Smash Minerals, Prosperity Goldfields to merge

When Adrian Fleming, co-founder of the wildly successful Underworld Resources, listened to a presentation at his Vancouver office in November last year from Prosperity Goldfields‘ (PPG-V) chief geologist Quinton Hennigh about a prospect in Nunavut called Kiyuk Lake, he had an overwhelming sense of déjà vu.

“I just had this flash that took me back to where we were at with Underworld Resources,” Fleming recalls. “At the end of 2008 we had eight or nine drill holes, and the best of those was fifty metres of three grams gold per tonne. Once we completed the 2008 drill program I knew absolutely that we were on a winner. I was living in New Zealand and I said to my wife, ‘Sorry darling, we’ve got to move back to Vancouver. This one is going to be a home run.'”

Fleming was right on the money and Underworld Resources went on to define the Golden Saddle deposit in the White Gold District of the Yukon, which was sold to Kinross Gold (K-T, KGC-N) in a 2010 transaction valued at $139 million. The Golden Saddle discovery – which hosts a National Instrument 43-101 indicated resource of 1 million oz. gold at 3.2 grams gold per tonne – led to a staking rush, with 50 companies exploring what is known as the White Gold District.

After meeting Hennigh and hearing the geologist talk about the interesting drill results that Prosperity was getting from Kiyuk Lake, Fleming says he was convinced it would turn into something special.

Last year Prosperity Goldfields’ 2,600-metre drill program at Kiyuk Lake returned encouraging results from three targets. At the Rusty target, hole 1 returned 158 metres of 1.7 grams gold per tonne from the surface, including 31 metres of 4.9 grams gold from 5 metres. At the Gold Point target, hole 3 returned 64 metres at 2.84 grams gold from 149 metres.

Fleming, the chief executive of Smash Minerals (SSH-V), which owns the Whiskey project east of the Golden Saddle deposit in the Yukon, had been looking for another project to shore up its pipeline. Smash was scouring the Yukon where it was well known and already enjoyed great success. By the time it became aware of Kiyuk Lake, the company had completed a shortlist of projects it felt had the potential for a farm-in, or a business opportunity.

“Then Kiyuk popped up and we said, ‘holy moly, this thing is way better than anything we were looking at in the Yukon,’ and that began our discussions,” Fleming recalls.

On Jan. 5 the companies announced that they are planning to combine their assets and merge into a new company called Prosperity Goldfields, with Fleming at the helm. Once the combination is complete, Prosperity shareholders will own 74% of the new company and Smash shareholders will own 26%.

The new company will have 58.6 million shares outstanding and $8 million in working capital to spend on drill programs on both projects this year.

In the Yukon the combined company will drill Smash’s early stage Whiskey project, which the company believes has similar geology to the Golden Saddle discovery and Kaminak Gold‘s (KAM-V) Coffee property. The Whiskey project encompasses 846 sq. km, including the placer gold-rich Black Hills and Barker Creeks.

Although placer gold mining operations have been active in the area since the early 1900s, Smash states on its website, no systematic hard-rock exploration has been carried out.

In southern Nunavut it will drill more of the Kiyuk Lake property 100 km northeast of the four corners of Saskatchewan, the Northwest Territories, Manitoba and Nunavut. Kiyuk Lake is made up of 50 claims spanning 430 sq. km, and gold showings were first recognized there in 1992. Newmont Mining (NMC-T, NEM-N) drilled Kiyuk between 2006 and 2008, but “didn’t hit anything, absolutely nothing,” Fleming remarks.

The new group will have “a stronger technical and management team,” as well as “a lot of smarts” and “more horsepower,” Fleming explains in a telephone interview. “We think it’s a good development for Smash and gives us a second string to our bow.”

“The key person in this whole game is Quinton [Hennigh], who has a great reputation in the industry and has been involved with a number of discoveries,” Fleming continues. “He is one of the best exploration geologists in the Americas – an outstandingly competent technician.”

Fleming says he is already working with Hennigh on the 2012 drill program, which could involve 10,000 metres of drilling at the two projects at a cost of $5 million. The drill program in Nunavut will begin in the first quarter, he says, with a second one at Kiyuk starting again later in the year. Drilling at Whiskey will start in June.

“One of the things we’ll be putting a lot of energy into this year is better understanding the geology [at Kiyuk],” Fleming says. “It’s going to be important to get our boots on with hammer in hand and pound the ground, and try to improve our understanding of what’s going on geologically and structurally. That will help us place our drills in the right spot.”

The Kiyuk deposit shares similar geological traits to gold deposits, such as the Telfer deposit in Western Australia and the Sadiola and Morila deposits in Mali, Prosperity states on its website.

“We are in greenstone terrain but the style of it is a little bit unusual, in that it is hydrothermal obviously, and strong, albeit alteration with magnetite and pyrite. And that’s a little bit different from, say, Committee Bay, Hope Bay, Kirkland Lake, Timmins and all the well-known greenstone belts in Canada,” Fleming says.

The amalgamation of the two companies, expected to close in April, will be completed on the basis of one share of Prosperity for each share of the new company, and 1.6 shares of Smash for each share of the new company.

All warrants and options of Prosperity and Smash outstanding on the transaction’s closing date will be converted into warrants and options of the new company using the same ratios.

At presstime Prosperity traded at 59¢ per share within a 52-week range of 15¢-$1.48 per share.

Smash Minerals, which listed on the TSX Venture Exchange in April, traded at 35.5¢ per share within a 52-week range of 30¢-$1.39 per share.