NGT pays back Salamandra tax

Vancouver — A $1.58-million refundable international value (IVA) tax received from the Mexican government paves the way for National Gold (NGT-V) to continue renegotiations for the $10.5-million purchase of the Salamandra gold property.

The Albert Matter-led junior acquired the advanced project late last year from Placer Dome (PDG-T) and Kennecott Minerals. The property was originally slated to close Feb. 28, but regulatory hurdles forced the junior to move the closing date to March 15. Financial hurdles then caused a second extension.

Placer and Kennecott were forced to defer $2.75 million of the closing payments to July and loan the junior $1.58 million to pay the refundable IVA tax. This allowed National Gold to close the deal on March 23 by making a $250,000 payment.

The proceeds of the tax refund will be used to pay back the initial loan.

On the back of the acquisition, National Gold hoped to raise $5.2 million. However, poor market conditions prompted the junior to close a $750,000 interim financing.

Under the terms of the original deal, $3 million is payable in the first year. The remaining $7.5 million would be secured by a debenture and payable at the end of the fourth year. The debenture carries a 7% interest, which is payable semi-annually. The vendors retain a 2% net smelter royalty on the first 2 million oz. gold produced.

Finding it difficult to meet the financial obligations, National Gold reached a preliminary agreement earlier this month to renegotiate the purchase agreement.

The new proposal gives the junior some breathing room by calling for $2.7 million of promissory notes, which would be payable by the end of 2008. If the six-month average gold price hit US$300 per oz., $1 million would be due in 60 days and $1.75 million would be payable after 90 days. The remaining $7.5 million is due by the end of 2010, or within 90 days after Oct. 1, 2004 if the nine-month average gold price hits US$325 per oz.

In addition, National Gold must pay $420,000 for property payments by the end of the year. The vendors retain the same net smelter royalty. A final agreement is expected to be signed before Aug. 21.

The promising property hosts the 3.4-million-oz. Mulatos gold deposit and is located some 400 km south of Tucson, Ariz., in the Mexican state of Sonora,.

Since 1993, Placer and Kennecott have spent over $50 million exploring the 151-sq.-km property. A 1997 feasibility study pegged the measured and indicated resource at 68.3 million tonnes grading 1.57 grams gold per tonne, using a cutoff grade of 0.8 gram gold. Included in this is a higher-grade core of 11.5 million tonnes grading 3.2 grams gold.

The project is held 70% by Placer and 30% by Kennecott, a subsidiary of Rio Tinto (RTP-N). A 1999 feasibility study envisioned a 17,500-tonne-per-day open-pit operation. Capital costs came in at US$120 million. Operating costs hit $5 per processed tonne at a gold recovery rate of 66% for the heap-leach operation.

Mineralization is hosted in a large high-sulphidation gold system, which is found preferentially stratabound in felsic volcaniclastics and porphyritic flows. Alteration is well zoned, going from a gold-bearing core of silicic and pyrophyillite clays to kaolinite-illite-dickite clays and finally to a propylitic zone.

National Gold is in the midst of merger talks with fellow junior Alamos Minerals (AAS-V) and is talking to a number of major gold producers about a possible financing and joint-venture arrangement for Salamandra.