Gossan Resources Limited entered into a purchase and sale agreement to vend its Manigotagan Silica Frac Sand Project, comprised of nine quarry leases located near Seymourville, Manitoba, Canada, to Claim Post Resources Inc. Gossan has been seeking a joint-venture partner or a purchaser for the project since completing a marketing study in late 2010.
In 2012, Claim Post acquired the adjacent Seymourville Property to the south and announced plans to develop a frac sand operation. A consolidation of the two properties should improve the viability of the project.
Under the terms of the agreement, Gossan will receive 1 million shares of Claim Post followed by four additional property payments on a semi-annual basis with a maximum cash value of $1,330,000, as well as, a royalty interest. On Dec. 18, 2013, Gossan will receive an additional 2 million shares of Claim Post or a cash payment of $200,000, at Claim Post's option.
In 2014, Claim Post is required to make two cash payments of $350,000 each and a final cash property payment in 2015 of $430,000. The transaction is subject to regulatory approval.
An initial annual advance royalty payment of $50,000 becomes payable as of June 18, 2016, unless the operation has commenced commercial production resulting in the payment of production royalties. All frac sand produced, sold and paid from the nine Manigotagan leases is subject to a $1.00 per ton production royalty payable quarterly and all other products are subject to a $0.50 per ton production royalty.
Although the royalty is solely payable on production from the Manigotagan leases, the agreement also provides for a minimum production royalty from both the Manigotagan and Seymourville Properties based on their relative remaining mining reserves of frac sand with Gossan's Manigotagan Property having a deemed minimum mineable reserve of 6 million tons of frac sand. Claim Post can acquire one-half of Gossan's production royalty interest for $1.5 million at any time after making all of the required property payments.
The Manigotagan Project is located 170 km northeast of Winnipeg where Gossan holds a silica sand deposit at Seymourville, on the east shore of Lake Winnipeg, directly across from Black Island where silica sand was extensively quarried prior to the island becoming a Provincial Park.
Gossan conducted a marketing study that established the highest and best use of Manigotagan silica sand is as frac sand proppant.