The Cost Sharing Arrangement for Construction of the New Mill
The 2010 Agreement also provided for the construction of a new mill at Song Jiagou, to increase production capacity and revenue from operations. As a prospective beneficiary of increased production and profitability, Dahedong agreed to pay 25% of the costs to be incurred in the construction of the new mill. In addition, Dahedong agreed to advance a portion of Zhongjia's share of construction costs pending Majestic arranging additional financing for Zhongjia. The new mill was completed during 2012 at a cost of approximately C$65,500,000 (using an exchange rate of yen 5.83:C$1.00), such that Zhongjia's share of construction costs totaled approximately C$49,125,000. As at December 31, 2012, Majestic had provided sufficient financing to Zhongjia to reduce Zhongjia's debt owed to Dahedong to approximately C$7,950,000 (the "Remaining Mill Debt").
The Proposed Equity Swap
By the time the new mill was completed, it was clear that additional capital improvements at the Mine would be desirable, including a new on-site assay lab and, potentially, an expansion of the new mill to increase its throughput capacity. However, Dahedong's 25% Net Profits Interest created an obstacle to such capital improvements because it meant that Majestic would be responsible for funding 100% of Zhongjia's capital improvements while Dahedong would have the benefit of 25% of such improvements. Majestic therefore engaged in discussions with Dahedong during the fall of 2012 with a view to eliminating that disparity. The result of those negotiations was the Exchange Agreement, which provides for the following new arrangement:
1. Dahedong will surrender its 25% Net Profits Interest to Zhongjia in exchange for a 25% working interest in Zhongjia, in the form of a 25% joint venture interest in Zhongjia.2. Dahedong will continue to provide Zhongjia with the use of the Dahedong Mining Assets at no cost to Zhongjia and will continue with the Mining Arrangement.3. The new mill will be owned as to 100% by Zhongjia.
The new arrangement, which will be effective from and after January 1, 2013, will facilitate improvements to the Mine and the new mill because Dahedong will now be responsible for funding 25% of the costs of such improvements which are not funded by revenues from gold sales and Majestic will be responsible for funding only the other 75%. The two companies will now be entitled, respectively, to 25% and 75% of Zhongjia's net profits after taxes. However, Dahedong will continue to receive 100% of Zhongjia's net profits until the Remaining Mill Debt has been paid.
The Company considers the new arrangement to be mutually beneficial. Majestic will reduce its share of all capital costs incurred after January 1, 2013 by 25% while Dahedong will have a greater assurance that capital improvements will be made and that its investment will become more valuable over time as a result. Management considers that the achievement of the Company's following objectives, discussed in its February 1, 2013 news release, will be facilitated by the new arrangement:
1. Continue to increase production levels at Song Jiagou towards the production goal of 100,000 ounces per year through grade control: -- Removal of low-grade material at top of resource (nearing completion); -- Construction of modern and large capacity assay lab on site to accommodate sufficient blast hole assays (nearing completion); -- Completion of detailed topographical surveys for detailed pit modeling (completed).2. The Company is working closely with SRK Beijing on an application to the Chinese Government to expand the mining zone and mining permit to at least 7,400 tpd by the fall of 2013.3. The Company is continuing to search out potential merger and acquisition ("M&A") opportunities.4. The Company is continuing to explore different avenues for a potential listing on the Hong Kong Stock Exchange, or perhaps the Singapore Stock Exchange, for better valuations and reduced share dilution in future M&A's.
However, notwithstanding the new arrangement with Dahedong, there can be no assurance that the aforementioned goals and objectives will be achieved.
2013 Second Quarter Production Results
Production results for the second quarters ended March 31, 2013 and 2012 are as follows:
For the three months For the six months endedOperational Results ended March 31, March 31,Song Jiagou Mine 2013 2012 2013 2012----------------------------------------------------------------------------Tonnes of ore mined 484,385 582,320 929,738 1,106,559Tonnes of ore milled 487,481 531,287 945,132 929,026Tonnes milled per day 5,417 5,851 5,196 5,113Effective head grade (g/t) 0.35 0.31 0.37 0.33Recovery 86% 84% 87% 85%Gold produced (ounces) 4,776 4,608 9,600 9,346Gold sold (ounces) 5,144 3,327 7,483 7,188----------------------------------------------------------------------------
About Majestic Gold
Majestic Gold Corp. is a Vancouver, BC based company engaged in commercial gold production at the Song Jiagou gold mine in Yantai, China. The mine is an open pit and underground operation. Additional information on the Company and its projects is available at www.sedar.com and on the Company's website at www.majesticgold.net.
On Behalf of the Board of Directors MAJESTIC GOLD CORP.
Rod Husband, P.Geo, President
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release. This news release may contain forward-looking statements including but not limited to comments regarding the timing and content of upcoming work programs, geological interpretations, receipt of property titles, potential mineral recovery processes, etc. Forward- looking statements address future events and conditions and therefore, involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements.
Majestic Gold Corp.
(604) 681-4653 or 1-866-282-8398