Chalice Gold Mines Limited (ASX:CHN)(TSX:CXN) announces that it has entered into a conditional shortform agreement (the “Agreement”) to sell its remaining 60 per cent stake in the Zara Project in
Eritrea to China SFECO Group (SFECO), a subsidiary of Shanghai Construction Group Co. Ltd (www.scg.com.cn )(the “Transaction”). This follows the agreement in July 2011 pursuant to which Chalice agreed to sell a 30% interest in the Zara Project to the Eritrean National Mining Corporation (“ENAMCO”) (see ASX announcement 29 July 2011), which is in addition to the 10% carried interest in the project already held by ENAMCO.

Under the Agreement, SFECO will pay Chalice US$80 million in cash for Chalice’s share of the mineral resource at the Koka gold deposit. In addition, SFECO will pay Chalice a further sum, not to exceed US$20 million for the balance of the area falling within the Zara Project (including Zara North, South and Central). This figure is to be agreed between the parties and, failing agreement, will be determined by binding independent arbitration to a cap of US$20 million.

The Agreement with SFECO is subject to SFECO being satisfied with its due diligence which must be completed by 12 March 2012; however, SFECO has undertaken to expedite this. The Agreement is also subject to:

the approval of Chalice shareholders and SFECO obtaining certain regulatory approvals within China including the National Development and Reform Commission, the Ministry of Commerce, the State Asset Supervision and Administration Commission and the State Administration of Foreign Exchange; there being no material adverse change or event of force majeure effecting the Zara Project;

SFECO procuring a letter indicating suitable financing by completion of due diligence; and completion of the sale of the 30 per cent interest by Chalice to ENAMCO for US$32 million plus approximately US$2 million for the reimbursement of certain costs. This condition is for the benefit of Chalice which can waive the same.

Chalice has also agreed that it shall not solicit or be involved in discussions or negotiations concerning the sale of its shares in ZMSC until completion of SFECO’s due diligence or, until completion if the SFECO confirms it is satisfied with its due diligence, but subject to a carve out allowing the Chalice directors to discharge their fiduciary and statutory duties where there is a superior proposal.

About Chalice

Chalice Gold Mines Limited is an exploration and development company which owns a 60% beneficial interest in the high grade, open-pittable Koka Gold Deposit and a substantial, largely unexplored, land package in Eritrea. The Koka Gold Deposit consists of an “in-pit” JORC and NI 43-101 compliant Indicated Mineral Resource of 5.0 million tonnes grading 5.3 grams of gold per tonne, containing 840,000 ounces of gold. This Mineral Resource includes a Probable Mineral Reserve of 4.6 million tonnes grading 5.1 grams of gold per tonne, containing 760,000 ounces of gold. The Company is focused on developing the Koka Gold Deposit into a low cost gold mine, which is expected to produce 104,000 ounces of gold per year over a 7 year mine life at an average cash cost of US$338/oz
gold (refer to the 43-101 Technical Report on the Koka Gold Deposit, Eritrea dated 27 July 2010). As announced today, Chalice has entered into a conditional shortform agreement with a third party in respect of the Zara Gold Project, including the Koka Gold Deposit and Koka South which could result in a third party acquiring Chalice’s interest in these assets. Chalice also holds a substantial strategic ground position of 1,372 km2 consisting of licenses along strike of the Koka Gold Deposit, and proximal to Nevsun’s Bisha Mine. These exploration concessions host numerous, high potential, early and advanced stage gold and base metal exploration targets. Chalice is undertaking a systematic exploration effort on these exploration concessions with the aim of discovering significant new deposits.

For further information, please contact:

Tim Goyder, Executive Chairman
Dr Doug Jones, Managing Director

Chalice Gold Mines Limited
Telephone +61 9322 3960

For media inquiries, please contact:

Nicholas Read

Read Corporate
Telephone: +618 9388 1474

For North American Investors, please contact:

Joanne Jobin
North American Investor Relations Manager
jjobin@chalicegold.com
Telephone: +1 647 964 0292