Xali Gold firms up transfer of El Oro tailings project

Executive Summary

• Xali Gold Corp. has agreed to transfer all rights related to its El Oro tailings project in Mexico to Kappes, Cassiday and Associates (KCA) via a definitive agreement consistent with a previous binding letter of intent.
• The transaction involves transferring the Mexican subsidiary Minera CCM Jales SA de CV to KCA, along with all associated permits and government agreements.
• KCA will assume responsibility for all processing, sales, and operational costs, paying Xali Gold a gross royalty of 4% of net smelter return (NSR), with a potential reduction to 3% if KCA exercises an option to purchase 1% of the royalty for $1 million.

Key Details

• Transaction Structure: Xali Gold transfers all rights to the El Oro tailings project and its Mexican subsidiary (Minera CCM Jales SA de CV) to KCA.
• Royalty Terms: KCA pays a gross royalty equal to 4% of sales income (NSR), less other royalties (specifically the Municipality of El Oro), but not less than 3%.
• Royalty Buy-Option: KCA has the right to purchase 1% of the royalty from Xali Gold for $1 million (U.S.). If exercised, the royalty owed to Xali reduces from 4% to 3% (or from 3% to 2%).
• Upfront and Staged Payments:
  • Staged payments totaling $150,000 are due within six months of signing the definitive agreement.
  • A minimum royalty payment of $50,000 (U.S.) is to be paid every six months until production commences.
  • KCA has already paid $200,000 to date.
• Operational Responsibilities: KCA assumes all legal costs, negotiations with local government, and payments/taxes related to the tailings. Xali Gold is released from these responsibilities.
• Resource Estimates (2014 NI 43-101):
  • Tonnes: 1.27 million tonnes.
  • Grade: 2.94 g/t Gold, 75.12 g/t Silver (3.85 g/t Gold Equivalent).
  • Contained Metal: 119,900 oz Gold, 3,061,200 oz Silver.
• Recent Drilling & Metallurgical Results (KCA Program):
  • Drilling confirmed uniform gold and silver content laterally and vertically.
  • Content is slightly higher than previously estimated by Xali Gold.
  • Potential 10-15% increase in resource size.
  • Small increase in gold and silver grades and recoveries.
  • Estimated recoveries: Up to 82% for gold and 86% for silver (economic calculations use 78% gold and 86% silver).
  • Previous average recovery considered by KCA was 75%.

Notable Quotes

• "KCA has made substantial progress on the El Oro tailings project with a drill program that successfully confirmed the tonnage, grade and metallurgical behaviour of the ore," said Joanne Freeze, president and chief executive officer of Xali Gold. "Additionally, they have developed a comprehensive engineering design package to support the construction of a processing plant to treat the tailings with recoveries estimated to be 78 per cent for gold and 86 per cent for silver. We are confident that KCA is the ideal partner to responsibly develop and operate the tailings reprocessing facility, delivering benefits for all stakeholders involved."