Australian gold company Chalice Gold Mines Limited (TSX: CXN) (ASX: CHN) and Canadian gold developer Coventry Resources Inc. (ASX: CYY) (TSX-V: CYY) are pleased to announce that they have agreed to merge the two companies by way of a Statutory Plan of Arrangement under the British Columbia Business Corporations Act. The proposed merger will combine Chalice’s strong cash position of A$55 million (see Appendix B) with Coventry’s 100% interest in the Cameron Gold Camp in Ontario, Canada (see Appendix A).

Chalice and Coventry have executed a binding term sheet for the proposed merger and expect to execute an Arrangement Agreement shortly. The proposed transaction represents the first significant step in Chalice’s stated strategy of acquiring quality resource assets capable of generating strong cash flow. The structure of the transaction will preserve Chalice’s strong cash position while giving Coventry shareholders exposure to a well-funded resource company with a strong technical capability and clear growth strategy.

Under the proposed Merger, Coventry shareholders will receive 1 Chalice Share for every 1.78 Coventry Shares and will hold approximately 17% of the merged company. Other security classes, comprising options and warrants, are to be exercised by the holder, converted to Chalice options and/or warrants or purchased by Chalice as may be agreed between the option and warrant holders and Chalice. Further details will be provided in the Arrangement Agreement which is expected to be executed by October 18, 2013.

The Merger is subject to a due diligence period of 14 days and will require approval by ⅔ of eligible Coventry security holders voting at a special meeting of the company, the Supreme Court of British Columbia, as well as the Toronto Stock Exchange, Vancouver Stock Exchange and the Australian Securities Exchange.  The Merger is not subject to approval by Chalice shareholders.

The proposed Merger has the full support of the Board of Directors of both Chalice and Coventry. The Board of Coventry has advised Chalice that, in the absence of an unfavourable fairness opinion or a superior offer, it will unanimously recommend that its shareholders vote in favour of the proposed Merger.

The parties anticipate signing the definitive Arrangement Agreement by October 25, 2013 with a view to completing the Merger by mid-December, 2013. A full copy of the Term Sheet is included in Appendix C.

Overview of the Cameron Gold Deposit

The Cameron Gold Deposit currently comprises an NI 43-101/JORC (2004) (1.0 g/t cut-off) compliant Measured and Indicated Mineral Resource of 567,100 ounces of gold at 2.45 g/t and an Inferred Mineral Resource of 830,100 ounces of gold at 2.11 g/t. In addition, at two satellite deposits, there are NI 43-101/JORC(2004) (1.0 g/t cut-off) compliant Mineral Resources at Dubenski of 59,000oz Indicated at 2.28 g/t and 18,200oz at 1.44g/t Inferred; and NI 43-101/JORC(2012) (1.0 g/t cut-off) compliant Mineral Resources at Dogpaw of 24,000oz indicated at 3.02 g/t and 4,600oz at 2.27g/t inferred.

A positive Preliminary Economic Assessment was completed on the deposit in January 2013 which showed average annual production of 61,000 ounces of gold and an initial 10-year mine life at an average cash cost of US$852/oz. Initial development and capital expenditure was estimated at US$110 million (inclusive of $17m contingency).

The PEA is considered preliminary in nature and includes Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorised as mineral reserves and there is no certainty that the PEA will be realised.  Mineral Resources that are not mineral reserves do not have demonstrated economic viability.

Overview of Merged Group and Management Comment

Following completion of the merger, Chalice will have approximately 302.3 million shares outstanding and is forecasting a cash balance of approximately A$54 million as at December 31, 2013 for the Merged Group, putting it in a strong position to progress the Cameron Gold Project, while still having the financial capacity to continue to execute its strategy of acquiring other quality resource assets globally.

Coventry’s corporate office in Perth will transfer to the Chalice corporate office and Steven Chadwick will continue to support the handover and future development of the Cameron Project in his existing role as Technical Manager for Chalice, with in country operations expected to remain unchanged.  The Board of Chalice, as the surviving entity following the merger, is expected to remain unchanged.

Commenting on the transaction, Chalice’s Managing Director, Mr Bill Bent, said:

“The Cameron Gold Project is a quality asset in a low-risk, favourable mining jurisdiction. The transaction preserves our strong cash balance while the low holding costs of the Cameron Project provide us with plenty of flexibility in our future development strategy as we continue to look at further complementary transactions targeting high quality projects capable of generating strong cash flow. 

“What particularly attracted us to this project were the good grades, excellent exploration upside potential and access to good infrastructure with a local labour force with strong mining experience. This project sits right in our sweet spot in terms of our current technical capability and I am very confident we can add significant value to this project with our current team and a focused exploration budget.  We are delighted to have the opportunity to participate in the project’s future development.”

Commenting on the transaction, the President of Coventry, Mr Steven Chadwick, said:

“The proposed merger with Chalice represents an excellent opportunity to fund the ongoing exploration and potential ultimate development of the Cameron Gold Project in an extremely difficult economic climate. Existing Coventry shareholders will hold approximately 17% of the merged entity and will continue to have exposure to the project through their shareholding in Chalice, while also benefiting from Chalice’s strong balance sheet, experienced technical team and the future growth of the Company. Shareholders will have exposure to any future transactions that Chalice undertakes as it seeks further quality resource assets globally.”