On 4 March 2010 Citigold announced it had signed a non binding memorandum of understanding with Henan Jinqu Gold Company Limited (Jinqu), China, to form a joint venture company to develop the City mines of Citigold’s Charters Towers gold project.

The funds raised from the SPP will be used towards expanding Citigold’s gold mining operations and working capital.

The terms of the SPP are the same as previously mailed to shareholders except that the closing date has been extended.

Applications continue to come in and therefore this offer extension will give shareholders time to participate and join shareholders who have already taken up the offer.

The directors of Citigold have indicated they have applied for their full entitlements as shareholders, respectively.

The high-grade deposit is Australia's richest major goldfield and contains a gold resource of 10 million ozs (23 Mt @ 14 g/t) with exceptional growth potential. Gold output targets growing to 300,000 ozs per year with gold production cash costs under A$350 per oz.

Under the terms of the MOU Jinqu may acquire up to a 50% interest in the joint venture company which will own granted mining leases with permits to mine and associated infrastructure, containing a gold Mineral Resource of 1.8 million ounces.

Henan Jinqu Gold Company Limited’s main business is the exploration, mining, processing and smeltering of gold. The company is also engaged in research, development, production and sales of synthetic diamonds. The company is a member of the Shanghai Gold Exchange.
 
The City mining area is where Citigold carried out the initial exploration in the 1990’s after acquiring the first part of the Charters Towers goldfield. Full control of the goldfield was obtained in 2004.

Citigold’s Gold Production Plan for the design and development work has been undertaken with the aim of producing 200,000 ounces per annum from the City mines. The City includes the major Sunburst, Brilliant and Day Dawn reefs to be developed together as one ‘super’ mine.

Citigold has internally budgeted that the development of the City operations should take 24 months and cost up to $70 million. The development of the City is to be separate from the 100% owned Warrior mine and the existing 340,000 tonne capacity gold processing plant.

The funds raised from this plan are to be used towards expanding Citigold’s gold mining operations at Charters Towers and working capital.

The recently released December Quarterly report and the announcement released on 10 February 2010 showed that gold production has grown to the highest level since operations commenced, with further growth planned.

This capital raising provides eligible shareholders with an opportunity to participate in the growth of the Company and enables shareholders to increase their ownership of current and future gold production.

This special offer can only be taken up by shareholders who were on the share register as at 7 pm on Wednesday 27 January 2010.

As outlined in the recent Quarterly Report, to take advantage of the strong gold prices and with Warrior on a growth path the Company considers it appropriate to commence planning to re-activate the Charters Towers “City” mining area.

During the afternoon trade, shares in the company increased 3.5% to 8.8c.

The development of the City “super mine” operations are expected to deliver commercial gold production as early as the end of 2012, with full production targeted for the following year.

The City mining area is already an established mine site. Citigold undertook the initial exploration and trial mining at the City mining area in the 1990’s after acquiring the first part of the Charters Towers goldfield.

Full control of the goldfield was obtained in 2004.

The City reefs contain 4.7 million ounces of the overall 10 million ounce resource (23 million tonnes at 14 grams per tonne gold)

Citigold’s Gold Production Plan for the design and development work has been undertaken with the aim of producing 200,000 ounces per annum from the City mines.

The City includes the major Sunburst, Brilliant and Day Dawn reefs.

The development of the City operations is expected to take 24 months before commercial gold production commences and an additional 12 months for full production to be achieved.

With the funding being provided via non-equity structured funding.

The reactivation of the City mines as a major project was triggered in part by approaches from Chinese and other interests wanting to establish a production presence in Australia.

Part of the planning will be to assess the best funding approach for this 200,000 ounce super mine.

Cash flow from the current gold mining operations remains strong. With gold production for the December quarter the highest since operations at Warrior commenced and production forecast to increase in 2010 it is important that the development of the City mining area does not distract from Warrior.

Citigold Corporation is a gold producer controlling Australia's richest major goldfield at Charters Towers in North Queensland. The high-grade deposit contains a gold resource of 10 million ozs (23 Mt @ 14 g/t) with exceptional growth potential. Gold output targets growing to 300,000 ozs per year with gold production cash costs under A$350 per oz.

This represented the highest quarterly and half yearly production.

“A new management team was in place at Charters Towers from October, with a clear objective to drive gold production growth,” Citigold said.

At 5,563 ounces, production was above the indicated production level in the December update and a 110% increase on the previous Quarter. With two strong quarters growth this is the best half year.

The Company amended its production estimate for the Quarter.  This resulted from a mining area producing a relatively small tonnage compared to the original predicated geological model.

A very high grade intersection had biased the ounces in a way that had not occurred before.

Citigold said subsequent development of the ore body along strike to the west of this area is producing new ounces that may eventually come close to the ‘lost’ ounces over the last Quarter.  The company aims to open up the reef so there can be ultiple stoping panels, helping to improve the reliability of production estimates.

Underground gold production at Charter Towers is still limited by the rate at which the high-grade areas can be defined for the mine plan.  This development scheduling is still behind but the rate is improving and management is focused on optimising the premining work so that development and gold output can progress faster.

A$103.5 million-capped Citgold, an ASX/S&P 300 Index constituent, added that its quarter and half-yearly production were company records, delivering an average ounce cost of A$481 at a sale price of A$1225.

“The profitability and efficiency of the operations has trended upward since commencement of production, with revenue rising to almost $7 million per quarter in December 2009, representing an increase of more than 800 per cent in three years.”

Average ore feed gold recovery was quoted at 98 per cent.

Citigold said the Warrior area within Charters Towers had an inferred resource of 4.4 million tonnes at 14 g/t, slated to deliver 1.9 million ounces.

Given the company’s Charters Towers success, Citigold added that it intends to reactivate the nearby City Central decline, with the City reef thought to contain some 4.7 million ounces.

“The area represents a large part of the overall gold deposit,” the company said.

Management highlighted that revenue was substantially up since 2007, with cash costs stable, albeit production missing target.

“Although production is lower than expected, gold production is continuing to trend up,” the company said.

“As gold production materially increases, Citigold expects economies of scale to lower costs further.

Citigold drilled 28 bore holes, covering 5600 metres in the December quarter.

The company also obtained a 300 sq km exploration permit adjacent to current operations.

“Citigold has extensive prospective exploration holdings at Charters Towers, outside the drilled 10 million ounce gold deposit,” the company said.

In October 2009, Citigold took a 46 per cent stake in Australia-based gold and base metals explorer Gateway Mining Ltd (ASX: GML) via the issue of 16.2 million shares.

To 31 December 2009, the company had quarterly outgoings of A$2.2 million, but issued securities to the value of A$4.2 million for a net cash position of A$951,000.

The Directors intend to personally take up their full 2010 Share Purchase Plan (SPP) entitlement.

Citigold said it currently carries no debt and is progressing towards a positive cash flow.

The number of shareholders in Citigold continued to grow throughout 2009, with the current number of shareholders exceeding 11,000.

The company acknowledged that 2009 was not a strong year for the CTO share price. "The management team will continue to work hard to advance the project and add value for shareholders and look forward to an improved 2010."

After careful consideration Citigold's board of directors has decided to withdraw its shares from the NASDAQ Dubai because of the low turnover on that exchange and the associated compliance costs of maintaining the listing.

Company Secretary Matthew Martin said the move was a further part of the performance focus of Citigold’s Board and management on areas that can produce benefits for its shareholders.

"In 2007 when the Company listed in Dubai there was an expectation of an expanding exchange that has not materialised now having less then 20 equity listings," Mr Martin said.

"This change will have no effect on Citigold’s primary listing on the Australian Securities Exchange, under the ASX code CTO or the quotation on the Frankfurt stock exchange in Germany. "

Citigold has provided notice that it will withdraw from the exchange within 60 calendar days after the date of the notice in accordance with the procedures of listing rule 40.3 of the NASDAQ Dubai Listing Rules.

The company’s quotation on the Frankfurt exchange does not incur any listing fees or regulatory compliance costs.

Citigold holds 100% of the bonanza grade Charters Towers goldfield in northern Australia where a Mineral Resource of 10,000,000 ounces of gold at an average grade of 14 g/t gold, to strict JORC reporting standards, has been defined and documented.

This gold deposit is currently the largest high grade gold resource in Australia.

Also outlined were the growth in shareholders to 11,200, the increase in net assets to $225 million, inclusion in the ASX Top 200 and an increase in institutional holders on the register.

The latter were also a factor in the volatility in the company's share price he said.

Despite a lower than expected gold production for the quarter, Towsey re-iterated the company's belief that Citigold could still achieve the targeted 25,000 ounces of gold production for calendar 2009 - "or near enough to it".

In fact, investors heard that the company was bullish that changes in mine site personnel, would see an improvement in production, hitting 85,000 ounces in 2010 and reach 160,000 ounces in 2011.

This would be achieved by bringing Sunburst into production.

Metallurgically, the ore at Charters Towers is very simple he said. 

The company required gold production of 25,000 ounces per annum to be profitable, given the $4-5 million of exploration expenditure.  If this was taken out of the equation, the mine was profitable at 20,000 ounces of gold production he said.

Cash costs were $400/oz with revenues of $1120-$1150 per ounce, providing a strong operating margin for the company. Investors learnt the low-cost nature of the mine, provided the company with potential to pay dividends.

Towsey indicated he expected conversion of 80% from resource to gold reserves.

80% of the five known major east-west structures at Charters Towers were not yet drilled, and therefore not included in the 10 million ounce defined resource.  The latter consists of 23 separate orebodies.

To achieve greater production, the company would excavate more tunnels to sustain a faster extraction of ore.  An increase in tonnage and grades would lead to an increase in ounces produced.  

Chris Towsey concluded, net asset backing was approximately 24 cents per share, and the current share price and valuation made no allowances for upside in production and asset value.

Average gold recovery for the quarter was at 97%, while the mill head grade was below average due to milling of low grade stockpiled material. Costs per ounce were slightly higher at A$542/oz, making for a surplus margin of A$607/oz.

The consolidated net assets increased to A$224 million, which Citigold said demonstrated the “strengthening feasibility” of its flagship Charters Towers project.

The Warrior mining area on the Reef structure 5, which is the first commercial production area of the overall Charters Towers 10Moz (million ounce) deposit, contains an inferred resource of 1.9 million tonnes at 14 g/t (grammes per tonne) of gold for a total 840,000 oz of gold. Assays from the face sampling in the W19 ore panel are showing average drive width grades along strike for the stope of 8.6 g/t with the highest spot grade exceeding 1,000 g/r gold.

Citigold plans to up its annual production level to 85,000 oz in the coming year and has further production targets of 100,000 and 300,000 oz per year.

Exploration has also progressed with a total 7,597 metres of core drilled and 41 holes completed, which was slightly below from the previous quarter due to the diverting of rigs to re-open and clean out previous holes to implement the down hole geophysics programme.

Besides the operational achievements, the company has also been able to close the Gateway takeover during the quarter, increasing its stake to 46% to become the dominant shareholder in the company, which will continue to operate as an independent ASX listed exploration business. However, Citigold reaffirmed its focus on developing the Charters Tower gold deposit, asserting the acquisition would “in no way detract it” from its flagship project.

In order to fund the development of Charters Towers and further grow gold production, the company raised A$5.872 million through a placement back in October.

The Brisbane-based gold producer and explorer, which has offered two Citigold shares for every five Gateway shares, informed the ASX it had picked up 1.87 million shares as part of the takeover bid.

Directors of Gateway have recommended that shareholders reject the offer, which unless extended closes in early October.

Citigold has issued capital of about 842 million shares and a current market capitalisation of $140 million and Gateway has 110 million shares on issue and a market capitalisation of about $8 million.

Befitting the burgeoning gold production from Charters Towers in 2009/10 and offer terms, over 2,300 Citigold shareholders invested A$9.5 million in the SPP, which was 180% of the company's internal budget. The SPP is the Company’s most successful Plan to date.

In addition, the Company also accepted a small private placement of A$1,850,000 on the same terms as the Plan for a total of 12,140,625 shares. Therefore, total capital raised by Citigold was A$11.4 million.

Mark Lynch, Citigold Managing Director said the Company was extremely pleased with the interest shown by shareholders in the share Plan. It also reflected favourably on a broad confidence in Citigold’s management and its strategy for growing the 100% owned Charters Towers gold operations into a significant independent gold producer.