KWG Resources Inc. and Spider Resources Inc. have entered into a binding letter agreement, which sets out the principal terms upon which it is proposed that the two corporations will complete a business combination, at the conclusion of which the shareholders of each corporation will hold 50 per cent of the outstanding shares of the continuing public corporation. The combined company will hold a current interest of 53 per cent in the Big Daddy deposit, with the option to earn a further 7 per cent to achieve a 60-per-cent interest in the project. It is anticipated that the continuing public corporation will continue to be named KWG Resources Inc. for a period of time after the merger, and will continue to be listed on the TSX Venture Exchange and on the Canadian National Stock Exchange. Following the merger, it is proposed that the name of the continuing public company will be changed to Spider-KWG Resources Inc., subject to shareholder and regulatory approvals.

Rationale for the merger

KWG and Spider have decided to combine as the logical next step of the continued exploration and development of their jointly held mineral projects in Northern Ontario. The merger has been initiated in order to combine the companies' respective assets and experienced management teams, facilitate future financings and rationalize operations, all with a view to enhancing shareholder value. In particular, the merger will result in the combined company having a majority interest in the Big Daddy deposit, with the continuing right to operate the continued exploration, development and mining activities thereon.

Frank Smeenk, president of KWG, stated, "We are delighted to have finally achieved an agreement to combine the majority operating interest in what has the potential to be one of the world's pre-eminent chromite deposits."

Neil Novak, president of Spider, stated: "After 18 years of exploring the James Bay Lowlands area of Northern Ontario as co-venturers, this merger places all of our exploration successes into one corporation. A corporation which will be poised for the development of its main asset, the Big Daddy deposit, while maintaining an enviable portfolio of exploration projects covering a range of minerals."

Highlights of the merger

It is anticipated that the merger will be effected by way of a three-cornered amalgamation under the Canada Business Corporations Act, pursuant to which Spider (a corporation formed under the CBCA) will amalgamate with a newly incorporated, wholly owned CBCA-formed subsidiary of KWG, to become a wholly owned subsidiary of KWG.

Prior to the completion of the merger, KWG will transfer its interest in the railway right of way, in its 1-per-cent net smelter returns royalty covering the Big Daddy deposit, the Black Thor deposit and the Black Label deposit granted by Freewest Resources Canada Inc., and cash in an amount to be agreed upon between KWG and Spider to KWG's wholly owned subsidiary, Debuts Diamonds Inc., in exchange for Debut's interest in various diamond exploration projects and a number of common shares of Debuts to be specified, and will distribute all of the outstanding common shares of Debuts to the shareholders of record of KWG.