Stronghold Obtains 50% Ownership of Eagle Mountain Gold Project
Stronghold Metals (Z – $0.15) has exercised its option to earn a 50% interest in Eagle Mountain Gold Inc. (EMGI), the owner of the Eagle Mountain Gold property in Guyana. The remaining 50% of EMGI is owned by Omai Gold Mines Ltd, a 95% owned subsidiary of IAMGOLD (TSX: IMG). The Republic of Guyana holds the remaining 5% of Omai Gold Mines.
The significantly improved Earn-in and Joint Venture agreement with Omai Gold Mines was announced in January of 2012 and gave Stronghold a clear path to acquiring 100% of Eagle Mountain without having to make further cash payments.
The parties agreed to this amendment because Stronghold accelerated it exploration program on Eagle Mountain last year and already incurred more than twice the required expenditures under the original agreement.
The Amended Agreement
| Milestone Date | Exploration Expenditures | Cash Payments to Omai | Stronghold Shares to Omai | Eagle Mountain Interest for Stronghold |
| Completed To Date | $3,500,000 | $600,000 | 4,000,000 | 0% |
| By February 29, 2012 | | | 7,500,000 | 50% |
| By April 30, 2013 | | $1,000,000 (1) | | 100% |
| Grand TOTAL | $3,500,000 | $1,600,000 | 11,500,000 | 100% |
| On Granting of Mining Licence | | $3,500,000 (1) | | |
| Within 180 Days from Commencement of Commercial Production | | $5,000,000 | | |
| Overview of amended agreement between Stronghold Metals and Omai Gold Mines. (1) Stronghold has the option to issue shares to Omai Gold in lieu of this cash payment provided such share issuance does not result in Omai Gold controlling more than 19.99% of Stronghold’s issued and outstanding shares. | ||||
Before the two parties amended their Earn-in and Joint Venture agreement, Stronghold has already paid Omai Gold $600,000, issued 4 million shares and incurred approximately $3.5 million in exploration expenditures on the property.
By transferring 7.5 million shares to Omai Gold, Stronghold has earned a 50% interest of Eagle Mountain. While under the original agreement, Stronghold was obligated to pay an additional $1.9 million ($2.5 million in total) and transfer 2 million shares by October 31, 2012 to earn the 50% interest.
Basically what happened was that Stronghold, in order to acquire a 50% stake in Eagle Mountain, gave 5.5 million shares (7.5 million minus 2 million which it had to pay anyway) instead of $1.9 million cash.
Very interesting is that when we divide the cash due to Omai Gold by the number of shares Stronghold offered instead, we find out at what price Stronghold’s shares were valued in revised the agreement. $1.9 million cash due divided by 5.5 million shares offered instead, equals $0.345 per share, or more than double of Stronghold’s current stock price!!
As a result of this agreement, IAMGOLD, through Omai Gold, becomes the largest shareholder of Stronghold with 15.6 percent of issued and outstanding shares.
Furthermore, the $1 million payment due by April 30, 2013 to earn a 100% interest is equal to the original agreement, except that now Stronghold has the option to pay in shares.
On granting of the mining license, Stronghold has to pay $3.5 million, instead of $7 million, which was agreed upon in the original deal. Also this amount can be paid in shares at Stronghold’s discretion.
And finally, Stronghold must pay an additional $5 million in cash within 180 days after the commencement of commercial production of gold from Eagle Mountain.
Quiet Period
It’s been somewhat quiet the last few weeks around Stronghold as the Company has only put out one press release in which it announced the facts above. We suspect this has something to do with a financing that the Company is putting together.
Mr. Tsitos, Stronghold’s President and CEO, already stated in our February 12th interview that he wants to move Eagle Mountain into production as fast as possible. So if you ask us what’s going on, we would guess that the Company is putting together a rather large financing so that it has enough money to complete all the drilling, tests, studies and reports right up until the point where it’s ready to start constructing the mine.
Conclusion
Stronghold is very attractively priced at these low levels. IAMGOLD Corp, a significant mining company with a market cap of $4.8 billion, didn’t have to amend the agreement, but opted to do so at a 109% premium on the current share price.
Currently, Eagle Mountain has an NI 43-101 compliant resource estimate of 733,500 ounces of gold, based on 179 drill holes totaling 24,203 meters.
Since that resource was published, Stronghold commenced a new 15,000 metres drill program. To date, the Company announced analytic results on 46 holes, of which 44 intersected gold mineralization of meaningful widths and grades, which is very exceptional, if not unique.
Stronghold is selling close to its all time low, while its overall situation has improved significantly during the past few months. We will update our Company Report as soon as we know more.
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