KWG completes Ring of Fire royalty purchase

KWG Resources Inc (2) (C:KWG)
Shares Issued 359,718,877
Last Close 7/21/2009 $0.03
Wednesday July 22 2009 - News Release

An anonymous director reports

KWG COMPLETES RING OF FIRE ROYALTY PURCHASE

KWG Resources Inc. has completed the purchase of a 1-per-cent net smelter royalty in the Black Thor, Black Label and Big Daddy chrome discoveries in the James Bay lowlands for $635,000 and a further $1-million payable within one year plus 15 million common shares and 15 million common share purchase warrants, each warrant entitling the holder to purchase a common share at a price of 10 cents for a period of five years. KWG's principal shareholder Cliffs Natural Resources (NYSE: CLF) supports the acquisition as it believes the deposits can be economically developed to supply both North American and some external markets. As 15 million KWG shares were issued to the vendor, Cliffs intends to subscribe for a further three million shares in order to maintain its equity interest.

The discovery of nickel in the MacFaulds Lake area in September, 2007, started KWG along a development path which KWG expects may now accelerate. Funds raised as a result of the new discovery enabled KWG and joint venturer Spider Resources, to complete the acquisition of a combined 50-per-cent interest in a nearby property optioned from Freewest Resources. A drilling program there was undertaken to follow up the joint venture's 2006 discovery of a high-grade chrome occurrence. This source of ferro-chrome for steel alloying is a principal ingredient in all grades of stainless steel, at a ratio of around 18 per cent or more.

Metallurgical testing of samples recovered from the discovery in early 2008 indicated that a uniquely large and high-grade deposit of ferro-chrome-yielding chromitite had been found, which might supply steelmaking markets in North America and beyond. Under the terms of the option agreement, KWG and Spider may earn a 60-per-cent interest in the property optioned from Freewest Resources by completing a feasibility study and thereafter, an additional 5 per cent by sourcing construction financing, for which KWG approached Cliffs Natural Resources.

Cliffs Natural Resources is an international mining and natural resources company. The company is the largest producer of iron ore pellets in North America, a major supplier of direct-shipping lump and fines iron ore out of Australia and a significant producer of metallurgical coal. For almost two centuries Cliffs has been the dominant mine operator and supplier of iron ore for integrated steel production in North America and continues to be the principal operator on the Minnesota and Michigan iron ranges, two of the hemisphere's chief sources of iron. As such, the company has built and operated railways, plants, terminals and loading facilities of all description.

Cliffs accepted KWG's invitation to become a principal investor in order to participate in its development initiatives. Cliffs sought and was given KWG board representation coincident with acquiring an equity interest of slightly less than 20 per cent, plus a continuing option to increase or maintain that interest through further investment.

KWG has now acquired half of the royalty underlying its property and the adjoining property of Freewest after an independent economic analysis based on conceptual planning and market forecasts undertaken by Cliffs. The royalty is expected to yield a substantial monthly cash flow to KWG if production ensues. The North American market alone might absorb ore production of up to 4,000 tons per day. That quantity of material will require construction of a railway to transport the partly treated ore to a ferro-chrome refinery ideally located near transportation to markets and to electricity supply for the electric-arc furnaces used in the process. KWG is examining a number of location alternatives as well as the available furnace technology options.

KWG has also had preliminary discussions with the Ontario Northland Railroad to examine collaboration in the construction and operation of the railway from the deposits to Nakina, where it can connect to existing rail lines. ChromeCana Inc. has been created as a wholly owned KWG subsidiary for the purpose of development of the mines and railway, and is undertaking pre-engineering assessment of a proposed right-of-way for the railway.

Initial indications continue to confirm the capital cost assumptions considered by Cliffs in its preliminary market sensitivity analyses, undertaken prior to the KWG investment. This analysis has been provided to the Toronto Stock Exchange for its review of KWG's application to graduate its share listing from the TSX Venture Exchange, on the basis of its interests in the deposits.

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