Southern Gold Limited (ASX: SAU) entered into a new agreement with the subsidiary of Northern Star after the HBJ Minerals decided to call off the 5-year right-to mine agreement with Southern Gold.
All these arrangements relate to Cannon Gold Mine located within the company owned mining leased in Kalgoorlie, Western Australia. The mining at Cannon Gold Mine is conducted by Westgold Resources Ltd covering the Georges Reward Resources immediately to the north of Cannon. But in March this year, Westgold has sold some control of its South Kalgoorlie Operations to Northern Star for $80 million, which also included the transfer of HBJ Minerals. The sale has been inclusive of right-to-mine agreement between HBJ and Southern Gold, designed to enable the underground development phase at Cannon.
In today’s announcement to ASX, Southern Gold informed that for certain strategic and operational reasons HBJ has decided not to exercise the right-to-mine and has agreed to restructure the arrangement with Southern Gold. As a result, Southern Gold executed a new strategic agreement over the Cannon Gold Mine with, a subsidiary of ASX listed Northern Star Resources Limited, Northern Star (HBJ) Pty Ltd (HBJ).
Managing Director of Southern Gold Mr. Simon Mitchell stated that this agreement with Northern Star outlines a vital step in the company’s development. Mr. Mitchell added that Cannon is a significant high-grade orebody which is expected to deliver considerable value from the underground mining operation.
As per the new agreement, mining lease M25/357, as well as license L25/48 covering a part of the Cannon haul road to the Golden Ridge rail crossing, will be transferred by HBJ to Southern Gold. The company told that the transfer of the tenements come with all associated technical data and there is no purchase consideration payable by Southern Gold for the tenements.
Moreover, Southern Gold assumes all environmental rehabilitation liabilities associated with the tenements. It includes HBJ’s half share of the rehabilitation liability for the open pit, currently estimated to be approximately $77,500 and excludes the cost of rehabilitating the haul road on L25/48 which is to remain in use.
With the merger of the two mining tenements under Southern Gold ownership, the company foresees to derive optimization in underground development. Southern Gold now has tenure covering the strike extension of the Cannon shear zone and is reported to fast-track development in 2019.
Moreover, this restructuring of arrangement underscores the termination of all legal agreements that both the parties have previously agreed upon, including the right-to-mine agreement and previous legal agreements executed during the open pit phase of the operation.
In today’s trading session, Southern Gold’s stock plunged 2.941% to last trade at $0.165 as at 10 December 2018. Even in the past one year, SAU stock was down by 37.04%.