PNG Gold will loan New Guinea Gold (NGG) $2.5 million in advance of completing an acquisition agreement to help with a critical and immediate cashflow shortfall. The funding will assist with the company’s orderly shutdown of the Sinivit mine while the arrangement proceeds.

Interruption of operations at NGG’s Sinivit mine, due to its occupation by various local landowners in December 2011, has led to the company’s cashflow problem.

An exchange ratio for PNG Gold’s acquisition of NGG has also been agreed upon. The two companies have signed a binding agreement which will see PNG Gold acquire all the NGG shares at a rate of one share for 0.125 PNG Gold shares.

PNG Gold says a reduction in the previously announced exchange ratio of one NGG share for 0.175 PNG Gold shares was necessary to reflect the increased risk now associated with the arrangement.

It is expected that mining and leaching operations will cease in quarter 2 and be on placed under care and maintenance before PNG Gold can implement its business plan.

Conditions of the arrangement include a 5 year renewal of the Sinivit mining licence and a compensation package for local landowners including a memorandum of understanding signed between landowners and the relevant authorities. NGG shareholders will meet in April to discuss the arrangement, and must be completed by May 31.

PHG Gold president Dick Whittington says, “We are looking forward to working with NGG’s management to consummate the transaction and to assisting NGG with the orderly closure of the Sinivit mine in a manner that facilitates a restarting of operations in the future.”

PNG Gold says the results of the definitive feasibility study are expected in the next six weeks. This study is investigating the economic viability of using a CIL or CIP processing plant to treat any remaining in-situ oxide ore, in situ high-copper ore and to re-treat the partially leached crushed ore remaining in the vats and heap pads on site, as well as the extraction of tellurium from all three.

“The conclusions of this study will be a key component of PNG Gold’s go forward business plan for the Sinivit mine,” said Dick Whittington.

NGG’s director Bryan Nethery says, “We believe this transaction is the best way to unlock shareholder value in NGG’s holdings. The synergies with PNG Gold will reduce costs and add value to those holdings going forward.”

Once the transaction is completed, PNG Gold’s intention is to implement an expanded site-wide exploration program at Sinivit, including the development of a new mine plan and a redesign of the metallurgical processing plant, with a view to commercial production re-commencing in the second half of 2013.

In the meantime, PNG Gold will continue with exploration and development plans at its flagship Imwauna project - where metallurgical test results of 95% gold recovery were announced in February.

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