Southern Arc Minerals (CVE:SA) (OTCQX:SOACF) is taking a 26.2 per cent stake in Eagle Hill Exploration (CVE:EAG) as part of its diversification strategy as it seeks to gain exposure to advanced-stage gold projects outside Indonesia, the company announced Friday.
Shares of Southern Arc were halted Thursday afternoon pending the news this morning, and resumed trading shortly after the release.
The company is partnering with Dundee Corporation (TSE:DC.A) to invest $12 million in Eagle Hill. Southern Arc will acquire a 26.2 per cent interest by investing, by way of private placement, $7.3 million to acquire 97.33 million units of Eagle Hill at a price of 7.5 cents apiece. Every unit will be made up of one common share of Eagle Hill and a half share purchase warrant, with each whole warrant allowing the holder to buy another common share at a price of 10 cents for a period of four years.
Dundee will also participate in the financing by investing $4.7 million to acquire 62.67 million units of Eagle Hill, increasing its ownership of Eagle Hill from 18.8 per cent to 26.2 per cent.
As part of the deal announced Friday, Eagle Hill's board will be remade to include two directors appointed by Southern Arc, two by Dundee, and two by Eagle Hill.
Eagle Hill's Windfall Lake gold deposit is located in the Abitibi region of Quebec, just 190 km northeast of Val d'Or. The project is accessible by paved highways and all-weather gravel roads, with 641 diamond holes having been drilled at the site to date. Of these holes, 356 were used in the latest resource estimate for the project, completed by SRK Consulting Canada, which identified 1.7 million tonnes of indicated resources averaging 10.05 grams per tonne (g/t) gold and 2.9 million tonnes in the inferred category averaging 8.76 g/t gold, for contained gold of 538,000 ounces indicated and 822,000 ounces inferred.
Since the resource estimate was announced in July last year, Eagle Hill has reported some high grade drill hole results including 288.5 g/t gold over 12.4 metres, which included a whopping 4,180 g/t gold over 0.8 metres.
Dundee acquired its original 18.8 per cent interest in 2011, but the company has been involved in the project for years, as noted by president and CEO of Dundee, Ned Goodman. "We have been involved in the development of Eagle Hill's Windfall Lake Project and the surrounding gold camp for approximately 20 years…and believe the high-grade Windfall Lake mineralization has very good potential to grow well beyond the current resource."
"The Southern Arc and Dundee partnership will provide the financial strength, expertise and leadership to unlock the value of this property," said chairman and CEO of Southern Arc, John Proust, in the statement.
"Commencing in September 2013, over a 12 to 18 month period Eagle Hill will execute a major new drilling program focused on extending the resource base at Windfall Lake and upgrading the status of the Inferred Resources."
The greenstone belts of the Abitibi region are some of the most prolific gold-producing regions in the world, having produced over 170 million ounces of gold to date, according to the company statement.
"This new Canadian investment is consistent with Southern Arc's previously announced strategy to diversify, protect and promote shareholder interests through participation in advanced-stage gold projects in favourable jurisdictions outside of Indonesia," said Proust.
"Windfall Lake is a strategic addition to our project portfolio that we believe can be rapidly advanced."
Alongside the deal, Eagle Hill said it will use part of the proceeds from the financing to acquire Noront Resources' 25 per cent interest in the Windfall Lake property, as well as its existing royalties and other rights, giving Eagle Hill a 100 per cent stake. It will pay Noront $5 million in cash and issue 25 million common shares.
Eagle Hill will also buy Noront's 50 per cent of an adjoining property known as the "29 Claims", bringing, together with the junior's option agreements in the region, the potential total landholding of the Windfall Lake property to 12,400 hectares.
"Our extensive technical due diligence has confirmed the very high standard of exploration carried out by the Eagle Hill geological team and the quality of the high-grade resource defined to date," said president and COO of Southern Arc, Dr. Mike Andrews, in the release.
Southern Arc said Friday it would call a shareholder meeting to get approval for the proposed strategic investment, with closing of the financing subject to both shareholder and regulatory approvals. At the end of last year, Southern Arc implemented a strategy to pursue advanced-stage gold projects in new jurisdictions, after conducting a strategic review of its assets. Its priority was also to proceed with drilling at West Lombok, the company's flagship property, where it recently reported encouraging drill results ahead of an upcoming resource estimate expected in the middle of this year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.