Queenstake, YGC to tie knot (February 19, 2007)

The wait by the phone is over for Queenstake Resources (QRL-T, QEE-X), which has found a merger partner in Vancouver-based YGC Resources (YGC-T, YGCFF-O).

Queenstake, which has been shopping itself publicly since October, would be merged into a new company at a ratio of one new share for 10 old shares; YGC would be merged share-for-share. The new company would include the YGC board, plus Dorian Nicol and Peter Bojtos of Queenstake.

Both companies plan meetings in May 2007 to place the merger before shareholders. In the meantime, there is a due-diligence period, and YGC will have to complete a financing to cash up the new company.

YGC, which holds the Ketza River gold project south of Ross River, Yukon, had about $6 million in cash at the end of September 2006 and subsequently took in another $2.2 million in a flow-through financing. Queenstake had about US$6.6 million ($7.7 million) at year-end.

Queenstake’s principal asset, the Jerritt Canyon mine in Elko Cty., Nev., produced 154,000 oz. gold in 2006. The last available figure for Jerritt Canyon’s production cost is for the nine months ended Sept. 30, an average of US$546 per oz. Queenstake had predicted a cash operating cost of US$420 in the fourth quarter.

The high production costs at Jerritt Canyon led Queenstake to implement a cost-cutting program in October, which included layoffs of 47 workers and a deferral of production from two high-cost areas of the Jerritt Canyon underground mines.

At the same time it engaged Blackmont Capital to act as a financial adviser to bring in a partner or develop a deal.

YGC’s Ketza River project, which saw drilling and surface work in 2006, has two deposits with a calculated resource. The Ketza Manto zone has a measured and indicated resource of 6 million tonnes grading 3 grams gold per tonne, and another 10.5 million tonnes grading 2.4 grams. Ketza Shamrock has 2.6 million indicated tonnes averaging 2.2 grams per tonne, plus an inferred resource of 4 million tonnes at 1.9 grams per tonne.