VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 15, 2012) - PNG Gold Corporation ("PNG Gold" or the "Company") (TSX VENTURE:PGK.V - News) has embarked on a number of initiatives. These have been taken in response to issues that, if not corrected, could negatively impact the development of the Imwauna gold property. The PNG Gold board has determined that: 1) drilling must progress more rapidly than the approximate 12,000 metres achieved in the previous 15 months; 2) administration and operational costs per metre drilled need to be reduced; 3) operations and accounting controls need to be less reliant on contractors; 4) difficult equity markets demand heightened caution in preservation of capital.
To address these issues, PNG Gold is implementing the following initiatives:
1) Acquiring two new diamond drills capable of drilling up to depths of over 1000 metres.
2) Retrofitting the existing drills including new hydraulic systems that suit the engine's capabilities, and mounting a diamond drill chuck, rotation and foot clamp assembly. The rigs will be mounted on a skid platform to facilitate moving the drills. New stiff legs will be provided as well as new control panels and wire line hoists and most importantly, guarding on all rotating parts. By later this summer PNG Gold expects all four drills to be fully functional and ready to drill 10,000 metres per month.
Until now, all of PNG Gold's exploration activities have been accounted for through a provision of services agreement with New Guinea Gold Corporation ("NGG"). Every employee and all suppliers in Papua New Guinea working on or supplying PNG Gold's Imwauna project had no direct relationship with Normanby Mining PNG Limited ("Normanby"), PNG Gold's wholly owned Papua New Guinea subsidiary. Payroll, purchasing and invoicing were all done through NGG which weakened operational autonomy and compromised accounting controls. To correct this situation, the Company is arranging for Imwauna employees to be employed directly by Normanby and for supplies to be purchased directly by Normanby. This is expected to reduce costs and result in better accounting controls with a higher level of operational integrity.
The focus on managing administrative and operation costs while substantially increasing drilling is expected to produce a significant reduction in the overall cost per metre drilled in the next few quarters. Raising capital is highly dilutive in these markets and therefore PNG Gold plans to be conservative with its approximate $22 million of cash reserves. Funds will not be employed unless there is a significant level of certainty that their use will be of maximum benefit to PNG Gold.
The Imwanuna Gold Deposit
A series of milestones are already in place for the rapid buildup of drilling later this summer. These include:
i. Camp construction is anticipated to be completed by the end of July, at which time a total of 128 people can be accommodated.
ii. Community relations continue to be good. As an example, the Company has just completed installation of 9.5 km waterline for the local village.
iii.Acquisition and retrofitting of drilling equipment estimated to take 45 days.
iv. Diamond drilling continues on the Imwauna Vein Zone focusing on extending the zone to depth.
v. Construction of access trails and pads is underway for the new drills.
vi. Planning for an initial 5000 metre drilling program on the untested Kela's Prospect. The main road to Kela's Prospect is completed and pads are being established. Kela's Prospect is approximately 600 metres north-west of the Imwauna Vein and has similar geochemical and structure similarities to the Imwauna Vein.
The Imwauna project is located on the north side of Normanby Island, approximately 80 kilometres northeast of Alotau, the provincial capital of Milne Bay province, eastern Papua New Guinea. Alotau is serviced by daily flights from Port Moresby, the national capital, and scheduled coastal freighters. PNG Gold maintains a logistics base in Alotau to supply the Normanby Island site.
Historic exploration drilling has outlined gold mineralization over a strike length of at least 900 metres to an average vertical depth of about 100 metres. Widths range from 0.5 metre to 6.0 metres in the Main Vein. Recent drilling had confirmed the extension of the Imwauna vein system to depths of 150 metres, with high-grade intercepts evident at this depth. Drilling is continuing, and is designed to extend the deposit to depth and along strike.
Plan of Arrangement with New Guinea Gold Corporation
PNG Gold's Plan of Arrangement with NGG remains in abeyance, as certain conditions precedent to completion of the transaction in favour of PNG Gold have not been fulfilled. These conditions precedent are designed to ensure that NGG's main asset, the Sinivit property, has the necessary mining and exploration licences. Without these licences the Sinivit property is of little value to PNG Gold. The Papua New Guinea government's renewal of these licenses does not appear to be following the typical course and therefore PNG is exercising the necessary degree of caution. Also, until such time as certain other conditions are met, PNG Gold has no obligation to provide NGG with funding under the Credit Agreement. Given the degree of uncertainty surrounding the conditions precedent necessary to complete the arrangement, PNG Gold's board believes it would be imprudent to lend NGG additional funds at the present time.
To provide additional background, since signing the Arrangement Agreement and associated documents with NGG on March 7, 2012, PNG Gold has received or been made aware of: a) a letter from the Sinivit landowners saying that they will not enter into a Memorandum of Agreement (which is necessary before the mining and exploration licenses may be renewed) until they receive significant compensation; b) a news story in the Papua New Guinea Mining Watch dated April 17, 2012 that the Mining Minister will be engaging an independent consultant to audit Sinivit, and will be asking the Environment Minister to do an independent environmental assessment of Sinivit; c) a Management Cease Trade Order issued against NGG for failing to file audited financial statements; and, d) the resignation of a majority of NGG independent directors.
NGG stated in a May 7th news release that PNG Gold should allow it to seek alternative sources of funding. That suggests that PNG Gold should release its security in connection with the $1 million demand loan previously made to NGG. This would allow NGG to offer some security as collateral to a new lender. PNG Gold is open to this approach and is prepared to entertain a reasonable proposal from NGG on how to settle the $1 million demand note and free up some of NGG's assets.
PNG Gold is well aware that these are difficult markets for junior resource companies to raise capital without excessive dilution. Fortunately PNG Gold is in the enviable position of having approximately $22 million of cash in the bank and some very encouraging drill results at Imwauna. The most recent of these was published in the Company's news release dated April 13, 2012 titled PNG Gold Corporation Announces Diamond Drill Hole Results: 112 g/tonne Gold over 6.0 Metres available at www.sedar.com. These results lead PNG Gold's management to believe that the Company's funds are best directed at further work on quantifying the value of the Imwauna gold property. While this is the first priority, it need not preclude the Company from being open to other promising opportunities.
Qualified Person
Lorne Warner, P.Geo, Interim Chief Executive Officer of PNG Gold, is a qualified person in accordance with National Instrument 43-101, and has reviewed and approved the technical information contained in this news release.