De Beers And Pele Mountain Strike A Deal
FOR IMMEDIATE RELEASE
TORONTO – JULY 31, 2003 – PELE MOUNTAIN RESOURCES INC. (GEM:TSX-V) ("Pele" or the "Company") is pleased to announce that it has entered into an Option and Joint Venture Agreement (the "Agreement") with De Beers Canada Exploration Inc. ("De Beers") in respect of Pele’s 101-square kilometer Festival Diamond Property, located approximately 25 kilometers north of Wawa, Ontario (the "Festival Property"). The Agreement is the culmination of lengthy and productive negotiations and follows what the Company believes was a successful demonstration that the Festival Property hosts an important new source of Canadian commercial size and gem quality diamonds. The Agreement is expected to greatly increase the financial and technical resources available for diamond exploration and to determine whether an economically profitable diamond mine can be developed and brought into commercial production at the Festival Property.
Al Shefsky, President and CEO of Pele stated, "It is a privilege for Pele to be working with De Beers, the world's leading diamond exploration, mining and marketing company. This Agreement will create an exciting increase in exploration activity on our Festival Property and management views this as a very positive development for our shareholders. In addition to De Beers spending at least $25,000,000 to earn a vested 51% participating interest in the Festival Property, Pele has maintained the right to carry out prospecting, exploration and development work on the Property, which we are looking forward to continuing."
Highlights of the Agreement
· De Beers has option to spend $10,000,000 by December 31, 2006 to earn an initial 51% participating interest and to form a joint venture
· De Beers 2003 exploration work to include minimum 300 tonnes of bulk sampling
· De Beers 51% participating interest in joint venture to be vested upon earlier of spending $25,000,000 and completing an approved feasibility study
· De Beers to make $500,000 annual share subscriptions in Pele through 2008 at minimum $0.50 per share
· Pele has right to continue prospecting, exploration and development work on the Property and has the right to be carried through to an approved feasibility study without obligation for further spending
· Pele has right to elect to receive 45% share of diamonds in kind by funding its share of mine construction costs and its share of exploration expenditures during joint venture, or alternatively
· Pele has right to elect to be carried through to commercial production and receive 40% participating interest
The first option period of the Agreement runs through to December 31, 2006. Under the terms of the Agreement, De Beers has already made an initial payment of $150,500 in cash to Pele to reimburse Pele for certain costs incurred and has subscribed for 1,000,000 common shares of Pele at $0.50 per share, resulting in aggregate cash proceeds of $650,500 to the Company as at the date of this release. In order to maintain its option to earn an interest in the Festival Property, De Beers has also agreed to a series of future annual subscriptions of Pele shares from 2004 through to and including 2008 totaling $500,000 a year at a price equal to the greater of $0.50 per share and the then current maximum discounted market price. All subscriptions by De Beers under the terms of the Agreement, either current or future, will be subject to all applicable regulatory approvals and statutory hold-period and resale restrictions under Ontario securities laws.
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During the balance of 2003, De Beers has agreed to spend no less than $500,000 in prospecting and exploration work on the Festival Property, which work will include a minimum of 300 tonnes of bulk sampling. During the balance of the first option period, 2004 through to 2006, in addition to making the annual share subscriptions described above, De Beers has agreed to spend no less than $1,500,000 each year on prospecting and exploration work on the Festival Property. On December 31, 2006, being the end of the first option period, a total of no less than $10,000,000 must be spent by De Beers, which amount will include $2,000,000 in share subscriptions and no less than $8,000,000 in exploration expenditures, failing which De Beers will not earn any interest in the Festival Property. Upon fulfillment of the spending obligations required up to December 31, 2006, beginning in 2007, a joint venture will be formed in which De Beers will have a 51% participating interest and Pele will have a 49% participating interest.
In order for De Beers to maintain its 51% participating interest in the joint venture, it has agreed to continue spending at least $1,500,000 per year on exploration expenditures until an aggregate of $25,000,000 is spent on the Festival Property, at which point its 51% participating interest will become fully vested. If De Beers fails to incur the required annual exploration expenditures after formation of the joint venture but before it has spent a total of $25,000,000, then its 51% participating interest will revert to Pele in exchange for a 1.5% Gross Royalty Interest.
Under the terms of the Agreement, De Beers has also agreed to fund all exploration spending, including Pele's share, through to an approved feasibility study. Following completion of an approved feasibility study, De Beers will have earned an additional 4% participating interest in the joint venture such that De Beers participating interest in the joint venture will increase to 55% while Pele's shall fall to 45%.
Upon completion of an approved feasibility study for the first mine on the Festival Property, Pele will have the opportunity to elect to fund its share of mine construction costs and reimburse De Beers for the Company's share of exploration expenditures above $10,000,000, in which case it would then receive its 45% participating interest in diamonds produced from the mine in kind. If Pele elects not to fund its share of mine construction costs, De Beers is obligated to arrange for the full funding of all mine construction costs. Under the latter scenario, Pele would be carried right through to commercial production and De Beers' participating interest in the joint venture would increase to 60%, with Pele's participating interest decreasing to 40% and all diamonds produced from the Property would be marketed through The Diamond Trading Company. Once all mine construction costs and exploration expenditures of the joint venture have been repaid from cash flow, Pele would thereafter be entitled to receive its 40% share of the diamonds from the mine in kind.
Pele is a Canadian mining exploration and development company and a leader in the search for economic diamond deposits in Northern Ontario. Pele controls a 100% mineral rights interest in the 101 square km Festival Diamond Property, located 25 kms north of Wawa. Pele also owns a 100% interest in two gold projects in northwestern Ontario.
For further information please contact Al Shefsky, President at (416) 368-7224, or visit our website at www.pelemountain.com.
The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release. Some of the statements contained in this release are forward-looking statements, such as estimates and statements that describe Pele's future plans, objectives or goals, including words to the effect that Pele or management expects a stated condition or result to occur. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties. Actual results in each case could differ materially from those currently anticipated in such statements. None of the Company’s properties have any known ore body of economic or commercial value. |
