Elgin Mining and Gold-Ore Resources Announce Merger Creating Growth Oriented International Gold Producer, Developer and Explorer

 

VANCOUVER, BRITISH COLUMBIA–(Marketwire – Feb. 1, 2012) – Elgin Mining Inc. (TSX VENTURE:ELG) ("Elgin Mining") and Gold-Ore Resources Ltd. (TSX:GOZ) ("Gold-Ore") are pleased to announce the execution of an arrangement agreement to complete a business combination (the "Transaction"), whereby Elgin Mining will acquire all of the issued shares of Gold-Ore by way of a plan of arrangement. The Transaction will result in a well-funded, growth-oriented gold producer with Gold-Ore's producing Bjorkdal gold mine in Sweden and Elgin Mining's Lupin and Ulu gold development projects in Nunavut, Canada. Bjorkdal produced 40,338 ounces of gold in fiscal 2011. Excluding Lupin, pro forma mineral resources for Elgin Mining upon completion of the Transaction will be over 1,191,700 ounces of Measured and Indicated mineral resources and approximately 756,500 ounces of Inferred mineral resources (Note: A table of Mineral Resources and Mineral Reserves is shown at end of this news release). The combined company will have the financial resources and management expertise for accelerated development and growth.

Transaction Highlights:
 

—  Gold-Ore shareholders to receive one Elgin Mining common share and one half of one common share purchase warrant of Elgin Mining exercisable at a strike price of $1.30 per Elgin Mining share with a two year term.

 

—  Transaction values Gold-Ore at $1.22 per common share and represents a  premium of 66.5% based on the volume weighted average trading prices of Gold-Ore and Elgin Mining for the 10 trading days ended January 31, 2012.

 

—  Low risk, high quality asset portfolio: one producing gold mine; two attractive gold development projects.

 

—  Elgin Mining's Lupin gold project provides exposure to a high grade, past producing underground mine with significant infrastructure and permitting in place and the potential for near term production.

 

—  Strong balance sheet and cash flow: approximately $35 million in cash in the combined company; fiscal 2011 cash flow from Gold-Ore's Bjorkdal  mine is $12.1 million.

 

—  Transaction structured to fund on-going growth and development through potential warrant exercise.

 

—  Share exchange provides Gold-Ore shareholders with a 57% ownership stake (67% fully diluted) in a superior combined company with geographic diversification, increased market profile, trading liquidity and research coverage.

 

—  Shareholder representing approximately 17% of Gold-Ore shares has signed a lock-up agreement supporting the Transaction.

 

—  Experienced combined team. Elgin Mining and Gold-Ore management and board have long standing operational and capital markets expertise in the mining sector with well-established track records.

 

—  Unanimous support of the management of both companies.

 

The Transaction values Gold-Ore at $1.22 per common share based on the 10-day volume weighted average price of Elgin Mining ($1.15 of share value and $0.07 of warrant value) and represents a premium of 66.5% over the same period. Each Gold-Ore shareholder will receive one common share of Elgin Mining and one half of one common share purchase warrant of Elgin Mining exercisable at a strike price of $1.30 per Elgin Mining share with a two year term, for each Gold-Ore common share held. Each half warrant has been valued at $0.07 using the Black-Scholes method with a volatility assumption of 30%, term of 2 years, an exercise price of $1.30 per share, a reference 10-day volume weighted average price of $1.15 and an assumed risk free interest rate of 0.95%.

Elgin Mining's President and CEO, Patrick Downey commented, "The combination of Elgin Mining and Gold-Ore will create a strong international gold company with a solid portfolio of production and exploration assets in the politically safe jurisdictions of Canada and Sweden. Gold-Ore's Bjorkdal mine will provide meaningful cash flow which will fund the company's future exploration and development activities. The combined company's profile will be very attractive to current and future investors as a larger, diversified company with immediate production and future upside. We will continue to review quality opportunities that add to our resource inventory and production profile."

Glen Dickson, Chairman and CEO of Gold-Ore commented, "The Transaction provides Gold-Ore shareholders with significant and immediate value for their shares. Furthermore, with the Lupin mine fully permitted and the limited capital exposure for re-start of operations, our shareholders will participate in a rapid and meaningful ramp-up of production. We believe that the strategic and financial rationale of our Transaction is beneficial to Gold-Ore's shareholders, employees and other stakeholders."

Elgin Mining's Transaction will provide the following benefits to the shareholders of Gold-Ore:
 

—  A compelling premium of 66.5% to all Gold-Ore shareholders.

 

—  Warrants under the Transaction structure provide Gold-Ore shareholders with additional upside and future capital inflows to the combined company.

 

—  The combined company will be well funded with approximately $35 million  in cash and with all operations in locations with minimal political risk.

 

—  Participation in the past producing Lupin gold mine which produced 3.5 million gold ounces at an average head grade of 9 g/t gold over a 20year mine life.

 

—  Elgin Mining's Lupin and Ulu projects contain scalable upside. The past producing Lupin high-grade gold project has in-place infrastructure and its Class "A" water licence to recommence operations thereby reducing delays in permitting and costs.

 

—  Strong expertise among Elgin's management and board in developing and operating mining projects; significant capital markets expertise and successful track record in the mining sector.

 

—  Participation by Gold-Ore shareholders in the potential re-rating of Elgin Mining resulting from the increased size, liquidity, research analyst coverage and market visibility of the combined company.

 

The shareholders of Elgin Mining will benefit from ownership in Gold-Ore as follows:
 

—  Ownership in the Bjorkdal Gold Mine in the low political risk jurisdiction of Sweden. The Bjorkdal Gold Mine has a strong track record of gold production generating meaningful free cash flow with significant exploration upside.

 

—  Gold-Ore's cash flow generation of $12.1 million in 2011 will assist in accelerating the development of Elgin Mining's exploration assets.

 

Resolute Funds Limited, as manager of Resolute Performance Fund, Gold-Ore's largest shareholder, has entered into a lock-up agreement with Elgin Mining in support of the Transaction in respect of 15,000,000 common shares of Gold-Ore representing approximately 17% of the issued and outstanding common shares on a non-diluted basis.

The Transaction includes a commitment by Gold-Ore and Elgin to not solicit an alterative transaction to the Transaction. Each company has agreed to pay a break fee to the other company of $2.8 million upon the occurrence of certain events. The Transaction has been declared a "Superior Proposal" as defined by an agreement signed by Gold-Ore and Astur Gold Corp. ("Astur") and will result in the payment of a break fee of $2.5 million by Gold-Ore to Astur. The previously announced transaction between Gold-Ore and Astur has been terminated.

Patrick Downey will continue in his role as President and Chief Executive Officer and Bob Buchan will remain Chairman of the Board. Robert Wasylyshyn will continue on as interim COO. Gold-Ore directors, David Mullen, Ronald Ewing, Glen Dickson and Robert Wasylyshyn will join the expanded board of directors.

The Transaction will be conditional upon certain conditions of completion, including receipt of all necessary regulatory approvals, absence of material adverse changes and holders of at least 66 2/3% of the total votes cast by Gold-Ore shareholders approving the Transaction at a meeting of Gold-Ore shareholders. The Transaction will also be subject to the approval of 50% plus one of the total votes cast by Elgin Mining shareholders voting in favour of the Transaction.

Additional Details of the Transaction

Full details of the Transaction will be included in respective information circulars and a joint proxy circular to be filed with securities regulatory authorities and mailed to Gold-Ore and Elgin Mining shareholders in early March. It is anticipated that the shareholders meeting of both Elgin Mining and Gold-Ore to approve the Transaction will occur in early April. Closing of the Transaction is anticipated in late April.

Elgin Mining has engaged National Bank Financial Inc. ("NBF") to act as financial advisor to the Company in connection with the Transaction. Legal counsel to Elgin Mining is Cassels Brock & Blackwell LLP. NBF has provided an opinion to the board of directors of Elgin Mining that, as of the date thereof, the consideration to be paid under the Transaction is fair, from a financial point of view, to the shareholders of Elgin Mining.

Gold-Ore's financial advisor is Fraser Mackenzie Limited ("Fraser Mackenzie") and its legal counsel is McLeod & Company LLP. Fraser Mackenzie has provided an opinion to the board of directors of Gold-Ore that, as of the date thereof, the consideration to be paid under the Transaction is fair, from a financial point of view, to the shareholders of Gold Ore.