Magellan Minerals and Chapleau Resources have entered into a binding letter of intent (LOI) regarding their intention to merge to form a combined gold exploration and development company focused on the mineral potential of northern Brazil. Subject to the satisfaction of certain conditions, Magellan will acquire all of the issued and outstanding common shares of Chapleau through a plan of arrangement or other business combination. Under the terms of the LOI, Magellan has agreed to offer Chapleau shareholders 0.267 Magellan shares for each Chapleau common share. 

Highlights regarding the business combination are as follows:

• Chapleau’s key asset is the Coringa project, located 250 km south of Magellan’s Cuiú-Cuiú discovery in northern Brazil, and comprises a series of gold bearing veins which extend over a combined strike extent of 10 km. Drilling (8,785 m) to date along 2 km of these structures, has defined high-grade gold mineralisation over strike lengths up to 400 m with values up to 65.77 g/t Au over 3 m
• Coringa has excellent road access and is located 21 km from the local grid power. Chapleau is currently engaged in discussions with a number of parties regarding the completion of a compliant resource estimate for Coringa
• Magellan’s key asset is the Cuiú-Cuiú project where an extensive soil sampling program has identified five major gold-in soil anomalies. Drilling at the central anomaly returned values of up to 220 m at 2.02 g/t Au during 2008. Reconnaissance drilling at the nearby Pau de Merenda anomaly, 3 km to the northwest, returned values up to 47 m at 1.76 g/t Au, and limited drilling at the Jerimum Cima anomaly returned values up to 39 m at 5.13 g/t Au
• The business combination will result in an expanded land position of 840 km² in the Tapajos Gold Province of Brazil, a region which produced an estimated 30 Moz of gold between 1978 and 1995, largely from alluvial sources.

The President and CEO of the combined entity will be Alan Carter who recently guided Magellan to a successful IPO and raised C$11 million in the process. Dennis Moore of Magellan will be Vice President Exploration. Moore was responsible for the initial identification and later discovery of the Tocantinzinho gold deposit (2.1 Moz), currently the largest known gold deposit in the Tapajos region. Ian Gendall (currently President of Chapleau) will become Chief Operating Officer and is credited with the discovery of several new porphyry copper-gold deposits in southern Ecuador. Jim Stypula, currently Chapleau’s Chief Executive Officer will become Chairman of the new entity.

Commenting on the merger, Alan Carter, President and CEO of Magellan stated: “Magellan has actively been seeking to acquire gold assets in northern Brazil that have the potential to develop into significant deposits and mines. The attraction of Chapleau is the fact that it is close to completing a resource estimate, and the project has considerable upside potential.”

Ian Gendall, President of Chapleau said: “This business combination provides Chapleau shareholders ongoing exposure to the Coringa project and strengthens our pipeline of advanced gold projects in the Tapajos region. ”

The business combination is expected to close on or before 15 July 2009. The LOI includes a commitment by Chapleau not to solicit alternative transactions. If the business combination is completed, Magellan will have around 55.8 million common shares issued and outstanding, of which current Magellan shareholders will own around 55% and former Chapleau shareholders will own about 45%.

Pursuant to the terms of the LOI, Magellan has agreed to invest $500,000 as a private placement in Chapleau at a price of $0.15/unit. Each unit will be comprised of one common share of Chapleau and one warrant, with each warrant entitling Magellan to purchase one additional common share of Chapleau at $0.25 for a period of 18 months.