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By Rose Ragsdale
For Mining News 

Gold project sprints toward production

Junior flushes poison pill to pave path for growth as investor boosts ownership stake amid news of permitting progress, drilling


Last updated 8/28/2011 at Noon

Tyhee Gold Corp received a raft of good news in recent weeks, including approval by 98 percent of its shareholders Aug. 17 to do away with the company's poison pill, or shareholder rights plan.

The junior is exploring the Yellowknife Gold Project in Northwest Territories where it is focused on developing a 4,000-metric-ton-per-day gold mining operation with annual production exceeding 108,000 ounces of gold by 2013.

Termination of the company's rights plan became effective Aug. 19, and rights held by shareholders under the plan resulted in the payment of about C$2,880 to Tyhee's shareholders at a redemption price of C$0.00001 per right.

Tyhee adopted the poison pill in the spring of 2008 when many junior mining companies were experiencing predatory takeovers due to depressed share prices which persisted in the wake of global financial instability the fall 2008.

The plan, subject to some exceptions, triggered certain provisions when an investor became beneficial owner of 20 percent or more of the outstanding voting shares of the company that were designed to protect the company from the risk of a hostile takeover or a change in the respective ownership of its current shareholder base during the financial market crisis.

The rights plan was established to provide shareholders and Tyhee's board with adequate time to consider and evaluate any unsolicited bid made for the company; to provide the board with adequate time to identify, develop and negotiate value-enhancing alternatives, if considered appropriate, to any such unsolicited bid; to encourage the fair treatment of shareholders in connection with any takeover bid for the company, and to ensure that any proposed transaction was in the best interests of the company's shareholders.

It encouraged potential takeover bidders to proceed either by way of a "permitted bid" which met minimum standards of fairness or with the approval of the board.

"This concern is no longer prevalent; therefore, the board believes that it is in the best interests of the company and its shareholders to terminate the rights plan, effective at the close of the meeting, and to redeem the rights issued thereunder," wrote Tyhee President and CEO David R. Webb in an information circular distributed to shareholders in July.

Appetite for growth

He said Tyhee is currently evaluating various alternatives to accelerate the growth of its activities, including possibly accessing additional capital. The company believes that some of the financial alternatives that could be considered may involve the participation of existing shareholders, including Interinvest, which currently holds about 14 percent of the junior's outstanding shares.

While participation in such capital-raising, including through the exercise of currently outstanding warrants held by such shareholders, would not have triggered provisions of the poison pill, subsequent purchases of securities could have, even though they were permitted under existing Canadian law applicable to takeover bids. In this context, the board has determined that the rights plan could adversely affect the company's ability to support its growth and believes that it is in the best interests of the company and its shareholders to terminate the rights plan," Webb said.

Terminating the rights plan does not restrict Vancouver, B.C.-based Tyhee's ability to adopt another rights plan in the future. In fact, Webb said the board believes that if the company becomes aware of a hostile takeover bid, it will be able to achieve the objective by adopting a limited duration shareholder rights plan in response to the particular takeover attempt.

Williams Creek Gold Ltd., meanwhile, increased its stake in Tyhee to 15.5 million shares from 10.5 million shares through the exercise of 5 million warrants that it had acquired as part of its initial investment in the junior in November. The cost of the investment was C$625,000 or C2.5 cents per share.

"We believe that Tyhee, a late-stage development company, is an excellent investment for Williams Creek because it allows us to participate in a significant gold project that is in the permitting stage and which is moving towards production perhaps more rapidly than financial market participants recognize," said Williams Creek Chairman and CEO Michael Sonnenreich. "Williams Creek has a three-part strategy consisting in: a) exploration, b) investment and joint venture, and c) debt and royalty financing. Our investment in Tyhee is a very good example of the second part of this strategy."

Permitting progress

Tyhee reported July 28 that the Mackenzie Valley Environmental Impact review board has decided to move the environmental assessment of the Yellowknife Gold project to the next stage of the process - the information request phase.

The junior also said it was informed that the Review Board will release a work plan for the remainder of the environmental assessment by the end of August.

The Yellowknife Gold Project located 50-90 kilometers (31-56 miles) north of Yellowknife in the South Mackenzie Mining District, covers 12,635 hectares (31,221 acres) and consists of the Ormsby, Nicholas Lake, Bruce and recently added Clan and Goodwin Vad Zones. The project has a current NI 43-101-compliant resource that includes 1.95 million ounces of gold in the measured and indicated categories and 269,000 ounces of gold in the inferred category.

"Tyhee submitted an application to construct and operate up to a 4,000 tpd mine and mill complex (at the project) to the Mackenzie Valley Land and Water Board in September 2008 and has seen steady progress through the system," Webb said. "This announcement sets in motion the process where the MVEIRB will issue information requests to Tyhee based on the data and information submitted in the Developers Assessment Report in May 2011. It is expected that these information requests will coincide with the receipt of the work plan.

A feasibility study is underway, led by SRK Consulting, and is expected to be completed by mid-2012. It will build on the positive preliminary feasibility study completed in July 2010 that, on the basis of a US$950-per-ounce gold price, recommended operating at 3,000 metric tons per day with cash costs of US$546 per ounce and initial capital costs of C$170 million. Tyhee said the feasibility study will consider an expanded resource and a more current gold price as well as other updated inputs.

Following a positive recommendation from NWT regulators and ministerial approvals, Tyhee said it would anticipate obtaining its licenses to commence construction and operation of its proposed mine and mill.

More positive drill results

Tyhee also reported Aug. 3 the start of a 3,000-meter diamond drill program designed to develop the Clan Lake Main Zone resource by expanding on and improving gold mineralization discovered along strike of the Main Zone. The drilling also will supply geotechnical information and allow for improvements in the design of any potential pits for this resource.

The junior is working toward a multimillion-ounce resource target for the project. Diamond drilling so far in 2011 has extended the Main Zone (354,000 ounces of indicated gold resource), by 500 meters to the southeast, with intersections of 13.0 meters of 0.72 grams per metric ton gold in CL188, and 8.0 meters of 0.79 g/t gold including 2.0 meters of 2.34 g/t gold in CL189.

"The initial results show that the Main Zone has potential to expand to the southeast and the current drill program will focus on defining the extent of this mineralization to allow for its inclusion in a revised resource estimate that will be incorporated into the feasibility study currently underway," said Webb. "Additional targets at Clan Lake will be assessed so that the development of the known additional zones will occur in a systematic fashion."


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