Kalimantan Gold Corporation Limited

Kalimantan Gold Corporation Limited

October 16, 2007 02:00 ET

Kalimantan Enters Letter of Intent to Gain 100% Ownership of KSK Contract of Work

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Oct. 16, 2007) - Kalimantan Gold Corporation Limited ("KGC" or the "Company") (TSX VENTURE:KLG)(AIM:KLG) is pleased to announce that it has entered into a Letter of Intent with Kalimantan Investment Corporation ("KIC") to indirectly acquire the remaining 25% interest in the KSK Contract of Work ("KSK COW") that it does not already hold. The holder of the KSK COW is PT Kalimantan Surya Kencana ("KSK") that is 75% owned by Indokal Limited, a wholly owned subsidiary of KGC, and 25% owned by PT Pancaran Cahaya Kahaya ("PCK"), a wholly owned subsidiary of KIC. KIC is also the owner of 19.5% of the shares of KGC.

On December 18, 2006 KGC and Oxiana Ltd. finalized an Option Deed that grants Oxiana an Option to earn an indirect incorporated joint venture interest of up to 66.67% in the KSK COW. In the Initial Period Oxiana will sole fund an initial program of $2.5 million in expenditures within a maximum of 18 months from the date of the Option Deed. Within 60 days after completion of the Initial Period Oxiana must either deliver a notice of exercise to KGC or forfeit all interest in the KSK COW. KGC undertook to Oxiana to use reasonable commercial efforts during the Initial Period to negotiate with KIC the PCK Restructure under which Indokal will acquire all of the shares of PCK and KIC will receive shares in KGC, as a result of which PCK will become a wholly owned subsidiary of Indokal and the PCK Agreement described below would be terminated.

Oxiana acknowledged in the Option Deed that Indokal has been funding PCK's share of the KSK COW pursuant to the PCK Agreement by way of a non-repayable 2.5% free carried interest and a deferred 22.5% carried Interest ultimately repayable from dividends paid by KSK all as defined in a 1998 agreement between Indokal, PCK and KSK. In the event Oxiana exercises the Option and the PCK Restructure has been completed, Oxiana agrees to Reimburse KGC for the additional cost paid over and above that to acquire a simple 25% interest for the additional compensation for the Extinguishment of the carried nature of that interest.

The reimbursement may be paid at the election of KGC as to 100% at the end of the Interim Period or may be paid as to 50% at the end of the Interim Period and 50% at completion of a bankable feasibility study. The reimbursement payable at the end of the Interim Period will be agreed by KGC and Oxiana based upon the amount paid by KGC to KIC as consideration for the Extinguishment where such amount has been determined by an independent valuation. The reimbursement payable at the completion of a bankable feasibility study will be based upon the valuation of the project in the bankable feasibility study. In either case, if KGC and Oxiana are unable to agree, the compensation payable shall be as determined by an expert.

PCK Restructure

Pursuant to the Letter of Intent with KIC, subject to regulatory approval and the approval of KGC's unrelated shareholders, the Company agreed to purchase all of the shares of PCK by issuing to KIC:

- 15 million common shares as consideration for the value of a simple 25% interest in KSK;

- 5 million shares as partial consideration for the Extinguishment (of the carried nature of that 25% interest); and

- conditional upon Oxiana exercising its Option, as the final payment of the Extinguishment KGC will issue KIC an additional 8 million shares. KGC will pay part of the value of the 8 million shares in cash, valued at C$0.20 per share, from half of the cash Reimbursed to KGC by Oxiana.

The PCK Restructure constitutes a related party transaction under both the TSX Venture Exchange Rules and the AIM Rules. In addition to TSX Venture Exchange approval, KGC will require shareholder approval from the majority of the minority. KIC and the three directors and officers of KGC, Rahman Connelly, Murray Clapham and Mansur Geiger, who are also directors and shareholders of KIC, may not vote their shares at this meeting. It will also be subject to approval by the shareholders of KIC. The Company will send the notice of meeting and relevant supporting documentation to shareholders as soon as it has been finalized.

As required by AIM Rule 13, the independent directors of the Company, having consulted with both Bruce K. McKnight, P.Eng., MBA, FCIM and Ross Glanville, P.Eng., MBA, B.A.Sc, both Vancouver based independent mineral property valuators, and with RFC Corporate Finance Ltd, the Company's nominated adviser, considers that the terms of the PCK Restructure are fair and reasonable insofar as its shareholders are concerned.

If the PCK Restructure concludes KIC will own 31.8 million of what would be 81 million shares outstanding (39%), and should Oxiana exercise its Option and the whole of the Final Payment is paid by the issue of shares KIC would own 39.8 million of what would be 88.7 million shares outstanding (45%). KIC is a private British Virgin Islands company with about 400 shareholders many of whom hold shares of both KGC and KIC. It is the understanding of the Company that after the PCK Restructure is complete, and subject to regulatory and shareholder approval by KIC, that KIC will dissolve itself and distribute its only asset, being cash and the shares it owns of KGC to its shareholders.

Oxiana report in relation to their program

Oxiana geologists have reviewed a decade of KGC exploration data relating to the KSK COW. This detailed geological, geochemical and geophysical review and assessment has delineated three key areas of porphyry-related mineralization in the Beruang Kanan prospect area for further evaluation. Similar review and evaluation also identified quality drill targets at the Beruang Tengah, Baroi and Mansur prospects. Work programs completed to date encompass geological mapping, reprocessing of geophysical and geochemical data and drill testing. Reconnaissance exploration was conducted on other anomalous areas on the KSK COW to determine potential and delineate additional targets.

To date 15 holes for 5,770 metres of diamond drilling have been completed. While the geology and alteration observed confirm porphyry style mineralisation, significant volumes of drilling assays are still outstanding. Results will be announced when the information is complete.

About Kalimantan Gold

Kalimantan Gold Corporation Limited is a junior exploration company listed on both the TSX Venture Exchange in Canada and on AIM in London. The Company is focused on copper and gold in Indonesia and has exploration rights in two areas: the Jelai-Mewet epithermal gold prospects in East Kalimantan and the KSK COW copper-gold porphyry prospects in Central Kalimantan.

The TSX Venture Exchange does not accept responsibility for the adequacy or the accuracy of this release.

Contact Information

  • Kalimantan Gold Corporation Limited
    Rahman Connelly
    Deputy Chairman and CEO
    +61 7 552 32298
    +61 418 116 955 (FAX)
    Email: rconnelly@ozemail.com.au
    Kalimantan Gold Corporation Limited
    Nick Cottam
    Corporate Relations Manager
    +44 (0) 1394 384115
    Website: www.kalimantan.com
    Keith, Bayley, Rodgers & Co Limited
    Gerald Cheyne
    +44 (0)20 78712274
    Email: gerald.cheyne@wcwb.co.uk
    RFC Corporate Finance Ltd
    (the Company's AIM Nominated Adviser)
    Stuart Laing
    +61 8 9480 2500