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Monday, 14 January 2013
UPDATE: Otis Gold inks joint venture for Oakley project as “big year” planned for Kilgore asset
***updated with comments from Otis president and CEO, CraigLindsay, and share price data***
Otis Gold Corp. (CVE:OOO) (OTCQX:OGLDF) has inked a joint venture deal for its Oakley project in Idaho with Lateral Gold Corp (CVE:LTG), giving Otis both cash and a significant potential shareholding in Lateral as the company moves forward with development at its main Kilgore property.
The Oakley joint venture deal will allow Otis to squarely focus its resources on developing the Kilgore gold project, which is located in Clark County, Idaho.
Shares in Otis gained more than 11.5% on the back of the news, to trade at 14.5 cents as of around 2pm ET.
The letter of intent agreement allows for Lateral to earn up to an initial 70 per cent stake in Oakley, which is a classic epithermal hot spring-type gold project that has an NI 43-101 inferred resource of 235,000 ounces of gold at a grade of 0.55 grams per tonne (g/t).
The project consists of 107 federal lode mining claims and several Utah State leases in Cassia County, Idaho, approximately 15 miles south of the town of Oakley and just north of the Utah/Nevada border.
"The Oakley project has been in our portfolio for the past five years, and we haven't had the resources from a capital or manpower perspective to advance the project, as we have been dedicating our time to the Kilgore project,” Otis president and CEO, CraigLindsay tells Proactive Investors.
"Now we have a third party that will be moving the project forward, and a key point to note is that the agreement includes a commitment to a drill program within the first 12 months."
Indeed, Lateral has committed $300,000 in the first year toward property expenditures, 50 per cent of which has to be spent on drilling, which Lindsay expects can cover up to 5,000 feet of reverse circulation drilling.
Under the terms of the deal, Lateral will pay a combination of cash, property expenses and shares of its company. It will pay a total of $915,000 to Otis in cash, as well as $5.7 million of work expenses on the project and a total of 4.95 million common shares, all according to staged payment schedules spanning as much as five years from the acceptance date.
The deal also requires that Lateral provide NI 43-101 resource estimates on or before both the third and fourth anniversary dates, and a preliminary economic assessment by the fifth anniversary date, at which time the 70 per cent interest will have been earned.
Once Lateral has earned the 70 per cent, it will have the option to boost its stake by a further 10 per cent in exchange for $1.5 million in cash and 2.0 million Lateral shares. It will then have the right to earn the final 20 per cent interest by issuing an additional 5.0 million Lateral shares and a cash payment based on a multiple of any inferred gold resources contained in a NI 43-101 report.
A net smelter return royalty of 2.5 per cent will also be issued to Otis in connection with any lands subject to the deal that are not already encumbered by royalty agreements.
Otis currently has a 70 per cent stake in Oakley, which is being increased to 100 per cent through a separate transaction with its joint venture partners, the closing of which must occur prior to the Lateral agreement.
Otis and Lateral said they aim to close by mid-February a definitive agreement, which still needs approval by the TSX Venture Exchange.
"We recognize markets continue to be challenging for junior companies and that valuations are soft and liquidity is low, but this is not slowing down our efforts to move the Kilgore project toward production," says Lindsay.
"This will be a big year for Kilgore, as we will be drilling up to 7,000 metres to expand the deposit, as well as initiating a preliminary economic assessment [PEA] this year and 12-month environmental baseline studies.
"These are critical action items as we move the project toward production."
Kilgore, Lindsay says, is an advanced asset with a near-term production profile, and continues to benefit from a "very strong capital structure".
He adds that the company has enough funds to complete the PEA for the project, but will be looking to raise additional capital in the first six months of the year as it moves forward, hoping to have Kilgore in production by 2017.
Otis last summer unveiled an updated NI 43-101 resource estimate for Kilgore. The deposit now contains an indicated resource of 520,000 ounces gold in 27.35 million tonnes at a grade of 0.59 grams per tonne (g/t) gold, representing an increase of 138 per cent in the number of ounces and 328 per cent in the number of tonnes compared to the deposit’s 2002 estimate.
Kilgore also has an inferred resource of 300,000 ounces gold in 20.23 million tonnes at a grade of 0.46 g/t gold, representing an increase of 12 per cent in the number of ounces and 131 per cent in the number of tonnes versus the 2002 estimate.