East Africa Metals signs agreement for development of Magambazi and Gold Stream transaction
AA – East Africa Metals Inc. (TSX VENTURE:EAM) (“East Africa” or the “Company”) is pleased to announce that the Company has signed a binding letter agreement with an arm’s length private exploration and development company (the “Developer”) with management based in the United Kingdom and Tanzania, to develop East Africa’s Magambazi project in Tanzania.
Under the terms of the letter agreement, the Developer will:
- pay East Africa US$1 million in cash for a 100% interest in the Handeni property, which includes the Magambazi project, and all properties owned by East Africa in Tanzania (the “Assets”);
- pay East Africa approximately US$1 million in cash for the book value of the camp, equipment and other assets;
- convey to East Africa the right to receive a 1.6% Net Smelter Royalty on production, capped at US$1.8M;
- convey to East Africa the right to acquire a gold stream equal to 30% of the life of mine gold production from all of the Assets;
- issue treasury shares of the Developer that is expected to represent 9.9% of the Developer’s outstanding shares. The Developer intends to list on the London Stock Exchange’s AIM and expects to issue such shares to East Africa before the listing; and
- offer East Africa a seat on the Board of Directors of the Developer and a seat on the Management Committee of the Magambazi project.
East Africa will not be required to contribute to capital or exploration expenditures with respect to the construction and development of any of the Assets.
The transaction will provide East Africa with the right to purchase 30% of gold produced during mining operations established at any of the Assets, for a per ounce payment equal to the lesser of: (i) production cost plus 15% based on the Developer’s historical and budgeted production costs, and (ii) the prevailing market price for gold.
Further, the Developer will provide a completion guarantee under which, if within 48 months of the effective date the project fails to produce a minimum of 8,000 ounces of gold in any quarterly period, the Developer will pay East Africa an advanced cash payment of US$592,000 for every quarter that 8,000 ounces of gold is not produced.
East Africa will have a right of first offer and a right to re-acquire the properties if commercial production is not reached in four years from the effective date or if the project is abandoned.
Andrew Lee Smith, President & CEO of East Africa, commented: “We are very pleased to have engaged this partnership for the development of the Magambazi project. This transaction is expected to allow East Africa to focus on its Adyabo and Harvest projects in Ethiopia, and will establish the Company with cash flows from operations in Tanzania going forward, once development of the project is complete.”
The letter agreement is binding and subject to certain conditions having been fulfilled by October 15, 2015, including, but not limited to: (i) the completion of satisfactory due diligence by East Africa on the Developer; (ii) the finalization of the structure of the transaction, including tax considerations; (iii) the entering into of a definitive agreement and gold purchase agreement; and (iv) the receipt of initial payment of US$500,000 and regulatory approvals, including acceptance by the TSX Venture Exchange. The balance of approximately US$1,500,000 will be payable within one year of the effective date.
The Handeni property is located in the emerging Handeni gold district in eastern Tanzania, 180 kilometres northwest of Dar es Salaam and 140 kilometres southwest of the port city of Tanga. The Handeni property consists of two mining licenses (which cover 9.9 square kilometres) and two prospecting licenses, for an aggregate total of approximately 93 square kilometres. An initial mineral resource estimate for Magambazi was announced on May 15, 2012. Using a cut-off grade of 0.5 grams per tonne gold, Magambazi is estimated to contain an indicated mineral resource of 15.2 million tonnes grading 1.48 grams per tonne gold and containing 721,300 ounces, as well as an inferred mineral resource estimate of 6.7 million tonnes grading 1.36 grams per tonne gold and containing 292,400 ounces.
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