Alamos, National Gold raise US$4m prior to merger vote

Vancouver — Alamos Minerals (AAS-V) and National Gold (NGT-V) have arranged financing with H. Morgan & Co. to prepay outstanding debentures issued for the Salamandra gold property in Mexico.

The debentures were issued by National Gold and held by Tenedoramex and Kennecott, a subsidiary of Rio Tinto (RTP-N). The financing agreement comes as the two juniors are seeking their shareholders’ approval to amalgamate.

Alamos is the entity obtaining the loan and National, as registered holder of the claims, is the guarantor.

Alamos and National owe the vendors of Salamandra $7.5 million of the original $10.5 million purchase price. Payment is due 60 days after Oct. 31, 2004, provided the average price of gold exceeds US$325 per oz. over the previous nine months. If the loan is paid prior to Jan. 31, 2003, it is reduced to $5.6 million.

The new loan agreement allows Alamos to borrow up to US$4 million with a term of 61 months to the maturity date. The loan can be repaid in full anytime after 24 months, and up to half the total amount can be paid at any time provided 30 days’ written notice is given.

The interest rate on the loan is pegged at 12% per year, compounded monthly. The loan is still subject to regulatory approval.

Salamandra is in the Sierra Madre mountain range in Sonora state, 220 km east of Hermosillo. A 1999 feasibility study envisioned a 17,500-tonne-per-day open-pit mine. Capital costs are pegged at US$120 million, whereas operating costs for the heap-leach operation would be about $5 per processed tonne at a gold recovery rate of 66%.

At US$300 per oz. gold, the proposed Estrella pit contains a measured and indicated resource of 32 million tonnes running 1.77 grams gold. At last count, the total Mulatos deposit contained a measured resource of 43.9 million tonnes grading 1.66 grams gold, plus an indicated resource of 13.1 million tonnes at 1.4 grams gold and a inferred portion of 12.3 million tonnes at 1.37 grams gold.

Despite a low recovery rate of the sulphide component of the ore, Alamos, led by well-known mine operator Chester Millar, wants to advance the high-grade Estrella zone, within the Mulatos deposit. Millar is a pioneer of low-cost heap-leach mining in the western U.S.

A scoping study by Pincock, Allen & Holt estimates that, at a gold price of $300 per oz., the Estrella zone could be mined profitably and generate an internal rate of return of 19.3%.

The Salamandra property was previously held by Placer Dome (PDG-T) and Kennecott, which, combined, spent more than US$30 million exploring and developing it in the 1990s. The work led to a feasibility study, which projected only a marginal profit for a large, bulk-tonnage, heap-leach operation at gold prices below US$325 per oz.

The majors subsequently sold the project to National Gold in March 2001 for $10.5 million, due over four years. In August of that year, the terms of the purchase agreement were revised; as a result, all but the $250,000 already paid was deferred until 2008 and 2010 unless the gold price rises above US$300 and US$325 per oz., respectively.

Finding it difficult to raise the necessary financing to advance the project, National Gold optioned half of Salamandra to Alamos in October 2001 in return for spending $2.4 million on exploration and further payments once production is reached.

The two companies decided to merge in October 2002. Under the terms of that agreement, shareholders of Alamos will receive one share of the new company, Alamos Gold, for every two shares of Alamos held, and shareholders of National will receive one share of Alamos Gold for every 2.3 shares of National held.

The merger is expected to be completed my mid-March.