NEWS RELEASE
ECUADORIAN MINERALS CORPORATION
April 20, 1998
Trading: TSE.EMC
Ecuadorian Minerals Corporation ("EMC") is pleased to announce that it has negotiated an outright purchase of 100% of the interest of Zappa Resources Ltd. ("Zappa") in the Guadalupe, Papa Grande and Mollopongo concessions (the "Properties"). These Properties are contiguous with the southern boundary of EMC’s 100%-held Gaby gold porphyry property in the Ponce Enriquez Mining District in southern Ecuador (see attached map). This acquisition by EMC allows the combined EMC/Zappa properties to be consolidated into one operating entity to take advantage of mining economies of scale, higher initial ore grades and lower operating costs, all factors which will significantly enhance the overall economics of the combined project. EMC’s purchase of the 100% interest requires the issuance of up to 3 million common shares of EMC, the issuance of 500,000 of which are subject to higher future gold prices over a maximum 3 year period. Based on EMC’s present market price, the transaction is valued at approximately US$1.6 million or US$0.53 per ounce of gold acquired on a resource ounce basis and US$1.00 on a preliminary mineable reserve ounce basis.
The effect of consolidating all of the properties in the Gaby area into a unified project (with an estimated total resource of 5.6 million gold ounces) increases EMC’s share of the presently known total gold resource to more than 5.0 million ounces containing a preliminary mineable gold reserve attributable to EMC of approximately 2.7 million ounces. This represents an increase of more than 65% in EMC’s preliminary mineable reserve base. This increase will allow for a higher tonnage throughput (30,000 tonnes per day) at an overall average higher gold grade, especially in the first three years. Based on EMC preliminary in-house estimates, life-of-mine operating costs are projected at $220 per ounce ($295 including capital) with an operating cost of $155 per ounce in the first 3 years. At a gold production rate of almost 270,000 ounces per year, a payback of capital is estimated within the first 2.5 years of a 10 year mine life, based on a preliminary capital cost estimate of US$200 million. These preliminary financial projections are subject to further review and analysis in a future, independent feasibility study on the project.
EMC’s technical and economic projections are based on a combination of the results of EMC’s positive prefeasibility study on the main Gaby deposit (see news release dated April 24, 1997) and a 1997 conceptual prefeasibility study on Zappa’s Papa Grande and Mollopongo deposits carried out by then joint venture partner, Cambior Inc. Cambior’s study reportedly outlined a near surface gold resource (still open in several directions) of approximately 1.6 million ounces at a grade of 1.1 g/t containing a preliminary mineable reserve of approximately 800,000 ounces at a grade of 1.4 g/t gold. Zappa’s Papa Grande and Mollopongo deposits are located only 1.5 km south-east of the main Gaby deposit.
EMC considers that there is excellent potential for expanding the present reserve base on the combined properties since none of the presently known gold deposits in the overall Gaby area have yet been fully delineated. Several additional exploration targets remain to be investigated, including the high grade Tama shear zone located 400 meters to the north-east of the main Gaby deposit.
Letter Agreement
The existing agreement dated March 30, 1995 between EMC and Zappa, whereby EMC could acquire a 51% interest only in the Guadalupe concession, will be replaced by a sale and purchase agreement for the combined Zappa Properties. The Properties are held 100% by Zappa, except for the Papa Grande concession which is held as to 50%, with Zappa as operator of a joint venture with the underlying Ecuadorian property holder. Zappa also have a first right of refusal to acquire the remaining 50% interest in the Papa Grande concession from the property holder, which right of first refusal will be transferred to EMC under the sale and purchase agreement.
Under the terms of the recently signed Letter Agreement, EMC will purchase 100% of Zappa’s interest in the Properties by issuing up to a total of 3.0 million common shares of EMC. 2.5 million shares will be issued initially, comprising 500,000 shares released upon closing the Agreement and 500,000 released every six months thereafter over a 2 year period. An additional 500,000 shares are to be held in reserve and will be issuable over a maximum 3 year period in two tranches of 250,000 each, subject to the 10 day average gold price being at least US$350 per ounce for the initial 250,000 shares and at least US$400 per ounce for the remaining shares. All of the shares, with the exception of an initial 250,000 shares delivered at closing, will be subject to a one year hold period. Zappa will also receive a Net Smelter Return ("NSR") royalty of up to 2% on commercial production from the Properties. This royalty will be reduced by the amount of any Ecuadorian government royalty (currently 3.0%) with a minimum of 1% NSR royalty on the Papa Grande and Mollopongo concessions together with the adjacent area of interest and a minimum 0.5% NSR royalty on the Guadalupe concession.
The Letter Agreement will be replaced by a definitive sale and purchase agreement following a 60 day due diligence period and remains subject to regulatory approval.
Stephen J. Kay, President and CEO
The Toronto Stock Exchange neither approves nor disapproves the information contained in this News Release.
For additional information, contact Linda North at Tel: (602) 483-9932 or Fax: (602) 483-9926.