* China's Northwest to buy debt, majority stake
* Shares up 9.1 pct (In U.S. dollars unless noted)
TORONTO, July 20 (Reuters) - Shares of Firstgold Corp FGOC.PK FGO.TO jumped as much as 18 percent on Monday after it said a Chinese investor agreed to buy its secured debt from two main creditors, who dropped their ongoing legal actions against the company as part of the deal.
Northwest Non-Ferrous International Investment Co Ltd agreed to acquire the senior secured promissory notes currently held by Platinum Long Term Growth LLC and Lakewood Group LLC, which had alleged Firstgold had defrauded them.
Firstgold said, Xi'an, China-based Northwest also agreed to subscribe to 51 percent of its outstanding common shares for $9.5 million in order to become the majority shareholder. It added that Northwest would provide a $5.5 million loan facility to fund its working capital.
The California-based exploration company shares were up 9.1 percent at 6 Canadian cents on the Toronto Stock Exchange at midday Monday.
The deal, which still needs government, regulatory and shareholder approvals, is expected to be completed on or about Aug. 31.
Firstgold also said director Terry Lynch will replace Steve Akerfeldt as chief executive.
"Prior to completing the Northwest transaction, Firstgold will be negotiating the elimination of certain unsecured debt and outstanding warrants by issuing common shares to the holders thereof," said Lynch.
The company said these negotiated settlements along with the proposed issuance of stock to Northwest, will result in significant shareholder dilution, but would ensure that the company remains solvent.
All of Firstgold's gold-bearing properties are in the United States.
$1=$1.11 Canadian Reporting by Nina Lex; editing by Rob Wilson