Corporate Changes and Quarterly Report (5362X)

TIDMNGL

RNS Number : 5362X

Norseman Gold PLC

16 February 2012

16 February 2012

Norseman Gold plc / Epic: NGL / Index: AIM / Sector: Mining & Exploration

NORSEMAN GOLD PLC

('Norseman Gold' or 'the Company')

Corporate Changes

and

Three-Month Report on Activities for the quarter ended 31 December 2011

Norseman Gold, the AIM-listed and ASX-listed Australian gold production and exploration company, is pleased to announce that Australian resource specialist Tulla Resources Group Pty Ltd ('Tulla') has entered into an agreement to subscribe for A$10 million (approximately GBP6.8 million) of convertible loan notes in Norseman Gold and through its associated company, L2 Project Management - Norseman Pty Ltd ('L2 PM'), will assume management and operational control of the Norseman Gold Project's entire site with immediate effect.

Additionally, the Company announces a three month progress report on its activities for the quarter ended 31 December 2011 and initial forward plans for the Norseman Gold Project.

Overview

-- Operational review initiated in October 2011 by new Chairman, Mr David Steinepreis, focussed on all mining activities

-- Agreement signed with resources specialist, Tulla, under which it has agreed to subscribe for A$10 million (approximately GBP6.8 million) of secured convertible loan notes and through its associate, L2 PM, assume management and operational control for the entire site at the Norseman Gold Project with immediate effect

   --      Norseman Gold to retain ownership of the mine and equipment and oversee manager performance 
   --      Initial review by Tulla indicates relatively early turnaround in operations is achievable 

-- Bullen and OK Decline placed on care and maintenance whilst operational review and forward planning completed

-- More comprehensive restructure and review underway focussed on establishing forward mine plan for three years

-- Strategy being implemented to lower costs, become a consistent 100,000 ounce producer within two years and increase resource base through both mine and regional exploration - current resource inventory of 3.4 million ounces of gold at an average grade of 4.7 g/t

-- Board restructuring ongoing - new Chairman, David Steinepreis, leading Interim Board following the resignation of Barry Cahill - new experienced technical directors to join the Board with Tulla's assistance

-- Equity placement to raise approximately A$3 million (approximately GBP2.04 million) through the issue of 50 million ordinary shares at A$0.06 (approximately 4p) per share - further strengthens the balance sheet to implement new strategy

-- Gold production for the quarter was 10,658 ounces at a net direct cash operating cost of A$1,673 per ounce gold and stockpiles totalled 79,000 tonnes at 1.5 g/t

   --      Operations remain un-hedged 

Norseman Gold Chairman, David Steinepreis, said, "I believe that with Tulla's assistance we can stabilise the operation and then start to build production, profitability and in turn shareholder value. We have already introduced a number of initiatives aimed at improving the performance of the mine, which, as highlighted by its historic production profile (circa 80,000 ounces of gold from just two mines in 2009), has significant potential."

"We remain positive on the quality of the Norseman Gold Project which has a current resource inventory of 3.4 million ounces of gold at an average grade of 4.7 g/t and this confidence has been underpinned by Tulla's investment and agreement to actively manage the development of the Norseman Gold Project given its experience of the mine and understanding of the ore bodies and their potential. We look forward to keeping shareholders updated on our progress with a view to reaching our target to become a consistent 100,000 ounce per annum gold producer within two years and build a much larger operation and Company in the years to follow."

Corporate Transaction

Following an operational review initiated in October 2011 by new Chairman, David Steinepreis, the Company has signed an agreement which sees Tulla through its associated company, L2 PM take over the management and operational control for the entire Norseman Gold Project site with immediate effect. The Company has entered into an agreement with Tulla whereby Tulla will subscribe for A$10 million (approximately GBP6.8 million) of secured convertible notes. Importantly, Norseman Gold will retain ownership of the mine and equipment and oversee the manager's performance.

Established in the early 1990s, Tulla is the Maloney family's private investment group based in Sydney. The company has had a long-standing involvement in the resources and related services and transport industries including investments in: TSX listed THEMAC Resources, which owns 100% of the Copper Flat Project, a porphyry copper-molybdenum-gold-silver project in south-central New Mexico, USA; ASX listed Altona Mining, a copper miner in Finland and which is advancing a major copper development project in Queensland, Australia; and ASX listed Queensland Mining Corporation, a copper gold play, concentrating its exploration and development activities in the Cloncurry region of north west Queensland.

The Maloney family previously controlled ASX listed The MAC Services Group Limited (MSL). MSL developed, owned and operated high quality, large scale, integrated mining accommodation facilities and ancillary services which serviced the needs of mine owners, contracted mining service providers and other essential contractors working in remote and regional areas on major energy and resource projects. MSL was subsequently taken over by Oil States International Inc (NYSE:OIS) in December 2010 for approximately A$650 million. The Maloney family owned approximately 52% of MSL at the time of the takeover.

Tulla undertook an initial review prior to completion of the agreement with Norseman Gold and is now commencing a more detailed review of all aspects of the operations, including all four mines. Its initial findings indicate that it believes that it can lower operational costs and become a consistent 100,000 ounces per annum gold producer within two years. Tulla is now preparing a comprehensive forward 3 year mine plan and a growth strategy. It will also look to ramp up regional exploration together with mine exploration to expand Norseman Gold's resource base. The Bullen and OK Decline have been placed on care and maintenance and the staff from those mines relocated to other locations at the Norseman Gold Project site whilst the forward plan is being prepared.

As part of the restructuring, Barry Cahill has resigned as Managing Director of Norseman Gold. A new team of experienced technical directors will join the Board with Tulla's assistance. In the meantime, an Interim Board is operating, headed by experienced investor/director, David Steinepreis.

Fund Raising

The Company has entered into an agreement whereby Tulla will subscribe for A$10 million (approximately GBP6.8 million) of secured convertible loan notes (the "Convertible Loan Notes") ("Convertible Loan Note Subscription"). Tranche 1 of A$3.5 million (approximately GBP2.38 million) has been issued and Tranche 2 of A$6.5 million (approximately GBP4.42 million) will be issued following the completion of the security arrangements as detailed below. The security arrangements must be completed within 5 business days or the agreement may be terminated by Tulla with immediate effect. An additional A$3 million (approximately GBP2.04 million) ("the Equity Placing") is being raised by way of a conditional placing of up to 50,000,000 new ordinary shares of GBP0.0125 each in the capital of the Company (the "Placing Shares") at a price of A$0.06 (approximately 4p) per ordinary share. The Company has entered into an agreement with an Australian Broker to manage the Equity Placing. The Equity Placing is conditional on the lodgement of a prospectus for the purposes of section 708A(11) of the Australian Corporations Act to remove any secondary trading restrictions on the sale of securities.

The combined proceeds of the Equity Placing and the Convertible Loan Note Subscription will amount to approximately A$13 million (approximately GBP8.84 million), before expenses, and will provide additional working capital for the Company. Following receipt of these proceeds, Norseman Gold will have cash resources of approximately A$22.3 million (approximately GBP15.17 million).

The funds raised will be utilised for working capital, complete the forward planning and review and to implement the strategy to lower costs and improve the production profile.

The Convertible Loan Notes will bear interest at a rate of 10% per annum payable quarterly in arrears (with the first payment due on 31 March 2012), have a duration of 36 months from the date of issue, be convertible by the holder into ordinary shares of GBP0.0125 each in the capital of the Company ("Ordinary Shares") ("Conversion Shares") at a price of 6 pence per ordinary share, and carry a share purchase warrant ("Warrant") entitling Tulla to acquire a further Ordinary Share at a price of 12 pence per ordinary share for every Conversion Share (calculated by reference to the nominal amount of the Convertible Loan Notes) at any time within 36 months from the date of issue of the Convertible Loan Notes. It is anticipated that the Convertible Loan Notes will be issued prior to 31 March 2012 and will not be admitted to trading on any public market. The Convertible Loan Notes and Warrants are fully transferable.

The conversion rights applicable to the Convertible Loan Notes and the grant and potential exercise of Warrants are conditional on receipt of shareholder approval at an Extraordinary General Meeting which is expected to take place on or before 31 March 2012. If such approvals and any necessary waivers from ASX (or failing such waivers, further shareholder approvals) are not obtained, the interest rate on the Convertible Loan Notes will increase to 20% per annum from the advance date and each Convertible Loan Note holder will be entitled to require redemption of his Convertible Loan Notes at any time after 31 March 2012.

The Convertible Loan Notes will be secured by a first ranking mortgage over certain exploration tenements, second ranking mortgage over certain mining leases and a second ranking general security agreement over all other assets relating to the Norseman Gold Project, each granted by the Company's subsidiary, Central Norseman Gold Corporation Limited ("CNGC"). The securities will rank behind the security granted to (and subject to a priority deed with) EXP T1 Ltd, a subsidiary of RK Mine Finance Trust 1, a member of the Red Kite group of funds, as announced on 4 July 2011.

The existing convertible loan note holders acknowledge the new Convertible Loan Notes and inclusion of Tulla as part of the security arrangements over the Norseman Gold Project. The second ranking mortgage over certain mining leases and a second ranking general security agreement over all other assets relating to the Norseman Gold Project granted to the Convertible Loan Note holder ranks equally with the existing convertible loan note holders.

EXP T1 Ltd has agreed to a standstill arrangement in relation to facility agreement between CNGC and the Red Kite group dated 1 July 2011 ("Facility Agreement") and will not enforce any rights which may arise under the Facility Agreement for a period of 3 months from 14 February 2012 unless any other security holder or creditor calls an event of default. In addition, EXP T1 Ltd will receive a capital repayment of A$500,000 (approximately GBP340,136) on 30 June 2012, defer capital repayments for July and August 2012 with these amounts to be amortised over the remaining 10 months of the loan, will be issued 10,000,000 ordinary shares of GBP0.0125 each in the capital of the Company issued without charge at a deemed issue price of A$0.06 (approximately 4p) per ordinary share and 3,000,000 warrants on the same terms and conditions for the Warrants to be issued to Tulla being at a price of 12 pence per ordinary share at any time within 36 months from the date of issue of the Convertible Loan Notes, subject to shareholder approval.

Subject to Shareholder approval, the Company will issue a total of 35 million warrants. 5 million to David Steinepreis, Chairman of the Company, and 10 million to Ascent Capital Holdings Pty Ltd, a company controlled by entities associated with Gary Steinepreis and David Steinepreis, and 20 million to L2 PM, on the same terms and conditions for the Warrants to be issued to Tulla being at a price of 12 pence per ordinary share at any time within 36 months from the date of issue of the Convertible Loan Notes.

It is also proposed that, subject to shareholder approval at the Extraordinary General Meeting to be held on or before 31 March 2012 and in accordance with the ASX Listing Rules, that David Steinepreis and Ascent Capital Holdings Pty Ltd, or their nominees, be provided the opportunity to subscribe for up to 10,000,000 new ordinary shares of GBP0.0125 each in the capital of the Company at a price of A$0.06 per share to raise A$600,000 on the same terms and conditions as the Equity Placing.

Quarterly Review

Gold production from the Norseman Gold Project during the three-month period to 31 December 2011 totalled 10,658 ounces, down 8% on the September 2011 quarter: Bullen contributed 4,002 ounces (up 11%), Harlequin contributed 4,434 ounces (down 8%), the OK Decline contributed 1,045 ounces (down 18%), and the North Royal Open Pit contributed 1,177 ounces (down 40%). As at the end of December 2011 the Norseman Gold Project's broken ore stockpiles totalled 79,000 tonnes at 1.5 g/t.

The gold price received during the quarter ranged from A$1,485 to A$1,705 per ounce, with an average price of A$1,605 per ounce. As a result of the decreased production profile, the net direct cash operating cost per ounce for the quarter was A$1,673 per ounce of gold recovered. Actual direct operating costs dropped marginally from the previous quarter and were under budget for the quarter. The operations remain unhedged.

Norseman Gold Project earnings before interest and tax (EBIT) was a loss of A$8.4 m for the quarter. The Norseman Gold Project EBIT does not include the corporate costs of Norseman Gold plc.

Production

 
                                    3 months       3 months       3 months       3 months 
                         Units     to 31/03/11    to 30/06/11    to 30/09/11    to 31/12/11 
---------------------  --------  -------------  -------------  -------------  ------------- 
 Capital Development     metres          1,003            576            596            514 
---------------------  --------  -------------  -------------  -------------  ------------- 
 Ore Development         metres          1,061          1,316          1,312            823 
---------------------  --------  -------------  -------------  -------------  ------------- 
 
 Development             tonnes         41,048         44,011         47,850         35,955 
---------------------  --------  -------------  -------------  -------------  ------------- 
 Grade                    gAu/t           1.54           2.49           1.68           2.50 
---------------------  --------  -------------  -------------  -------------  ------------- 
 
 Mechanised Stoping      tonnes         15,640         23,915         27,303         15,707 
---------------------  --------  -------------  -------------  -------------  ------------- 
 Grade                    gAu/t           3.42           3.78           3.28           5.10 
---------------------  --------  -------------  -------------  -------------  ------------- 
 
 Airleg Stoping          tonnes         28,951         30,265         28,571         25,522 
---------------------  --------  -------------  -------------  -------------  ------------- 
 Grade                    gAu/t           7.52           8.77           5.31           6.49 
---------------------  --------  -------------  -------------  -------------  ------------- 
 
 U/G Production          tonnes         85,639         98,191        103,724         77,184 
---------------------  --------  -------------  -------------  -------------  ------------- 
 
 Open Pit Waste             bcm        502,272        747,908        776,836        579,316 
---------------------  --------  -------------  -------------  -------------  ------------- 
 Open Pit Ore            tonnes         11,252         32,857         48,659         30,895 
---------------------  --------  -------------  -------------  -------------  ------------- 
                          gAu/t           1.84           1.90           2.84           1.47 
 ------------------------------  -------------  -------------  -------------  ------------- 
 
 Treated Tonnes          tonnes        114,099        112,084        118,384         94,585 
---------------------  --------  -------------  -------------  -------------  ------------- 
 Grade                    gAu/t           3.40           4.34           3.20           3.67 
---------------------  --------  -------------  -------------  -------------  ------------- 
 Recovery                     %          94.4%          95.8%          95.5%          95.5% 
---------------------  --------  -------------  -------------  -------------  ------------- 
 Recovered Ounces           ozs         11,781         15,001         11,631         10,658 
---------------------  --------  -------------  -------------  -------------  ------------- 
 
 Stockpiles              tonnes         12,000         32,000         66,000         79,000 
---------------------  --------  -------------  -------------  -------------  ------------- 
                          gAu/t            1.7            1.9            1.7            1.5 
 ------------------------------  -------------  -------------  -------------  ------------- 
 

Production Outlook

The Board and Tulla are confident that they can improve the production profile at the Norseman Gold Project mine, which has been underlined by their commitment of capital. The appointment of L2 PM to manage the Norseman Gold Project will see a comprehensive restructure and review. Tulla and the Company are focussed on implementing a comprehensive forward 3 year mine plan and a growth strategy to generate value for shareholders. This is currently being prepared although the main aims are to:

   --     reduce costs across all areas of the mine in order to fit forward cashflows 

-- focus on profitable production areas of the Norseman Gold Project mine to target a quick turnaround

   --     implement a mine plan based on profitability 

-- increase the resources base through defined mine and regional exploration programmes - current resource stands at of 3.4 million ounces of gold at an average grade of 4.7 g/t

-- re-structure the Board of Directors with highly experienced technical professionals to ensure strategy implementation - potentially with experience of operations at the Norseman Gold Project

-- target 100,000 ounce consistent organic production within two years and increase this thereafter while remaining focussed on profitability

-- re-establish extensive regional exploration on the highly prospective Norseman Gold Project field.

Cash Balances

Cash balances at the end of the quarter ended 31 December 2011 totalled A$16.6 million (A$15.6 million excluding bullion). Approximately A$6.1 million of this cash balance is committed to cash-backed environmental bonds and the Company estimates that it had approximately 3,800 ounces of gold sitting in stockpiles.

During the quarter, the Company raised GBP5.1 million (before expenses) via the issue of a Convertible Loan Note Facility, plus an additional GBP6.9 million (before expenses) via a share placement, both of which were approved by shareholders at the Annual General Meeting held on 9 December 2011.

Following the investment announced today the balance sheet for the Company has been significantly strengthened and the Company is well placed to implement the turn-around strategy.

Capital Expenditure

A total of A$7.3 million in capital was invested during the December 2011 quarter. The majority of this was in capitalised mine development (A$5.3 million) and capitalised exploration (A$1.1 million). This level of capital expenditure, a reduction from previous quarters, reflects the management's continued efforts to conserve cash resources while gold production has remained below expectations.

Corporate Changes

The Company made a number of Board changes during the quarter. Mr. David Steinepreis, an experienced investor / director, joined the Company on 25 October 2011 and took over as Chairman following Mr. Pendal's departure. Mr Pendal, who had been Chairman since 2007, was up for re-election at the Annual General Meeting by rotation but chose not to be renominated. Mr. Pendal therefore ceased to be a director immediately after the Annual General Meeting on 9 December 2011. Mr. Peter Bilbe also resigned from the Board for personal reasons during the quarter.

Subsequent to the end of the quarter, Mr. Barry Cahill also stepped down as Managing Director and has also resigned from the Boards of the Company and its subsidiaries. Mr Kelvin May, Company Secretary, has been appointed to the Board as an interim measure while technical directors are sourced with the assistance of Tulla.

The Company appointed a new Nominated Adviser and Joint Broker, Northland Capital Partners Limited, during the quarter.

Note: A$/GBP exchange rate of 1.47 applied as at 8 February 2012 - source Bloomberg.

Competent Persons - Consent for Release

The information in this report that relates to Exploration Results, Mineral Resources and Ore Reserves is based on data generated by employees of Central Norseman Gold Corporation Limited who have the relevant experience and qualifications to qualify as competent persons.

The parts of this report that relate to Exploration Results, Mineral Resources and Ore Reserves were compiled by the former Managing Director, Barry Cahill, using that data. He is a Member of the Australasian Institute of Mining and Metallurgy and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as a Competent Person as defined in the 2004 Edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves". He has consented to the inclusion in the report of the matters based on this information in the form and context in which it appears.

Significant results for drill-hole intercepts contained in this report are considered significant because the grade by width total is equal to or greater than 5.0 gram metres per tonne. That is if the intercept is 1.0 g/t gold over 5.0 m, 5.0 g/t gold over 1.0 m, 50 g/t gold over 0.1 m etc it is considered significant.

Quoted resources and reserves are as per the Company's market release of 28 July 2011 and as tabulated below.

TABLE 1: March 2011 Open Pit & Underground Resource and Reserve Summary

 
 Summary for           Open Pit - 31 March               Underground - 31                      Total 
  Norseman                     2011                         March 2011 
----------------  -----------------------------  -------------------------------  ------------------------------- 
                     Tonnes     Grade   Ounces      Tonnes     Grade    Ounces       Tonnes     Grade    Ounces 
                                 g/t      gold                  g/t       gold                   g/t       gold 
                                 gold                           gold                             gold 
----------------  -----------  ------  --------  -----------  ------  ----------  -----------  ------  ---------- 
 Reserve - 
  Proved               13,000    1.8        760      320,000    8.3       85,000      330,000    8.5       90,000 
----------------  -----------  ------  --------  -----------  ------  ----------  -----------  ------  ---------- 
 Reserve - 
  Probable          1,000,000    3.1     99,000      990,000    7.2      230,000    2,000,000    5.1      330,000 
----------------  -----------  ------  --------  -----------  ------  ----------  -----------  ------  ---------- 
 Total Reserve      1,000,000    3.1    100,000    1,300,000    7.7      320,000    2,300,000    5.7      420,000 
----------------  -----------  ------  --------  -----------  ------  ----------  -----------  ------  ---------- 
 Resource 
  - Measured        5,000,000    0.7    110,000      580,000   12.3      230,000    5,600,000    1.9      340,000 
----------------  -----------  ------  --------  -----------  ------  ----------  -----------  ------  ---------- 
 Resource 
  - Indicated       4,100,000    2.7    360,000    2,600,000    9.0      750,000    6,700,000    5.1    1,100,000 
----------------  -----------  ------  --------  -----------  ------  ----------  -----------  ------  ---------- 
 Resource 
  - Inferred        3,200,000    2.8    290,000    6,900,000    7.7    1,700,000   10,000,000    6.2    2,000,000 
----------------  -----------  ------  --------  -----------  ------  ----------  -----------  ------  ---------- 
 Total Resource    12,000,000    1.9    760,000   10,000,000    8.3    2,700,000   22,000,000    4.7    3,400,000 
----------------  -----------  ------  --------  -----------  ------  ----------  -----------  ------  ---------- 
 

Notes:

1. As is required the Resources and Reserves are calculated and reported in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, The JORC Code, 2004 Edition.

   2.        Resources are inclusive of reserves. 

3. Resources and reserves are quoted to two significant figures so inconsistencies may exist within the table.

Forward-Looking Statements

This regulatory news release contains certain forward-looking statements, which include assumptions with respect to future plans, results and capital expenditures. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. All such forward-looking statements involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company's control. Please refer to the Company's Admission Document available from the Company's web site for a list of risk factors. The Company's actual results could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits the Company will derive there from. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release.

* * ENDS * *

For further information visit www.norsemangoldplc.com, email [e-mail] or contact:

David Steinepreis Norseman Gold Plc. Tel: [phone]

   William Vandyk / Rod Venables                Northland Capital Partners Ltd  Tel: [phone] 

Guy Wilkes Ocean Equities Ltd Tel: [phone]

Susie Geliher / Hugo de Salis St Brides Media & Finance Ltd Tel: [phone]

Notes

Norseman Gold plc is an AIM and ASX listed Australian gold production company, which operates the 2,360 sq km Norseman Gold Project, Australia's longest continually running gold operation. Located in the Eastern Goldfields of Western Australia in the highly prospective Norseman-Wiluna greenstone belt, the project currently has a total resource inventory of 3.4 million ounces of gold at an average grade of 4.7 g/t.

This information is provided by RNS

The company news service from the London Stock Exchange

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