Chalice, Dragon Mining in $16m gold deal

Shares in Chalice Gold Mines closed higher after it entered an option deal to buy out its joint venture partner's interest in an Eritrea project for up to $16.2 million.

Dragon Mining has granted an option to Chalice to buy its 20 per cent interest in the Zara gold project.

If Chalice exercises the option, it must pay $8 million cash to Dragon and issue 2 million shares, which will be escrowed for 12 months.

Chalice will also need to pay a further $4 million cash to Dragon once 1 million ounces of gold reserves has been delineated at the project.

Should Chalice exercise that option before the end of the 2010 financial year, Chalice will own 100 per cent of the project.

The cash injection will relieve Dragon of any debt on completion of the bankable feasibility study which is estimated to cost $3.4 million.

"The disposal of the non core asset will give Dragon Mining an immediate cash benefit and also allow the continued participation in the upside of the Zara gold project through the Chalice shares and with the expected delineation of additional ounces," Dragon managing director Peter Cordin said.

He added that Dragon will focus on its existing gold mines in Sweden and Finland.

Shares in Chalice closed up 2.5 cents to 43c today while shares in Dragon closed at 8.9c after gaining 0.6c.