10.01.2012

The Northern Miner: Smash Minerals and Prosperity Goldfields to merge

When Adrian Fleming, co-founder of the wildly successful Underworld Resources, listened to a presentation at his Vancouver office in November last year from Prosperity Goldfields' (PPG-V) chief geologist Quinton Hennigh about a prospect in Nunavut called Kiyuk Lake, he felt an overwhelming sense of deja vu.

"I just had this flash that took me back to where we were at with Underworld Resources at the end of 2008," Fleming recalls. "At the end of 2008 we had eight or nine drill holes and the best of those was 50 metres of 3 grams gold per tonne. Once we completed the 2008 drill program I knew absolutely that we were on a winner. I was living in New Zealand and I said to my wife 'Sorry darling, we've got to move back to Vancouver. This one is going to be a home run.'"

Fleming was right on the money and Underworld Resources went on to define the Golden Saddle deposit in the White Gold district of the Yukon, which was sold to Kinross Gold (K-G, KGC-N) in 2010 in a transaction valued at about $139 million. The discovery of Golden Saddle, which hosts a National Instrument 43-101 indicated resource of 1 million ounces of gold at a grade of 3.2 grams gold per tonne, led to a staking rush with roughly fifty companies now exploring what is known as the White Gold district.

After meeting Hennigh and hearing the geologist talk about the interesting drill results Prosperity Goldfields was getting from Kiyuk Lake, Fleming says he was convinced it too would turn out to be something special.

Last year Prosperity Goldfields' 2,600 metre drill program at Kiyuk Lake returned encouraging results from three separate targets. At the Rusty target, hole 1 returned 157.6 metres of 1.7 grams gold per tonne from the surface, including 30.5 metres of 4.9 grams gold from 5.2 metres. At the Gold Point target, hole 3 returned 63.6 metres at 2.84 grams gold from 148.6 metres.

Fleming, the chief executive of Smash Minerals (SSH-V), which owns the Whiskey project to the east of the Golden Saddle deposit in the Yukon, had been looking for another project to shore up its pipeline. Smash was scouring the Yukon where it was well known and already had enjoyed great success. By the time it became aware of Kiyuk Lake, the company had completed a shortlist of projects it felt had the potential for a farm-in or a business opportunity of some kind.

"Then Kiyuk popped up and we said 'Holy Moly, this thing is way better than anything we were looking at in the Yukon and that began our discussions," Fleming recalls.

On Jan. 5 the two companies announced that they plan to combine their assets and merge into a new company to be called Prosperity Goldfields, with Fleming at the helm. Once the combination has been completed, Prosperity shareholders will own about 74% of the new company and Smash shareholders about 26%.

The new company will have about 58.6 million shares outstanding and about $8 million in working capital to spend on drill programs on both projects this year. In the Yukon the combined company will drill Smash's early stage Whiskey project, which the company believes has similar geology to the Golden Saddle discovery and Kaminak Gold's (KAM-V) Coffee property. The Whiskey project encompasses 846 square kilometres including the placer gold rich Black Hills and Barker Creeks. Despite there being active placer gold mining operations in this area since the early 1900s, Smash states on its website, no systematic hard rock exploration has been carried out on the Smash area.

In southern Nunavut it will drill more of the Kiyuk Lake property, about 100 km northeast of the four corners of Saskatchewan, Northwest Territories, Manitoba and Nunavut. Kiyuk Lake is made up of about 50 claims spanning 430 square kilometres and gold showings were first recognized there in 1992. (Newmont Mining (NMC-T, NEM-N) drilled Kiyuk between 2006 and 2008 but "didn't hit anything, absolutely nothing," Fleming remarks.)

The new group will have "a stronger technical and management team," as well as "a lot of smarts" and "more horsepower," Fleming explains in a telephone interview from his home in New Zealand. "We think it's a good development for Smash and gives us a second string to our bow."

"The key person in this whole game is Quinton [Hennigh] who has a great reputation in the industry and has been involved with a number of discoveries," Fleming continues. "He is one of the best exploration geologists in the Americas-an outstandingly competent technician."

Even before the deal closes Fleming says he has already started working with Quinton on the 2012 drill program that could involve as much as 10,000 metres of drilling at the two projects at a cost of about $5 million. The drill program in Nunavut will begin immediately after Round-Up in the second week of March, he says, with a second one at Kiyuk starting again later in the year. Drilling at Whiskey will start in June.

"One of the things we'll be putting a lot of energy into this year is better understanding the geology [at Kiyuk]," Fleming says. "It's going to be important to get our boots on with hammer in hand and pound the ground and try to improve our understanding of what's going on geologically and structurally. That will help us place our drills in the right spot."

The Kiyuk deposit shares similar geological traits to gold deposits such as the Telfer deposit in Western Australia and the Sadiola and Morila deposits in Mali, Prosperity Goldfields states on its website.

"We are in greenstone terrain but the style of it is a little bit unusual in that it is hydrothermal obviously and strong albite alteration with magnetite and pyrite and that's a little bit different from, say, Committee Bay, Hope Bay, Kirkland Lake, Timmins and all the well known greenstone belts in Canada," Fleming says.

The amalgamation of the two companies, expected to close in April, will be completed on the basis of one common share of Prosperity for each one common share of the new company and 1.6 common shares of Smash for each one common share of the new company. All warrants and options of Prosperity and Smash outstanding on the closing date of the transaction will be converted into warrants and options of the new company on the same ratios.

At presstime in Toronto Prosperity Goldfields was trading at 59¢ per share within a 52-week range of 15¢-$1.48 per share.Smash Minerals, which listed on the TSX Venture Exchange in April 2011, was trading at 35.5¢ per share, within a 52-week range of 30¢-$1.39 per share.

http://www.smashminerals.com/news-and-media/the-northern-miner-smash-minerals-and-prosperity-goldfields-to-merge/