Garrison Gold Property

MBK Project | Tower Mountain | Garrison Gold | Venezuela

In July 2005, ValGold Resources acquired 100% interest in the Garrison Gold Property located in Garrison Township, 40 km north of the Town of Kirkland Lake and 100 km east of Timmins, Ontario. There are 35 mining claims located at the property, with the most prospective zones discovered within the Destor-Porcupine Fault Zone.

On September 9, 2009, ValGold entered into an Option Agreement with Northern Gold Mining Inc. that would grant Northern Gold

  1. an initial 50% undivided interest in the property by making cash payments to the Company of $1,000,000 over four years, with all or part of the payments being made in Northern Gold common shares at Northern Gold's option, using a 20-day value weighted average price. Northern Gold must also complete exploration work on the property in the amount of $4,000,000 over four years, with $500,000 being spent on the property in the first year of the agreement and not less than $750,000 to be expended in each of the subsequent years.
  2. after earning the initial 50%, the option to increase its interest to 80% by making additional cash payments of $1,000,000 over the next four years, with all or part of the payments being made in Northern Gold common shares at Northern Gold's option, using a 20-day value weighted average price, and completing additional exploration work on the property in the amount of $4,000,000 over the next four years.
In accordance with this initial agreement, Northern Gold made a total of $400,000 in payments to ValGold consisting of
  1. $200,000 in cash, and
  2. the issuance of 2.2 million in shares in satisfaction of the other $200,000 payment obligation.
Northern Gold had also incurred over $3,000,000 in exploration expenditures.

As at April 7, 2011, ValGold and Northern Gold announced that the companies had entered into a definitive agreement to consolidate 100% ownership of the Garrison Property. Under the terms of the agreement Northern Gold purchased ValGold's interest in the Garrison Option and Joint Venture Agreement, subject to closing and regulatory approval.

In consideration for this sale, ValGold received at the closing on Friday May 13th 2011:
  • a cash payment of C$325,000 and a promissory note for an additional C$325,000 to be paid on or before August 13, 2011;
  • 16 million common shares in Northern Gold ("Northern Gold Shares") giving ValGold aggregate ownership of approximately 14.8% of the issued and outstanding shares of Northern Gold on a non-diluted basis; and
  • a 2% net smelter return royalty of which (i) half (i.e. 1%) can be acquired by Northern Gold for C$5 million paid to ValGold at any time upon the earlier of thirty-six months following the date of closing and the commencement of commercial production, and (ii) the remaining 1% can be acquired for a further payment of C$10 million at any time upon the earlier of seventy-two months following the date of closing and the commencement of commercial production.
For a period ending on the earlier of twenty-four months after closing or a change of control Northern Gold has a right to vote the Northern Gold Shares. In addition, Northern Gold has a right of first refusal to provide a buyer for any sale by ValGold in excess of 160,000 Northern Gold Shares in any calendar month.

Summary of Equity Standing as at Closing of Buy-out:

Prior to the closing of the buy-out of the Garrison Option and Joint Venture Agreement, ValGold owned a total of 1,437,500 common shares of Northern Gold. As a result of the sale, ValGold was issued 16.0 million common shares of Northern Gold for an aggregate holding of 17,437,500 common shares of Northern Gold representing approximately 14.7% of the 118,758,415 common shares issued and outstanding on a post-closing basis. ValGold acquired the common shares of Northern Gold for investment purposes, and has no current intention to increase the beneficial ownership of, or control or direction over, securities of Northern Gold.

Updated Mineral Resource Estimate for the Garrcon Deposit

On June 23, 2011, A.C.A. Howe International Limited ("Howe") completed an updated mineral resource estimate for the Garrcon Deposit, which is part of the Garrison property. The estimate was completed in accordance with Canadian Securities Administration National Instrument 43-101 ("NI 43-101") and CIM Standards on Mineral Resources and Reserves. The resource estimate, using a block cut-off grade of 0.3 g/t gold and a specific gravity of 2.73 g/cm3, reports an Indicated Resource of 24.90 million tonnes at a grade of 0.9 g/t containing 720,000 ounces of gold. An Inferred Resource of 18.6 million tonnes at a grade of 0.7 g/t containing 430,000 ounces gold is also reported. Northern Gold's updated indicated resource represents a five-fold increase compared to its initial resource estimate disclosed by Northern Gold on Sedar November 5, 2010. This brings the total NI 43-101 resource for the Garrison Property (includes both the Garrcon and Jonpol (see October 2009 Technical Report filed by Northern Gold on SEDAR October 21, 2009)) to 783,200 ounces of gold in the indicated category and 676,500 ounces of gold in the inferred category.