PNG Gold Corporation
TSX VENTURE : PGK

PNG Gold Corporation
New Guinea Gold Corporation
TSX VENTURE : NGG

New Guinea Gold Corporation

March 08, 2012 12:51 ET

PNG Gold and New Guinea Gold Merger Update

Merger Agreement Executed

PNG Gold Agrees to Lend NGG $2.5 Million

VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 8, 2012) - PNG Gold Corporation ("PNG Gold") (TSX VENTURE:PGK) and New Guinea Gold Corporation ("NGG") (TSX VENTURE:NGG) jointly announce that, further to their joint news release dated November 4th, 2011, they have executed a binding Arrangement Agreement whereby PNG Gold will acquire all the shares of New Guinea Gold by way of Plan of Arrangement at an exchange ratio of one NGG share for 0.125 PNG Gold shares (the "Arrangement"). In addition, PNG Gold has agreed to assist NGG with the critical and immediate cash shortfall announced in NGG's press release of February 29 by lending New Guinea Gold up to $2.5 million, in advance of the Arrangement being completed. The Arrangement is presently expected to close shortly after April 12th 2012, depending on the timing of satisfaction of certain conditions precedent. The NGG Shareholders meeting to consider the Arrangement will be held on April 12th, 2012. The Arrangement must be completed by May 31, 2012 or either party will have the right to terminate the Arrangement Agreement.

The reduction in the previously announced Exchange Ratio of one NGG share for 0.175 PNG Gold shares was necessary to reflect the increased risk now associated with the Arrangement due to the interruption of operations at NGG's Sinivit mine in December 2011 caused by the occupation of the mine site by various local landowners. This has led to an immediate and critical cash shortfall for NGG. Additionally, it is currently forecast that mining and leaching operations will cease in Q2 and be put on care and maintenance before PNG Gold can implement its business plan - see NGG's recent news release dated February 29th, 2012. In addition, PNG Gold is now lending NGG up to $2.5 million to assist NGG in the orderly shutdown of the Sinivit mine while the Arrangement proceeds.

The Arrangement Agreement contains two material "conditions precedent" in favour of PNG Gold that must be satisfied prior to May 31, 2012, failing which PNG Gold will have the right to terminate the Arrangement Agreement. These are:

  1. The mining license and easement forming part of the Sinivit Property, ML 122 and ME 70, must each be renewed for a period of five years, and the exploration license included in the Sinivit Property, EL 1140, must be renewed for a period of two years; and
  2. An agreement providing for compensation of the local landowners and other matters, commonly referred to as a Memorandum of Understanding, must be entered into with the local landowners and the relevant governmental authorities that is acceptable to PNG Gold.

The Arrangement Agreement also contains a material condition precedent that must be satisfied prior to May 31, 2012, failing which NGG will have the right to terminate the Arrangement Agreement, being the renewal of EL 1091, the exploration license comprising PNG Gold's Imwauna Property.

The Arrangement Agreement contains terms and conditions customary in such agreements, including a $1.25 million Termination Fee payable to PNG Gold in certain circumstances.

In addition to the Arrangement Agreement, PNG Gold and NGG have entered into two further agreements - the Letter Agreement and the Credit Agreement - to provide funding to NGG prior to completion of the Arrangement.

The Letter Agreement provides for a demand loan from PNG Gold to NGG of up to $1 million bearing interest at 8% per annum. As security, NGG will provide PNG Gold with a first priority security interest in the 15,682,269 PNG Gold shares which it owns under a Pledge Agreement discussed below. The shares may be removed from the pledge and sold in certain circumstances in order to pay for certain severance obligations of NGG. NGG will also provide a security interest in all its present and after acquired personal property, and that of its wholly-owned PNG subsidiary, New Guinea Gold Limited. At PNG Gold's election, advances under the Letter Agreement may be credited in advance against PNG Gold's payment obligations under a recently signed Services Agreement between the two companies under which NGG provides PNG Gold with various administrative and management services related to the exploration and development of PNG Gold's Imwauna Project located in Milne Bay Province, eastern Papua New Guinea. It is expected PNG Gold will advance the full $1 million under the Letter Agreement to NGG very shortly.

The Credit Agreement provides for a demand loan of up to $2,500,000 bearing interest at 8% per annum. All amounts advanced under the Letter Agreement will be rolled into the Credit Agreement once the conditions precedent to advance under the Credit Agreement, are satisfied. The Credit Agreement provides PNG Gold will not make demand for repayment for so long as completion of the Arrangement is progressing to PNG Gold's satisfaction. As security, NGG will grant a first mortgage over the mining and exploration licenses comprising the Sinivit mine, in addition to the security discussed above. The Credit Agreement also provides for an option to PNG Gold to convert the outstanding balance of the loan into an earned interest in the Sinivit mine of up to 25%, with each $100,000 convertible into a 1% interest in the mine. If PNG Gold exercises this option, the Sinivit mine will be released from the mortgage and NGG's PNG Gold shares will be released from the Pledge Agreement. The Credit Agreement contains appropriate conditions precedent to each drawdown request, and certain management processes to monitor the use of proceeds of the money lent, together with other customary terms and conditions.

As security for advances under the Letter Agreement and the Credit Agreement, the companies have entered into Pledge Agreement whereby NGG has pledged the 15,682,269 PNG Gold shares it owns to PNG Gold as security. Of those shares, 1,526,226 are free trading, and 14,114,463 shares held in escrow pursuant to a TSX Venture Exchange Surplus Security Escrow Agreement. Under the Credit Agreement, PNG Gold may realize upon such shares by cancelling them.

The Credit Agreement provides that if NGG terminates the Arrangement Agreement because it has received a superior proposal and PNG Gold demands repayment of the loan and realizes on its security under the Pledge Agreement by cancelling such shares, the amount deemed to be realized by PNG Gold will be $0.35/share for the free trading shares and $0.15/share for the escrowed shares.

Dick Whittington, President and CEO of PNG Gold comments: "We are looking forward to working with NGG's management to consummate the transaction and to assisting NGG with the orderly closure of the Sinivit mine in a manner that facilitates a restarting of operations in the future. In the meantime, we will await the results of the Definitive Feasibility Study currently being carried out by NGG on the economic viability of using a CIL or CIP processing plant to treat any remaining in-situ oxide ore, in situ high-copper ore and to re-treat the partially leached crushed ore remaining in the vats and heap pads on site, as well as the extraction of tellurium from all three. The metallurgical testwork results of the DFS are expected in mid-April and the design and economic analysis results by mid-May. The conclusions of this study will be a key component of PNG Gold's go forward business plan for the Sinivit mine."

Whittington further commented: "As previously mentioned, in the November 4th news release, PNG Gold's intention is, upon the successful consummation of the transaction, to implement an expanded site-wide exploration programme at Sinivit. If the results of the Definitive Feasibility Study and the exploration programme are positive, PNG Gold intends to develop a new mine plan and a redesign of the metallurgical processing plant to effectively mine and process in-situ ore and the ore in the vats and heap pads as part of a comprehensive business plan to re-start operations at Sinivit. The implementation of this plan will depend on the economics of the re-start plan as well as market conditions at the time. If appropriate, PNG Gold intends to use the business plan as a basis for the recapitalization of the mine with a view to commercial production re-commencing at Sinivit in the second half of 2013.

In the meantime, PNG Gold will be continuing with its exploration and development plans at its flagship project - the Imwauna Project - where several promising exploration results have been released of late, along with very promising metallurgical results. On February 22nd, we issued a news release that indicated results of 95% gold recovery with potential for improvements as the grind and the reagent usage are refined. On February 9th, we issued a news release that announced grades of 32.1 grams/tonne had been discovered at depths of 150 metres in the southern end of the deposit which was, at that time, the deepest high grade intersection made; however, on February 29th, we issued a further exploration news release update that announced the discovery of 15.8 grams/tonne at depths of 190 metres in the northern end, now by far the deepest high grade intersection made to date. PNG Gold is on track to produce a 43-101 resource estimate in the later part of Q2, 2012. If the results warrant, PNG Gold will conclude a Pre-Feasibility Study on the Imwauna Project, which is underway at the current time, by year's end while continuing to drill on both the Imwauna vein system and the currently un-drill tested promising Kela's vein system.

We believe the combination of the potential for an earlier than expected operating profile for the Company at the Sinivit mine, with the potential to add to this profile at Imwauna in the future, will enhance the growth potential of PNG Gold. Additionally, we believe it will provide a platform for shareholder growth to the benefit of both PNG Gold and NGG shareholders and other stakeholders in Papua New Guinea that can benefit from the success of both projects."

Bryan Nethery, Director of NGG commented: "We believe this transaction is the best way to unlock shareholder value in NGG's holdings. The synergies with PNG Gold will reduce costs and add value to those holdings going forward."

Qualified Person

Mr. Colin McKenzie, P.Geo and COO of PNG Gold Corporation is a qualified person in accordance with National Instrument 43-101 and has reviewed and approved the technical information contained in this news release.

About PNG Gold Corporation

PNG Gold Corporation is an exploration company with an advanced stage drilling program in Papua New Guinea. PNG Gold holds a 100% interest in the Imwauna and Sehulea properties on Normanby Island, Milne Bay Province, Papua New Guinea, and trades on the TSX Venture Exchange under the symbol PGK. PNG Gold's mission is to become the premier exploration and development company in Papua New Guinea.

About New Guinea Gold Corporation

New Guinea Gold is a premier junior explorer and miner in Papua New Guinea, with direct and indirect interests in eight gold and two porphyry copper-gold-molybdenum properties. With 90,000 + meters of drilling completed, gold or copper-gold-molybdenum mineralization has been discovered on all of the properties. The company's premier property, the Sinivit Mine, has been producing gold since August 2007 and the Company is focused on expanding the exploration program, increasing production from the mine and developing the gold, copper and tellurium resources.

ON BEHALF OF THE BOARD OF DIRECTORS OF PNG GOLD

Dick Whittington, President and CEO

PNG Gold Corporation

ON BEHALF OF THE DIRECTORS OF NEW GUINEA GOLD

Bryan Nethery, Director

New Guinea Gold

Forward Looking Statements - Certain information set forth in this news release may contain forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond the control of New Guinea Gold and PNG Gold, including, but not limited to the expected benefits from the potential transaction, impact of general economic conditions, industry conditions, volatility of commodity prices, risks associated with the uncertainty of resource and reserve estimates, currency fluctuations, dependence upon regulatory approvals, the availability of future financing and exploration risk. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements.

Neither 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

  • PNG Gold Corporation
    Dick Whittington
    President and CEO
    (604) 669 4899
    (604) 685 2345 (FAX)
    www.pnggold.com

    New Guinea Gold Corporation
    Bryan Nethery
    Director
    (604) 689 1515
    (604) 687 8676 (FAX)
    www.newguineagold.ca