December 22, 2011 / 11:08 PM / in 6 years

Chieftain Metals signs purchase agreement with Royal Gold

(Reuters) - Canadian junior miner Chieftain Metals Inc CFB.TO said U.S. mining royalty company Royal Gold Inc (RGLD.O) RGL.TO will pay it up to $60 million for rights to buy a portion of gold and silver to be produced from its mine in British Columbia.

Chieftain said it will receive an advance payment from Royal Gold for $10 million upon closing of the deal and an additional $50 million for building the Tulsequah Chief Polymetallic project in north-western British Columbia.

The agreement will allow Royal Gold to buy, upon production at the Tulsequah Chief mine, about 12.5 percent of payable gold at $450 per ounce for the first 48,000 ounces delivered.

Thereafter, it could buy 7.5 percent of payable gold at $500 per ounce.

Royal Gold will also buy 22.5 percent of payable silver at $5 per ounce for up to 2.8 million ounces, lowering it to 9.75 percent thereafter at $7.5 per ounce.

The Tulsequah Project consists of 38 mineral claims and covers about 14,220 hectares of land.

In June, Chieftain had completed a preliminary economic assessment for the project and found that the project can produce about 6.28 million tonnes of mineable resource with an average of 45,000 ounces of payable gold and 1.4 million ounces of payable silver per annum.

Shares of Chieftain closed at C$3.90 on the Toronto Stock Exchange on Monday.

Reporting by Arnav Das Sharma in Bangalore; Editing by Don Sebastian

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