Northern Star Mining Corp. (fka NSMSF)

[MrG]

Ely Gold to Acquire Northern Star Mining Senior Secured Notes

Unless I'm mistaken or the plan does not
go through, this would make NSMSF shares worhless. Correct?
http://www.americanbankingnews.com/2011/02/15/ely-gold-to-acquire-northern-star-mining-senior-secured-notes/

Ely Gold & Minerals Inc. (“Ely Gold”) is pleased to announce that it has entered into two separate agreements giving it the right to acquire up to 54% of $41,093,488 of the outstanding Senior Secured Notes (“Notes”) issued by Northern Star Mining (TSXV:NSM’H) (“NSM”).

NSM holds several mineral properties in the Abitibi Gold Belt in Quebec including the Malartic-Midway Property, as well as the Beacon Mill and other plant and equipment used in its mining operations (the “NSM Assets”). During 2008, NSM issued Notes having an aggregate principal value of $42,000,000 to a syndicate of private investment funds (the “Lenders”). The funds were to be used for the further development of the NSM Assets, and repayment was secured by a first charge on all of the NSM Assets in favor of the Lenders. The notes were subsequently restructured in 2009, reducing the outstanding balance and extending the maturity date to three years (from two) from the date of issuance.

Under the restructuring, NSM was obligated to pay to the Lenders, at maturity, an amount equal to 137.5% of the principal amount of the restructured Notes plus accrued interest. NSM encountered financial difficulties during 2010 and ultimately in August 2010 NSM filed a notice of its intention to make a proposal to its creditors under the Bankruptcy and Insolvency Act (Canada). That proposal never materialized and NSM announced on January 24, 2011 that it had become a bankrupt company. Ely Gold has been advised that, as a result, the Lenders are investigating and pursuing all of their strategic options and have reserved the right to exercise any and all of their rights as secured creditors (including the potential of foreclosing on the assets).

At the initial stage of what is planned to become a longer term strategic alliance with a substantial holder of the Notes, Ely Gold has arranged to purchase a certain amount of the Notes and has been granted options to acquire additional Notes in the future. If the Lenders take possession of the NSM Assets, Ely will become a participating co-owner of the NSM Assets, and will become manager and operator of the NSM Assets. If the Lenders are paid out by virtue of a third party purchasing the NSM Assets at a price equal to the amount owed to the Lenders, Ely Gold will profit in any difference between the price paid for the NSM Assets and what Ely Gold has agreed to pay for the Notes.

Under this agreement and through a separate agreement with another holder of the Notes, Ely Gold will have the right to acquire through purchase and the exercise of options a total of $22.225MM principal value of Notes (Value at maturity: $30,559,375 plus accrued interest).

Ely Gold will initially issue 10,000,000 shares to a substantial holder of the Notes in exchange for $2.5MM principal value of Notes (Value at maturity: $3,437,500 plus accrued interest) and will purchase an option to acquire an additional $5MM principal value of Notes (Value at maturity: $6,875,000 plus accrued interest) for $6,000,000, exercisable until March 1, 2012, for $500,000. Subsequent to the initial purchase of Notes, the substantial Note holder will hold approximately 17.5% of Ely Gold’s issued and outstanding shares.

Ely Gold will initially purchase $3.7MM principal value of Notes (Value at maturity: $5,087,500 plus accrued interest) from certain holders of the Notes for $3.7MM in cash. Ely Gold will also purchase an option to acquire an additional $11,055,130 in Notes (Value at maturity: $15,200,800 plus accrued interest) for $13,744,000 in cash, exercisable until March 1, 2012, for $1,000,000.

The total cash due on closing for both transactions will be $5.2 million, subject to the entering into and terms of any definitive documentation and required consents and approvals, including TSX Venture Exchange approval, and to further due diligence by Ely Gold.

John Brownlie, Ely Gold’s Executive Chairman, commented on the NSM Assets, “We believe there is historical evidence that the Malartic-Midway deposit could be expanded. Ely Gold will institute a plan focused on additional drilling, metallurgical testing and engineering to maximize the developable resources at Midway. Having the fully constructed and permitted Beacon Mill, as well as a production decline in place, will allow any future owner the option to fast track the project towards generating revenue through gold production.”

The Malartic-Midway project covers a 7 km section along the Cadillac Deformation zone between Osisko Mining’s (OOTC:OSKFF) (TSX:OSK) (OSK-TSX) Malartic Mine and Agnico-Eagles’s (AEM-NYSE) Goldex Mine, and includes two former gold producers – Malartic Goldfields Shaft #1 and Malartic Goldfields Shaft #2 with combined production of over 2MM ounces at a recovered grade of 5.85 g/t gold. The Beacon Mill is a fully operational 900 ton per day gold milling facility, located some 15 km east of the city of Val-d’Or, Québec. The mill consists of a complete cyanidation plant with crushing and grinding circuits, Merrill Crowe filters system, all necessary spare parts and gold pour furnace, and is fully serviced with offices, warehouse, and repair shops. It is located less than 2 km from the Trans Canada Highway and only 28 km from the Malartic-Midway Project. Other properties included in the NSM Assets are the McKenzie Break, Callahan, Revillard, Cadillac and Piche Harvey Projects.

“We are very excited to have executed this transaction and would like to thank everyone for their efforts to structure this deal”, stated Trey Wasser, Ely Gold’s President & CEO. “This is an incredible opportunity for Ely Gold to develop some very exciting assets in one of the most coveted gold districts in the world. Having a major Note holder as a partner and a strategic investor in Ely Gold will allow us the flexibility needed to maximize the value of the NSM Assets.”

Stephen Kenwood, P. Geo. is the Company’s Qualified Person as defined by National Instrument 43-101 and is responsible for the accuracy of the technical information in this news release.

On Behalf of the Board of Directors

Signed “Trey Wasser”

Trey Wasser, President & CEO

For further information, please contact Ely Gold & Minerals Inc. (OOTC:ELYGF) (TSXV:ELY) at 604-488-1104.