CLAIM POST RESOURCES INC. ENTERS INTO AN AGREEMENT TO PURCHASE MANIGOTAGAN FRAC SAND PROJECT

Jun 26, 2013

Claim Post Resources Inc. has entered an agreement to purchase the Manigotagan frac sand project from Gossan Resources Ltd. The property encompasses nine quarry leases (306 hectares) and is contiguous to Claim Post’s wholly owned Seymourville property (428 hectares). The properties are located three kilometres from a paved highway 200 kilometres northeast of Winnipeg, Man.

The total payable to Gossan for the purchase of the Manigotagan property subject to regulatory approval will be as follows:

One million common shares of Claim Post or $50,000, at Claim Post’s sole discretion, on signing the agreement;
Two million common shares of Claim Post or $200,000, at Claim Post’s sole discretion, on or before the day which is six months after the signing of the agreement;
$350,000 payable 12 months after the signing of the agreement;
$350,000 payable 18 months after the signing of the agreement;
$430,000 payable 24 months after the signing of the agreement.

By purchasing the Manigotagan property, Claim Post is obligated to pay a royalty interest to Gossan in the amount of $1 per tonne of frac sand plus 50 cents per tonne for other silica sand or clay products sold from the Manigotagan property. Claim Post can acquire 50 per cent of the royalty for $1.5-million any time after the company completes the property payments.

Gossan has previously drilled a 500-metre-by-1,500-metre area and recovered silica sand from 41 holes. Sand intersections ranged from six metres to 18 metres thick with an average thickness of 10.1 metres. Gossan also completed ISO test work at Prop Tester in Cypress, Tex., confirming that the sand meets the American Petroleum Institute (API) specifications for frac sand.

The four government drill holes located on the adjacent 100-per-cent-Claim-Post-owned Seymourville Char Crete property averaged 16.9 metres thick (see Claim Post’s press release dated Aug. 27, 2012). The Manigotagan property and Seymourville Char Crete property will be merged into a single project called the Seymourville frac sand project.

Frac sand fundamentals

The main driver for the very rapid, steadily increasing demand of frac sand is the United States’ focus on becoming self-sufficient in energy by the year 2020 or sooner. The demand has been generated by the technology breakthrough of horizontal drilling combined with multiple fracing. Natural sand is the least expensive proppant used in fracing, thus the demand for frac sand continues to grow and is now 90 per cent of the market; expensive ceramic proppants are now less than 10 per cent.

Total U.S. frac sand production in 2012 was 31 million tonnes, of which about three million tonnes were exported mainly to Canada. Most (75 per cent) of the U.S. frac sand is currently produced in Wisconsin and neighbouring states. Just in the state of Wisconsin alone; in the past five years, a total of 105 frac sand mines feeding 65 processing plants have been put into production. In comparison, Canada only has four frac sand mines in production producing about two million tonnes of sand per day.

According to Hart Energy, a major U.S. consulting firm that focuses on the shale oil and gas industry, in 2012, the United States produced about two million of barrels of shale oil per day, mainly from the Bakken and Eagle Ford basins in Texas. The U.S. Geological Survey’s statistics show that 28 million tonnes of frac sand was used in 2012; thus, on average, a million barrels of new oil requires about 14 million tonnes of frac sand. It is estimated that to increase the U.S. oil production to six million barrels of shale oil per day would require 80 million to 100 million tonnes of frac sand by 2020.

In 2012, the United States added one million barrels of new shale oil per day, whereas Canada added 200,000 barrels of new oil per day, mainly in Saskatchewan and Alberta. Provincial 2012 production of light and medium crude in Manitoba, Saskatchewan and Alberta were 50,000 barrels per year, 462,000 barrels per year and 560,000 barrels per year, respectively, totalling 1.17 million barrels of oil per day. As all the Western Canadian oil fields get redrilled and fraced, Canadian demand will increase. For example the 200,000-barrel-per-day increase in 2012 would have required about 2.8 million tonnes of frac sand.

The other main driver of the growth of the Canadian frac sand market will for drilling natural gas to feed the large liquefied natural gas (LNG) plants planned in British Columbia. Compared with sand imported from Wisconsin, Claim Post’s Seymourville frac sand project is approximately 1,000 kilometres closer to the entire Western Canadian market for both oil and natural gas. As such, the company would benefit from a substantial freight advantage.

Charles Gryba, chief executive officer of Claim Post Resources, stated: “With this Gossan transaction, we will have 100-per-cent ownership of the combined Seymourville sand leases totalling 730 hectares or 2.5 square miles. We are now evaluating the most cost-effective way to complete an initial National Instrument 43-101 report and a scoping study. We will start test marketing frac sand in parallel as drilling and ISO test work is confirmed. Finally, we are pleased to have commenced our negotiations with the first nations, a process required to advance any mining project in Canada today.”

The Seymourville silica sand deposit was discovered in 1977 and was drilled by Manitoba government geologists in 1981 and again in 1989. The results indicated an estimated resource of 45 million tonnes of high-silica sand (Manitoba open file report OF 96-4). The deposit is hosted within a 25-metre-high hill composed mainly of the Lake Winnipeg formation, which is the onshore extension of the historical Black Island silica deposits that were mined from 1928 to 2004. The 99-per-cent-pure silica sand was evaluated to feasibility in the 1980s to make 500 tonnes per day of plate glass, including glass melt tests (the same geological formation as Black Island that hosts the 600,000-tonne-per-year Winn Bay frac sand operation located about 30 kilometres west of Flin Flon near Hanson Lake in Saskatchewan). The historical estimates are not current and do not meet the standards prescribed by NI 43-101. The company has not completed the work necessary to have the historical estimate verified by a qualified person. The company is not treating the estimate as a current NI 43-101 defined resource, and the historical estimate should not be relied upon.

Charles Gryba, PEng, acted as the qualified person for this press release.