Shore Gold Announces Acquisition from Newmont to Consolidate Star-Orion South Diamond Project and Earn-In With Rio Tinto

The Technical Report on the Revised Resource Estimate for the Star-Orion South Diamond Project dated November 9, 2015 provided an updated Mineral Resource Estimate for the Star and Orion South kimberlite deposits: Indicated Mineral Resource of 393 million tonnes containing 55.4 million carats of diamonds at a weighted average price of US$210 per carat.
Courtesy: Shore Gold Inc.
Courtesy: Shore Gold Inc.

Shore Gold Inc. (TSX: SGF) ("Shore" or the "Corporation") has reportedly announced that it has acquired (the "Newmont Acquisition") from Newmont Canada FN Holdings ULC ("Newmont Canada") all of Newmont's participating interest in the Fort à la Corne joint venture (the "FalC JV"), resulting in Shore owning 100 per cent of the Star-Orion South Diamond Project (the "Project"), and has concurrently entered into an Option to Joint Venture Agreement (the "Option Agreement") with Rio Tinto Exploration Canada Inc. ("RTEC") pursuant to which the Corporation has granted RTEC an option to earn up to a 60 per cent interest in the Project on the terms and conditions contained in the Option Agreement. All dollar figures herein are in Canadian dollars unless otherwise indicated.

In connection with the Option Agreement, RTEC has also agreed to subscribe for units of the Corporation for an aggregate subscription price of $1,000,000 at a price of $0.18 per unit, with each unit consisting of one common share in the capital of the Corporation and one common share purchase warrant, with each warrant entitling RTEC to acquire one additional common share at a price of $0.205 per share for a period of 24 months following the issuance of the units.

"We are extremely pleased to partner with Rio Tinto to further develop the potential of the project" said Ken MacNeill, Chief Executive Officer of Shore. "Rio Tinto is one of the few companies in the world with the resources and expertise to move forward with a project of the magnitude of the Star-Orion South Diamond Project. We are also very pleased to acquire the remaining portion of the project from Newmont and look forward to working with Newmont as a significant shareholder".

Summary of the Newmont Acquisition

The Newmont Acquisition was completed pursuant to a Participating Interest Purchase Agreement effective as of June 22, 2017 between Shore, its wholly owned subsidiary, Kensington Resources Ltd., and Newmont Canada whereby Newmont Canada sold its entire interest in the FalC JV to Shore in consideration for approximately 53.8 million common shares of Shore and 1.1 million common share purchase warrants, with each warrant entitling Newmont Canada to acquire one additional common share at a price of $0.349 per share for a period of 45 months from the date of issuance. Prior to the completion of the Newmont Acquisition, Shore held a 69 percent interest in the FalC JV and Newmont Canada had a 31 per cent interest. Under the terms of the warrants and the rules of the TSX, Newmont Canada is not permitted to exercise warrants if, as a result of such exercise, it would beneficially own or control 20 per cent more of the outstanding shares of the Corporation, subject to certain exceptions including approval by the shareholders of the Corporation.

As additional consideration for Newmont Canada's interest in the FalC JV, the Corporation has agreed to grant Newmont Canada a participation right to subscribe for and purchase such number of common shares in order to maintain its proportionate interest in the share capital of the Corporation; Newmont Canada may exercise this right each time Shore undertakes financing (subject to certain exemptions) at the same price and terms as the financing. The Corporation has also agreed that Newmont Canada will receive a contingent payment in the aggregate amount of $3,200,000 if a positive decision is made to develop a mine on the Project. Shore, in its sole discretion (subject to regulatory approvals), may satisfy the contingent payment due to Newmont Canada through a cash payment or the issuance of common shares priced at the VWAP at that time. The Participating Interest Purchase Agreement relating to the Newmont Acquisition contains representations, warranties, covenants and indemnities as customary for transactions of this nature.

Newmont Canada currently holds approximately 17 million common shares in the capital of the Corporation representing approximately 5.7 per cent of the common shares outstanding and issued on a nondiluted basis. Immediately after the closing of the Newmont Acquisition and issuance of common shares, Newmont Canada will hold approximately 19.9% of the common shares issued and outstanding on a nondiluted basis.

Consolidation of the Project

Following the Newmont Acquisition, Kensington transferred its interest in the FalC JV to Shore and thereafter, the FalC-JV was terminated, resulting in Shore holding 100 per cent of the Star-Orion South Diamond Project.

Summary of the Rio Tinto Option Agreement

Pursuant to the Option Agreement, the Corporation has granted to RTEC four options which in aggregate permit RTEC to earn a 60 per cent interest in the Project, as follows:

First Option. RTEC has the exclusive right to conduct a 10 hole bulk sampling program on the Project, including processing and diamond recovery, or incur $18.5 million of direct and indirect expenses in connection with mineral prospecting, exploration, development, mining, and related expenses ("Expenditures"). Completion of the First Option does not entitle RTEC to an interest in the Project.

Second Option. Provided RTEC completes the First Option, RTEC has the exclusive option to acquire 51% of the Project by conducting a 10 hole bulk sampling program on the Project or incurring $18.5 million of Expenditures.

Third Option. Provided RTEC completes the Second Option, RTEC has the exclusive option to acquire an additional 4 per cent undivided interest in the Project by conducting a 10 hole bulk sampling program on the Project or incurring $18.5 million of Expenditures.

Fourth Option. Provided RTEC completes the Third Option, RTEC has the exclusive option to acquire an additional 5 per cent undivided interest in the Project by completing a feasibility study in respect of the Project or incurring an additional $15 million of Expenditures.

RTEC has three years to complete the First Option, 18 months from completion of the First Option to complete the Second Option, 18 months from completion of the Second Option to complete the Third Option and 18 months from completion of the Third Option to complete the Fourth Option; in aggregate, the time from the effective date to the end of the Fourth Option cannot exceed 7.5 years. RTEC may, at its discretion, conduct operations to exercise the options in parallel, and may at any time make a payment to Shore in lieu of any expenditures.

At any time after RTEC has earned an interest in the Project, RTEC may elect to form a joint venture with Shore. If after RTEC has earned an interest in the Project, RTEC allows an option to expire or terminates  the Option Agreement, RTEC will be deemed to have elected to form a joint venture with Shore. Under the Option Agreement, each party has granted the other a right of first refusal with respect to the sale of its interest. During the option periods RTEC will conduct all operations, provided that during the First Option RTEC may appoint Shore to conduct operations.

The Project

The Star-Orion South Diamond Project is located in central Saskatchewan approximately 60 kilometres east of the city of Prince Albert. The Project is in close proximity to established infrastructure, including paved highways and the electrical power grid, which provide significant advantages for future mine development. The Technical Report on the Revised Resource Estimate for the Star-Orion South Diamond Project dated November 9, 2015 provided an updated Mineral Resource Estimate for the Star and Orion South kimberlite deposits: Indicated Mineral Resource of 393 million tonnes containing 55.4 million carats of diamonds at a weighted average price of US$210 per carat. In addition to the Indicated Mineral Resource Estimate, the Star and Orion South Kimberlites include Inferred Resources containing 11.5 million carats.


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