Sparton
Resources Inc. (TSX VENTURE: SRI) (the "Company")
reported today that it has signed three key agreements in
China which will position the Company to become a significant
producer of germanium and provide the initial structure for
uranium production in PRC. The first agreement relates to
the establishment of a new sino-foreign joint venture operating
company with a branch of the China National Nuclear Corporation
("CNNC") to produce uranium from waste material and coal
ash in Yunnan Province. The second agreement relates to Sparton
and the new operating company obtaining exclusive rights
to test, process, and extract uranium from a large coal ash
waste pile in the Lincang Area of central Yunnan (see Company
news release dated January 3, 2008). The third agreement
is a share purchase agreement that will permit the company
to acquire 85% of the shares of the private Chinese company
which is the second largest germanium concentrate producer
in the Lincang area.
All
of these agreements represent milestones in Sparton's ongoing
program to begin uranium production from waste ash sources
in China, and to become an operating company in the rapidly
expanding international germanium market. All of the agreements
have been signed through the Company's wholly owned subsidiary
Sparton Energy Inc. ("SEI")
which is registered in the British Virgin Islands.
NEW
JV OPERATING COMPANY
The
new operating company, Yunnan Sparton New Environ-Tech Consulting
Co. Ltd. ("YSN") will be structured
as an environmental solutions company utilizing waste coal
ash or other waste industrial material for the extraction
of valuable materials. These activities are now encouraged
for foreign investment by the PRC Central Government and
are eligible for government and local financial institution
funding assistance. YSN partners are SEI, ARCN (the Remote
Sensing Branch of CNNC), and Beijing John Hanseng Investment
Consulting Co. Ltd. ("JHIC").
The
initial share interests in YSN are: SEI 60%, ARCN 30%, and
JHIC 10%. These can diluted through non participation to
SEI 90%, ARCN 5% (carried), and JHIC 5% (carried). The new
JV Company will have an initial registered capital of 2,000,000
RMB (approximately C$280,000) which will be contributed in
tranches. YSN will be responsible for all waste testing,
development and production of uranium from waste ash material
in Yunnan including the current programs evaluating the Lincang
and Xiaolongtan waste ash deposits.
WASTE
ASH PROCESSING AGREEMENT LINCANG AREA
The
Company has made an exclusive agreement with Tianhao Group
Ltd. China ("TH")
a Lincang germanium producer, to test and extract uranium
from the large government ash waste pile which was sampled
by the Sparton and results reported earlier (see news release
dated January 3, 2008). TH has exclusive rights to reprocess
the material in the government controlled waste ash area
for germanium extraction. The agreement provides for TH to
receive either a negotiated processing fee or royalty on
any uranium production by YSN from the waste ash or other
process waste material it controls. The average grade reported
earlier for this waste ash is 0.64 lbs/tonne U3O8, and the
main waste area is estimated to contain over 350,000 tonnes
of ash. TH is also producing 60-80 tonnes of new uranium
bearing waste each day from its operations which contain
about the same U3O8 content as the main waste pile based
on test results recently received by Sparton. This agreement
provides the Company and YSN with the opportunity to begin
successful uranium production from the same ash used historically
for successful uranium extraction in the Lincang area. Samples
for initial uranium leach tests are currently in transit
to the Company's process engineering consultants Lyntek Inc.
in Denver Colorado.
SHARE
PURCHASE AGREEMENT FOR 85% INTEREST IN HUA JUN GERMANIUM
PRODUCER
Following
additional negotiations and initial due diligence evaluations
with Linjiang 306 Huajun Coal Co. Ltd. Lincang City ("HJ")
after signing the Memorandum of Understanding (MOU) reported
on January 3, 2008, the Company through SEI has entered into
a preliminary agreement on January 27, 2008 to purchase an
85% share interest in HJ for a total consideration of 22,000,000
RMB (approximately C$3.06 million). This total cost includes
2,000,000 RMB (C$278,000) in transfer fees and taxes. HJ
is a private PRC company founded and owned by two local Lincang
businessmen who will retain 8% and 7% share interests respectively
in HJ on completion of the transaction.
HJ's
current assets are valued at valued at 23,500,000 RMB (C$3.26million)
including infrastructure, and mining licences covering three
coal mines producing thermal and germanium coal feedstock.
HJ also owns an ash waste pile of approximately 100,000 tonnes
averaging about 170 ppm U3O8 (0.4lbs/tonne) and
is producing 50 tonnes per day of new uranium bearing ash.
The
germanium operation is very successful and currently produces
approximately 3500 kg per year of concentrate which is sold
to germanium refiners for prices which have varied from about
5000RMB per kg to the current level of 9000RMB per kg. in
the past 12 month period. Net Profits after all taxes and
costs averaged 1,100,000RMB (C$153,000) per month during
the third quarter of 2007.
The
current operations area has sufficient germanium coal feedstock
for approximately 10 years of production at current levels
but is being enlarged in view of the rapidly expanding germanium
market.
The
purchase price will be paid in a series of tranches related
to completion of a 45 day final due diligence evaluation
by the Company and is tied to various government approvals
required for the share transfer. No payment was made on
signing the purchase agreement.
Once
60 % of the total purchase cost has been paid to the current
HJ owners SEI will assume full operational responsibility
for HJ. The previous owners have also indemnified SEI against
any and all legal and environmental obligations incurred
during their stewardship of HJ.
A
final share purchase agreement is to be executed on or before
March 31 2008.
DISCUSSION
These
agreements represent major progress in the Company's international
secondary uranium recovery programs. Additionally Sparton
now has the opportunity to become a profitable producer in
the rapidly developing germanium market. The purchase of
a successful germanium operation with significant scope for
expansion and value added technology applications for less
than 2 times positive cash flow is an attractive investment
opportunity.
The
direct investment in the new uranium production operating
company YSN by CNNC's subsidiary ARCN, is also significant
development in the overall program and demonstrates the Chinese
support for Sparton's initiatives in advancing the secondary
uranium program to production in PRC.
Due
diligence on HJ and further test work on HJ and TH samples
are currently underway. Results will be reported when available.
All
analyses reported here were done by SGS-CSTC Standards Technical
Services Co. Ltd. laboratories in Tianjin China, a member
of the international SGS Group.
If
leach test results are positive, feasibility studies will
be undertaken to evaluate the commercialization of uranium
production from these waste ash areas. The initial leaching
tests are expected to shortly.
Sparton's
international exploration and evaluation programs are being
carried out under the direct supervision of A. Lee Barker,
P. Eng., P Geol., the Company's President and CEO who is
a Qualified Person under National Instrument 43-101. |
