Alchemy in $3.6m project acquisition

West Perth-based Alchemy Resources Ltd has expanded its footprint in the gold sector following a move to acquire the Western Australian division of Polymetals Group Pty Ltd which holds gold projects near Kalgoorlie.

Alchemy has entered into an agreement with Brisbane-based Polymetal, which specialises in mineral processing, to acquire Polymetals (WA) Pty Ltd for $3.6 million in cash and scrip.

Polymetals WA is the owner of the Boorara gold project and Nimbus silver project, which includes a processing plant, in the Goldfields region of WA.

Polymetals gained ownership of the tenements in 2003 from Barrick Gold and started mining in early 2004, producing around 3 million ounces of silver before operations ceased in 2006.

Additionally, Alchemy said it was in talks with a third party regarding the potential lease of the processing plant, whereby if an agreement is reached, will provide the Perth company with immediate cash flow.

Below is the full announcement:

Alchemy Resources Limited (ASX Code: ALY) ("Alchemy") is pleased to announce that it has entered into an agreement with Polymetals Group Pty Ltd ("Polymetals Group") to acquire 100% of the issued capital of Polymetals (WA) Pty Ltd ("Polymetals WA") which is the owner of the Boorara Gold Project and Nimbus Silver Project ("Projects") as well as the Nimbus processing plant. The Projects are located approximately 15 kilometres east of Kalgoorlie in the Goldfields Region of Western Australia.

Alchemy considers both the Boorara Gold Project and the Nimbus processing plant will provide the potential to generate early cashflow. Based on extensive historical drilling, Alchemy is confident that it can conduct a focused drilling campaign to quickly upgrade the Boorara Gold Project to production status. In addition, Polymetals is currently in discussions with a third party regarding a potential lease of the processing plant. If an agreement is
reached this will provide Alchemy will immediate cashflow.

Alchemy Managing Director, Michael Hannington said, "The Boorara Gold Project, in addition to the recent Three Rivers Gold Project acquisition, will enable Alchemy to further develop its strategy of transforming the company from an explorer to a gold producer."

Mr Hannington added, "The potential to generate near term cash flow will preserve Alchemy's existing cash reserves and assist with long term funding of exploration activities on our Murchison tenements. The Murchison tenements have the potential for the discovery of a 'company making' large tonnage gold deposit."

The Projects

The Projects comprise six granted mining leases and one prospecting licence covering approximately 19km2. Polymetals Group (a Brisbane based private company specialising in mineral processing) gained ownership of the tenements in 2003 from Barrick Gold and commenced mining in early 2004 producing approximately 3Moz of silver from two open pits before ceasing mining operations in late 2006.

Alchemy was attracted to the Projects for the following reasons:

Granted mining leases enabling immediate drilling to enhance the Boorara Gold Project into a JORC compliant reserve and commence open pit development at Boorara to provide early cash flow;

Undefined potential for a volcanic hosted massive sulphide deposit below the Nimbus Silver Project;

250,000 tonne per annum processing plant with Merrill-Crowe circuit (for silver recovery) located at Nimbus;

Close proximity to existing gold producers and mills; and

Potential for significant exploration upside for both gold and base metals.

Alchemy is pleased that the purchase included a 250,000 tonne per annum mobile processing facility and mill for an implied value of $2 million. An independent valuation obtained by Alchemy valued the plant and associated equipment at a replacement value of $7 million.

Alchemy is aware that such mills are extremely difficult to locate in the existing market and that this asset represents significant value to the Company.

Alchemy has also conducted discussions with an adjacent gold producer in respect of toll treating or acquiring the oxide ore produced from the Boorara Gold Project. The possible sale or treatment of this ore would allow a source of cash flow without the need to utilise the Nimbus processing plant. This will enable the Nimbus plant to be utilised in the short term for third party use and in the longer term for re-location to Alchemy's future development
projects.

Letter of Intent

The sale and purchase of the Polymetals WA shares are subject to and conditional upon:

Receipt of all necessary approvals and consents for the transfer of the shares in Polymetals WA to Alchemy;

Completion of due diligence by Alchemy (to its satisfaction) on Polymetals WA;

Polymetals Group settling any existing liabilities and environmental obligations; and

Alchemy and Polymetals Group entering into a strategic alliance for the development of future projects.

At completion Alchemy will acquire 100% of the issued capital of Polymetals WA from Polymetals Group for the following consideration:

$50,000 non-refundable cash deposit payable upon receipt of all data and information required to undertake due diligence;

$1,450,000 cash payable on the completion date of the sale agreement (ie. when all conditions precedent have been satisfied);

$1,350,000 in fully paid Alchemy shares on a 20 day volume weighted average price based on the 20 trading days prior to the completion date under the sale agreement. A meeting of shareholders will be convened to seek approval for the issue of the shares; and

$750,000 in cash or fully paid Alchemy shares (at Polymetals Group's election) based on a 20 day volume weighted average price, upon the delineation of not less than 40,000 ounces of gold reserves on the Tenements.

Alchemy has also agreed to share 50% of the free cash flow from any hire agreement entered into in relation to the processing plant and mill with Polymetals Group up to a maximum of $1,400,000. This cashflow sharing arrangement will only occur for the period between the completion date and 30 June 2011.

Mr Hannington said, "In addition to the Three Rivers Project, the acquisition of Polymetals WA will enable Alchemy to achieve its objective of becoming a low risk gold producer. The aim of the Company is to generate sufficient internal cashflows to enable it to fund future exploration projects without diluting share capital. We believe that this acquisition represents extremely good value to Alchemy and aligns the Company with a high calibre group of people at Polymetals with complementary metallurgical expertise."