Lion Selection Group Limited reported that its Pani Joint Venture has reached agreement with J Resources to combine the two Pani tenements into one ownership group. The combination of resources within the joint project has the potential to be a world class gold deposit. Drilling has commenced to test the area between resources, and there are numerous extension opportunities for consideration.

The agreement is subject to regulatory approvals and approval from J Resources' secured lenders. Until recently, both Merdeka /Lion and J Resources had intended to develop separate projects. Reserves for both projects would have been constrained by the need to maintain pit walls within the respective tenements.

By combining the projects into one project, the overall reserves are likely to be materially larger than the reserves would have been if the projects were developed separately. Merdeka /Lion and J Resources have concluded that there is a clear logic in combining the Pani IUP and the Pani CoW into one ownership group, in order to develop one, larger gold mine project in Gorontalo, Sulawesi. Combining both projects is expected to optimise the development of the combined resources.

One combined project will provide economies of scale with ore processed through one larger process facility. The combination of the Pani IUP and Pani CoW unlocks optimal development of the Pani deposit in a single, enlarged and streamlined operation, unrestricted by tenement boundaries, including: Favourable topography: low strip ratio, open pit operation amenable to bulk mining; Low processing costs anticipated, with grid power available; and Metallurgical work to date suggests high recoveries via heap leach or CIL. With key permits already being in place the parties will investigate the possibility for fast track development.

Subject to appropriate assessment, initial concepts envisage a 250Koz - 300Koz per annum operation. The resultant structure will see J Resources transfer its interests in PT Gorontalo Sejahtera Mining into the Pani Joint Venture in exchange for a 40% ownership interest in the combined entity. To the extent practicable, the combined entity will be funded from profits and third-party loan finance.

The combined entity will have its own dedicated management team comprising expatriate and local personnel, including employees seconded from Merdeka and/or J Resources. The transaction is anticipated to close in early 2020, subject to regulatory approvals and approval from J Resources' secured lenders. In the interim, the Pani Joint Venture has access to GSM data and staff, and will undertake integration of the two datasets and teams, including a full data review and gap analysis with a view to scoping out the next steps.

Drilling has commenced on the Pani IUP Once completed, the combination of the two tenements is anticipated to materially improve the valuation of Lion's investment in the Pani Joint Venture. Lion's accounting policy is to apply an arms-length transaction in determining the fair value of investments where one is available. The most recent relevant arms-length transaction valuation was in November 2018 when Merdeka acquired its project interest in the Pani Joint Venture.

This valuation needs to be reviewed in light of the J Resources transaction, increases in the long-term outlook for gold prices and other project milestones. Accordingly, Lion will update its carrying value for Pani as soon as the J Resources transaction completes for inclusion in its net tangible asset calculation. The Pani Joint Venture has commenced a 10,000 metre diamond drill program on the Pani IUP.