Rhino Resources Inc.

March 23, 2009 09:38 ET

Rhino Resources Announces Proposed Qualifying Transaction

HALIFAX, NOVA SCOTIA--(Marketwire - March 23, 2009) -

NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA

Rhino Resources Inc. (TSX VENTURE:RHI.P) the "Company" or "Rhino"), a Capital Pool Company ("CPC"), is pleased to announce that it has entered into an agreement dated effective March 20, 2009 (the "Agreement") for the arm's length acquisition (the "Transaction") of GoldenFrank Resources Inc. ("GoldenFrank"). The Transaction represents an agreement in principle, subject to TSX-Venture Exchange (the "Exchange") approval, for the completion of Rhino's qualifying transaction. GoldenFrank is a private company, based in Quebec, incorporated under the Canada Business Corporations Act on May 11, 2007.

Trading of the common shares of Rhino has been halted at Rhino's request and will remain halted pending the Exchange's receipt of satisfactory documentation.

The Transaction

The Transaction is expected take the form of a share exchange whereby Rhino will acquire all of the issued and outstanding securities of GoldenFrank in consideration for the issuance of up to 20,000,000 common shares of Rhino at an Exchange Ratio of one Rhino common share for each GoldenFrank common share. The Exchange Ratio may be reduced in the event that additional GoldenFrank shares are issued in connection with the settlement of GoldenFrank's outstanding liabilities or the liabilities are not settled prior to closing. Rhino's shares will be issued at a deemed Issue Price of $0.20 per share and the maximum total consideration payable to GoldenFrank shareholders is $4,000,000.

There are currently 17,052,664 GoldenFrank common shares issued and outstanding which will be exchanged for a maximum of 17,052,664 common shares of Rhino. In addition, it is anticipated that before or after the closing, an additional 2,500,000 options, described herein as the UGSPO, will be exercised for the acquisition of 2,500,000 GoldenFrank common shares which will be exchangeable into a maximum of 2,500,000 Rhino common shares.

GoldenFrank currently has a total of 45 shareholders. MGWA Holding International Inc. ("MGWA"), a privately-held holding company, incorporated in accordance with the laws of Canada and located in Montreal, Quebec, holds 5,000,000 common shares of GoldenFrank, representing 29.3 % of GoldenFrank's shares. MGWA is controlled by Maurice Giroux, resident of Montreal, Quebec, who individually owns 500,000 shares of GoldenFrank and together with MGWA represents a total of 32.3% of GoldenFrank shares.

UltraGold Holding LLC ("UltraGold"), a limited liability Delaware company, based in Denver, Colorado, holds 2,500,000 common shares of GoldenFrank, representing 14.7% of GoldenFrank's shares. UltraGold also holds options to purchase an additional 2,500,000 common shares of GoldenFrak at an exercise price of $0.10 per share ("UltraGold GoldenFrank Share Purchase Option", or "UGSPO"), which if exercised would result in UltraGold holding 25.6% of GoldenFrank's shares.

The Transaction, subject to TSX-Venture Exchange approval, is intended to constitute Rhino's qualifying transaction pursuant to Policy 2.4 of the Corporate Finance Manual of the TSX Venture Exchange (the "Qualifying Transaction"). The Agreement contemplates an arm's length acquisition and the Qualifying Transaction and related matters will not be submitted to the shareholders of Rhino for approval.

The closing of the Qualifying Transaction is subject to a number of terms and conditions including:



(a) completion, to the satisfaction of each party, in its sole discretion,
of its due diligence review, including, without limitation, a review as
to the operational, legal and accounting matters of the assets,
liabilities, business, operations and prospects of the other party;

(b) approval by the Boards of Directors of each of Rhino and GoldenFrank;

(C) execution of a definitive agreement by April 3, 2009;

(d) the absence of: (i) any judgment, injunction, order or decree which
restrains or enjoins or otherwise prohibits the Transaction; or (ii) a
material adverse change in the business, affairs or results of
operations of either party, which the other party determines will have
a material adverse effect on the merged companies;

(e) compliance in all material respects by Rhino and GoldenFrank with their
covenants and truth of representations and warranties provided for in
the definitive agreement as at closing;

(f) to the extent required by securities and exchange regulations, approval
by the respective shareholders of Rhino and GoldenFrank;

(g) approval by the TSX Venture Exchange;

(h) if necessary, approval by the appropriate Court; and

(i) obtaining any necessary waivers or consents.


Assets of the Resulting Issuer

GoldenFrank owns interests, ranging from 80%-100% as described herein, in six gold Exploration Permits covering a strategic land position of 780 square kilometres in Guinea, West Africa as outlined in the technical report referred to below.

The most advanced project is the Balandougou Property, comprised of the following three Permits:



Area Ownership Local Local NSR Buy-
Name (km2) Interest NSR(note) back Option
Niagassola 59 80% 2.0% US$2.0 million
Socosgui 250 80% 1.0% US$1.0 million
Sirakoro 110 88% 1.5% US$1.0 million

Note: There is an additional 1.0% NSR over these three permits as well as
the Saraya permit, referred to below, 100% of which can be repurchased for
US$1.0 million.


To date, within the Balandougou Property, covering an area of 419 square kilometres, GoldenFrank has identified 15 gold showings and seven high grade targets are ready for drilling.

Pursuant to options expiring January 31, 2023, the residual interests in the Niagassola and Socosgui permits can be purchased by GoldenFrank for US$2.0 million each and the residual interest in the Sirakoro permit can be purchased for US$1.0 million.

GoldenFrank also owns interests in three earlier stage projects. The Saraya (80%), Siguri (100%) and Mandiana (100%) gold Exploration Permits, covering respectively 95, 107 and 159 square kilometres, although earlier stage, appear prospective based on their location in the Siguri Volcano-Sedimentary Basin and by the presence of extensive artisan gold mining activities on each of the permit areas. The Saraya permit is covered by the same option and royalty agreements covering the Niagassola permit, referenced previously, and the residual interest and royalty purchase options are included in the Niagassola options and vice-versa.

GoldenFrank's six gold Exploration Permits are subject to a joint venture option agreement with UltraGold, pursuant to which UltraGold can earn up to a 50% interest in the projects. GoldenFrank is the manager of the projects until such time as UltraGold has earned a 50% interest. Pursuant to the agreement with UltraGold, UltraGold can acquire up to a 50% interest in GoldenFrank's indirect interests in the six permits by satisfying the following criteria:



Required
Purchase of Required Agreed Value
Interest GoldenFrank Drilling and of Drilling Completion
Description earned Shares(a) Assaying and Assaying Deadline
Phase 1 20% 2,500,000(b) 5,000 metres US$500,000 n/a
Phase 2(C) 20% 1,250,000 5,000 metres US$500,000 31-Mar-2010
Phase 3(C) 10% 1,250,000 5,000 metres US$500,000 31-Dec 2010

Notes:

a) GoldenFrank share purchases will take place at $0.10 per GoldenFrank
share.
b) The initial 2,500,000 shares have been purchased and are included in
GoldenFrank's issued and outstanding shares reported herein.
c) UltraGold is required to notify GoldenFrank of its intention to earn its
Phase 2 and Phase 3 interests within 90 days following completion of the
previous phase.


GoldenFrank's most recently published non-audited financial statements reported a net loss for the nine month period ended September 30, 2008 of $320,900 and a working capital deficit as of September 30, 2008 of $364,201. Pursuant to the terms of the Agreement, GoldenFrank has undertaken, on a best-efforts basis, to settle all GoldenFrank liabilities prior to closing of the Transaction. The Exchange Ratio may be reduced in the event that additional GoldenFrank shares are issued in connection with the settlement of GoldenFrank's outstanding liabilities or the liabilities are not settled prior to closing.

Following completion of the Transaction, the resulting issuer will be a mining exploration company.

Qualifying Property

The Balandougou Property, described previously, is intended as the Qualifying Property acquired pursuant to the Transaction.

In May 2007, following a conclusive field trip, Mr. Maurice Giroux, P. Geologist, decided to proceed to a geological reconnaissance of the entire area, covered by the permits, in order to confirm the potential of the Balandougou Property.

The reconnaissance program completed by Mr. Giroux had the following objectives:

- To locate all access roads within the 419 km2 permit area;

- To locate and describe all artisan's mining sites within the permit area;

- To establish, through observations and questioning of the gold diggers the alluvial or primary nature of each of the sites;

- To sample any identified outcropping or exposed mineralization;

- To vertically sample some of the pits in order to detect the presence of gold along vertical sections;

- To visit and sample all outcropping areas and sample quartz veins and favourable areas;

- To sample selected areas of old existing trenches from Hereford's 1997-1998 work program.

A technical report was produced with a description of all the observations recorded during the reconnaissance program.

In June 2007, GoldenFrank mandated RSW Inc. to carry out an independent evaluation of the mining potential of the Balandougou Property. Consequently, Dr. Pierre Trudel, (geological engineer and project manager for RSW) visited the property during June 2007 and examined and sampled all the known gold occurrences observed on the Balandougou Property.

Between August and December 2007, the Company carried out additional exploration work on the Balandougou Property, namely:

- Detailed sampling of the CQ4 trench dug by Hereford;

- Digging of a new trench measuring 48 meters on Keniebani Hill. The trench intersected eleven quartz veins striking East-West and dipping steeply to the south.

The detailed results of these work programs are reported in a NI-43-101 compliant report produced by Dr. Pierre Trudel, on behalf of GoldenFrank and available on SEDAR. The Balandougou Property NI-43-101 Technical Report was filed on SEDAR, by GoldenFrank, on August 12, 2008.

Directors and Management

Pursuant to the Transaction, the shareholders of GoldenFrank and Rhino's existing board of directors are each entitled to nominate two persons to the board of directors of the resulting issuer of the Qualifying Transaction until the next annual general meeting of shareholders. On behalf of the shareholders of GoldenFrank, Maurice Giroux and John A. Ryan will be appointed as directors. On behalf of the shareholders of Rhino, Wade K. Dawe and Howard Bird will be appointed as directors. Brian MacEachen, Terry Christopher and Keith Abriel, currently serving as directors of Rhino, will resign from the Rhino Board upon completion of the transaction.

Rhino Resources is entitled to appoint the President of the resulting issuer and Golden Frank will appoint the Vice-President Exploration of the resulting issuer. These appointments have not yet been determined. Keith Abriel, who is currently a director of Rhino, will be appointed as Chief Financial Officer and Secretary of the Company.

The following individuals will be insiders of the resulting issuer following completion of the transaction:

Wade K. Dawe - Director

Wade K. Dawe is the President and Chief Executive Officer of Linear Gold Corp. Mr. Dawe has been an entrepreneur in Canadian mining and venture capital industries since 1994. With extensive contacts in the business and investment banking communities, he has worked and consulted for a number of publicly traded Canadian companies. Since 2004, he has raised over $100 million in equity financing. He is the Chairman of Linear Metals Corporation and also serves on the Boards of ImmunoVaccine Technologies Inc., NWest Energy Inc. and East Energy Corp. Mr. Dawe has a Bachelor of Commerce degree from Memorial University (MUN).

Maurice Giroux - Director

Maurice Giroux is the President, Chief Executive Officer and director of GoldenFrank Resources. He is a professional geologist with more than 30 years of international mining, financing and management experience. Mr. Giroux has had extensive business relations with various governments of West African countries through a long term geological assignment with the World Bank and GSC as well as through 14 years of mining exploration and investment. Mr. Giroux has managed exploration and development projects in West Africa for Semafo, Searchgold and Stellar Pacific.

Howard Bird - Director

Howard Bird is the Vice President Exploration for Linear Gold Corp. He is a senior executive and internationally experienced geologist with diverse experience in the public mineral resource sector. Howard Bird has experience in a range of commodities, including gold, base metals, platinum and diamonds. He has directed programs in Canada, United States, South Africa, Gabon, Democratic Republic of Congo, Zimbabwe, Botswana, Brazil, Uruguay and Australia for various companies including Noranda Mining and Exploration Inc., Corona Corporation and SouthernEra Resources. Mr. Bird holds a B.Sc. (Hons.) degree from McMaster University, Hamilton, Ontario, Canada and has over 20 years of experience in the mineral sector.

John A. Ryan - Director

Mr. Ryan is a registered Certified General Accountant (CGA). Since November 1995, he has been the president, director and principal shareholder of Nichange Enterprises Ltd., a privately-held financial consulting company. Since December 2000, Mr. Ryan has been president and director of Spruce Ridge Resources Ltd., a mineral exploration company listed on the TSX-V. Mr. Ryan is also the CFO and Director of Golden Dory Resources Corp. and a Director of DXStorm Inc, both TSX-V listed companies and a Director of RX Exploration Inc., a CSNX listed company.

Keith Abriel - Chief Financial Officer and Secretary

Keith Abriel is a Chartered Accountant and a CFA charter holder who brings to Rhino 14 years experience in financial management and reporting, corporate finance, treasury, strategic planning and human resources in a broad range of sectors. Mr. Abriel also serves as the Chief Financial Officer of Linear Gold Corp., Linear Metals Corporation and Ucore Uranium Inc.. Mr. Abriel has previously worked with PricewaterhouseCoopers, LLP; J.D. Irving, Limited and UBS AG.

Concurrent Financing

As a condition to closing the Qualifying Transaction, subject to the approval of the Exchange, Rhino intends to complete private placements in conjunction with the Qualifying Transaction. The financings will consist of a minimum of 4,500,000 and a maximum of 6,000,000 Units priced at $0.20 per Unit for aggregate gross proceeds of up to $1,200,000. Each Unit will be comprised on one Rhino common share and one-half of one Rhino common share purchase warrant. Each whole warrant will entitle the holder to acquire a common share at a price of $0.30 per share for a period of eighteen months. Rhino expects that a minimum of 2,500,000 Units will be issued pursuant to a Brokered Private Placement led by Blackmont Capital Inc. and the balance through a Non-brokered Private Placement. Rhino intends to use the proceeds to execute a work program for the Properties. The current officers and directors of Rhino may subscribe under the private placement(s).

There are currently 12,000,000 common shares of Rhino outstanding. After completion of the Qualifying Transaction, the exercise of the UGSPO representing 2,500,000 shares, and the aforementioned maximum financing, there are expected to be a maximum of 38,000,000 common shares of Rhino outstanding (excluding the exercise of any options or warrants issued pursuant to the financing).

Rhino intends to grant options to certain officers and directors of the resulting issuer of the Qualifying Transaction under its Stock Option Plan at an exercise price of $0.20 per common share, expiring five years from the date of the grant.

This press release was prepared under the supervision of GoldenFrank's President, Mr. Maurice Giroux, P. Geologist, who is a Qualified Person as defined under National Instrument 43-101. Mr. Giroux has reviewed the scientific and technical information in this press release.

Signed "Brian MacEachen"

Brian MacEachen, Director

Completion of the Qualifying Transaction is subject to a number of conditions, including but not limited to, further due diligence, and Exchange acceptance. There can be no assurance that the transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the filing statement to be prepared in connection with the Qualifying Transaction, any information released or received with respect to the Qualifying Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of Rhino should be considered highly speculative.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release. The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this press release.

Contact Information

  • Rhino Resources Inc.
    Mr. Brian MacEachen
    Director
    902-422-1421