New Pacific Metals has signed a memorandum of understanding to acquire a 75% stake in the Longmenchang silver-gold-lead-zinc property in China’s Fujian province.

The property is about 100km west of the provincial capital Fuzhou and includes an exploration permit and 300 tonne per day flotation mill plant. The local government has approved a 1sqkm area for mining, and an applicable mining licence for the property is expected soon.

The MOU terms include a payment of Can$33.2 million, with an upfront cash payment of Can$12.6 million and company shares to the value of Can$15.8 million to Fujian Henyuan. In addition, the first Can$4.7 million in profits from commercial operations at the property will be paid to Fujian Henyuan.

The agreement and any payments between the parties is subject to New Pacific completing a confirmation drill program to verify historical drill data and the geological model of the mineralization at the property. Fujian Henyuan must also obtain the applicable mining licence and complete consolidation for 100% ownership of Longmenchang.

Fujian’s other silver polymetallic operations in the province are also under review and New Pacific has agreed to consider acquisition of any of these properties in the future.

Longmenchang is at the southeast margin of the Wuyi mineralization belt, which is one of the 16 prominent metallogeny belts in China. Based on historical exploration reports from the property, the oxidized mineralization zones are near surface, sub-horizontal, and stratiform. Exploration of the property began in the 1980s and included geological mapping, trenching, diamond drilling, and aditing. There were 39 holes totalling 6880 metres and 379 metres of underground adits were completed.

Company geologists have reviewed all available geological information and historical exploration data, and made two site visits to the property in December 2011 and January 2012. The assay results of verification samples were deemed consistent with historical grades.

To better evaluate the economic potential of Longmenchang, New Pacific has begun a confirmation drill program to verify the historical drill results of the oxidized zones and the geometry of the primary silver-lead-zinc sulphide veins.

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