000 tonnes of contained zinc and an Inferred Resource of 1.86Mt grading 9.9% Zn, 0.6% Cu, 0.4% Pb and 24g/t Ag for 184,000 tonnes of zinc.

King Vol, which is located near a partially completed base metals concentrator, formed the centrepiece of a long-term growth strategy by Kagara to become a top-10 global zinc producer.

This strategy was significantly advanced, with Pre-Feasibility Studies completed on King Vol and extensive drilling carried out on surrounding satellite exploration targets, prior to Kagara's collapse in 2011.

The King Vol deposit remains open along strike in both directions and at depth, and offers significant potential to expand the higher grade core (10-17% Zn).

In addition, there are numerous advanced near-mine exploration targets such as Rusty File (just 500m from King Vol) and Montevideo, as well as broader polymetallic exploration opportunities in the nearby Red Cap area and further afield.

Mungana believes that King Vol has the potential to underpin a significant new zinc development with strong economics due to its high grade, combined with outstanding near-mine and regional growth potential and exploration upside.

Proposed Mungana Exploration Programs

Following completion of the acquisition, Mungana plans to embark on a focused exploration program with the following objectives:

Technical studies to upgrade the existing JORC 2004 Mineral Resource to JORC 2012 status;

Drilling targeting extensions to the high-grade core within the deposit (10-17% Zn);

Drilling targeting potential extensions along strike and down-plunge of the King Vol deposit;

Carrying out an IP survey to identify potential blind base metal targets within a 500m-1km radius of King Vol;

Drill testing near-mine exploration opportunities such as Rusty File and Montevideo and

Assessment of the broader potential of the Red Cap Area, which contains the Penzance, Victoria, Queenslander and Morrisons deposits with a combined resource base of +7Mt of polymetallic mineralization.

This work will lay the foundations for feasibility and development studies commencing within 12-18 months.

Mungana has retained one of Kagara's former senior geology managers, Andrew Beaton, as a consultant to assist with overseeing the design and implementation of these programs.

Zinc Market Outlook

Zinc has one of the most favourable supply/demand outlooks of any commodity over the next few years due to the recent or imminent closure of numerous major mines representing some 11% of current global production.

These include Brunswick (closed 2013), Perseverance (closed 2013), Lisheen (closing 2014), Century (closing 2015), Paragashu (closing 2015) and Skorpion (closing 2016).

The zinc market is already in deficit, with LME stocks down some 40% in the past 18 months and prices up around 11% this calendar year.

Leading commodity forecaster Wood Mackenzie has forecast market deficits in the range of 150-250,000tpa for the five years to 2018, while CRU predicts that the zinc price could increase from current levels of around US$0.94/lb to US$1.73/lb by 2016.

Management Comment

Mungana's Chairman, Mr Joe Treacy, who was one of the founding Directors of Kagara Zinc and has an intimate knowledge of the Chillagoe assets, said the acquisition marked the beginning of a new chapter for the Company based on a rejuvenated growth strategy.

'There are very few undeveloped zinc assets anywhere in the world, which makes King Vol - with its exceptional grade and proximity to a partially completed base metals concentrator, as well as its location in a zinc-rich province with outstanding exploration upside - a unique and exciting opportunity,' he said.

'We are pleased to have secured these assets and we look forward to completing the transaction over the next two months, establishing what we believe to be a solid growth platform for the Company and its shareholders. 'Following the sale of the South Australian gold assets, Mungana will have sufficient cash to pursue a focused, low-cost exploration program at Chillagoe designed to upgrade and expand the existing resources and assess some promising regional growth opportunities.

'Our broader strategy is to advance these assets towards development and position Mungana to take advantage of a significant looming market opportunity for zinc which we believe will continue to emerge over next 2-3 years,' he continued.

Investor Contact:

Joe Treacy

Chairman

Mobile: +61 428 600 121

Media Contact:

Nicholas Read

Tel: +61-8 9388 1474

Mobile: +61 419 929 046


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Source: ENP Newswire


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