Chalice Gold Mines Limited : Quarterly Report - 30 September 2012

ASX Announcement September 2012 Quarterly Report Highlights:
? Chalice completes the sale of the Zara Gold Project in Eritrea to China SFECO Group and ENAMCO for combined proceeds of US$114M.
? Chalice has a net cash of $80 million after tax following completion of the Zara transaction, with a focus on acquiring new projects.
? A capital reduction and return of 10 cents per share is proposed, subject to shareholder approval.
? Drilling of VTEM targets has recommenced at the Mogoraib North Project in Eritrea,
located immediately north of the world-class Bisha Mine.
? A new gold target has been defined at the Area C Prospect, Mogoraib North.


 
1. Sale of the Zara Project to China SFECO Group
During the Quarter, Chalice Gold Mines Limited ("Chalice") completed the sale of the Zara Gold Project in Eritrea to China SFECO Group for US$78 million plus a deferred payment of US$2 million upon commencement of commercial production at the Koka Gold Mine.
In addition, the Eritrean National Mining Corporation ("ENAMCO") settled the remaining balance of US$29 million for its acquisition of a 30 per cent interest in the Zara Project (in addition to its 10 per cent free carried interest).
Together with the interim payments received from ENAMCO of US$3 million in January 2012 and US$2 million in July 2012, this amounts to total sale proceeds of US$114 million.
Chalice has paid all applicable taxes due in Eritrea for both the SFECO transaction and the ENAMCO transaction. Chalice's net cash balance at the end of September was $80 million, which equates to approximately 32 cents per share, putting the Company in an exceptionally strong position to embark on its next chapter of growth.
Chalice has retained suitable independent expertise to assist its experienced management and Board of Directors in the assessment and identification of potential opportunities.
2. Capital Management Following completion of the sale of the Company's interest in the Zara Project, Chalice has approximately $80 million cash on hand. The Board has undertaken a review of its capital management options and determined that these funds exceed its current capital requirements, providing justification to return some of this capital to shareholders.

Chalice has announced that its Board will seek shareholder approval under section 256B and 256C of the Corporations Act (2001) for an equal capital reduction and return of $25 million (10 cents cash per share) to those persons or entities that are shareholders at the appropriate record date

Chalice has received a draft Class Ruling from the Australian Taxation Office ('ATO') indicating that the proposed distribution will not be taxed as a dividend. The draft Class Ruling may not be relied on by Chalice shareholders until it is issued in final form by the ATO. The final version of the Class Ruling will be published and notice will be included in The Gazette. Chalice will also display the final version on the Class Ruling on its website as soon as it becomes available.
Full details of the proposed capital return are set out in the 2012 AGM Notice of Meeting and Explanatory Statement. The AGM will be held on 30 November 2012 and it is expected that the Record Date for the capital return will be on or around 10 December 2012.
3. Mogoraib North Exploration

Diamond drilling of VTEM conductor targets at Mogoraib North was suspended in late June due to the onset of the Eritrean wet season. Drilling up to that point comprised 11 holes for 2,358 metres and tested 10 VTEM targets (see Figure 2). Most of the conductors were confirmed to be carbonaceous shales containing variable amounts of sulphides (primarily pyrite and pyrrhotite).
Although no significant base metal sulphides were encountered, assaying of pyrite-rich sections in one hole, MOGD-007, returned highly anomalous levels of silver and barium. The 17m section below 183 metres in hole MOGD-007 (see Figure 3) averaged 2.21g/t silver and just under
1,000ppm barium. These levels of silver and barium are regarded as potentially indicative of distal portions of a volcanic-hosted massive sulphide (VHMS) system.
Based on the results of the drilling to date, geophysical consultants Southern Geoscience Consultants (SGC) have reviewed the VTEM targets and re-ranked the priority of targets for testing. Field checking of these targets is in progress together with further soil sampling where practicable.
Drilling of the highest priority targets recommenced on the 12th October. The current campaign will see an initial 15 diamond drill holes completed for 2,650m, with additional drilling contingent on the results of ongoing soil sampling and mapping programs.
Soil sampling conducted over the Area C gold anomaly, located in the north-central part of the tenement, returned encouraging results, revealing coincident gold, bismuth, tellurium and molybdenum anomalism centred on a quartz vein system being exploited by artisanal miners (see Figure 4). This suite of anomalous elements is also associated with the Koka gold deposit and is characteristic of Intrusive-Related Gold Systems (IRGS). The soil sampling grid is currently being extended to determine the limits of anomalism and define targets for drilling.
4. Gnaweeda Project In early June, Chalice agreed to sell its remaining 13.5% interest in the Gnaweeda Gold Project in Western Australia to Archean Star Resources Inc. (Archean). Archean is listed on the TSX Venture Exchange (TSX?V). The consideration for the sale was 5 million common shares in Archean. Chalice has subsequently advised that it has terminated the agreement because of non-performance by Archean.
Chalice has now reverted to its 13.5% interest in the Project with all commensurate rights.