Guiana Shield Resources Option
On March 5, 2009, Guyana Frontier announced a letter agreement to acquire 100% ownership of four groups of Large Scale Prospecting Licences and associated priority rights granted to Guiana Shield Resources Inc., a private Guyanese corporation, through the mechanism of a reconnaissance sampling permit. The lands are grouped into project areas based on their location and the nature of the exploration targets they control. Thirteen of these prospecting licences were issued formally October 31, 2009, and collectively represent approximately 134,309 acres (54,352 hectares). The data used for selecting these areas was developed through regional exploration programs conducted since 1994 by Golden Star Resources and subsequently by Valgold Resources through an agreement with Newmont Mining. The Valgold-Newmont agreement terminated in early 2009, and Guyana Frontier negotiated the current option agreement in March 2009.
In addition to these prospecting licences, Guiana Shield Resources also secured option agreements for two groups of Medium Scale Prospecting Permits, called the Reis and Yearwood claims collectively representing 12 titles with cumulative area of 10,382 acres (4,201 hectares). On September 22, 2009, Guyana Frontier announced it received approval for the issuance of four additional prospecting licences adjoining the existing properties. The four Guiana Shield Resources project areas now include 17 Large Scale Prospecting Licences and 12 Medium Scale Prospecting Permits, for a total area of 207,116 acres (83,815 hectares).
The project areas covered by the Guiana Shield Resources agreement are described as follows:
• The Whana Project area, and the Reis and the Yearwood claims are north of and contiguous to Guyana Frontier's Black Banana project. This project area totaling 81,241 acres (32,876 hectares) was selected and screened by previous operators with sequenced programs of airborne geophysics, prospecting, regional and detailed grid soil geochemistry. Some of the historical regional grid surveys extended into the Black Banana project, and confirm the presence of gold targets of sufficient scale and significance to justify an integrated exploration and development program.
• The Aunama and Arawini Project areas consist of 8 prospecting licences with a cumulative area of 95,530 acres (38,659 hectares). The project areas cover geophysical and geochemical targets prospective for gold along a regional trend, which includes the Aurora and Upper Puruni Gold Prospects in Guyana and the KM 88 Gold District in Venezuela. From July to December 2010, Guyana Frontier completed extensive field programs in these project areas, including construction of a camp roads and trails, mapping of surficial and bedrock geology, line cutting and systematic deep auger (hand augers and mechanized Trado Drills) to provide systematic coverage in five of the eight prospecting licences.
• The Masawaki Project area consists of 3 prospecting licences with an area of approximately 34,927 acres (14,134 hectares). The property covers reported palladium, platinum, gold, chromium, copper and nickel geochemical responses which will be subjected to continuing work by Guyana Frontier after a review of funding options and priorities. Guyana Frontier's exploration team considers these targets to be high priority strategic assets and has commenced infrastructure development, camp construction and prospecting in preparation for expanded geochemical coverage and drilling.
Guyana Frontier recently completed a high resolution airborne geophysical survey over the Whana, Aunama, and Arawini project areas by Terraquest Geosurveys Ltd. providing total field and gradient magnetic data, Very Low Frequency ('VLF') electromagnetic, and radiometric (U, Th, and K) data. These results have been integrated into a database with historical geochemical data, current field observations and documentation of artisanal mining activity to form the basis of a major field campaign.
A definitive option agreement between Guyana Frontier and Guiana Shield Resources was signed on August 15, 2009, on the following terms:
(i) Issuance to Guiana Shield Resources of 2,000,000 common shares of Guyana Frontier upon TSX-V approval of the option agreement, which were issued on Nov 12, 2009, (valued at $580,000). An additional 1,000,000 shares will be issued on or before March 5, 2010 (completed, valued at $275,000), March 5, 2011, and March 5, 2012, for a total of 5,000,000 shares of Guyana Frontier.
(ii) The prospecting licences have been grouped into four project areas based on geological or physical groupings of the licences. Guyana Frontier will pay Guiana Shield Resources US$25,000 per project area (US$100,000 total for each year that all four project areas are retained) commencing upon receipt of the title documents and US$25,000 per project area annually thereafter for six years on the anniversary of receipt of title for total additional cash payments of US$600,000. The total cash payments over the life of the agreement will be US$700,000 (US$200,000 paid). If any project area is returned to the vendor no further cash payments will be due for that project area. Guiana Shield Resources is entitled to receive 10% of any direct compensation in the form of cash or shares paid to the Company by a third party upon assignment of Guyana Frontier's interest in any of the project areas, subject to any applicable TSX-V approvals.
(iii) Guyana Frontier is required to pay all government land holding costs and undertake sufficient exploration work to meet the minimum exploration expenditure requirements as defined by the GGMC, issue another 1,000,000 shares for each mining licence acquired (up to four million shares), and pay US$1.00 for each ounce of gold determined in a feasibility study for each mining licence. This is a one time cost per project area.
(iv) Guiana Shield Resources has the right to receive a 3% NSR from any production on any of the prospecting licences. Guyana Frontier has the right to buy back this NSR in 1% increments at its discretion and can reduce the royalty to 0% by paying Guiana Shield Resources a total of US$6.0 million. This NSR buy back provision applies to all of the licences as one entity and is not based on a per property or per project area arrangement.
On May 21, 2010, Guyana Frontier entered into a definitive option agreement with Mulgravian Ventures Corporation (superseding a previous letter agreement dated April 27, 2009), granting Mulgravian the right to earn 51% in Guyana Frontier's rights granted by the Guiana Shield Resources agreement by fulfilling a series of obligations as follows:
(i) the purchase by Mulgravian of 2,000,000 units of Guyana Frontier by way of private placement at the price of $0.30 per unit for a total purchase price of $600,000 (such purchase having closed on May 13, 2009, (the "Closing Date")), with each unit consisting of one common share of the Company, three-quarters of a common share purchase warrant where one whole warrant entitles the holder to purchase one additional common share at the price of $0.60 per share for one year from the Closing Date (a "One Year Warrant"), and one-quarter of a share purchase warrant where one whole warrant entitles the holder to purchase one additional common share at the price of $1.20 per share for two years from the Closing Date (a "Two Year Warrant"),
(ii) 500,000 One Year Warrants to be exercised within nine months of receipt of TSX-V approval of the Mulgravian agreement (the "Effective Date", that being June 10, 2010), for net proceeds of $300,000 (completed),
(iii) exploration expenditures of not less than US$1,000,000 to be incurred on or before the first anniversary of the Effective Date,
(iv) 1,000,000 One Year Warrants to be exercised on or before the first anniversary of the Effective Date, for net proceeds of $600,000 (completed),
(v) cumulative exploration expenditures of US$2,500,000 to be incurred on or before the second anniversary of the Effective Date,
(vi) 500,000 Two Year Warrants to be exercised on or before the second anniversary of the Effective Date, for net proceeds of $600,000,
(vii) cumulative exploration expenditures of US$4,000,000 to be incurred on or before the third anniversary of the Effective Date, and
(viii) cumulative exploration expenditures of US$5,000,000 to be incurred on or before the fourth anniversary of the Effective Date. Any deficiency in exploration expenditures can be rectified by way of cash payment to Guyana Frontier equal to the deficiency, payable within 15 days of the date when the expenditures were due to be incurred, and any such cash payment will be deemed to represent incurred exploration expenditures.
Upon completion of this series of investments and exploration expenditures, Mulgravian shall become the beneficial owner of 51% of the capitalized shares a Guyana-registered holding company wholly-owned by Guyana Frontier, with Guyana Frontier holding the remaining 49% of the shares. During this exploration and development program, Guyana Frontier shall be the operator of the program on behalf of Mulgravian and shall be entitled to charge a management fee equal to 10% of the qualified expenditures in the program. Subsequent to January 31, 2011, Mulgravian elected to act as operator of the Whana project area and shall be entitled to charge a management fee equal to 10% of the qualified expenditures for the Whana project area.
Otomung Property
On August 1, 2010, Guyana Frontier entered into a property option agreement (the "Otomung Option") with Guiana Shield Resources, pursuant to which Guiana Shield Resources has agreed to grant to Guyana Frontier an option to acquire a 100% interest in the Otomung property in northwestern Guyana, which consists of two large scale prospecting licences, which cover an area of 25,599 acres. The Otomung Option was approved by the TSX-V on December 22, 2010. Guyana Frontier recently completed a high resolution airborne geophysical survey over the Otomung property area by Terraquest Geosurveys Ltd. providing total field and gradient magnetic data, Very Low Frequency ('VLF') electromagnetic, and radiometric (U, Th, and K) data. Guyana Frontier plans a Phase I geochemical and prospecting program this year to complement the geophysical data and develop potential targets for detailed mechanized auger surveys and diamond drilling, as results warrant.
Pursuant to the terms of the Otomung Option, Guyana Frontier has the right to acquire a 100% interest in the Otomung property by paying to Guiana Shield Resources an aggregate of US$125,000 (US$25,000 paid) and issuing to Guiana Shield Resources a total of 500,000 common shares of Guyana Frontier(300,000 issued) over a four year period. There are no expenditure commitments included in the Otomung Option; however Guyana Frontier is required to maintain the Otomung property in good standing with the GGMC. Following the exercise of the option, Guyana Frintier's interest in the Otomung property will be subject to 3% NSR payable to Guiana Shield Resources. Guyana Frontier may reduce the NSR to 1% by making a cash payment of US $500,000 per percentage point for a cumulative payment amount of US $1,000,000 to Guiana Shield Resources at any time.
