Tonogold Announces Strategic 51% Gold Joint Venture in Comstock Lode, Nevada - A Company Transforming Event
LA JOLLA, Calif., Oct. 5, 2017 /PRNewswire/ -- Tonogold Resources Inc (OTC:TNGL) (the "Company' or "Tonogold") is pleased to announce that it has entered into a binding agreement with Comstock Mining Inc. (NYSE American: LODE) ("Comstock"), which amongst other things, provides Tonogold an exclusive right to earn a 51% controlling interest in 1,162 acres of mining claims in the highly prospective Comstock Lode region in Virginia City, Nevada, which includes the Lucerne Deposit, located in the Storey and Lyon Counties, as listed in Schedule 2 (the "Lucerne Properties") and depicted in the map provided in Schedule 1.
PRINCIPLE AGREEMENT TERMS
Tonogold has paid Comstock $200,000 for an initial 6-month option, which can be extended at Tonogold's election for a further payment of $2 million prior to the expiry of the initial option period.
For Tonogold to earn a 51% controlling interest it will be required to invest $20 million over the next 42-months on work programs developed and managed by Tonogold, on the Lucerne Properties; the objective being to produce a commercially and technically robust mine plan and feasibility study to enable profitable mining on the properties to commence. It should be noted, that the $20 million expenditure threshold is not a commitment, but a requirement to earn the 51% interest in the Lucerne Properties.
The Agreement provides that a Joint Venture Steering Committee be established immediately with majority members being nominated by Tonogold. Work programs, budgets and other day-to-day operational decisions require a simple majority decision of the JV Steering Committee, thus ensuring Tonogold assumed operational control from the outset.
Other aspects of the agreement provide Tonogold with:
An option over Comstock's heap leach facilities (including the crushing, stacking, Merrill Crowe plant, gold recovery facilities, the American Flats mineral claims (totaling 1,013 acres – see map in Schedule 1), and other related infrastructure, plant and equipment ("American Flat PP&E"). Tonogold has the right to acquire 51% of the American Flat PP&E for $25 million once it has acquired a 51% interest in the Lucerne Properties. If exercised, the purchase price shall be payable to Comstock over an 18-month period commencing from exercising the American Flat PP&E option.
A Right of First Refusal over mining claims (192 acres) covering Comstock's Dayton gold and silver deposit.
FUTURE WORK PROGRAMS
Tonogold believes that notwithstanding the operating losses incurred over the 3-year period (2012-2015) during which Lucerne ore was mined (open pit) and treated (heap leach), the project dynamics contemplated by Tonogold would be vastly different with significant economic improvements resulting from the adoption of industry best practice strategies, including:
Consideration of a higher rate of production (equipment and roster selection). Previous operations operated on an 8-hours/day, 5-days per week and as a result failed to secure the significant economic of scale benefits that were available.
Ensuring ore mined and treated is economic. The previous operations operated without a Reserve with surface mining relying on a Resource that (for a number of reasons summarized below) resulted in sub-economic ore (i.e. waste) being mined and treated. This is outlined further under the "Lucerne Resource" Section below.
Tonogold's work programs over the next 3-years will be targeting sustained annual production in excess of 100,000 ounces of gold per year with cash costs of ~$750/ounce. The work program for the initial 6-month period is expected to include:
Detailed Independent review of the Lucerne Resource
Possible infill drilling within the Lucerne Resource
As part of the initial review, there will be a focus on identifying high-grade zones within the overall Lucerne Resource to establish a better understanding on the structural controls and to help determine down-dip potential for subsequent drilling.
Assessment of the various known high-grade underground opportunities such as Succor, PQ, Woodville, etc. and to consider drilling programs to gain a better understanding of their potential.
LUCERNE RESOURCE
The Official Resource for the Lucerne deposit as reported by Comstock will, as part of the initial work program, be re-estimated by Tonogold's technical consultants (Mine Development Associates ("MDA"), Reno) with an initial focus on that part of the Resource that is likely to be converted into a Reserve.
Tonogold is wary to pre-empt the results and outcome of the future work in this area (which is likely to take 6 to 12-months to complete), but believes that it is important for investors to gain a general understanding of some of the Resource issues that have come to light during Tonogold's due diligence program, and to be aware that this is expected to result in a significant reduction in the Resource as currently reported by Comstock of 79.8 million tons at 0.027 ounces of gold per ton ("o/t Au") (0.92 grams of gold per tonne ("g/t Au")), for 2.14 million ounces of contained gold which uses a 0.007 o/t Au (0.24 g/t Au) cutoff. The expected reduction is the a result of:
The cutoff grade assumed of 0.007 o/t Au (0.24 g/t Au) is, in Tonogold's opinion, far too low given the prior operating conditions. Tonogold believes that even with the economies of scale expected to be achieved in future operations, a cutoff grade of 0.02 o/t Au (0.69 g/t Au) would be more appropriate. Based on Comstock's Resource statement, this would reduce the pre-mined Resource from 2.14 million ounces of gold to 1.55 million ounces of contained gold.
There is a requirement within Canadian Institute of Mining's ("CIM") definitions of resources, upon which Canadian National Instrument 43-101 relies, that a resource must have "reasonable prospects for economic extraction". The Official Resource for Lucerne includes mineralization down to 1,520 feet (463 meters). Tonogold believes that mineralization below 820 feet (250 meters) would not, at this time, meet the "reasonable prospects for economic extraction" at a cutoff of either 0.007 o/t Au or 0.02 o/t Au. The CMI-reported Resource below 820 feet amounts to around 0.5 million ounces of contained gold (using a 0.02 o/t Au cutoff).
Finally, following a review and analysis of the Resource by Tonogold's technical consultants, and when comparing the Resource with actual past production (resource/production reconciliation), there is evidence that the official resource estimate may have been overstated by over 30%.
Tonogold emphasizes that it is the quality of the resource that is far more important than the quantity.
Notwithstanding the negative implication of these issues, Tonogold is significantly comforted that the losses previous suffered can reasonably and realistically be converted into significant returns, by (in particular):
The Development of a technically robust resource model,
The Completion of a Reserve estimate that would also be compliant with NI 43-101 and CIM Guidelines,
The establishment of a detailed and robust mine plan
The consideration of appropriate scale of operations (equipment sizing, rosters, etc.)
Undertaking and completing a technical and economic feasibility study prior to committing to recommence production.
FUNDING
Since June 30th 2017, Tonogold has secured commitments for an additional $1 million of subscriptions from a small group of investors, in respect of the Company's five (5) cent convertible loan note, which together with the cash on hand at June ($352,000) provide the Company with the financial resources required for the initial 6-month program.
LISTING CONSIDERATION
The execution of this Agreement provides Tonogold with a potentially significant company-transforming asset, which now justifies our seeking an upgrade of our current listing status to at least a fully reporting entity. In addition, Tonogold is now considering seeking a listing on the Toronto Venture Exchange as soon as practical (expected within 12-months) and has embarked on the assessment of various avenues to achieve this. The upgrade listing objectives are designed to widen the investor base to enable other investor groups that are currently prohibited from investing in Tonogold, to be able to do so in the future.
QUOTES
Mark Ashley (Tonogold's President and CEO), commented: "We commenced our negotiations with Comstock over 15-months ago. The positive, constructive and open dialogue that has been nurtured by both companies over this period has ensured that the resultant Agreement provides a structure that's not only workable but importantly provides a strong foundation for a successful strategic partnership for the benefit of both companies. Tonogold has also gained a significant and detailed understanding of the opportunities and potential that the Lucerne Properties provide over this period."
Corrado de Gasperis (Comstock's CEO) stated "We have been impressed by the commitment, diligence and frankly, passion, exhibited by Mark and the Tonogold team. We believe the success of Lucerne depends on this type of technical diligence, development and competencies that Mark and his team have demonstrated over the past year-plus. We have the right partner with the right capital support to maximize the value of the Lucerne operation."
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