Kenai Resources Ltd.

Kenai Resources Ltd.

October 15, 2012 10:01 ET

CORRECTION: Kenai Resources Ltd.; Sao Chico Gold Project, Brazil-Maiden Mineral Resources and Reduced Royalties

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Oct. 15, 2012) - The following corrects and replaces the release issued on behalf of Kenai Resources Ltd. (TSX VENTURE:KAI). The text of the release was incorrect and was not the one provided by the company.

Kenai Resources Ltd. (TSX VENTURE:KAI) ("Kenai") announces major advances in its Sao Chico Gold project with an update of its NI 43-101 Technical Report, the release of its Maiden Mineral Resource estimate and negotiation of significantly reduced royalty obligations.

Updated NI 43-101 Technical Report

An updated NI 43-101 Technical Report is to be filed with SEDAR in the next few days covering the Sao Chico project, which is located in the Tapajós Gold Belt in Pará state, northern inland Brazil, about 600 kilometres south-east of the major Amazon River city of Manaus. Sao Chico is within AP12836, a Brazilian exploration permit of 1416 hectares owned by Kenai's wholly owned subsidiary Gold Aura do Brasil Mineração Ltda ("GOAB"). GOAB owns the mineral rights to the project.

The Technical Report covers in detail results from the limited Stage 1 diamond drilling campaign at Sao Chico, including the identification of gold-bearing quartz/sulphide vein structures known from surface workings. The primary author of the report is Mr Andrew Tunningley, a geologist from Exploration Alliance Ltd, who was also the primary author of Kenai's initial NI 43-101 Technical Report dated November 25th, 2010. Mr Bradley Ackroyd is a principal consulting geologist for Andes Mining Services, who is responsible for the mineral resources estimate in the current report as summarised below. Both persons are independent of Kenai and are qualified persons for the purposes of NI 43-101.

Maiden Mineral Resources Estimate and Trial Mining Preparations

The NI 43-101 Technical Report includes the estimate presented below for estimated mineral resources, covering the three vein structures identified during the initial 22 hole 3,268 metre Stage 1 diamond drilling program.

Tonnes Gold (g/t) Ounces
Main Vein Measured Mineral Resources 5,064 32.46 5,269
Main Vein Indicated Mineral Resources 21,423 29.14 20,006
Total Measured and Indicated Mineral Resources 26,487 29,77 25,275
Main Vein Inferred Mineral Resources 69,440 27.83 61,940
Highway Vein Inferred Mineral Resources 8,490 12.21 3,323
Parallel Vein Inferred Mineral Resources 7,647 24.98 6,123
Total Inferred Mineral Resources 85,577 26.03 71,385

The Stage 1 drilling concentrated on the central part of the Main Vein, and only drilled along 530 metres of the known east-west strike length of 1000 metres in AP12836 and less than half the known 400 metres north-south of old workings and surface vein structures, with further drilling planned for the first half of 2013.

No mineral reserves have been estimated and it is uncertain if further exploration will result in the delineation of a mineral reserve.

The vein structures all trend east-west and are all sub-vertical, with a dip of about 85° to the south. The Main Vein shows a high degree of continuity and is considered suitable for narrow vein shrinkage stoping mining, with a diluted mining width of 1.4 metres.

As reported previously by Kenai, an application for a GUIA trial mining licence was lodged in May 2012 and is expected to be approved by the end of the year. Kenai has completed detailed preparations for trial mining to the level of detail associated with an advanced pre-feasibility study but has not completed a definitive feasibility study, without which Kenai cannot be certain of the economic viability of the trial mining. Subject to permitting and funding, the GUIA licence operation should allow for the commencement of underground trial mining ore production in the first half of 2013, at a maximum rate of 50,000 tons over 12 months.

A successful metallurgical testwork program on underground primary ore samples has been completed at SGS Mineral Services at Lakefield, Ontario. Results from that program showed high metallurgical recoveries of gold. Planning is underway for the installation of a simple mineral processing plant, which will include crushing and grinding, followed by gravity separation of a high grade gold/silver gravity concentrate from which a gold doré product can be recovered on site, and a gold/silver flotation concentrate from the gravity plant tailings. Commercial discussions are under way with smelters and refineries for the sale of the end products.

Reduced Vendor Royalty Obligations

Following extensive negotiations between GOAB and the Brazilian vendors of the Sao Chico project over the past 12 months, the previous royalty payable to the vendors which had been negotiated prior to Kenai's involvement at a NPI (Net Profit Interest) level of 40%, has now been substantially reduced. All parties agreed the revised terms to maximise the potential to enable funding so as to enable work and development at Sao Chico to continue. Under the revised terms (in US$ at a rate of US$1=R$2), GOAB will pay the following:

  1. Unconditional Payment
    Property acquisition payment
    - US$600,000 (US$75,000 per quarter from December 2012 to September 2014)
  2. Conditional on Receipt of Project Financing for production
    Property acquisition payment
    - US$3,500,000
    - US$1,500,000 30 days after project financing plus
    - US$2,000,000 over 36 equal monthly instalments starting 11 months after project financing
  3. Conditional on Production
    Production based royalties
    3% Net Smelter Royalty (NSR) to a maximum of US$10,000,000 (ie this NSR would cease after some 200,000 ounces of production at a US$1600 gold price)
    - US$3.75 per ounce of gold production

Based on a $1,600 gold price and 100,000 ounces of gold production, this equates to an average NSR of 3.2%. Based on 500,000 ounces of gold production, this equates to an average NSR of 1.5% (as the 3% NSR would cease after some 200,000 ozs).

The above amounts are based on production from gold in AP12836. There are other minor royalty payments on metal production from any new exploration permits arising from the further contiguous and nearby 6,763 hectares which are the subject of current exploration permit applications.

About the Sao Chico, Brazil project

The Tapajós Gold Belt, south of the regional city of Itaituba, trends north-west to south-east for about 200 kilometres, with seven significant gold discoveries and developments in recent years, notably Eldorado Gold Corporation's TZ (Tocantinzinho) project and Serabi Gold plc's Palito project.

The Sao Chico project, like all the other discoveries, evolved from the old workings mainly in and after the huge 1970s and 1980s local gold rush. Much of the region has been crudely mined by artisanal miners (garimpeiros), mainly from simple alluvial workings with inefficient gravity separation and gold recovery by amalgamation, but only at surface or near surface because the simple garimpeiro methods could not extract gold from primary or unoxidised ores.

At Sao Chico, over an east-west strike length of about 900 metres and north-south 400 metres, some 220 old workings, mainly shallow shafts, have been identified by GOAB. Following prior GOAB surface trenching to trace the gold-bearing quartz veins, Kenai's Stage 1 diamond drilling was the first ever undertaken in the Sao Chico area. That drilling program of 3,268 metres confirmed the hypothesis of a series of sub-parallel near vertical vein structures, in the same rocks and with the same structure as the Palito mine 30 kilometres north-east.

About Kenai Resources Ltd.

Kenai is a Canadian company focused on precious mineral project exploration and development, towards early significant gold production. Its principal current activity is at the Sao Chico project, with a corporate priority towards the earliest possible cash flow generation from Sao Chico.

On behalf of the Board of Directors,

Greg Starr, President and CEO

Forward-Looking Statements: Statements in this news release that are forward-looking statements are subject to various risks and uncertainties concerning the specific factors disclosed and elsewhere in the company's periodic filings with Canadian securities regulators. The economic viability of the mineral resources estimates described herein has not been established and may not be. Such information contained herein represents management's best judgment as of the date hereof based on information currently available. The company does not assume the obligation to update any forward-looking statement.

Kenai's Vice President Technical Services, Neil Cole, is responsible for technical information in this news release. Mr Cole has sufficient experience which is relevant to the style of mineralization under consideration and to the activity which is being undertaken and planned to qualify as a Qualified Person under NI 43-101. Mr Cole has verified the technical data disclosed in this release, including references to planned exploration and operational activities, and the sampling of the gold-bearing vein structures. Mr Cole has consented to the inclusion in this release of such technical information in the form and context in which it appears.

Shares Outstanding: 105,906,734

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.

Contact Information