Hawthorne looks for new flagship

Hawthorne Gold (HGC-V) and Cusac Gold Mines (CQC-V, CUSIF-N) have agreed to merge the two companies into one, bigger, better British Columbia-focused company with the 1-million oz. Taurus gold deposit added to its spread of projects.

Under the agreement, which must be approved by Cusac shareholders and debentureholders by Apr. 15, 2008, Cusac shareholders will receive one Hawthorne share in exchange for 19 Cusac shares.

Hawthorne will use the same 19 to 1 ratio for Cusac stock options and warrants.

The shares will be converted based on the closing prices from Dec. 17 when Hawthorne closed at $1.70 per share and Cusac closed at 9.

Each Cusac convertible debentureholder will receive one Hawthorne share for each $2 of principal and interest owed.

On the closing of the transaction, Hawthorne will issue about 6.15 million shares to Cusac shareholders and debentureholders.

Cusac must pay a termination fee of 5% if the deal doesn’t go through under certain circumstances but Hawthorne has the right to match any competing offer.

Hawthorne plans to close a $3-million private placement, which would up Hawthorne’s share count to 22.5 million should both the merger and the financing go through.

The private placement consists of 1.875 million units priced at $1.60 apiece, with each unit consisting of one share and half a purchase warrant. Warrants are exercisable for 18 months for $2.25 per share. A Cayman Island based fund, Praetorian Offshore, will own about 11% of Hawthorne at closing of the financing.

A finalized deal would mean Hawthorne would acquire the Taurus deposit, which has a National Instrument 43-101 compliant inferred resource of 32.4 million tonnes grading 1 gram gold per tonne for 1.04 million contained oz. gold.

The Taurus deposit is located on the 175-sq.-km Cassiar gold property in north-central BC. The fully permitted Table Mountain gold mine and the early-stage Taurus II exploration area also call Cassiar home.

The mine produced 60,000 oz. gold between 1993 and 1997 and about 424,000 oz. of gold has been mined from the Cassiar area, historically.

Hawthorne’s Robert Ferguson says the Cassiar property, with its permitted mine and Taurus resource, will make it the company’s most important asset.

Hawthorne would take on an agreement between Cusac and American Bonanza Gold (BZA-T, ABGFF-O) for the 70% of the Taurus deposit. Cusac owns the remainder of Taurus.

Under the agreement Hawthorne must pay American Bonanza $6 million by Dec. 22, 2009. Another $3 million must be paid at the start of production or with the completion of a positive feasibility study recommending production. Hawthorne also must issue 25,000 shares to American Bonanza by Dec. 22 2008.

Taurus was explored in 1995 and 1996 for large scale, bulk tonnage mineralization and more than 350 holes have been drilled on the property. Cusac began its own 25-hole drill program in June 2007 after a positive technical report done by Wardrop Engineering.

The company saw promising results. An 80-metre intersection returned 1.15 grams gold per tonne from 3 metres depth, followed by 11 metres grading 2.11 grams gold starting at 100 metres depth. Another hole returned a 6-metre intersection grading 4.17 grams gold from 4-metres depth.

Cusac restarted production at the Table Mountain gold mine in December 2006 but stopped after producing only a few thousand oz. gold due to start-up cost troubles.

The property is equipped with a 300-tonne per day gravity flotation mill bought from Total Energold as well as service facilities, offices, core library, cookhouse and bunkhouses. The tailings pond has a capacity for 50,000 tonnes.

Hawthorne’s most important asset right now is the Frasergold property 100 km east of Williams Lake in the Quesnel Trough area of the province. The company can earn up to 60% in the deposit from Eureka Resources (EUK-V) by spending $3.5 million, paying $175,000 and completing a feasibility study by April 2010.

Hawthorne can also earn 70% on the adjoining ground from Dajin Resources (DIJ-V) by spending $500,000 by Nov. 2010.

The deposit has an historical resource of 363,000 oz. gold and previous exploration has uncovered a 10-km zone containing anomalous gold values from soil and rock geochemical surveys done in the 1980s. As well, more than 35,000 metres of drilling in 328 holes and 298 metres of underground drifting has been done.