The Board of Colonial Resources Limited (ASX: CLN) ("Colonial" or "the Company") is pleased to announce it has entered into a Sale of Shares Agreement ("Agreement") with Central African Gold plc ("CAG") to acquire 80% equity interests in each of Mali Goldfields SARL ("Mali Goldfields") and Songhoï Resources SARL ("Songhoi Resources") (collectively referred to as "Malian Assets") for a total cash consideration of up to US$5 million.  

Highlights

1. Colonial to acquire 80% interest in 18 prospective permits spanning circa 1,883km².

2. 653,000 ounce gold resource base of indicated and inferred resources grading 3.17g/t Au (JORC Code and SAMREC compliant), with 522,000 oz attributable to CAG.

3. Substantial exploration upside.

4. Colonial to undertake an Entitlements Offer (subject to Australian Securities Exchange approval) to raise approximately A$7.84 million (before costs).

5. Subject to CAG and Colonial shareholder approval and a successful capital raising by Colonial to fund the purchase consideration.

6. Alan Campbell appointed Managing Director.

The acquisition of the Malian Assets represents an opportunity to secure a significant portfolio of tenements in a world class gold region that will add significant growth potential for Colonial, as well as increasing the diversity of its project portfolio.

Acquisition

Under the terms of the Agreement the consideration will comprise an initial payment of US$600,000, a further payment of US$3.4 million on completion of the transaction and a final payment of $US1.0 million payable on achievement of a JORC compliant Indicated and Measured Resource of not less than 500,000 ounces of gold. The acquisition of the Malian Assets is conditional on, inter alia, CAG shareholder approval, Colonial shareholder approval, and completion of a capital raising by Colonial within 75 days of signature of the Agreement.

Mali Goldfields and Songhoi Resources are the beneficial owners of early stage gold exploration assets, consisting of 18 prospecting authorizations and research permits spanning circa 1883km². The assets are located within the Kedougou-Kenieba window, a major Lower Proterozoic Birimian outlier on the NE margin of the West African Shield (see Figure 1).

Figure 1: Location of Malian Assets

Appointment of Managing Director

Following the acquisition of the Malian Assets, the Company is pleased to announce that Mr. Alan Campbell, will be invited to join the board of Colonial as Managing Director. Mr. Campbell is a qualified geologist with a post graduate degree in business administration and a wealth of experience in the mining industry. Mr. Campbell has held various leadership positions over a twenty year career with De Beers, one of the largest privately owned mining companies in the world. Initially working for De Beers Australia Exploration Limited Mr. Campbell was transferred to De Beers Corporate Head Office in Johannesburg and was appointed Exploration Manager of De Beers India where he led teams that successfully discovered numerous kimberlites in highly prospective areas of India. He has previously held the position of Managing Director at Southstar Diamonds Limited and North Australian Diamonds Limited and is currently a director of unlisted company Kinloch Resources Pty Ltd.

 

The Projects

Songhoi Resources

Songhoï Resources represents the joint venture vehicle between CAG (80% equity interest) and Mani SARL (20% equity interest) established in August 2006 for the exploration and development of four exploration permits covering circa 350km2 (see Table 1 and Figure 2) in the prospective Kéniéba and Kayes districts in West Mali.

Table 1: Tenement Schedule Songhoi Resources and Mali Goldfields

Tenement Held by Mali Goldfields and Songhoi Resources
Location	District	Project Name	Holding Company	Licence Type	Area (km2)
	Kenieba	Babara	Mali Goldfields	PDR Appln	15
	Kenieba	Mankouke Wést	Mali Goldfields	PDR Appln	50
	Kayes	Sérinati	Mali Goldfields	PDR Appln	138.6
Mali West	Kenieba	Bantako	Songhoi Resources	PDR Appln	57
	Kenieba	Bakolobi	Songhoi Resources	PDR Appln	75
	Kayes	Diangounté	Songhoi Resources	PDR	143
	Kenieba	Médinandi	Songhoi Resources	PDR	75
					553.6
Location	District	Project Name	Holding Company	Licence Type	Area (km2)
	Bagoe	Djinétoumanina	Mali Goldfields	PDF	125
	Bagoe	Makola 01	Mali Goldfields	PDR	125
	Bougouni	M'Tébougou	Mali Goldfields	PDR	80
	Kangaba	Hérémakono	Mali Goldfields	PDR Renew Appln	18.5
	Yanfolila	Diossyan	Mali Goldfields	PDR Appln	250
Mali South	Yanfolila	Gouenso	Mali Goldfields	PDR Renew Appln	95
	Yanfolila	Mandiela	Mali Goldfields	PDR	100
	Yanfolila	Nounfara	Mali Goldfields	PDR Appln	44
	Yanfolila	Ourou-Ourou	Mali Goldfields	PDR	12.5
	Yanfolila	Sankama	Mali Goldfields	PDR Renew Appln	125
	Yanfolila	Yanfolila	Mali Goldfields	PDR Appln	355
					1330.0
Total					1883.6

PDR = "Permis de Recherche" or research permit - valid for 3 years, renewable twice, each time for a further 3 years but for 50% of the surface area on each renewal.

CAG has completed an extensive exploration programme that includes airborne magnetic, RC
drilling and soil geochemical surveys. In July 2008, CAG completed an internal resource estimate based on the results of historic exploration conducted by Randgold Resources Limited (29 boreholes) and current exploration conducted by Songhoï Resources (130 boreholes), and reported a JORC Code compliant Mineral Resource for the Fadougou-Main Zone prospect in the Medinandi project area, in accordance with the JORC guidelines. The borehole intercepts were generally 80 metres apart and geological continuity was established over 3 500 metres of strike to a depth of 120 metres.

In May 2009 a JORC, Canadian National Instrument and SAMREC Code compliant Mineral Resource estimate was completed in the area covered by the Medinandi PDR centred on the Fadougou Main-Zone mineralised geological structure.

Figure 2: Location of permits in west Mali held by Songhoi Resources and Mali Goldfields

As set out in Table 2, the indicated Mineral Resource estimate totals 2.77 million tonnes at an average grade of 3.14g/t Au for 280 776 oz at a cut-off grade of 1.0g/t Au. The Inferred Mineral Resource totals 3.63 million tonnes at an average grade of 3.19g/t Au for 372 207 oz. The Mineral Resource statement has been independently reviewed by Venmyn Rand (Pty) Ltd.

Table 2: Songhoi Resources' Mineral Resource statement for Fadougou Main-Zone

May 2006	Tonnes	g/t Au	Grams	Total oz Au	CAG's attributable oz Au (80%)
Measured	-	-	-	-	-
Indicated	2,772,097	3.14	8,733,084	280,776	224,621
Total Indicated	2,772,097	3.14	8,733,084	280,776	224,621
Inferred1	3,626,456	3.19	11,576,944	372,207	297,766
Total	6,398,553	3.17	20,310,028	652,983	522,386

SAMREC and ROC Code Compliant mineral resource statement - calculated at a cut-off grade of 1.0g/t.
Note: ¹ extrapolated oz removed as they are not considered SAMREC Code compliant

In addition to these mineral resources, exploration targets totaling 4.5 million tonnes at an average grade of 3.6g/t Au for 520,000 oz have been identified and independently reviewed by Venmyn Rand (Pty) Ltd. Please note with regard to exploration targets, the potential quantity and grade is conceptual in nature, that there has been insufficient exploration to define a Mineral Resource and that it is uncertain if further exploration will result in the determination of a Mineral Resource.

Mali Goldfields

Mali Goldfields represents the joint venture vehicle between CAG (80% equity interest) and Mali Mining House SA (20% equity interest) established in February 2006 for the exploration and development of fourteen exploration permits covering circa 1,533km2 of the prospective Birimian Gold Belt in South and West Mali (see Table 1 and Figure 3).

Exploration by Mali Goldfields is at an early stage and mineral resources have yet to be delineated on the properties. Technical appraisals have been completed over a number of exploration permits. Fundamental geology, soil geochemistry and airborne geophysical data, augmented by enhanced satellite imagery, were collated for each property. Soil geochemistry surveys, including termite mound sampling when appropriate, have been carried out. Follow-up ground exploration programmes were carried out on a number of the priority targets for 5 of the 14 properties. These programmes consisted of regional and detailed follow-up soil geochemical surveys and geological
mapping to test subsurface continuity of gold-in-soil anomalies. Due to the vendors limited exploration funds, approximately 10,000 samples are waiting to be analysed from the five properties that were soil sampled in 2008.  

Figure 3: Location of exploration permits in south Mali held by Mali Goldfields

Introduction to Mali

While Mali is Africa's third largest gold-producer, boasting some of the lowest-cost gold mines in the world, it remains one of the most underexplored gold terrains on the continent. Exploration focus in Mali is currently centred on two main greenstone belt areas in western and southern Mali namely, the Kayes and Kéniéba Inliers in the west (on the Mauritania and Senegal borders) and
the Bougouni-Sikasso area to the south and southeast of the capital city Bamako (along the borders with Guinea Conakry and the Ivory Coast). The location of these exploration focus areas is detailed in Figure 1.

The Kéniéba Valley in western Mali is host to AngloGold Ashanti Limited / IAMGOLD Corporation's Sadiola and Yatela Mines, Randgold Resources Limited's recently commissioned Loulo-Yalea operation and Avion Resources' recently re-opened Tabakoto-Segala mines.

The Bougouni-Sikasso region of southern Mali is host to the Morila gold mine (owned via a joint venture between AngloGold Ashanti and Randgold) and the Syama Mine which is being recommissioned by Resolute Mining Limited to exploit newly defined satellite open-pittable resources.

In addition to these mining operations, numerous exploration initiatives are currently in progress with gold projects being investigated by Gold Fields Limited in a joint venture with Glencar Mining plc, IAMGOLD Corporation in a joint venture with Merrex Gold Inc., North Atlantic Resources Limited, Resolute Mining Limited, Etruscan Resources Inc., Axmin Inc., Robex Resources Inc and Avnel Gold Mining Limited.

Capital Raising

In conjunction with the acquisition of the Malian Assets, Colonial will undertake a pro rata non-renounceable rights issue ("Entitlements Offer") (subject to Australian Securities Exchange approval), of up to 112,000,014 shares on the basis of 7 New Shares for every Ordinary Share held by Colonial shareholders at an issue price of seven cents (A$0.07) per New Share with a one for two free option, exercisable at $0.20 on or before 31 December 2012 ("Option") to raise up to A$7,840,000. Argonaut Capital Limited has conditionally agreed to underwrite the Entitlements Offer.

An indicative timetable set out below outlines the key milestones for the Entitlements Offer. Note the timetable is indicative and subject to change.

Notice of meeting sent to Shareholders	23 December 2009
General meeting of Shareholders	22 January 2010
Lodgement of Prospectus with the ASIC	22 January 2010
Notice sent to Shareholders	25 January 2010
Ex Date	26 January 2010
Record Date for determining Shareholder entitlements	1 February 2010
Prospectus despatched to Shareholders	5 February 2010
Entitlement Issue Closing Date	19 February 2010
Securities quoted on a deferred settlement basis	22 February 2010
Notify ASX of under-subscriptions	23 February 2010
Despatch date/securities entered into Shareholders' security holdings	26 February 2010

Resulting Capital Structure

Prairie Downs Metals Limited ("Prairie") originally negotiated the acquisition of the Malian Assets. For its own internal reasons, Prairie chose not to proceed and agreed to nominate Colonial as the purchaser in its stead. As part of an agreement with Colonial, Prairie has negotiated the issue of 5 million ordinary shares in Colonial and 5 million options with an exercise price of 15 cents and expiring on 31 December 2011.

Under the terms of the mandate to act as underwriter, Colonial will grant to Argonaut (or Argonaut's nominee) the right, but not the obligation, to subscribe for 1.5 million options in Colonial exercisable at $0.20 expiring on 1 December 2012, at an issue price of $0.01 per option.

Under the terms of Mr. Campbell's employment agreement he will, subject to the necessary shareholder approvals, be entitled to receive 4 million options with an exercise price of A$0.15 and 3 year expiry date with the options vesting in 4 tranches exercisable at any time the VWAP over the preceding 10 trading days has been above A$0.25.

Outlined in the table below is the capital structure that will exist after completion of the Entitlements Offer, issue of securities to Prairie, issue of options to the Underwriter, and issue of options to Mr. Campbell.

	Fully Paid Shares	Listed Options	Unlisted Options	Option Terms
Issued & quoted	16,000,002	13,000,000		31/12/10 @ $0.20
Unquoted			200,000	01/12/11 @ $0.45
Entitlements Offer	112,000,014	56,000,007		31/12/12 @ $0.20
Prairie securities issue	5,000,000		5,000,000	31/12/11 @ $0.15
Underwriter option issue			1,500,000	01/12/12 @ $0.20
Managing Director Options			4,000,000	31/12/12 @ $0.15
Total	133,000,016	69,000,007	10,700,000

Use of Funds

Colonial's indicative use of funds is set out below:

Use of Funds	A$
Cash at Bank	800,000
Funds raised under the Entitlements Offer	7,840,000
Total Funds Available	8,640,000
Initial instalment of the cash consideration	(666,667)
Second  instalment of the cash consideration	(3,777,778)
Costs of Entitlement Offer	(507,000)
Working capital and funds available for further exploration of the existing project	(3,688,555)
Total Funds Applied	8,640,000

Note: Assumes US$1.00 = A$0.90

Shareholders Meeting

Following the release of this announcement, Colonial will call an extraordinary meeting of shareholders to approve:

1. the acquisition of Malian Assets;

2. the Entitlements Offer;

3. a change of name; and

4. the issue of securities to Prairie.

Colonial expects to despatch notice of meeting materials to shareholders shortly.

Existing Project

Potential joint venture arrangements for the Company's existing Eldorado Gold Project were ceased during the September 2009 quarter. The Company has been focused on potential acquisitions of which the Malian Assets have proven to be the most promising.

For further information contact:

Alec Pismiris
Director/Company Secretary
Colonial Resources Limited
Tel: (+6 18) 9481 8760
Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it