VANCOUVER (miningweekly.com) – TSX-listed project developer Shore Gold has consolidated its ownership in the Star-Orion South diamond project, in Saskatchewan, after buying Newmont Canada FN Holdings’ 31% interest in the Fort à la Corne joint venture (FalC JV), the company announced on Friday.

With a resulting 100% ownership of the Star-Orion South project in hand, the company has also in parallel entered an option to joint venture agreement with Rio Tinto Exploration Canada (RTEC), under which RTEC can earn up to a 60% interest in the project.

Under terms of the agreement, RTEC has agreed to subscribe for Shore units valued at C$1-million at a price of $0.18 apiece, with each unit consisting of one common share and one common share purchase warrant, with each warrant entitling RTEC to acquire one further Shore share at a strike price of C$0.205 each for 24 months following their issuance.

Rio Tinto is an experience diamond producer in Canada’s Far North, holding a 60% interest in, and operating, the Diavik diamond mine in Canada's remote Northwest Territories.

"Rio Tinto is one of the few companies in the world with the resources and expertise to move forward with a project of the magnitude of the Star-Orion South diamond project. We are also very pleased to acquire the remaining portion of the project from Newmont and look forward to working with Newmont as a significant shareholder,” Shore CEO Ken MacNeill stated on Friday.

Shore reported that the Newmont acquisition was completed under a ‘participating interest purchase agreement’ effective as of June 22, whereby Newmont Canada sold its entire interest in the FalC JV to Shore in exchange for 53.8-million common shares and 1.1-million common share purchase warrants. Each warrant entitles Newmont Canada to acquire one common share at a price of C$0.349 each for a period of 45 months from the date of issue.

Shore granted Newmont Canada a proportionate participation right to maintain its interest in the capital stock of Shore, should the company undertake further equity financings.

Newmont Canada will also receive a contingent payment of C$3.2-million if a positive development decision is made on the project.

Newmont Canada currently holds about 17-million common Shore shares, representing about 5.7% of the common shares outstanding and issued on a non-diluted basis. Immediately after the closing of the acquisition this number will rise to about 19.9%, and be capped at a maximum of 20%.

PROJECT CONSOLIDATION
Under the option agreement, Shore has given RTEC four options to earn a 60% interest in the project.

The first option entails RTEC conducting a ten-hole bulk sampling programme on the project, including processing and diamond recovery, or incurring C$18.5-million of direct and indirect expenses relating to mineral prospecting, exploration, development, mining, and associated expenses. However, completing the first option does not earn RTEC any interest in the project.

The second option provides that RTEC must complete the first option, after which it can earn a 51% stake in the project by conducting a ten-hole bulk sampling programme, or incurring expenditure of C$18.5-million.

Completing the third option will add another 4% to RTEC’s project ownership, provided it conducts another ten-hole bulk sampling programme on the project, or incurs further expenditure of C18.5-million.

Provided RTEC completes the third option, RTEC has the option to acquire a further 5% interest in the project by completing a feasibility study, or spending C$15-million more.

RTEC has been given three years to complete the first option, and in total, the time from the effective date to the end of the fourth option cannot exceed 7.5 years. RTEC may, at its discretion, conduct operations to exercise the options in parallel, and may at any time make a payment to Shore instead of any expenditures.

RTEC may choose to form a JV with Shore at any time after it has earned an interest in the project, and if it has earned an interest and let any of the other option terms lapse, will be deemed to have automatically formed a JV.

Each party has granted the other a right of first refusal regarding the sale of its interest. During the option periods RTEC will conduct all operations, provided that during the first option RTEC may appoint Shore to conduct operations.

PROJECT POTENTIAL
The Star-Orion South project is in central Saskatchewan, about 60 km east of the city of Prince Albert.

The project is close to established infrastructure, including paved highways and the electrical power grid, which provide significant advantages for future mine development. The technical report on the revised resource estimate for Star-Orion South dated November 9, 2015, provided an updated compliant mineral resource estimate with 393-million tonnes containing 55.4-million carats of diamonds at a weighted average price of $210/ct in the indicated resource category.

The Star and Orion South kimberlites also include inferred resources containing 11.5-million carats.

Canaccord Genuity acted as financial adviser and Bennett Jones LLP acted as legal adviser to Shore. Lawson Lundell LLP acted as legal adviser to RTEC. Goodmans LLP acted as legal adviser to Newmont.