Independent Technical Report Site 10 Chifeng Chaihulanzi Mine Inner Mongolia, China
APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 10
INDEPENDENT TECHNICAL REPORT SITE 10 CHIFENG CHAIHULANZI MINE INNER MONGOLIA, CHINA
Timothy A. Ross, P.E., RM-SME and Dr. Douglas F. Hambley, P.E., P.Eng., P.G., RM-SME Agapito Associates, Inc. Grand Junction and Lakewood, Colorado, USA
Leonard J. Karr, CPG, AIPG Golden, Colorado, USA
Qinghua “Jason” Jin, P.E., RM-SME SGS North America, Inc. Tucson, Arizona, USA
Carl E. Brechtel, P.E., RM-SME Carl Brechtel Consulting LLC Arvada, Colorado, USA
Report Date:
14 September 2018
Effective Date:
31 March 2018
Prepared for:
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INDEPENDENT TECHNICAL REPORT SITE 10 CHIFENG CHAIHULANZI MINE INNER MONGOLIA, CHINA
TABLE OF CONTENTS
Page 1 Summary ...... III10-14 1.1 Introduction ...... III10-14 1.2 Property Description and Ownership ...... III10-15 1.3 Geology and Mineralization ...... III10-15 1.4 Development and Operations ...... III10-16 1.5 Metallurgical Testwork ...... III10-16 1.6 Processing Plant ...... III10-16 1.7 Mineral Resource Estimate ...... III10-16 1.8 Mineral Reserve Estimate ...... III10-19 1.9 Economics ...... III10-20 1.10 Environmental and Permitting ...... III10-22 1.11 Risk Assessment ...... III10-22 1.12 Conclusions and Recommendations ...... III10-22 2 Introduction ...... III10-23 2.1 Information Sources ...... III10-23 2.2 Qualified Persons ...... III10-24 3 Reliance on Other Experts ...... III10-25 4 Property Description and Location ...... III10-26 4.1 Location ...... III10-26 4.2 Mineral Rights ...... III10-26 4.3 Environmental Liabilities, Permits, and Risks for the Property ...... III10-29 5 Accessibility, Climate, Local Resources, Infrastructure and Physiography ...... III10-29 5.1 Topography, Elevation, and Vegetation ...... III10-29 5.2 Accessibility ...... III10-29 5.3 Local Resources and Infrastructure ...... III10-30 5.4 Climate ...... III10-30 6 History ...... III10-30 6.1 Ownership ...... III10-30 6.2 Exploration and Development Work ...... III10-30 6.2.1 Chaihulanzi Mine Development ...... III10-30 6.2.2 Wenjiadixi Exploration Area Exploration ...... III10-31
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6.2.3 Chaihulanzi Mine Deep Prospecting Area Exploration ...... III10-31 6.2.4 Hadagou Mine Exploration ...... III10-31 6.3 Historical Mineral Resource and Mineral Reserve Estimates ...... III10-31 6.4 Production ...... III10-31 7 Geological Setting and Mineralization ...... III10-32 7.1 Regional Geologic Setting ...... III10-32 7.1.1 Chifeng Chaihulanzi Mine Geology ...... III10-33 8 Deposit Types ...... III10-35 8.1 Chaihulanzi Mine Geology ...... III10-35 8.2 Wenjiadixi Exploration Area Geology ...... III10-39 8.3 Chaihulanzi Mine Deep Prospecting Area Geology ...... III10-41 8.4 Hadagou Mine Exploration Geology ...... III10-41 9 Exploration ...... III10-42 9.1 Chaihulanzi Mine License and Deep Exploration License ...... III10-42 9.2 Wenjiadixi Exploration Area License ...... III10-43 10 Drilling ...... III10-43 10.1 Chaihulanzi Mine License and Deep Exploration License ...... III10-43 10.2 Wenjiadixi Exploration Area License ...... III10-43 10.3 Core Drilling Procedures ...... III10-43 10.4 Comments on Section 10 ...... III10-44 11 Sample Preparation, Analyses, and Security ...... III10-44 11.1 Exploration Samples ...... III10-44 11.2 Mine Samples ...... III10-44 11.3 Sample Preparation ...... III10-44 11.4 Assay Procedures ...... III10-45 11.5 Sample Security ...... III10-46 11.6 Comments on Section 11 ...... III10-46 12 Data Verification ...... III10-46 12.1 Database ...... III10-46 12.2 General Procedure ...... III10-47 12.2.1 Mine Samples ...... III10-48 12.2.2 Mill Samples ...... III10-52 12.3 Results of Witness Samples ...... III10-52 12.3.1 Interpretation of Witness Sample Results ...... III10-53 12.4 Comments on Section 12 ...... III10-53 13 Mineral Processing and Metallurgical Testing ...... III10-54 13.1 Sample Selection ...... III10-54 13.2 Mineralogical Analysis ...... III10-55
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13.3 Physical Testwork ...... III10-55 13.4 Grinding Fineness Test ...... III10-55 13.5 Flotation Testwork ...... III10-55 13.6 Whole Ore Cyanidation Leach/RIP Testwork ...... III10-56 13.6.1 Whole Ore Cyanidation Leach Test ...... III10-56 13.6.2 Adsorption Test ...... III10-56 13.7 Ancillary Testwork ...... III10-58 14 Mineral Resource Estimates ...... III10-58 14.1 Mineral Resource Classification System ...... III10-58 14.2 Conceptual Mining Scenario ...... III10-59 14.3 Mineral Resource Estimation Methodology under PRC MLR ...... III10-59 14.3.1 Economic Parameters ...... III10-60 14.3.2 Grade Capping ...... III10-61 14.3.3 Polygonal Method ...... III10-61 14.3.4 Tonnage Factor ...... III10-63 14.4 Reconciliation to 2014 CIM Definition Standards by AAI ...... III10-63 14.4.1 Resource Classification ...... III10-64 14.4.2 Geostatistical Mineral Zone Analysis and Variography ...... III10-66 14.4.3 Discussion ...... III10-74 14.5 Mineral Resource Statement ...... III10-74 15 Mineral Reserve Estimates ...... III10-78 15.1 Estimation Parameters and Modifying Factors ...... III10-78 15.1.1 Dilution, Extraction Ratio, and Mill Recovery ...... III10-79 15.1.2 Reconciliation of Mineral Reserves to Production ...... III10-79 15.1.3 Breakeven Cut-off Grade ...... III10-80 15.2 Reserve Classification ...... III10-81 15.3 Mineral Reserves ...... III10-82 15.4 Factors That May Affect the Mineral Reserve Estimate ...... III10-82 16 Mining Methods ...... III10-84 16.1 Geotechnical and Hydrogeological Considerations ...... III10-84 16.2 Description of Stoping Methods ...... III10-86 16.2.1 Shrinkage with Delayed Filling ...... III10-86 16.2.2 Sublevel Longhole Stoping with Delayed Filling ...... III10-86 16.2.3 Room-and-Pillar Mining ...... III10-86 16.3 Production Rates and Number of Mining Faces, and Dilution and Extraction Ratio ...... III10-87 16.4 Mine Facilities and Equipment ...... III10-89 16.4.1 Hoisting ...... III10-89
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16.4.2 Ventilation ...... III10-90 16.4.3 Compressed-Air Supply ...... III10-90 16.4.4 Mine Water Supply ...... III10-90 16.4.5 Mine Drainage and Pumping ...... III10-90 16.4.6 Mine Backfill System ...... III10-91 16.5 Mining Schedule ...... III10-91 17 Recovery Methods ...... III10-105 18 Project Infrastructure ...... III10-106 18.1 Roads ...... III10-106 18.2 Mine Waste Dumps ...... III10-106 18.3 Mine Ore Stockpiles ...... III10-106 18.4 Electrical Energy ...... III10-106 18.5 Tailings Impoundments ...... III10-107 19 Market Studies and Contracts ...... III10-107 19.1 Markets ...... III10-107 19.2 Contracts ...... III10-107 20 Environmental Studies, Permitting, and Social or Community Impact ...... III10-108 20.1 Introduction ...... III10-108 20.2 Laws and Regulations ...... III10-108 20.3 Waste and Tailings Disposal Management ...... III10-108 20.4 Water Management ...... III10-109 20.5 Air ...... III10-109 20.6 Permitting Requirements ...... III10-110 20.7 Social and Community ...... III10-110 20.8 Remediation and Reclamation ...... III10-110 21 Capital and Operating Costs ...... III10-112 21.1 Capital Cost Estimate ...... III10-112 21.2 Operating Cost Estimate ...... III10-113 22 Economic Analysis ...... III10-116 22.1 Taxes ...... III10-116 22.2 Economic Projection ...... III10-116 22.3 Sensitivity of Reserves to Gold Price ...... III10-117 23 Adjacent Properties ...... III10-117 24 Other Relevant Data and Information ...... III10-118 24.1 Risk Assessment ...... III10-118 25 Interpretation and Conclusions ...... III10-125 26 Recommendations ...... III10-126 27 References ...... III10-127
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28 Date and Signature ...... III10-128 28.1 Statement of Certification by Timothy A. Ross ...... III10-128 28.2 Statement of Certification by Douglas F. Hambley ...... III10-131 28.3 Statement of Certification by Leonard J. Karr ...... III10-133 28.4 Statement of Certification by Qinghua Jin ...... III10-135 28.5 Statement of Certification by Carl E. Brechtel ...... III10-137
Appendix A—Mining and Exploration Licenses ...... III10-139
Appendix B—3D Oblique View of Vein Upper Surface ...... III10-142
LIST OF TABLES
Page Table 1-1. Chifeng Chaihulanzi Mine Licenses ...... III10-15 Table 1-2. Chifeng Chaihulanzi Mine Mineral Resource (effective date 31 March 2018) ...... III10-18 Table 1-3. Economic Parameters ...... III10-19 Table 1-4. Chifeng Chaihulanzi Mine Reserve Summary (effective date 31 March 2018) ...... III10-21 Table 2-1. QPs, Responsibilities, and Latest Visit ...... III10-24 Table 4-1. Issued Licenses to Chifeng Chaihulanzi Mine ...... III10-26 Table 6-1. Production History for Chaihulanzi Gold Mine ...... III10-31 Table 12-1. Actual vs Expected Values for Witness Samples ...... III10-48 Table 12-2. Sample Description for Witness Samples ...... III10-49 Table 13-1. Sample Composition ...... III10-54 Table 13-2. Sample Head Assay ...... III10-54 Table 13-3. Flotation Results—Activator Types ...... III10-56 Table 13-4. Flotation Results—Collector Types ...... III10-56 Table 13-5. Adsorbant Test ...... III10-57 Table 13-6. Recommended Process Condition Test ...... III10-57 Table 14-1. Chifeng Chaihulanzi Mine Economic Parameters for Resource Estimation . . III10-61 Table 14-2. Chifeng Chaihulanzi Mine Tonnage Factors ...... III10-62 Table 14-3. Neimenggu Mine Zones I-9 and I-9-3 Basic Statistical Analysis ...... III10-66 Table 14-4. Chifeng Chaihulanzi Mine Mineral Resource (effective date 31 March 2018) ...... III10-76 Table 15-1. Chaihulanzi Mine Production Reconciliation ...... III10-80 Table 15-2. Chaihulanzi Mine Estimated Reserve Cut-off Grade ...... III10-81 Table 15-3. Chifeng Chaihulanzi Mine Mineral Reserve Summary (effective date 31 March 2018) ...... III10-83 Table 16-1. Underground Mobile Mining Equipment ...... III10-89
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Table 16-2. Chaihulanzi Mine Shaft Hoisting Facilities ...... III10-89 Table 16-3. Chifeng Chaihulanzi Mining Area Ventilation System Information ...... III10-90 Table 16-4. Chifengchai Mining Area Production Schedule by License ...... III10-93 Table 20-1. Overview Listing of PRC Laws Relevant to Mines and Mining Projects . . .III10-108 Table 20-2. Environmental Permit ...... III10-110 Table 20-3. Chifeng Chaihulanzi Mine Environmental Related Expenditures ...... III10-112 Table 21-1. Buildup of Property Operating Costs by Cost Objects, Historical and Forecast Prediction ...... III10-113 Table 21-2. Chifeng Chaihulanzi Mine Historical Total Costs/Process Tonne ...... III10-114 Table 21-3. Projected Operating and Capital Costs for the Chifeng Chaihulanzi Mine . .III10-115 Table 22-1. Chifeng Chaihulanzi Mine Production and Cost Forecast ...... III10-117 Table 22-2. Sensitivity of Gold Reserves to Gold Price ...... III10-117 Table 24-1. Overall Risk Assessment Guide ...... III10-118 Table 24-2. Project Risk Assessment Table before Mitigation ...... III10-119
LIST OF FIGURES Figure 4-1. Chifeng Chaihulanzi Mine Location Map ...... III10-27 Figure 4-2. Base Map showing Chifeng Chaihulanzi Mine Mining and Exploration License ...... III10-28 Figure 7-1. Simplified Tectonic Map of China (from Zheng et al. 2013) ...... III10-32 Figure 7-2. Tectonic Map of Central Inner Mongolia showing Structures and Tectonics (after Xiao et al. 2003) ...... III10-33 Figure 7-3. Chifeng Chaihulanzi Mine District Geology—Geology of the Songshan District (CCG 2016, Figure 7-1) ...... III10-34 Figure 8-1. Veins Exposed on Surface (magenta) and in Underground Workings (red) (CCG 2016) ...... III10-36 Figure 8-2. Geology of the Chaihulanzi Mine Level 698 m Level (CCG 2016) ...... III10-36 Figure 8-3. Chaihulanzi Mine—Section 14 through Vein Systems I and II (looking northwest) (CCG 2016) ...... III10-37 Figure 8-4. Vertical Projection of the I-5 Resource Polygons (looking northeast) (CCG 2016) ...... III10-37 Figure 8-5. Quartz-Pyrrhotite-Pyrite Stockwork in Diorite Dike (I-5 Vein, 540 Level) . . III10-39 Figure 8-6. Wenjiadixi Exploration Area Location Map ...... III10-40 Figure 8-7. Wenjiadixi Exploration Area, 622-m Level ...... III10-41 Figure 8-8. Cross-Section No. 1 showing the System I Veins in Wenjiadixi Exploration Area (looking northwest) ...... III10-42 Figure 11-1. Chifeng Chaihulanzi Mine Sample Preparation Process ...... III10-45 Figure 12-1. Chaihulanzi Mine Drawpoint Grab Sample from Vein I-5, 540 Level ...... III10-49 Figure 12-2. Chaihulanzi Mine Grab Sample from Vein I-5, 540 Level ...... III10-50 Figure 12-3. Chaihulanzi Mine Core Storage Facility ...... III10-51
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Figure 12-4. Typical Chaihulanzi Mine NQ Drill Core—ZK-12-6 Containing SN 171480 . III10-51
Figure 12-5. Sampling Crushed Ore Feed to the Chifeng Chaihulanzi Mine Ball Mill . . . III10-52
Figure 14-1. Chaihulanzi Mine Grade Polygons—Longitudinal Section ...... III10-62
Figure 14-2. Chaihulanzi Mine Mineral Resource Classifications—Vertical Projection (longitudinal section) ...... III10-67
Figure 14-3. Wenjiadixi Exploration Area Mineral Resource Classifications—Vertical Projection (longitudinal section) ...... III10-68
Figure 14-4. Neimenggu Mine Mineralized Zone I-9, Frequency Distribution Histogram . III10-70
Figure 14-5. Neimenggu Mine Mineralized Zone I-9, Frequency Distribution Histogram . III10-70
Figure 14-6. Strike Direction Variogram for Neimenggu Zone I-9 ...... III10-71
Figure 14-7. Dip Direction Variogram for Neimenggu Zone I-9 ...... III10-72
Figure 14-8. Strike Direction Variogram for Neimenggu Zone I-9-3 ...... III10-72
Figure 14-9. Dip Direction Variogram for Neimenggu Zone I-9-3 ...... III10-73
Figure 14-10. Drill Hole and Sample Location Map ...... III10-75
Figure 16-1. Typical Longitudinal Section along a Vein System showing Mine Workings . III10-85
Figure 16-2. Plan and Sections for a Typical Shrinkage Stope ...... III10-88
Figure 16-3. Chifengchai Mining Area Location of Reserves by License ...... III10-92
Figure 16-4. Production Schedule for Orebody 1-6 at Chaihulanzi Mining Area ...... III10-94
Figure 16-5. Production Schedule for Orebodies I-1 and I-7 at Chaihulanzi Mining Area . III10-95
Figure 16-6. Production Schedule for Orebody I-1-1 at Chaihulanzi Mining Area ...... III10-96
Figure 16-7. Production Schedule for Orebody I-2 at Chaihulanzi Mining Area ...... III10-97
Figure 16-8. Production Schedule for Orebody 1-3 at Chaihulanzi Mining Area ...... III10-98
Figure 16-9. Production Schedule for Orebody 1-4 at Chaihulanzi Mining Area ...... III10-99
Figure 16-10. Production Schedule for Orebody II-1 at Chaihulanzi Mining Area ...... III10-100
Figure 16-11. Production Schedule for Orebody II-2 at Chaihulanzi Mining Area ...... III10-101
Figure 16-12. Production Schedule for Orebody 1-9 of the West Wenjiadi Ore Section at Chaihulanzi Mining Area ...... III10-102
Figure 16-13. Production Schedule for Orebody I-9-3 at Wenjiadii Mining Area ...... III10-103
Figure 16-14. Production Schedule for Orebody 1-9-2 at Wenjiadii Mining Area ...... III10-104
Figure 17-1. Chaihulanzi Processing Plant Overall Flowsheet ...... III10-105
Figure 19-1. Gold Price History (Source www.kitco.com) ...... III10-107
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MINE AND PROPERTY ABBREVIATIONS
The abbreviations system listed below is intended to simplify the discussion of the properties reviewed by Agapito Associates, Inc. (AAI) for Shandong Gold Mining Co., Ltd. (Shandong Gold), and the numerous sub-units (mining and exploration rights) associated with them.
Abbreviation License Number Mining or Exploration Right Name
Chifeng Chaihulanzi Mine Chifengchai Mine (Inner Mongolia)
Chaihulanzi Mine C1500002011074120119786 Chifeng Chaihulanzi Gold Mining Co., Ltd. (North Mining Area #2 Veins)
Wenjiadixi Exploration Area T15120091202037787 Neimenggu Chifeng City, Songshan District, Wenjiadi West Gold Mine Exploration
Chaihulanzi Mine Deep T15520161102053340 Neimenggu Autonomous Region, Prospecting Area Songshan District, Chaihulanzi Gold Mine, North Mining Area #2 Veins Deep Prospecting
Hadagou Mine Exploration T15120080402005224 Chifeng City, Songshan District, Chutoulang County, Hadagou Gold Mine Exploration
CHEMICAL ABBREVIATIONS
Ag silver
As arsenic
Au gold
Bi bismuth
Co cobalt
Cu copper
CuSO4 copper sulfate
Hg mercury mFe magnetic fe (iron)
Na2S sodium sulfide
Pb lead
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S sulfur
Sb antimony
Zn zinc
ACRONYMS AND ABBREVIATIONS
Њ degree
% percent
AA Atomic Absorption
AAI Agapito Associates, Inc.
C Celsius
CAPEX capital expenditures
CIM Canadian Institute for Mining, Metallurgy and Petroleum
CIP carbon-in-pulp cm centimeter
DLR Department of Land and Resources
EIA Environmental Impact Assessment
EIS Environmental Impact Statement
FS Feasibility Study g local acceleration due to gravity near Earth’s surface g grams g/t grams per tonne g/m3 grams per cubic meter
G&A General & Administrative
HKEx The Stock Exchange of Hong Kong Limited
IP induced polarization
IRR internal rate of return
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LHD load-haul-dump
M million m meter m3 cubic meters m3/d cubic meters per day m3/hr cubic meters per hour m3/min cubic meters per minute m3/s cubic meters per second m/s meters per second
MLR Ministry of Land and Resources mm millimeter
MSL mean sea level
Mt million tonnes
NI National Instrument oz. ounce
OPEX operating expenditures p. page pp. pages
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P.E. Professional Engineer
P.Eng. Professional Engineer of Saskatchewan
PFS Preliminary Feasibility Study
P.G. Professional Geologist ppm part per million
PRC People’s Republic of China
Q1 Q2 Q3 Q4 Quarter 1, Quarter 2, Quarter 3, Quarter 4
QP qualified person
Qtr quarter
REE rare earth elements
RIP resin-in-pulp
RM-SME Registered Member, Society for Mining, Metallurgy, and Exploration, Inc.
RMB renminbi or “Chinese yuan”
ROM run-of-mine s second
SAC Standardization Administration of PRC
SDG Shandong Gold Group Co., Ltd.
SGS-CSTC SGS-CSTC Standards Technical Services (TianJin) Co., Ltd.
Shandong Gold Shandong Gold Mining Co., Ltd.
SME Society for Mining, Metallurgy, and Exploration, Inc. t tonne (metric ton, 1,000 kg) t/m3 tonnes per cubic meter tpd tonnes per day
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USD United States of America dollars
V Volt
IMPORTANT NOTICE
This Independent Technical Report was prepared to Canadian National Instrument 43-101 Technical Report standards by Agapito Associates, Inc. (AAI). The quality of information, conclusions, and estimates contained herein is consistent with the level of effort involved in AAI’s services, based on i) information available at the time of preparation; ii) data supplied by outside sources; and iii) the assumptions, conditions, and qualifications set forth in this report. This report is intended to be used by Shandong Gold Mining Co., Ltd. (the “Company”), subject to the terms and conditions of its contracts with AAI. Those contracts permit the Company to file this Independent Technical Report with The Stock Exchange of Hong Kong Limited (the “HKEx”) in accordance with the requirements of Chapter 18 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “HKEx Listing Rules”), and prepared pursuant to the requirements of the HKEx Listing Rules.
CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS
The following Independent Technical Report includes certain statements and information that contain forward-looking information within the meaning of applicable HKEx Listing Rules. All statements, other than statements of historical facts, including the requirements and potential output of the Chifeng Chaihulanzi Mine (Inner Mongolia), the likelihood of commercial mining, the likelihood of securing a strategic partner, and the ability to fund future mine development are forward-looking statements and include forward-looking information. Such forward-looking statements and forward-looking information specifically include, but are not limited to, statements concerning Company plans at the Chifeng Chaihulanzi Mine (Inner Mongolia), Company ability to fund the Chifeng Chaihulanzi Mine (Inner Mongolia), the timing of granting of key permits; approval of the Environmental Impact Statement, the estimated gold production and the timing thereto, economic analyses, capital and operating costs, mine development programs, future gold prices, cash flow estimates, and economic indicators derived from the foregoing.
Generally, forward-looking information can be identified by the use of forward-looking terminology such as “intends” or “anticipates,” or variations of such words and phrases or statements that certain actions, events or results “may,” “could,” “should,” “would” or “occur.” Forward-looking statements are based on the opinions and estimates set out in this Independent Technical Report as of the date such statements are made and they are subject to known and unknown risks, uncertainties, and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements or forward-looking information, including the receipt of all necessary approvals; the ability to conclude a transaction; uncertainty of future production; capital expenditures and other costs; financing and additional capital requirements; the receipt in a timely fashion of any further permitting
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Although the authors have attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements or forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements and forward-looking information. The Company and the authors of this Independent Technical Report do not undertake to update any forward-looking statements or forward-looking information that are incorporated by reference herein, except in accordance with applicable securities laws.
1 SUMMARY
1.1 Introduction
This Independent Technical Report was prepared for the Chifeng Chaihulanzi Mine area in Inner Mongolia and associated mining and exploration rights. Chifeng Chaihulanzi Gold Mining Co., Ltd. (Chifeng Chaihulanzi), which operates the Chifeng Chaihulanzi Mine Area, is a 73.52 percent (%)-owned subsidiary company of Shandong Gold Mining Co., Ltd. (Shandong Gold), a subsidiary of the Shandong Gold Group Co., Ltd. (SDG); the remaining 26.48% of the ownership is held by two investors. The purpose of this report is to provide detailed information in support of an application for listing on The Stock Exchange of Hong Kong Limited (HKEx). Agapito Associates, Inc. (AAI) is responsible for preparing the report, including AAI employees and Qualified Person (QP) subcontractors. Neither AAI nor any of the authors have any financial interest in SDG, Shandong Gold, or the Chifeng Chaihulanzi Mine. AAI’s remuneration from Shandong Gold is independent of the report findings and does not depend on AAI making a specific finding. No contractual indemnities exist between AAI or its subcontractors and SDG, Shandong Gold, or the Chifeng Chaihulanzi Mine for the content of this report.
To complete this Independent Technical Report, a team of five QPs was organized, including AAI employees and subcontractors. A mining engineer (Dr. Douglas Hambley), geologist (Mr. Leonard Karr), and processing engineer (Mr. Qinghua “Jason” Jin) conducted on-site visits of the Chifeng Chaihulanzi Gold Mine. In addition, Mr. Carl Brechtel reviewed the financial data and feasibility study to analyze the economics for the property. Mr. Timothy Ross provided overall review of the project.
This report presents the results of AAI’s efforts, and is intended to fulfill the Standards of Disclosure for Mineral Projects according to Canadian National Instrument 43᎑101 (“NI 43᎑101”). This report was prepared in accordance with the requirements and guidelines set forth in Companion Policy 43᎑101CP and Form 43᎑101F1 (June 2011), and the mineral resources and reserves presented herein are classified according to Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) Definition Standards — For Mineral Resources and Mineral Reserves, prepared by the CIM Standing
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Committee on Reserve Definitions and adopted by CIM Council on 10 May 2014. The mineral resource and mineral reserve estimates reported here are based on all available technical data and information as of 31 March 2018. Neither AAI nor any of the QPs are aware of any adverse material changes to the resource and reserve estimates since the effective date of this report.
1.2 Property Description and Ownership
The Chifeng Chaihulanzi Mine includes four areas: the Chifeng Chaihulanzi Gold Mining Co., Ltd. (North Mining Area #2 Veins) (Chaihulanzi Mine); the Neimenggu Chifeng City, Songshan District, Wenjiadi West Gold Mine Exploration (Wenjiadixi Exploration Area); Neimenggu Autonomous Region, Songshan District, Chaihulanzi Gold Mine, North Mining Area #2 Veins Deep General Exploration (Chaihulanzi Mine Deep Prospecting Area); and the Chifeng City, Songshan District, Chutoulang County, Hadagou Gold Mine Geological Exploration (Hadagou Mine General Exploration). The license numbers, ownership and licensed production are listed in Table 1-1. Copies of the licenses are included in Appendix A.
The Chifeng Chaihulanzi Mine area is located in the Songshan District, Chifeng City, Inner Mongolia Autonomous Region of China. The Chaihulanzi Mine and exploration rights (Wenjiadixi Exploration Area and Chaihulanzi Mine Deep General Exploration Area), are located 15 kilometers (km) west of the town of Chutoulang, Songshan District, Chifeng City, and 15 km northwest of the downtown area of Chifeng City.
Table 1-1. Chifeng Chaihulanzi Mine Licenses
Shandong Gold Licensed Property License Number Ownership Production (tpy 104 ן) (%)
Mining Rights Chaihulanzi Mine C1500002011074120119786 73.52 6 Exploration Rights Wenjiadixi Exploration Area T15120091202037787 73.52 Chaihulanzi Mine Deep Prospecting Area T15520161102053340 73.52 Hadagou Mine General Exploration T15120080402005224 73.52
1.3 Geology and Mineralization
The Chifeng Chaihulanzi Mine area is a structurally controlled orogenic gold quartz vein deposit on the north edge of the North China Craton. Mineralization occurs in two northwest-trending vein systems with over 1.6 km of strike length. Individual veins are typically 0.5-meters (m) to 2-m thick and dip to the southwest. Gold is the only valuable commodity, but minor amounts of pyrrhotite, pyrite, chalcopyrite, galena and sphalerite are present. The veins are hosted by Archean schists and gneisses and are commonly localized adjacent to or within Cretaceous diorite dikes.
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1.4 Development and Operations
The mineralized quartz veins are strong, competent rocks; the altered wall rocks are weaker but still competent. Mining is straight-forward and pattern rock reinforcement is used for support during mining operations. Concreted walls and steel beams in the roof were noted at drift and crosscut intersections. Cemented paste backfill is placed for permanent support.
Mineralized zones in the Chifeng Chaihulanzi Mine mining area are accessed by vertical shafts used for both men and muck hoisting, and ventilation. The Chaihulanzi Mine was active at the time of the mine visits in September 2017. The mining method used depends on the thickness and dip of the ore horizon. Overhand shrinkage is used for thin (thickness<4m)andsteeply dipping mineralized zones (dip angle > 45 degrees [Њ]). Sublevel longhole stoping is used when the thickness is greater than 4 m and steeply dipping (dip angle > 45Њ). Mining is accomplished by the room-and-pillar method when the dip of the mineralized zone is less than 45Њ, regardless of the thickness. Both shrinkage and sublevel longhole stoping are accompanied by delayed filling to reduce the potential for damage and safety hazards. At the Chaihulanzi Mine, shrinkage with delayed filling is used. At the Wenjiadixi Exploration Area, the anticipated mining method will be 60% by shrinkage, 15% by longhole, and 25% by room-and-pillar.
1.5 Metallurgical Testwork
Liaoning Geology Minerals Institute completed a mineral processing test study in 2014 (LGMI 2014). Mineralogy, flotation, whole ore cyanidation leach and resin-in-pulp (RIP) testing were all conducted. The poor performance of the flotation process, with gold recovery only up to 70%, indicates a flotation process is not feasible in processing this type of ore. The whole ore cyanidation leach and RIP testwork included preliminary batch or scoping tests to identify grinding fineness, leach retention time and pulp density, sodium cyanide and lime addition rates, and adsorption test. Gold extraction approached 95% and an overall recovery of 94% has been achieved in the testwork.
1.6 Processing Plant
The Chaihulanzi Processing Plant is designed to treat 1,250 tonnes per day (tpd). The plant includes the following unit operations: two-stage crushing closed circuit and two-stage grinding closed circuit, with each classification stage using a cyclone system. The final ground product is fed to a RIP circuit. Precious metals are stripped from the resin, and the pregnant solution discharging from the strip vessel is fed to an electrowinning cell to recover the precious metals. Electrowon metal is washed from the cells periodically, dried, mixed with fluxes, and refined to a doré product. Tailings from the leach circuit are pumped to a tailings filtration facility. After filtration, the tailings solids are transported to a tailing disposal area by trucks. Filtrate is recycled back to the processing plant for reuse.
1.7 Mineral Resource Estimate
Mr. Leonard J. Karr, Certified Professional Geologist (CPG) member of the American Institute of Professional Geologists (AIPG) and subcontractor of AAI is responsible for the Mineral Resource estimate presented in this report. Mr. Karr is a Qualified Person (QP) as defined by NI 43᎑101 and is
— III10-16 — APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 10 independent of Shandong Gold. The Mineral Resources reported herein are classified as Measured, Indicated, and Inferred according to CIM Definition Standards. The Mineral Resource estimate for the Chifeng Chaihulanzi Mine area is based on all analytical data obtained as of 31 March 2018. The Mineral Resource estimate includes one mining license and one exploration license. AAI was not provided with resource estimates for the two remaining exploration licenses.
The estimation and classification of resources for Shandong Gold and other gold mines in China is strictly regulated by the PRC MLR, as defined by the Specifications for Hardrock Gold Exploration, effective 1 March 2003 (PRC MLR 2002). Resource estimates are based on explicitly prescribed parameters, which include classifications of geologic complexity, minimum grades, minimum thicknesses, and capping procedures for high grades. Resources were estimated using methods currently applied by Shandong Gold that were stated to conform to PRC resource estimation and classification requirements. These estimates were investigated in detail and deemed transparent, valid, and reliable by the QPs of this report. The polygonal model was developed by Shandong Gold based on drill-hole and channel sample assay measurements which serves as the basis for Shandong Gold’s resources under PRC MLR guidelines. Polygons were included or rejected based on Economic Indices as defined by the PRC MLR (such as cut-off grade and vein thickness). The resulting tonnage and grade estimate was reconciled to the 2014 CIM Definition Standards, by assigning confidence categories to the polygons, and reviewing the estimates to determine that the polygons to be reported met considerations of reasonable prospects for eventual economic extraction. Tonnages and metal content for each polygon were summed to determine the resource for each confidence category.
The geometry of the polygons developed by Shandong Gold were analyzed, checked for accuracy and adopted for use in the Mineral Resource Estimate within this technical report by AAI’s QPs. AAI recalculated the tonnage, grades and contained metal for each polygon and reconciled the estimates to the 2014 CIM Definition Standards, by assigning confidence categories to the defined polygons and determining which polygons reported met considerations of reasonable prospects for eventual economic extraction for gold. Tonnages and metal content for each polygon were summed to determine the tonnage and grade estimate for each confidence-level category.
The 2014 CIM Definition Standards requires that Mineral Resources exhibit reasonable prospects for eventual economic extraction in the context of, at least, a conceptual mining scenario. Shandong Gold is a mature mining company that already produces gold and other metals using established underground mining and processing methods. The conceptual mining scenario is reasonably assumed to be the same mining method or methods already in operation on the Chifeng Chaihulanzi Mine property. These methods and their economic viability are discussed in Sections 16 through 22. The economic cut-offs associated with the conceptual mining assumptions and applied to estimation of the resource are discussed in Section 14.2 Mineral Resource Estimation Methodology under PRC MLR.
The Mineral Resource estimate for the Chifeng Chaihulanzi Mine property is summarized in Table 1-2 and has an effective date of 31 March 2018. The Mineral Resource is reported in accordance with NI 43-101 standards. Shandong Gold controls 73.52% of the mineral assets stated in Table 1-2. The resource was estimated by Leonard J. Karr, CPG. Mineral Resources, as stated, are inclusive of Mineral Reserves. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
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Table 1-2. Chifeng Chaihulanzi Mine Mineral Resource (effective date 31 March 2018)
Tonnes Contained Attributable Metals to Shandong Attributable Mineral Resource Gold Contained to Shandong Category Tonnes 73.52% Grades Metals Gold 73.52% Au Ag (Mt) (Mt) (g/t) (g/t) Au (t) Ag (t) Au (t) Ag (t)
Chaihulanzi Mine (C1500002011074120119786) Measured None None None None None None None None Indicated 0.06 0.04 4.28 None 0.25 None 0.18 None Subtotal Measured and Indicated 0.06 0.04 4.28 None 0.25 None 0.18 None Inferred 0.23 0.17 3.93 None 0.89 None 0.65 None Wenjiadi Exploration Area (T15120091202037787) Measured None None None None None None None None Indicated 0.84 0.62 5.95 None 4.99 None 3.67 None Subtotal Measured and Indicated 0.84 0.62 5.95 None 4.99 None 3.67 None Inferred 0.20 0.14 4.49 None 0.88 None 0.65 None Chaihulanzi Mine Deep Prospecting Area (T15520161102053340) Measured No resource reported Indicated Subtotal Measured and Indicated Inferred Hadagou Mine Exploration (T15120080402005224) Measured No resource reported Indicated Subtotal Measured and Indicated Inferred Combined Licenses Measured None None None None None None None None Indicated 0.90 0.66 5.84 None 5.24 None 3.85 None Subtotal Measured and Indicated 0.90 0.66 5.84 None 5.24 None 3.85 None Inferred 0.42 0.31 4.19 None 1.77 None 1.30 None
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Notes: 1. Mineral Resources were reviewed by Mr. Leonard Karr, CPG, consulting to AAI, who is the Qualified Person for the estimate and independent of Shandong Gold. 2. Mineral Resources are reported inclusive of Mineral Reserves. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. 3. Mineral Resources are reported using polygonal estimation methods. Polygons assume underground mining methods, a minimum thickness of 0.8 m to 1 m depending on the mineralized zone, a 1.0-g/t Au cut-off grade, a gold price of 1,231.03 USD per troy ounce, and a gold metallurgical recovery of 94.3%. 4. Estimates have been rounded as required by reporting guidelines. Totals may not sum due to rounding.
1.8 Mineral Reserve Estimate
Dr. Douglas F. Hambley, P.E., P.Eng., P.G., of AAI is responsible for the Mineral Reserve estimate presented here. Dr. Hambley is a QP as defined by NI 43-101 and is independent of Shandong Gold. The Mineral Reserve calculation for the Chifeng Chaihulanzi Mine area and associated mining and exploration rights in the Inner Mongolia Autonomous Region of China was completed in accordance with NI 43-101, and is based on all data and information available as of 31 March 2018. The mineral reserves presented herein are classified according to CIM Definition Standards (CIM 2014). The time required to prepare the Mineral Reserve Estimate from the initial site visit, through the data review and economic analysis was 3 months.
Reserves have been declared only where either underground development is in place nearby or a prefeasibility or feasibility study has been completed to demonstrate economic viability. Some of the reserve areas do not have PRC government approval to proceed with mining; however, AAI believes there are reasonable expectations that these approvals will be received.
The Chifeng Chaihulanzi Mine Mineral Reserves are derived and classified according to the following criteria: Proven Mineral Reserves are the economically mineable part of the Measured Resource for which mining and processing/metallurgy information and other relevant factors demonstrate that economic extraction is feasible. Probable Mineral Reserves are the economically mineable part of an Indicated Resource, and in some circumstances, a Measured Mineral Resource. The Mineral Reserves are derived from Measured and Indicated Resources after applying the economic parameters in Table 1-3.
Table 1-3. Economic Parameters
Economic Parameter Value
Au cut-off grade (g/t) 1.34 Minimum mining width (m) 0.8 Ore mining dilution (%) 12.92 Ore mining recovery (%) 90.49 Gold metallurgical recovery (%)* 94.3 Gold price (three-year average** London PM Fix USD/oz.) 1,231.03 RMB to USD conversion rate*** 6.571
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oz. = ounce; USD = United States of America dollars; RMB = renminbi or “Chinese yuan” Cut-off grade calculation is in line with industry standards. Note:
* Throughout the report, metallurgical recovery includes both plant and refinery losses. ** Monthly average from 1 April 2015 through 31 March 2018.
*** Quarterly average from second quarter of 2015 through first quarter of 2018.
The reserve polygons were selected based on the gold content (including ore dilution) from the Measured and Indicated Resource polygons that exceeded the calculated cut-off grade and have demonstrated economic viability. Inferred Mineral Resources are not considered for the Reserve statement.
The Proven and Probable Mineral Reserves for the Chaihulanzi Gold Mine as of 31 March 2018 are summarized in Table 1-4. The Mineral Reserves are reported as mined ore delivered to the mill stockpile. The Mineral Reserves were estimated by applying the modifying factors of mining extraction and dilution percentages, and cutoff grade to the Measured and Indicated Mineral Resources reported in Section 1.6 of this report.
The life of the Chaihulanzi Mine based on the current reserves is incorporated into the economic analyses presented in Section 22 of this Technical Report. Mineral Resources not converted to Mineral Reserves can provide an additional 3.5 years of production. To allow the conversion, Shandong Gold needs to perform economic studies to permit conversion of Measured and Indicated Resources and advance exploration drifts to allow infill sampling of the veins to allow upgrading of these resources to Indicated Mineral Resources and conversion to the Indicated Resources to Reserves. It is AAI’s understanding that such work is in progress.
1.9 Economics
Capital and operating costs for Chifeng Chaihulanzi Mine have been derived from comprehensive annual production and financial reports supplied by Shandong Gold. Shandong Gold owns 73.5% of the Chifeng Chaihulanzi Mine. The actual operating costs were normalized to reference process tonnes and then used to predict operation performance for the production of the remaining reserve, which will be completed near the end of 2020. The forecast operating cost is 49.90 USD/process tonne (metric ton [t], 1000 kilogram [kg]). Waste development costs are captured in operating costs. No capital costs were projected for the Chifeng Chaihulanzi Mine. The remaining life-of-mine based on this reserve estimate is 3 years.
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Table 1-4. Chifeng Chaihulanzi Mine Mineral Reserve Summary (effective date 31 March 2018)
Ore Tonnes Contained Contained Attributable Shandong Shandong to Shandong Gold Gold Ore Gold Au Contained Attributable Ag Contained Attributable License Tonnes 73.52% Grade Au 73.52% Grade Ag 73.52% (Mt) (Mt) (g/t) (t) Au (t) (g/t) (t) Ag (t)
Chaihulanzi Mine (C1500002011074120119786) Proven None None None None None None None None Probable 0.05 0.04 3.66 0.19 0.14 None None None Total Proven and Probable 0.05 0.04 3.66 0.19 0.14 None None None Wenjiadixi Exploration Area (T15120091202037787) Proven None None None None None None None None Probable 0.85 0.63 5.28 4.50 3.31 None None None Total Proven and Probable 0.85 0.63 5.28 4.50 3.31 None None None Chaihulanzi Mine Deep Prospecting Area (T15520161102053340) Proven None None None None None None None None Probable None None None None None None None None Total Proven and Probable None None None None None None None None Hadagou Mine Exploration (T15120080402005224) Proven None None None None None None None None Probable None None None None None None None None Total Proven and Probable None None None None None None None None Combined Licenses Proven None None None None None None None None Probable 0.90 0.67 5.19 4.69 3.45 None None None Total Proven and Probable 0.90 0.67 5.19 4.69 3.45 None None None
Notes:
1. Mineral Reserves were reviewed by Dr. Douglas Hambley, RM-SME, of AAI, who is the Qualified Person for the estimate and independent of Shandong Gold. 2. Reserves were based on a cut-off grade of 1.34-g/t Au, which was based on average operating costs for January 2015 through March 2018. 3. Gold price assumptions is 1,231.03 USD per troy ounce, based on the 3-year monthly average London PM Fix gold price from 1 April 2015 through 31 March 2018. 4. Figures in the table are rounded to reflect estimate precision; small differences generated by rounding are not material to estimates. 5. Reserves are estimated based on delivery to the mill stockpile.
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1.10 Environmental and Permitting
The mines operate under PRC laws, regulations, and guidelines. Based on observed operating practices, AAI believes that all necessary PRC government approvals are in place or are reasonably expected to be received for the Chifeng Chaihulanzi Mine.
1.11 Risk Assessment
Mining by its nature is a relatively high-risk business when compared to other industries. Each mine is hosted in a geologic deposit and the occurrence and mineralized grade of the ore and the response to mining and processing is unique. Section 24 presents the risk assessment for the Chifeng Chaihulanzi property before mitigation. A risk assessment is by nature a subjective and qualitative process. Mining projects are highly regulated in the PRC. Interruptions to production can occur if Chifeng Chaihulanzi is not diligent in complying with the requirements of the various agencies. If the agencies are in conflict, Chifeng Chaihulanzi may experience delays or nonrenewal of licenses that are not within their immediate control. The only high-risk area that has been identified refers to compositing of sample intervals. Chifeng Chaihulanzi is aware of the risk and is working on mitigation.
1.12 Conclusions and Recommendations
The resource and reserve estimates presented here form the basis for Shandong Gold’s ongoing mining operations at the Chifeng Chaihulanzi Mine. AAI is unaware of any significant technical, legal, environmental, or political considerations which would have an adverse effect on the extraction and processing of the resources and reserves located at the Chifeng Chaihulanzi Mine.
Mineral resources which have not been converted to mineral reserves, and do not demonstrate economic viability shall remain mineral resources. There is no certainty that all or any additional part of the mineral resources estimated will be converted into mineral reserves.
The Chifeng Chaihulanzi Mine has an extensive mining history with well-known gold-bearing vein systems. Ongoing exploration has continued to demonstrate the potential for the discovery of additional resources at the project and within the district surrounding the mine.
Shandong Gold’s operation management teams continue to search for improvements in efficiency, lowering costs, and researching and applying low-cost mining techniques.
The mine staff possess considerable experience and knowledge with regard to the nature of the mineralized zones in and around the Chifeng Chaihulanzi Mine. Mine planning and operations need to continue to assure that the rate of development is sufficient to maintain the planned production rates.
A major change in ore metallurgy during the life of the current reserves is very unlikely, as nearly all of the ore to be mined will come from veins with historic, recent, or current production.
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Areas of uncertainty that may materially impact the Mineral Resources and Reserves, and subsequent mine life presented in this report, include the following:
• Changes in geotechnical conditions due to increasing depths
• Increases in the amount of water entering the mining areas
• Dilution assumptions
• Variations in commodity price
• Conversion of exploration license into mining license
The amount of reserves remaining in the current developed mining license area is very limited, so it is urgently necessary to merge the exploration license area into the one mining license.
It was noted during the site visits that some geologic procedures could be improved with internationally accepted best practices. These mostly deal with the collection of geologic data. Review of the verification reports reveal that in many cases these procedures are already part of Shandong’s documented continuing improvement to standardize and advance geologic practice over all of its multiple operations, including recent acquisitions.
The Chifeng Chaihulanzi Mine is currently in production and the majority of the infrastructure is already in place for future operations. AAI recommends that Chifeng Chaihulanzi continue to explore the deposits downdip and along strike to add resources and reserves to the current operations. AAI also recommends, that as much as possible, Shandong Gold expedites the process of converting the exploration license associated with the project into mining license to avoid a stoppage in production.
2 INTRODUCTION
This Independent Technical Report was prepared for the Chifeng Chaihulanzi Mine. The Chifeng Chaihulanzi Mine includes four areas: the Chaihulanzi Mine; the Wenjiadixi Exploration Area; the Chaihulanzi Mine Deep Prospecting Area; and the Hadagou Mine General Exploration. The Chifeng Chaihulanzi Mine is a 73.52%-owned subsidiary company of Shandong Gold, a subsidiary of SDG; the remaining 26.48% of the ownership is held by two investors. The purpose of this report is to provide detailed information in support of an application for listing on the HKEx. AAI is responsible for preparing the report, including AAI employees and subcontractors. Neither AAI nor any of the authors have any financial interest in SDG, Shandong Gold, or the Chifeng Chaihulanzi Mine. AAI’s remuneration from Shandong Gold is independent of the report findings and does not depend on AAI making a specific finding. No contractual indemnities exist between AAI or its subcontractors and SDG, Shandong Gold, or the Chifeng Chaihulanzi Mine for the content of this report.
2.1 Information Sources
The documentation reviewed, and other sources of information, are listed at the end of this report in Section 27.
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2.2 Qualified Persons
Table 2-1 lists the Qualified Persons (QPs) for this Independent Technical Report, their responsibilities, and the dates of their most recent visit to the Chifeng Chaihulanzi Mine.
Table 2-1. QPs, Responsibilities, and Latest Visit
Most Recent QP Sections Site Visit
Timothy Ross Overall responsibility for this report and None specifically for Sections 1, 2, 3, 4, 5, 6, 20, 23, 24, 25, 26 and 27 Leonard Karr Sections 7, 8, 9, 10, 11, 12, and 14; contributed to 3-5 September 2017 Sections 1, 6, 23, 25, 26, and 27 Douglas Hambley Sections 15, 16, 18, 19, and contributed to Sections 3-5 September 2017 1, 2, 3, 4, 5, 25, 26, and 27 Jason Jin Sections 13 and 17; contributed to Sections 1, 25, 14 September 2017 26, and 27 Carl Brechtel Sections 21 and 22; contributed to Sections 1 and None 27
The site inspection was conducted by Leonard Karr, Douglas Hambley, and Qinghua “Jason” Jin, and included visits to the following:
• The Chifeng Chaihulanzi Mine office complex;
• The No. 5 vein on the +540-m level of the Chaihulanzi Mine. The mining area was accessed via cage in the No. 3 Shaft and then travel was along the main drift to the mining area. Miners were drilling a raise round using a jackleg drill. At a drawpoint nearby, AAI observed a tire-mounted backhoe-and-conveyor type mucking unit;
• At No. 3 Shaft of the Chaihulanzi Mine, AAI observed filled muck cars being unloaded from the double-level cage;
• The Chai Processing Plant; and
• The core storage facility.
Discussions were held with the following Shandong Gold personnel:
• Fengbing Lu, Geological Engineer, Shandong Mining Exploration Co., Ltd. and our host for the trip;
• Daoxue Xu, Deputy General Manager, Chifeng Chaihulanzi;
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• Xiaodong Yang, Deputy General Manager, Chifeng Chaihulanzi;
• Zongling Chen, Manager of Operations Department, Chifeng Chaihulanzi;
• Xinhua Yang, Assistant Manager of Operations Department/Mineral Processing Supervisor, Chifeng Chaihulanzi; and
• Li Sun, Geology Engineer, Chifeng Chaihulanzi.
The laboratories responsible for drill-hole assays and the research institutes responsible for the reserve reports and feasibility studies were not visited. However, AAI is of the opinion that the work performed by both to be of an acceptable standard.
3 RELIANCE ON OTHER EXPERTS
This report has been prepared by AAI for Shandong Gold. The information, conclusions, opinions, and estimates contained herein are based on:
• site visits;
• information available to AAI at the time of preparation of this report;
• assumptions, conditions, and qualifications as set forth in this report; and
• data, reports, and other information supplied by Shandong Gold and other third party sources.
For the purposes of this report, AAI has relied on ownership information provided by Shandong Gold. AAI has not researched property title or mineral rights for the Chifeng Chaihulanzi Mine properties and expresses no opinion as to the ownership status of the properties.
AAI has relied on Shandong Gold for guidance on applicable taxes, royalties, and other government levies or interests, and applicable revenue or income from the Chifeng Chaihulanzi Mine.
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4 PROPERTY DESCRIPTION AND LOCATION
4.1 Location
Figure 4-1 shows the general location of the Chifeng Chaihulanzi Mine site. The Chifeng Chaihulanzi Mine is located in the Songshan District, Chifeng City, Inner Mongolia Autonomous Region of China. The Chifeng Chaihulanzi Mine and its associated mining and exploration rights are owned by Chifeng Chaihulanzi Gold Mining Co., Ltd., a 73.52%-owned subsidiary of Shandong Gold.
The location of the Wenjiadixi Exploration Area is 15 km to the west of the town of Chutoulang, Songshan District, Chifeng City, and 45 km to the northwest of the downtown area of Chifeng City. The property occupies 7.5 square kilometers (km2) of surface land, which includes areas for expansion of the mine industrial site, tailings pond, roads, and other required infrastructure.
The overall property involves one mine operating in the North Mine area #2 vein (Chaihulanzi Mine), and the associated deep general exploration for that same property (Chaihulanzi Mine Deep Prospecting Area), and two additional exploration areas (Wenjiadixi and Hadagou Mine Exploration Areas).
The Chaihulanzi Mine first began production in 1986 and was purchased by Shandong Gold in 2008 from two investors who retain 26.5% of the ownership. Production has been from underground mining employing shrinkage and overhand cut-and-fill mining methods.
4.2 Mineral Rights
Based on the information provided to AAI by Shandong Gold, Table 4-1 summarizes the current, licensed Mining and Exploration Rights. These licenses have been issued by the PRC’s MLR and/or the Inner Mongolia Department of Land and Resources (DLR). Figure 4-2 shows the locations of the mining and exploration areas.
Table 4-1. Issued Licenses to Chifeng Chaihulanzi Mine
Shandong Mining Gold Licensed License Number Expiration Date Area Elevation Ownership Production
(km2) (m) (%) (x 104 tpy)
Mining Rights Chaihulanzi Mine C1500002011074120119786 8 December 2025 1.8192 1,025 to 73.52 6 522 Exploration Rights Wenjiadixi T15120091202037787 14 December 2018 3.00 73.52 Exploration Area Chaihulanzi Mine T15520161102053340 1 November 2019 1.82 73.52 Deep Prospecting Area Hadagou Mine T15120080402005224 14 February 2019 2.67 73.52 Exploration
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Figure 4-1. Chifeng Chaihulanzi Mine Location Map
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Figure 4-2. Base Map showing Chifeng Chaihulanzi Mine Mining and Exploration License
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The license for the Chaihulanzi Mine specifies a resource area of 1.8192 km2, and the exploration license for the deep extension (Chaihulanzi Mine Deep Prospecting Area) has an area of 1.82 km2. The Wenjiadixi Exploration Area in the West Wenjiadi Section of the Chaihulanzi Mine encompasses 3.0 km2. The Hadagou Mine Exploration license is located south of Chaihulanzi Mine and encompasses 2.67 km2.
AAI did not independently verify the mining license information, such as location, area, and status of the licenses. All information that is included in this section was provided by the Chifeng Chaihulanzi Mine and Shandong Gold. AAI is unaware of any permits that must be acquired to conduct the work proposed for the property, and if the permits have been obtained.
Royalties in the PRC are considered a tax, which totals 4% of sales/revenue.
4.3 Environmental Liabilities, Permits, and Risks for the Property
The Chifeng Chaihulanzi Mine is an advanced property as defined in the NI 43-101 regulations. Consequently, environmental issues and the status of permitting are discussed in Section 20 of this Independent Technical Report.
5 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY
5.1 Topography, Elevation, and Vegetation
The Chifeng Chaihulanzi Mine area is located between the Great Khingan and Yashan Mountains at the edge of the Inner Mongolia Plateau. The height above sea level ranges from 800 m to 1,200 m, with topographic slopes ranging from 10 to 25Њ. This mine is located within the regional water system of Laha River, an upstream branch of the Xiliao River, with the Yinhe and Sheluga Rivers flowing through from west to east.
According to the National Seismic Zoning Map of China (GB18306-2015) (Institute of Geophysics 2001), peak ground acceleration in this area is 0.05 g (local acceleration due to gravity near Earth’s surface), and is classified as seismic intensity VI. In accordance with National Standard GB 50011-2010, Code for Seismic Design of Buildings (AQSIC 2010) no special building procedures are required.
5.2 Accessibility
The Chifeng Chaihulanzi Mine deposit is located west of Chifeng City. The Wenjiadixi Exploration Area is located 18 km from the G111 National Highway and 20 km from the Honghuagou Railway Station of Beijing-Tongliao Railway.
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5.3 Local Resources and Infrastructure
Underground water inflow provides the industrial water for ore separation and production. The electric 33-kilovolt (kV) power supply for the mine comes from the 66-kV substation of Chutoulang Town of the northeast power grid.
The main economic sectors in the local area include agriculture and mining, and a small sector of grassland farming. Industry is relatively undeveloped, but the labor force considered sufficient.
5.4 Climate
The climate in the area is semi-arid continental monsoon, with an average annual precipitation of 345 millimeters (mm), which is mostly concentrated in the period from June to August. Average annual evaporation is 1,141.6 mm, annual highest temperature is 39.7ЊCelsius (C), and lowest temperature is -27.8ЊC. Average wind speed is 2.3 meters per second (m/s), with a maximum recorded wind speed of 19.8 m/s.
6 HISTORY
The information discussed in this section was provided by Shandong Gold, and has not been independently verified.
6.1 Ownership
Mining at the Chifeng Chaihulanzi Mine Area is conducted under one mining license. The first mining right was issued to the state-owned enterprise, Chifeng Chaihulanzi Gold Mine in 1983. In 2002, the state-controlled shares and joint stock were restructured. Shandong Gold acquired the rights in 2008. In December of 2015, the Inner Mongolia Autonomous Region Land Resource Office and the Chifeng City Land Resources Bureau issued mining license C1500002011074120119786 to the Chifeng Chaihulanzi Gold Mining Co., Ltd (North mining area No. 2 veins), a 73.52%-owned subsidiary of Shandong Gold. The production scale is 60,000 tonnes per year (tpy) (180 tpd) according to the mining license.
6.2 Exploration and Development Work
6.2.1 Chaihulanzi Mine Development
From 1965 to 1967, the Geological Bureau of the Inner Mongolia Autonomous Region conducted a 1:20 million regional geology and mineral resources survey. In 1983, exploration work at the Chaihulanzi Mine began under the ownership of the local government and production began in 1986 at 180 tpd. Since the purchase of the mine by Shandong Gold in 2008, production has been 1,000 tpd or more.
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6.2.2 Wenjiadixi Exploration Area Exploration
From 1965 to 1967, the No. 2 Regional Geological Survey Team of the Geology Bureau of Inner Mongolia Autonomous Region performed a high-level geological survey for minerals in the region. The structure and mineralization were identified as preliminary. From 2006 to 2012, exploration continued and nonferrous metal and precious metal ores were identified. The size of the prospecting area was reduced in two subsequent approvals to a final size of 3.0 km2 in December 2012.
6.2.3 Chaihulanzi Mine Deep Prospecting Area Exploration
No information is currently available.
6.2.4 Hadagou Mine General Exploration
The Hadagou Mine Exploration license was recently added to the Chifeng Chaihulanzi Mine and no further information is available.
6.3 Historical Mineral Resource and Mineral Reserve Estimates
Several resource and reserve estimates complying with PRC standards have been developed over the history of the properties. However, the resource estimates discussed in Section 14 and the reserve estimates of Section 15 are in compliance with Canadian NI 43-101 standards, and supersede the historical estimates.
6.4 Production
Table 6-1 summarizes the Chifeng Chaihulanzi production (mined reserves) for years 2015-Q1 2018 as reported by Shandong Gold.
Table 6-1. Production History for Chaihulanzi Gold Mine
Metal (kg) Metal Grade (g/t) Ore Silver Gold Year Mined (t) Gold Sold Sold Produced Gold Silver
2015 406,990 830 106 835 2.04 0.26 2016 373,440 866 30 872 2.32 0.08 2017 288,083 901 — 901 3.13 — Q1 2018 80,100 280 — 280 3.50 —
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7 GEOLOGICAL SETTING AND MINERALIZATION
7.1 Regional Geologic Setting
The property is located in northeastern China on the northern edge of the North China Craton, within the Bainiaomiao arc, north of the Chifeng-Bayan Obo fault and south of the Solonker-Xar Moron-Changchun-Yanji suture (Zhao et al. 2001, Xiao et al. 2003). Figure 7-1 provides a simplified tectonic map of China showing major cratonic blocks and orogenic belts. The blue cross is the project area, and circled asterisks denote the UHP metamorphic terranes in the central orogenic belt of China, which occur from west to east: Southwest Tianshan, Altyn, North Qaidam, North Qinling, and Dabie and Sulu (from Zheng et al. 2013). Figure 7-2 shows a tectonic map of Central Inner Mongolia showing its structures and tectonics (after Xiao et al. 2003).
Figure 7-1. Simplified Tectonic Map of China (from Zheng et al. 2013)
The Suolunke Suture is a segment of the Central Asian Orogenic Belt, the largest accretionary orogen in the world. The Paleo-Asian Ocean, which occupied the area between the Siberian Craton to the north and the North China Craton, closed beginning in the west in late Permian-Early Triassic and in the east in late Permian-Middle Triassic (Liu et al. 2016). Significant reactivation of the suture zone occurred in the Mesozoic and included exhumation of subduction zones, local lithospheric thinning, and intrusion of granitoids. Most metal deposits in eastern China lie within rocks affected by the Mesozoic orogenies (Zheng et al. 2013).
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Figure 7-2. Tectonic Map of Central Inner Mongolia showing Structures and Tectonics (after Xiao et al. 2003)
7.1.1 Chifeng Chaihulanzi Mine Geology
Bedrock in the Songshan District is dominated by the Archean Jiaming and Dayingzi Groups, which are comprised of granitic gneisses and porphyritic granite (Figure 7-3). The units are interspersed with graphitic sericite-mica schist with minor marble. The metamorphic grade is amphibolite to granulite facies. These rocks are isoclinally folded and boudinaged.
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Figure 7-3. Chifeng Chaihulanzi Mine District Geology—Geology of the Songshan District (CCG 2016, Figure 7-1)
Regionally, Yanshanian (approximately Jurassic age) granite intrusives are widespread, and remnants of Jurassic intermediate to acid tuffs are present. A large stock of early-Triassic granite lies immediately to the north of the mine site. An irregular, east-northeast-trending augite diorite stock was intruded along the southern edge of the granite. Several southeast-trending diorite dikes emanate from this stock. The diorite contains mafic granulite xenoliths derived from lower continental crust (CCG 2012, She et al. 2006).
The area was covered by a loess sheet in the quaternary. Erosion exposed bedrock and mineralization on the north edge of the loess deposit.
At the district scale, two structural fabrics are apparent; northwest and north-northeast. The northwest trend has a component of left lateral displacement. Both faults (blue lines) and diorite dikes (dark pink) are localized by this fabric. The dominant trend of auriferous quartz veins (red lines) is northwest-southeast. The vein system may be localized by the intersection of the east-northeast and northwest-trending zones. The I-4 vein strikes east-northeast and is located near the center of the vein system (Figure 8-1).
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8 DEPOSIT TYPES
8.1 Chaihulanzi Mine Geology
At one time, the Chaihulanzi deposit was thought to be a skarn, but it is now recognized as a structurally controlled quartz vein system. The Chaihulanzi Mine has two northwest-trending vein systems: System I and System II (Figure 7-3).
System I is the larger of the two vein systems and consists of a swarm of veins 1,600 m long and 50 to 200 m wide. It trends southeast from the northwest corner of the Chaihulanzi Mine mining license, and continues onto the Wenjiadixi Exploration Area exploration license (Figures 7-3 and 8-1). The veins dip 45 to 70Њ southwest. Mineralized shoots tend to rake southeast and are attributed to sinistral shear (Liu et al. 2006). Quartz veins in System I are typically 0.5 to 5 m thick. The veins typically contain a few percent or less pyrrhotite and minor pyrite. These veins continue into the Wenjiadixi Exploration Area to the southeast.
System II veins are restricted to the northeastern part of the Chaihulanzi Mine and dip 30 to 45Њ to the southwest. Underground mining and development of vein System I is nearly continuous along the strike of the system (Figure 8-2). The deposits within the mining license have been largely mined out.
Mineralized zones identified included the larger I-1, I-2, I-3, I-4, I-5, I-6, I-7, I-8, I-8-1, and I-9; and the smaller I-8-2, I-8-3,I-8-4, I-8-2, I-8-3, and I-8-4 (Figures 8-2, 8-3, and 8-4). Figure 8-1 shows the veins (red) as exposed in underground workings. Veins labeled I-1 to I-5 and II-2 are on the Chaihulanzi Mine 698 m level. The I-9 veins to the southeast are on the Wenjiadi West Gold Mine 622 m level. Magenta veins are the surface traces of the veins. Cross-sections 14 and 1 are shown for reference on Figure 8-1. The southeast rake of the ore shoots is evident in this map. The deflections of the II-2 and I-4 veins into the east-northeast structural fabric suggest that the intersection of the northwest and east-northeast trending structures localized the vein system.
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Figure 8-1. Veins Exposed on Surface (magenta) and in Underground Workings (red) (CCG 2016)
Figure 8-2. Geology of the Chaihulanzi Mine Level 698 m Level (CCG 2016)
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Figure 8-3.Chaihulanzi Mine—Section 14 through Vein Systems I and II (looking northwest) (CCG 2016)
Figure 8-4. Vertical Projection of the I-5 Resource Polygons (looking northeast) (CCG 2016)
Veins are more commonly developed in graphitic sericite schist (light blue unit), rather than in granitic gneiss, probably because its ductile behavior more readily captured structures. Veins are commonly developed along diorite dikes as well (Figures 8-2 and 8-3). The diorite dikes and the gold mineralization have both been dated at about 120 million years (personal communication—LJK with mine geologist).
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Figure 8-2 shows the underground geology of the Chai 698 m level in the area of structural intersection between the northwest-trending and east-northeast-trending structures. Light blue is graphitic sericite schist with minor marble units; magenta is diorite dikes; black indicates mined out areas; red and orange are mineralized structures; and vein names are annotated in red. A portion of the slightly deeper 622-m level of the Wenjiadi West Gold Mine on the Wenjiadixi Exploration Area appears in the lower right. The offset between the workings is explained by the veins dipping steeply to the southwest. Note that the I-5 vein in the Chaihulanzi Mine is renamed the I-9 vein in the Wenjiadixi Exploration Area on Figure 8-1.
During the field visit, we examined the I-5 vein through the No. 3 Shaft (Figures 8-1, 8-2, and 8-3). On the 540 m level, the I-5 vein is an auriferous quartz vein and stockwork developed in a diorite dike (Figures 8-4 and 8-5). The dike is as much as 10-m wide and has chill margins. It is composed of two or more intrusive phases and varies from fine-grained equigranular to equigranular coarse-grained to porphyritic. The dike is very hard and appears to have brittlely fractured in preference to the enclosing weaker biotite gneiss, schist and marble which deformed plastically as shown by the deformed and gougy hanging wall and footwall contacts of the dike and the country rock.
In Figure 8-4, stoped areas are hachured, and green, yellow and blue are Measured, Indicated, and Inferred Resources. Shaft No. 3 is shown in the center of the section and the lowest level is the 540 m level.
Quartz-pyrrhotite-pyrite veinlets and stockwork occur throughout the dike. Stockwork quartz veinlets are generally less than 1 centimeter (cm) thick and ore must be determined by assay. The ore zone typically assays 3 to 5 g/t. Trace amounts of chalcopyrite, sphalerite, galena, and native gold are present.
Four stages of quartz deposition are documented: early barren milky quartz, a quartz-pyrite stage, a quartz-sulfide stage, and a final quartz carbonate stage. Gold accompanies the last three stages. Fluid inclusions yield homogenization temperatures of 320ЊCto335ЊC for stage I, 256ЊCto 284ЊC for stage II, and 130ЊCto140ЊC for stage IV. Salinities during stage I to III range from 3 to 6.6% (CCG 2012).
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Figure 8-5. Quartz-Pyrrhotite-Pyrite Stockwork in Diorite Dike (I-5 Vein, 540 Level)
Alteration consists mostly of thin chlorite selvages adjacent to and within the quartz veins. Darker chlorite is said to be associated with grades as high as 10 g/t. Silicification, sericite-pyrite alteration, and late-stage calcite, are also reported (CCG 2012).
8.2 Wenjiadixi Exploration Area Geology
The Wenjiadixi Exploration Area exploration license surrounds the Chaihulanzi Mine mining license on the north, and south sides (Figure 8-6). The geology is the same as the Chaihulanzi Mine area. The I-9 group of veins on the Wenjiadixi Exploration Area are simply the southeast continuation of the System I veins. In this part of the Wenjiadixi Exploration Area, the veins and bedrock are concealed beneath loess.
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Figure 8-6. Wenjiadixi Exploration Area Location Map
The I-9 veins were mined from the Wenjiadi West Gold Mine. Figure 8-6 shows the approximate location of the Wenjiadi West Gold Mine on the Wenjiadixi Exploration Area in red text. The main vein of the Wenjiadixi Exploration Area is the I-9, but resources are also carried on the I-1, I-2, I-9-1, I-9-2, I-9-3, I-9-4, I-9-5, I-9-6, and I-9-8 veins. Extensive mining has been done at shallow depths above this exploration license prior to its transfer to Chifeng Chaihulanzi Mine.
The deposit in this area was described as a skarn as recently as 2016 in a Shandong Gold report (CCG 2016), but the report describes a gold quartz vein with sericite alteration and does not list any alteration or replacement minerals consistent with a skarn deposit.
In Figure 8-7, orange is amphibole-plagioclase gneiss and pink is graphitic sericite schist. Note that the color scheme is different than Figures 7-3, 8-1, and 8-2. The I-9 vein lies along a dike-like gneiss body (Figure 8-8). There is an absence of diorite dikes on the Shandong Gold maps of this area, although their presence is mentioned in Shandong Gold reports (CCG 2016). Conversely, amphibole-plagioclase gneiss is not noted on level plans from the Chaihulanzi Mine.
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Figure 8-7. Wenjiadixi Exploration Area, 622-m Level
8.3 Chaihulanzi Mine Deep Prospecting Area Geology
The Chaihulanzi Mine license extends to a depth of 522 m and several mineralized zones likely continue into the Chaihulanzi Mine Deep Prospecting Area exploration license, but no data was provided. The geology and resources of the Chaihulanzi Mine Deep Prospecting Area are not addressed in this report.
8.4 Hadagou Mine Exploration Geology
No data was provided for the Hadagou Mine Exploration license and it is not discussed in this report.
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Figure 8-8.Cross-Section No. 1 showing the System I Veins in Wenjiadixi Exploration Area (looking northwest)
9 EXPLORATION
9.1 Chaihulanzi Mine License and Deep Exploration License
In 1965 to 1967, the Geological Bureau of the Inner Mongolia Autonomous Region conducted a 1:20 million regional geology and mineral resources survey.
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9.2 Wenjiadixi Exploration Area License
Detailed geophysical surveys examined the southeast strike extent of the Chaihulanzi vein system using VLF-EM, Stratagem EH4, CSAMP, and gradient induced polarization (IP) (Liu et al. 2006). VLF-EM and Stratagem EH4 were found to be useful, but CSAMP anomalies were too broad and diffuse to be useful, and the abundance of graphite generated may cause false IP anomalies. VLF-EM identified a conductor associated with mineralization and extended the potential strike length by 750 m. Subsequent drilling was encouraging (Liu et al. 2006).
10 DRILLING
10.1 Chaihulanzi Mine License and Deep Exploration License
No information is available. Please refer to Section 10.4 for details that AAI has taken with respect to the protocols and materials that has reviewed.
10.2 Wenjiadixi Exploration Area License
Diamond core drilling up to 2016 on the Wenjiadixi Exploration Area exploration license totaled 17,336 m.
10.3 Core Drilling Procedures
Diamond core drilling follows standard wireline diamond drilling techniques. Holes are generally collared using rotary bits through the overburden and strongly weathered bedrock. Upon encountering rock capable of being cored, drilling is changed to diamond coring using wireline techniques commence with HQ-diameter rods and core barrels. Core recovered is approximately 63.5 mm in diameter utilizing HQ coring equipment. Deeper holes are commonly reduced in size to NQ diameter (47.6-mm-diameter core) when drilling conditions are challenging or the depth of the hole exceeds 1,000 m.
Core is recovered from the drill hole via wireline without the need to remove the drill string, and the core is emptied into 1.8-m-long open-top wooden (or more recently plastic) core trays with seven rows per tray. The end of each drill run is recorded on a tag placed at the end of material extracted from the core barrel. Generally, the tag is a small plastic tag with pre-labeled places to record the drill-hole number and the meters from, meters to, and the length of the drill run. Core is geologically and geotechnically logged, recoveries are determined by measuring the core length recovered versus the amount drilled, and all data is recorded on hard-copy drill logs by the geologic staff. Sample intervals are determined by the geologists and marked on the core itself. Samplers then proceed to either manually split the core with hammer and chisel, hydraulic core splitter, or diamond core saw. Samples are generally 1-1.5 m in length or as appropriate due to changes in rock type, alteration, or visually identified mineralization. Sample numbers are placed into the core trays and the half-core is taken and placed in numbered sample bags for delivery to the analytical laboratory.
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10.4 Comments on Section 10
Based on AAI’s observations and data review, exploration core drilling has been conducted to international standards. AAI has not observed any of the drilling and sampling processes followed, but has reviewed the protocols applied, and in keeping with typical Chinese standards, considers the methods to be industry standard and appropriate for use in a mineral resource and ore reserve estimate in accordance with the guidelines of CIM (2014 ).
11 SAMPLE PREPARATION, ANALYSES, AND SECURITY
Samples selections fall under three categories to be described here: exploration samples, samples taken at the mine, and samples selected on AAI site tours for the purpose of data verification.
11.1 Exploration Samples
During development of the projects, exploration was conducted by diamond drilling and surface rock sampling. Diamond drill holes were usually started as HQ (63.5-mm diameter) and reduced to NQ (47.5-mm diameter) at some point. The core was usually hand split to approximate half-size, half being retained and half sent for outside assay. More recently the core is sawn, but all the intervals that we inspected were split. Observed sample intervals varied from 0.30 m to 2.5 m, but were rarely greater than 1.5 m, and were typically about1minlength. Mineralized material was typically sampled in less than 1-m intervals. The assaying authority is unknown. The half-core was retained in wooden core boxes, and is stored in a tightly packed, relatively inaccessible fashion on-site, in a partially enclosed building at the Chaihulanzi Mine.
11.2 Mine Samples
Underground sampling at the Chaihulanzi Mine is done by chip channel sampling. Cross-sections and level plans show that chip channel samples are collected at variable intervals along the vein, typically every4mto8m.Widths are determined by rock and ore type and vary from as little as 0.30 m to 2.0 m, but are typically about1minlength. Presumably the methodology is guided by the protocol described in Specifications for Hard-rock Gold Exploration (PRC MLR 2002).
11.3 Sample Preparation
The following is a summary of general sample preparation and analysis procedures for the mine and the surrounding exploration areas. The sampling preparation protocol for the drilling is not known, but is likely to be the same as for the mine rock samples.
The underground samples are prepared at the mine laboratory. The schematic diagram below displays the sample preparation flow chart, according to procedures set forth in Specifications for Hard-rock Gold Exploration (PRC MLR 2002).
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AAI considers the sample preparation procedures shown in Figure 11-1 to be adequate.
Figure 11-1. Chifeng Chaihulanzi Mine Sample Preparation Process
11.4 Assay Procedures
Assays on underground channel samples from the Chaihulanzi Mine were done by the mine assay laboratory. The laboratory does not have outside certification. All facilities follow the sample procedures and analysis techniques within the following regulatory documents: The Procedure on the Gold and Silver Ore Analysis (DZG93-09); The Mineral Analysis for Rocks (DZG20-01); and The Procedure on the Physical and Mechanical Property Testing for Rocks (DY-94). Five percent of samples were checked by either the Nonferrous Geological Prospecting Bureau of Inner Mongolia Autonomous Region 108 laboratory or the Inner Mongolia Institute of Geology and Mineral Resources Exploration laboratory. Both are certified laboratories (CCG 2012, 2016). AAI did not inspect the mine laboratory.
AAI considers the sample assay procedures to be adequate.
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11.5 Sample Security
No special efforts were noted to provide sample security by Shandong Gold.
11.6 Comments on Section 11
AAI did not visit the assay laboratory that performed the analysis for the samples that were used in the resource estimation for Shandong Gold. AAI did not visit the Chaihulanzi Mine laboratory, but reviewed its procedures with the Laboratory Director and determined that they agree with the sample preparation and assay procedures that were reportedly used for the analysis of the exploration drill-hole samples.
The fire assay method is the international standard for producing total gold analyses for use in resource estimation. Aqua regia digestion gold assays are not considered standard by AAI as they do not necessarily represent the total gold content of the sample under analysis. In AAI’s opinion, aqua regia gold assays are adequate where they are confirmed with fire assay analysis. Shandong Gold reportedly regularly confirms aqua regia gold analyses with fire assay check assays, but these data were not made available to AAI.
The assay Quality Assurance and Quality Control program at the Chaihulanzi Mine conducted as part of the verification reporting is believed to be of adequate quality, consistently applied, and routinely monitored. Based on the results, the original gold assays are acceptably accurate and precise to support resource estimation. The silver assays are of unknown quality.
In AAI’s opinion, the gold assays are of acceptable quality to be used for purposes of resource estimation. Because the gold assays were determined by aqua regia digestion methods, the true grade of the mineral resources may be underestimated slightly (0% to 5%). AAI recommends that Shandong Gold analyze all samples using the fire assay method or perform confirmation check assays of a significant proportion (at least 10%) of mineralized samples.
AAI recommends that Shandong Gold include a sufficient number of control samples (standards, duplicates, and blanks) in all sample batches submitted to the assay laboratory to adequately control assay accuracy and precision.
12 DATA VERIFICATION
12.1 Database
AAI did not independently verify the drill hole database. Original exploration records for collar coordinates, down-hole surveys, geological logs, or assay certificates were not available.
AAI reviewed Shandong Gold’s compilations of original exploration data on cross sections and mine plans, but AAI did not review or independently verify original drill hole collar locations, down-hole surveys, assay certificates, or geologic logs. AAI reviewed Shandong Gold’s assay composite procedures and confirmed that where the mineralized zone was continuous, the calculated composite grades matched composite grades indicated on the longitudinal polygonal maps that were
— III10-46 — APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 10 used to estimate mineral resources. It was, however, determined where the zone split into one or more veins or branches and had interburden areas of2morgreater, the PRC MLR allowed for incorrect compositing. That method allows for summing the grade and thickness of each vein that is above the defined grade without adding the thickness of the material below cut-off. This is not consistent with industry best practice. There is a risk that veins with significant amounts of below cut-off grade material may not be mineable at a profit. Inclusion of this material in dilution calculations and mine designs would mitigate this risk.
12.2 General Procedure
Because Shandong Gold is regulated by the PRC government, all operations must undergo intense reporting and approvals, including annual reporting, verification, and approval for reserves. The Chifeng Chaihulanzi Mine and exploration areas are subject to these verification and data collection procedures. These reviews and periodic audits (the Reserve Resources Verification Reports) are set forth in the Specifications for Hard-rock Gold Exploration (PRC MLR 2002). These regulations dictate the type of work to be conducted at each phase of exploration, development and production; the required quality of sampling; acceptable analytical methods and quality of the analytical results; and the required use of outside laboratories to re-assay samples and verify the results of channel samples and drill hole samples used to calculate the resource and reserve polygon grades. Additionally, the PRC’s MLR reports on the verification of the reserves of each mining license once every three to five years. This includes verification of the reserve and resource, use, cumulative measured ore, and changes in resource and reserves with an end of year effective date.
The code, checks, and required reporting give the reviewer confidence in the ability to depend on the information to report resources. The data however, while checked against itself, was not independently verified.
During site visits, samples were taken from underground mine workings, drill core, and mill feed in an effort to validate the grade represented by Shandong Gold. Sample sites were selected for their ability to provide representative samples and on the basis of accessibility and availability given time constraints. Samples were either personally collected by the QP or were collected under his direct supervision. Samples were placed in new, clearly labeled cloth bags and a sample tag bearing the sample number was placed in the bag. About 2 to 3 kg of material was collected from mine workings and mill feed. The QP had custody of the samples until they were packaged and shipped to SGS-CSTC Standards Technical Services (TianJin) Co., Ltd. (SGS-CSTC). Each batch of samples contained at least one certified standard and blank per ten samples. The standard and blank were obtained from CDN Resource Laboratories Ltd., Vancouver, Canada. The respective standard and blank were CDN-GS-5M and CDN-BL-10, respectively.
Samples were crushed and pulverized according to SGS-CSTC sample preparation protocol PRP85 and assayed for gold using SGS-CSTC atomic absorption (AA) method FAA303. Samples over 10 g/t were reassayed using fire assay method FAG303.
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12.2.1 Mine Samples
Duplicate chip channel samples across Shandong Gold sample sites in headings, backs or ribs could not be taken, because all such samples sites were either inaccessible or had been mined through.
Two muck samples were collected from adjacent drawpoints on the 540 level of Shaft No. 3 of the Chaihulanzi Mine on 4 September 2017 (Figures 12-1 and 12-2). The material is from Vein I-5. Efforts were made to select minus 2-cm rock material in the hope of getting a somewhat homogenous sample, but the large size of material available (generally > 10 cm) made this a difficult exercise.
In Figure 12-1, the drawpoint is about 3.5 m wide. SN 474778 was a grab sample of this material. The SGS-CSTC fire assay value was only 0.18 g/t compared to an expected value of about 2 g/t (Tables 12-1 and 12-2).
Table 12-1. Actual vs Expected Values for Witness Samples
Expected Sample Number Grade Known/ Estimated Grade AAI Difference (g/t) (g/t)
474776 Estimated by Shandong Gold 2.50 2.34 -0.17 474777 Estimated by Shandong Gold 2.00 3.80 1.80 474778 Estimated by Shandong Gold 2.00 0.18 -1.83 474779 Known 1.25 0.06 -1.20 474780 Known 1.45 0.03 -1.43 474782 Estimated by Shandong Gold 2.50 2.46 -0.04
In Figure 12-2 is a grab sample from Vein I-5, 540 level. Chloritized diorite dike is cross-cut by quartz-pyrrhotite-pyrite veinlets, likely vein stages II and III. Presumably, the late banded chalcedonic quartz in center of vein is stage III quartz. This type of quartz is suggestive of epithermal-style
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Figure 12-1. Chaihulanzi Mine Drawpoint Grab Sample from Vein I-5, 540 Level
Table 12-2. Sample Description for Witness Samples
Sample Expected Au Returned SN Area Type Sample Description Grade Au Grade Difference
(g/t) (g/t)
474776 Mill feed Belt grab Fine ore mill feed. 2.50 2.34 -0.17 474777 Vein I-5, Muck 95% fine-grained equigranular diorite 2.00 3.80 1.80 540 level with 3+%~1mmdisseminated pyrite in bands. <5% 0.5 cm quartz veinlets with 2+/- mm pyrite, bands on edge of vein. Po on fractures and disseminated as well. Fine-grained euhedral quartz vein with white chalcedonic quartz in center of vein with pyrite on edges -> cross cut by <=1 mm light brown opaque pyrite - CO3? veinlets. 1-2% fine-grained disseminated pyrrhotite. 474778 Vein I-5, Muck 95% fine-grained equigranular diorite 2.00 0.18 -1.83 540 level with 1-2 % ~ 1-2 mm disseminated pyrite in bands, pyrrhotite on fractures and disseminated. Trace white splintery quartz. Wall rock adjacent to quartz veinlets is light grey via albite alteration.
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Sample Expected Au Returned SN Area Type Sample Description Grade Au Grade Difference
(g/t) (g/t)
474779 ZK-12-6 Drill core Very fine-grained and approximately 1.25 0.06 -1.20 equigranular diorite with < 1% pyrrhotite + pyrite. Not very good looking rock. Sulfides associated with sheared chloritized rock. 474780 ZK-12-6 Drill core Very fine-grained and approximately 1.45 0.03 -1.43 equigranular diorite with < 1% pyrrhotite + pyrite. Not very good looking rock. Sulfides associated with sheared chloritized rock. 474782 Mill feed Belt grab Fine ore mill feed. 2.50 2.46 -0.04
Figure 12-2. Chaihulanzi Mine Grab Sample from Vein I-5, 540 Level
Core was available for examination at the on-site storage facility at the Chaihulanzi Mine (Figure 12-3). The core was very tightly packed, and only holes on the perimeter were accessible for sampling.
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Figure 12-3. Chaihulanzi Mine Core Storage Facility
We were able to select an accessible drill hole, ZK-12-6, and sample two intervals.
The core had been previously split and was in fair condition as shown in Figure 12-4. The core was resampled by taking every fourth piece of the remaining half-core. The resampling of the drill core is not considered a reliable verification of the original Shandong Gold assay.
Figure 12-4. Typical Chaihulanzi Mine NQ Drill Core—ZK-12-6 Containing SN 171480
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12.2.2 Mill Samples
Two grab samples of about minus 5 mesh crushed ball mill feed were collected from the belt feeding the Chaihulanzi Mine mill (Figure 12-5). The samples were taken on two consecutive days, 4 September and 5 September 2017.
12.3 Results of Witness Samples
Duplication of Shandong Gold assay values was good, given the circumstances. A total of six samples were taken from underground, mill feed, and drill core. Of these, two had well-known, documented assay values from drill core. The remaining four samples did not have documented assay values, but were instead estimated values that were given by Shandong Gold engineers or geologists when verbally queried in the field by the AAI QP and asked to estimate the value of a muck pile or mill feed. This was done because there were no opportunities to duplicate chip channel samples underground. The absence of opportunities to resample site of known value underground was largely a function of old sample locations having been mined out.
Figure 12-5. Sampling Crushed Ore Feed to the Chifeng Chaihulanzi Mine Ball Mill
Of the two drill core samples with known values, both witness samples assayed significantly lower than the Shandong Gold values. This could have been due to missing mineralization because of the sampling protocol. Or it could reflect Shandong Gold assaying or sampling problem, but the uncertainty introduced by the resampling protocol does permit the problem to be isolated.
Of the four samples with unknown values, one assayed much higher, one much lower and two nearly the same as the Shandong Gold estimated values (Table 12-1).
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12.3.1 Interpretation of Witness Sample Results
In summary, the data is variable, but generally confirms Shandong Gold’s represented grade. In the case of the drill core, the scatter of the results is most likely due to the very small sample size and the “nugget” effect of quartz veinlets being under-sampled. This is not unexpected or unusual in this type of sampling but confirms the mineralization.
The failure of individual grab samples to match Shandong Gold’s estimated values is likely due to sampling a very coarse, inhomogeneous muck pile. The average of the two grab samples is 1.99 g/t, which is very close to the 2.00 g/t estimated by Shandong Gold engineers.
The grab samples of the mill feed probably provide the most representative samples because the crushing process serves to homogenize run-of-mine (ROM) ore. The fact that two samples taken on two different days came within 0.17 g/t and 0.04 g/t of the Shandong Gold engineer’s estimate of 2.50 g/t is very reassuring.
12.4 Comments on Section 12
AAI did not review the Chifeng Chaihulanzi drill-hole database. Original exploration records for collar coordinates, downhole surveys, geological logs, or assay certificates were not available. AAI could not verify the drill-hole assay or location information that was used for purposes of resource estimation.
All operations must undergo intense reporting and approvals, including annual reporting, verification, and approval for reserves. Exploration and development activities in China are strictly regulated by the PRC’s MLR, as defined by the Specifications for Hard-rock Gold Exploration effective 1 March 2003 (PRC MLR 2002). These regulations dictate the type of work to be conducted at each phase of exploration, development, and production; the required quality of sampling; acceptable analytical methods and quality of the analytical results; and the required use of outside laboratories (noted in Section 11 above) to re-assay samples and verify the results of channel samples and drill hole samples used to calculate the resource and reserve polygon grades.
Based on AAI’s observations and data review, exploration core drilling has been conducted to international standards. AAI has not observed any of the drilling and sampling processes followed, but has reviewed the protocols applied, and in keeping with typical Chinese standards, considers the methods to be industry standard and appropriate for use in a mineral resource and ore reserve estimate in accordance with the guidelines of CIM (2014).
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13 MINERAL PROCESSING AND METALLURGICAL TESTING
A metallurgical testing report on samples from the Chifeng Chaihulanzi Mine was provided for review. Liaoning Geology Minerals Institute completed a mineral processing test study report, dated April 2014 (Liaoning 2014). Testwork included:
• Mineralogy
• Flotation testwork
• Whole ore cyanidation leach/RIP testwork
13.1 Sample Selection
The Liaoning (2014) analysis indicates that a number of samples from I-9, I-8, and I-8-1 mineralized of the Chaihulanzi Mine have been used in the testwork programs. These three mineralized zones accounted for 36.9% of the resources in this area, of which I-9, I-8, and I-8-1 accounted for 17.6%, 15.0%, and 4.9%, respectively.
The size of these samples is not detailed, and it is not known if they originate from drill core or bulk material. Table 13-1 shows the sample composition, with Sample ID 1, 2, and 3 accounting for 40%, 40%, and 20%, respectively.
The sample assay results are shown in Table 13-2.
Table 13-1. Sample Composition
Mineralized Sample ID Zone Grade Weight Proportion (g/t) (kg) (%)
1 I-9 2.67 80 40 2 I-8 1.74 80 40 3 I-8-1 1.23 40 20 Total 200 100 Calculated head (Au g/t) 2.01 Head assay (Au g/t) 2.06
Table 13-2. Sample Head Assay
Head Assay Head Assay (g/t) (g/t)
Cu Pb Zn Co Hg As Sb Bi Au Ag 48.32 61.6 60.4 18.04 2.55 4.9 2.38 0.09 2.06 2.27
Cu = copper; Pb = lead; Zn = zinc; Co = cobalt; Hg = mercury; As = arsenic; Sb = antimony; Bi = bismuth
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The sample head assay shows that the Cu, Pb, and Zn contents are very low and have no comprehensive recovery values. The most important valuable element in the sample is Au.
13.2 Mineralogical Analysis
Mineralogy studies show that there are two types of ore in this deposit, low-sulfide auriferous quartz vein type ores and an altered rock type of gold-bearing ores. The metal mineral composition of the two types of ores is similar; however, the composition of the gangue minerals is quite different. The main metal minerals are pyrite, followed by chalcopyrite, natural gold, pyrrhotite, marcasite, and hematite. The gold grade in different types of ore was 1.11~4.08 g/t. The results show that the dissemination size of the gold minerals is very fine and uneven, with a particle size generally less than 0.01 mm. Quartz is mainly the carrier for gold minerals, as 93.85% of the gold is associated with gangue and only 6.15% of the gold minerals are associated with pyrite and limonite. This situation causes difficulty in recovering the gold.
13.3 Physical Testwork
No results for comminution testwork, such as crusher work index, ball mill work index, and abrasion index are included in the Liaoning (2014) report. It is believed that limited physical characteristic testwork was performed, due to a large base of knowledge already obtained at the existing processing operations.
13.4 Grinding Fineness Test
The results indicate that the gold recovery increases from 65.5% to 70% with the increasing grind fineness from 55% to 65% passing 200 mesh. However, as the grind fineness further increases, there is only a slight decline in gold recovery; therefore, a grinding product size of 65% passing 200 mesh is recommended for the follow-up condition tests.
13.5 Flotation Testwork
The testwork reviewed included preliminary batch or scoping tests to identify flotation characteristics under different reagent regimes (activator and collector reagent types). Open-cycle testwork using a single-stage rougher and a two-stage scavenger configuration provides an understanding of the concentrate recovery, as well as the flotation tailings characteristics.
The results shown in Tables 13-3 and 13-4 indicate, with the addition of an activator of sodium sulfide (Na2S) and copper sulfate (CuSO4) and the addition of ammonium dibutyl dithiophosphate collector, there is no improvement in flotation results.
The poor performance of the flotation process is related to the fine gold liberation size and the fact that the relationship between gold and sulfide minerals is not close. This situation results in a gold recovery only up to 70%. Therefore, the use of a flotation process is not feasible in processing this type of ore.
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Table 13-3. Flotation Results—Activator Types
Au Activator (g/t) Stream Mass Yield Au Grade Recovery (%) (g/t) (%)
0 Concentrate 7.15 19.70 70.00 Tailings 92.85 0.65 30.00 Feed 100.00 2.01 100.00
Na2S 200 Concentrate 7.33 18.45 66.66 Tailings 92.67 0.73 33.34 Feed 100.00 2.03 100.00
CuSO4 200 Concentrate 6.91 17.32 68.91 Tailings 93.09 0.70 31.09 Feed 100.00 2.07 100.00
Table 13-4. Flotation Results—Collector Types
Au Collector (g/t) Stream Mass Yield Au Grade Recovery (%) (g/t) (%)
Ammonium Dibutyl Concentrate 7.15 19.70 70.00 Dithiophosphate (80) Tailings 92.85 0.65 30.00 / Butyl Xanthate (0) Feed 100.00 2.01 100.00 Ammonium Dibutyl Concentrate 8.92 15.60 68.89 Dithiophosphate (60) Tailings 91.08 0.69 31.11 / Butyl Xanthate (20) Feed 100.00 2.02 100.00
13.6 Whole Ore Cyanidation Leach/RIP Testwork
This test included a whole ore cyanidation leach test and an adsorption test.
13.6.1 Whole Ore Cyanidation Leach Test
This testwork included preliminary batch or scoping tests to identify grinding fineness, leach retention time, leach pulp density, sodium cyanide and lime addition rates. The optimum values of these parameters are as following:
• Grinding fineness: 95% passing 200 mesh
• Leach retention time: 30 hours
• Leach pulp density: 40% solids
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• Sodium cyanide: 1.8 kilograms per tonne (kg/t)
• Lime: 10 kg/t
13.6.2 Adsorption Test
Carbon has been traditionally used to recover gold from cyanide leachates, but recent technological advances have resulted in the use of resins as a highly efficient and cost-effective method of gold recovery. The test results using both carbon and resin on the Chaihulanzi Mine samples are shown in Table 13-5.
The above results indicate that both media adsorption processes achieved the same extraction rate of 94.66% and the same adsorption rate of 98.97%. However, the adsorbant consumption rate is different, with a carbon loss of 100 g/t and a resin loss of 20 g/t. This is due to the size of the spherical resin particles (0.6-1 mm) being much smaller than the size of the irregular-shaped carbon particles (2-3 mm). The mechanical wear loss of carbon is more than that of resin. Considering the mineral nature of the ore, with a small content of harmful elements, and the ratio of gold and silver between 1:2 and 1:4, the RIP process is recommended. A resin-loading rate test was performed and the optimum loading rate of 25 kg/m3 is recommended.
Table 13-5. Adsorbant Test
Adsorbant Loading Density (kg/m3) Barren Activated Residue Au Extraction Solution Au Adsorption Process Carbon Resin Grade Rate Grade Rate (g/t) (%) (g/m3) (%)
Carbon-in-pulp (CIP) 25 — 0.11 94.66 0.01 98.97 Resin-in-pulp (RIP) — 25 0.11 94.66 0.01 98.97
kg/m3 = kilograms per cubic meters; g/m3 = grams per cubic meters
Test results using all the recommended conditions are shown in Table 13-6, and it indicates that a satisfactory result has been achieved.
Table 13-6. Recommended Process Condition Test
Resin Barren Pulp Loading Residue Au Extraction Solution Au Adsorption Density Leach Time Density Grade Rate Grade Rate (%) (kg/m3) (g/t) (%) (g/m3) (%)
40 30 hours 25 0.1 95.15 0.01 98.98
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13.7 Ancillary Testwork
No ancillary testwork, such as thickening and filtering studies, were included in the report. However, these properties are believed to be well understood relying on experience from similar operations.
14 MINERAL RESOURCE ESTIMATES
14.1 Mineral Resource Classification System
The National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”), developed by the Canadian Securities Administrators and promulgated under Section 143 of the Canadian Securities Act in 2000, is an internationally recognized mineral resource and reserve classification system. NI 43-101 is a codified set of rules and guidelines for disclosing information related to mineral properties owned by, or explored by, companies publicly listed on Canadian stock exchanges. NI 43-101 also is an accepted standard for mineral reporting on the HKEx under Chapter 18.29 of the HKEx Main Board Listing Rules and is employed by various Chinese public companies listed on the HKEx for mineral disclosure. In this report, mineral resources and reserves are stated in accordance with NI 43-101 Standards of Disclosure for Mineral Projects as revised on 9 May 2016, and Companion Policy 43-101CP as amended on 26 February 2016.
NI 43-101 incorporates, by reference, the definitions for mineral resources, mineral reserves, and mining studies ascribed by the CIM (2014). Under this standard, a Mineral Resource is defined as:
Mineral Resource—a concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade or quality, continuity and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling.
Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated, and Measured classifications. An Inferred Mineral Resource has a lower level of confidence than that applied to an Indicated Mineral Resource. An Indicated Mineral Resource has a higher level of confidence than an Inferred Mineral Resource, but has a lower level of confidence than a Measured Mineral Resource. The resource classifications are defined as follows:
Inferred Mineral Resource—that part of a Mineral Resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply but not verify geological and grade or quality continuity. An Inferred Mineral Resource has a lower level of confidence than that applying to an Indicated Mineral Resource and must not be converted to a Mineral Reserve. It is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration.
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Indicated Mineral Resource—that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation. An Indicated Mineral Resource has a lower level of confidence than that applying to a Measured Mineral Resource and may only be converted to a Probable Mineral Reserve.
Measured Mineral Resource—that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit. Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation. A Measured Mineral Resource has a higher level of confidence than that applying to either an Indicated Mineral Resource or an Inferred Mineral Resource. It may be converted to a Proven Mineral Reserve or to a Probable Mineral Reserve.
A Mineral Resource is not an inventory of all mineralization drilled or sampled, regardless of cut-off grade, likely mining dimensions, location, or continuity. A Mineral Resource is a realistic inventory of mineralization which, under assumed and justifiable technical, economic, and development conditions, might, in whole or in part, become economically extractable.
A Mineral Reserve is the economically mineable part of a Measured and/or Indicated Mineral Resource. Reserves includes diluting materials and allowances for losses, and are defined by studies at Prefeasibility or Feasibility levels that include the application of Modifying Factors, as discussed in Section 15.
Measured and Indicated Mineral Resources stated in this report are inclusive of Mineral Reserves.
14.2 Conceptual Mining Scenario
NI 43-101 requires that Mineral Resources exhibit reasonable prospects for eventual economic extraction in the context of, at least, a base-case mining scenario. Shandong Gold is a mature mining company that already produces gold and other metals using established underground mining and processing methods. The reference base-case mining scenario is reasonably assumed to be the same mining method or methods already in operation on the property. These methods and their economic viability are discussed in Sections 16 through 22. The economic cut-offs associated with base-case mining and applied to delineation of the resource are discussed in Section 14.3.1.
14.3 Mineral Resource Estimation Methodology under PRC MLR
The estimation and classification of resources for Shandong Gold and other gold mines in China is strictly regulated by the PRC MLR, as defined by the Specifications for Hard-rock Gold Exploration effective 1 March 2003 (PRC MLR 2002). Resource estimates are based on explicitly prescribed
— III10-59 — APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 10 parameters, which include classifications of geologic complexity, minimum grades, minimum mineable thicknesses, and assay capping procedures for high grades. Resources are typically estimated by mine geologists and engineers, and/or by third-party PRC entities, including academic, scientific, and government institutions. Resources are typically re-estimated at year-end or other specific times to account for mining depletion and adjustments for new geologic information.
Resources and reserves are required to be reported to and approved by government regulators on an annual or more frequent basis, typically at the provincial or municipal government level. As a consequence, resources and reserves are subject to routine and sometimes rigorous independent audits. Plans for mining of reserves must be approved in advance, typically at the beginning of each calendar year, with planned versus produced metrics reconciled at the end of the period.
Shandong Gold’s resource estimation procedures are standardized across all properties in accordance with the Specifications for Hard-rock Gold Exploration (PRC MLR 2002). Resources are quantified using a form of polygonal projection onto either horizontal (plan view) or vertical (longitudinal) projections representing typically tabular, high- or low-angle vein systems. The polygonal method is one of the most widely used methods in China for quantifying tabular deposits.
The salient procedures, parameters, and classifications of the PRC MLR method are described as follows.
14.3.1 Economic Parameters
The primary economic parameters for resource estimation are termed the Industrial Indices in the Specifications for Hard-rock Gold Exploration (PRC MLR 2002). Minimum Industrial Indices are codified for various types of deposits, but can be adjusted at an operator’s discretion to improve economy and risk, and for other reasons. Indices include boundary cut-off grades for relevant metals, polygon cut-off grades, deposit cut-off grades, minimum mining widths, and minimum waste dilution dimensions. Indices can be modified and updated with regulatory approval. The current Industrial Indices used to delineate the Mineral Resource polygons are summarized in Table 14-1.
The product of polygon grade and polygon thickness is applied as an alternative cut-off criterion where the mineralized thickness is less than the minimum mining width, but the gold grade is relatively high.
Cut-off indices are stipulated for associated minerals, although resource qualification is based on gold content. Industrial cut-offs for associated minerals are commonly: Ag: 2.0 g/t, sulfur (S): 2.0% weight (wt), Cu: 0.1% wt, magnetic Fe (mFe) 15.0% wt, Pb: 0.2% wt, and Zn: 0.2% wt, in accordance with the Specification for Comprehensive Exploration and Evaluation of Mineral Resources (GB/T 25283-2010) (Standardization Administration of the PRC 2010).
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Table 14-1. Chifeng Chaihulanzi Mine Economic Parameters for Resource Estimation
Minimum Minimum Waste Waste Minimum Exclusion Exclusion Boundary Polygon Deposit Grade- Minimum Waste Length Length Cut-off Cut-off Cut-off Thickness Mining Exclusion in the between Property Grade Grade Grade Cut-off Width Width Vein Veins
Au (g/t) Au (g/t) Au (g/t) Au (m) (m) (m) (m) (g/t-m)
Chaihulanzi Mine (C1500002011074120119786) 1.00 2.50 4.50 2.00 0.8 2.0 10.0 20.0 Wenjiadixi Exploration Area (T15120091202037787) 1.00 2.50 4.50 0.80 0.8 2.0 10.0 20.0
Notes: 1. NA = Not applied. 2. Polygons above the boundary cut-off grade, but below the polygon cut-off grade are designated as “low grade” polygons. “Low grade” polygons are mined where compatible with the mine plan. 3. Minimum Waste Exclusion Width is the minimum separation distance between mineral intercepts for treating intercepts as individual and separate veins. Intercepts must be combined and treated as one vein, and the composite grade of the vein diluted with the intervening waste, for widths below the minimum. 4. Minimum Waste Exclusion Length is the minimum length of waste polygons that can be left between resource polygons either on-strike or downdip within a vein, or between two separate veins. Waste must be combined with the resource polygons, causing dilution, at separation lengths below the minimum.
The applied Industrial Indices are considered reliable for establishing reasonable prospects for economic extraction of the Mineral Resource.
14.3.2 Grade Capping
Samples with anomalously high gold or other metal grades (grade outliers) are capped in accordance with the Specifications for Hard-rock Gold Exploration (PRC MLR 2002). The outlier threshold is calculated for each mineralized zone as a multiple from six to eight times the average grade of the population of samples from the mineralized zone. A lower multiple is used for more uniform grade populations, while a higher multiple is used for more variable populations. In thick resource polygons, samples exceeding the outlier threshold are replaced by the length-weighted average (composite) grade of the drill hole or channel sample containing the outlier. For thin polygons, outliers are replaced by the average grade of the polygon itself. Polygons are typically considered “thick” if their average thickness is seven times greater than the minimum mining width. This method is considered a reasonable and conservative alternative to other prevalent statistical methods for grade capping.
14.3.3 Polygonal Method
For resource estimation, the drill hole intercepts and underground channel samples associated with each specific mineralized zone (mineralized vein or system) are resolved into either plan view (horizontal) or vertical (longitudinal) projections using MapGIS (Zondy Cyber 2017) software.
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Vertical projections are preferred for steeply dipping mineralized zones (those zones with dips greater than 45Њ). Horizontal projections are utilized for mineralized zones with shallow dips (those zones with dips shallower than 45Њ).Each mineralized zone is subdivided into grade polygons defined by sample points (i.e., drill holes or channel samples). Interior to the mineralized zone, polygons are interpolated between sample points where the sample points define the vertices (corners) of the polygon boundary. Additional sample points that lie along one or more edges of the polygon are also included in cases where channel samples along drifts, raises and stopes define polygon boundaries. Interior polygons are typically defined by three or four sample points, producing triangular or quadrilateral polygons.
Polygons on the periphery of the mineralized zone are extrapolated some limited distance outward from the mineralized zone where mineralization is expected to persist beyond the sampling limits. Extrapolation distances vary depending upon the geologic environment, but generally do not exceed 15 to 30 m. Remote drill holes are normally disregarded for polygon construction.
An example of grade-polygon construction in MapGIS is shown in Figure 14-1.
Figure 14-1. Chaihulanzi Mine Grade Polygons—Longitudinal Section
The polygon volume is calculated by resolving the actual thickness of the sample intersections into the projected thickness in the mineralized body’s projected coordinate system using MapGIS (Zondy Cyber 2017) software. The projected thickness at the vertices and edges of a polygon are averaged and multiplied by the projected area of the polygon to compute volume. Volume is converted to tonnes according to the tonnage factor (Table 14-2).
Table 14-2. Chifeng Chaihulanzi Mine Tonnage Factors
Tonnage Property Factor (t/m3)
Chaihulanzi Mine (C1500002011074120119786) 2.84 Wenjiadixi Exploration Area (T15120091202037787) 2.98
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Metal grades are composited on a length-weighted basis for each sampling intercept. Composite grades are averaged on a length-weighted basis using the mineralized zone true thickness at each sample location. The average of the composite grades is assigned to the polygon. Grades are calculated for gold and associated minerals.
Resource total tonnes are reported as the sum of individual polygon tonnes. Resource tonnages represent gross, in-place tonnes without adjustments for planned losses or dilution during mining. Resource total grades are reported as tonnage-weighted averages.
14.3.4 Tonnage Factor
Polygon volumes are converted to tonnes on the basis of a tonnage factor (bulk density). Tonnage factors are determined for each license from density measurements performed on a statistically significant number core, grab, and channel samples. Typically, a minimum of 30 samples are tested for each lithology comprising a mineralized zone. Corrections are ordinarily applied where moisture contents exceed 3.0%wt. Tonnage factors used for resource estimation are summarized in Table 14-2.
14.4 Reconciliation to 2014 CIM Definition Standards by AAI
NI 43-101 requires that Mineral Resources exhibit reasonable prospects for eventual economic extraction in the context of, at least, a base-case mining scenario. Shandong Gold is a mature mining company that already produces gold and other metals using established underground mining and processing methods. The reference base-case mining scenario is reasonably assumed to be the same mining method or methods already in operation on the Chaihulanzi Mine property. These methods and their economic viability are discussed in Sections 16 through 22. The economic cut-offs associated with base-case mining and applied to delineation of the resource are discussed in Section 14.3 Mineral Resource Estimation Methodology under PRC MLR.
Shandong Gold’s PRC MLR-based tonnage and grade estimates were reconciled by AAI to the 2014 CIM Definition Standards, by assigning confidence categories to the defined polygons, and reviewing and recalculating the estimates to determine which polygons reported met considerations of reasonable prospects for eventual economic extraction.
As discussed in the previous sections (14.3 Mineral Resource Estimation Methodology under PRC MLR) the estimation and classification of resources for Shandong Gold and other gold mines in China is strictly regulated by the PRC MLR, as defined by the Specifications for Hardrock Gold Exploration, effective 1 March 2003 (PRC MLR 2002). In that system, resources were estimated using methods currently applied by Shandong Gold that conform to PRC resource estimation and classification requirements. A polygonal model was developed based on drill-hole and channel sample assay measurements. Polygons were included or rejected based on Economic Indices as defined by the PRC MLR (such as cutoff grade and vein thickness).
AAI’s QPs reconciled the resulting tonnage and grade estimate for each polygon to 2014 CIM Definition Standards. Confidence-level categories were assigned to each polygon based upon the QP’s
— III10-63 — APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 10 parameters and by reviewing and recalculating tonnages and grades of the polygon estimates to determine that the polygons to be reported met considerations of reasonable prospects for eventual economic extraction. Tonnages and metal content for each polygon were summed to determine the resource for each confidence-level category.
14.4.1 Resource Classification
AAI’s QPs, have reviewed in detail the Shandong Gold (PRC MLR) grade polygon construction techniques, economic parameters, grade capping techniques, and have utilized these aspects of the PRC MLR resource regulations in the resource estimates in this technical report, AAI’s QPs classified the resource polygons as Measured, Indicated, or Inferred based on the level of geologic confidence associated with each polygon, referring principally to the predictability of grade, thickness, and continuity. Multiple criteria contribute to classifications which are considered contextually, including the degree of geologic control, conformance with the depositional model, location within the deposit, the classification of neighboring polygons, experience in mining in the adjacent portion of the mineralized zone in the active mine leases, and reconciliation of the tonnage and grade in the material mined to that predicted by the polygon estimates. The AAI resource estimate excludes numerous polygons constructed under the PRC MLR resource calculation regulations. AAI’s QPs reviewed each polygon constructed under PRC MLR regulations and, in their judgement, excluded those polygons that did not meet CIM standards for inclusion in a resource estimate, even at the lowest confidence level.
In the polygonal model defined by the PRC MLR methodology, each mineralized zone is subdivided into grade polygons defined by sample points or mineralized intercepts (i.e., drill holes or underground development channel samples). Interior to the mineralized zone, polygons are interpolated between sample points where the sample points define the vertices (corners) of the polygon boundary. Interior polygons are typically defined by three or four sample points, producing triangular or quadrilateral polygons. Polygons on the periphery of the mineralized zone are extrapolated some limited distance outward from the mineralized zone where mineralization is expected to persist beyond the sampling limits. The distances of extrapolation vary depending upon the geologic environment, but generally do not exceed 15 to 30 m. Extrapolated polygons are assigned the lowest geologic confidence level (Inferred). Isolated drill hole intercepts were disregarded for polygon construction and are therefore not included in the AAI estimates.
In general, AAI accepted the PRC MLR polygons’ geometry but reviewed each polygon individually to adapt to CIM standards and the areas, thicknesses, tonnages and weighted-average grades were recalculated by AAI. The polygon values were checked against reported assay values, drill hole or channel sample thicknesses, area and tonnages (specific gravity) from multiple sources and checked for consistency. Each site was specified with a minimum reported polygon cutoff for minimum grade and mining width, usually ~1.0 gram/tonne of gold and 0.8 to 1.0 meters thick, the latter depending on the deposit continuity and inclination. The PRC MLR system allows for incorrect compositing in the case where the mineralized zone splits into one or more veins or branches and had interburden areas of 2 m or greater (see 12.3 Data Review). The method allows for summing the grade
— III10-64 — APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 10 and thickness of each vein that is above the defined grade without adding the thickness of the material below cut-off. This is not consistent with industry best practice and where this was the case those resources were downgraded by AAI to Inferred or Excluded. It was not a common occurrence at the mines examined for this report.
The following criteria were used to classify the Mineral Resource:
• There are no Measured Resources.
Polygons were classified as Indicated Mineral Resources where:
• Mineralized bodies have assumed geological and grade continuity, and
• Polygon is supported by four or more mineralized intercepts in drill hole and underground 100-m grid ן channel samples and has an area less than 10,000 m2 (equivalent to 100-m spacing), or
• Polygon is supported by three mineralized intercepts in drill hole and underground channel 100-m grid ן samples and has a polygon area less than 5,000 m2 (equivalent to 100-m spacing).
Polygons were classified as Inferred Mineral Resources where:
• Mineralized bodies have implied geological and grade continuity, and
• Polygon is supported by four or more mineralized intercepts in drill hole and underground 100-m ן channel samples and having an area greater than 10,000 m2 (equivalent to 100-m grid spacing) (slightly wider grid spacing up to 120 m could be considered in the case of favorable modifying factors as listed below), or
• Polygon is supported by three mineralized intercepts in drill hole and underground channel .(100-m grid spacing ן samples and has an area greater than 5,000 m2 (equivalent to 100-m
• Polygon is supported by two mineralized intercepts in drill hold and/or underground channel samples.
Polygons were not classified where:
• Supported by a single mineralized intercept or was supported my two or three drill holes in an isolated area.
Confidence category modifying factors which could lead to a classification upgrade included:
• Presence of exploration drifts or cross-cuts
• Whether the polygon adjoined mine workings
• Whether one or more intercepts was based on channel samples from cross-cuts
• Exceptions applied for polygons within stopes that have less than four mineralized intercepts and modest projections (typically 20 m or less), adjacent to stopes or down dip/plunge of mined orebodies
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Confidence category modifying factors which could lead to a confidence classification downgrade or exclusion included:
• Large area polygon with poor sample control (e.g. data density less than 50mx50m).
• High aspect-ratio (slender) polygon that had an unequal spacing between sample points.
• Polygon below or beyond enforced mining limits.
• Polygon mined out.
• Polygon that is isolated or remote.
Figures 14-2 and 14-3 are representative examples of the Mineral Resource classifications for grade polygons located within the Chaihulanzi Mine and Wenjiadixi Exploration Area licenses.
14.4.2 Geostatistical Mineral Zone Analysis and Variography
AAI conducted a geostatistical analysis of the three-dimensional (3D) continuity of gold mineralization within the two principal mineralized zones at the Neimenggu Mine (AKA Wenjiadi Mine) as part of its analysis of the mineral resources described in this Technical Report. At the Neimenggu Mine, mineralized zone I-9 contributed 3,403 kg of gold to the resource and mineralized zone I-9-3 contributed 1,316 kg of gold to the resource. Respectively, the I-9 and I-9-3 zones contributed 58% and 22% to the Neimenggu Mine’s Indicated Resource. The two zones are steeply dipping veins with a tabular geometry. The statistical analysis was completed utilizing Geovia’s Surpac version 6.7.3, software statistical analysis module. The only other mines in Site 10 were in the Chaihulanzi-Chifeng Mine Area, immediately to the northwest of the Neimenggu Mine and along the same northwest structural trend. All but one mineralized zone in this area lacked sufficient data for constructing valid variograms. The only exception was the Chaihulanzi I-5 zone which was not considered because of its relatively small contributing 239-kg Au resource.
14.4.2.1 Basic Univariate Statistics
Basic statistics were completed on 1-m composites of drill hole and underground crosscut channel sample assays for the Neimenggu Mine mineralized zones I-9 and I-9-3. The summary of the basic statistics for each zone analyzed are shown in Table 14-3.
Table 14-3. Neimenggu Mine Zones I-9 and I-9-3 Basic Statistical Analysis
Number Coefficient of Standard of Variable Zone Samples Minimum Maximum Mean Deviation Variance Variation
Gold g/t Zone I-9 336 0.10 45.66 5.85 5.38 28.95 0.92 Gold g/t Zone I-9-3 190 0.07 27.74 5.83 5.11 26.08 0.88
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Figure 14-2. Chaihulanzi Mine Mineral Resource Classifications—Vertical Projection (longitudinal section) PEDXIICMEETPRO’ EOT—AIRPR IE10 SITE REPORT AAI — REPORT PERSON’S COMPETENT III APPENDIX I1-8— III10-68 —
Figure 14-3. Wenjiadixi Exploration Area Mineral Resource Classifications— Vertical Projection (longitudinal section) APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 10
Figure 14-4 shows the cumulative frequency distribution histogram of 336 drill hole and channel samples for Zone I-9. The shape of the distribution indicates a single normal sample population for the gold grades in each vein. Figure 14-5 shows the cumulative frequency distribution histogram of 190 drill hole and channel samples for Zone I-9-3.
14.4.2.2 Mineralized Zone Variography
Variogram analysis was performed on the I-9 and I-9-3 mineralized zones. Variograms are summaries of the spatial continuity of data points in two or three dimensions. Most gold deposits and the associated sampling of these deposits or mineralized zones display complex variograms with poor structure even when sufficient data is available to adequately model. The pairwise relative variograms below were constructed on data for each zone based on 1-m composite samples of drill hole and underground channel sample data for each zone analyzed.
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Figure 14-4. Neimenggu Mine Mineralized Zone I-9, Frequency Distribution Histogram
Figure 14-5. Neimenggu Mine Mineralized Zone I-9, Frequency Distribution Histogram
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There was sufficient sample data to generate reliable strike and dip variograms for both zones I-9 and I-9-3. These are shown in Figures 14-6 through 14-9. The ranges identified in the variography assist in identifying the distance between data points, beyond which the two data points have little or no relationship statistically to one another. The analysis presented is to inform the reader of additional analysis completed on the distribution of gold in the veins at the mine. The strike direction variograms are of higher quality because of a higher density of channel samples along both veins in underground workings. The poorer quality of the dip variograms is a function of lower density drill-hole data below the developed mine levels.
Figure 14-6. Strike Direction Variogram for Neimenggu Zone I-9
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Figure 14-7. Dip Direction Variogram for Neimenggu Zone I-9
Figure 14-8. Strike Direction Variogram for Neimenggu Zone I-9-3
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Figure 14-9. Dip Direction Variogram for Neimenggu Zone I-9-3
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14.4.3 Discussion
The polygonal method is considered a reasonable and appropriate method for estimating the Chifeng Chaihulanzi Mine Mineral Resource. Although advanced statistical and geostatistical modeling methods are commonly used throughout metals mining, they are not reliable for narrow-vein deposits. The polygonal model is considered reliable because it is methodical, transparent, standardized under PRC law, and has proved to be historically accurate for use with mine planning for more than two decades at Shandong Gold’s properties.
Reconciliation between modeled and mined resources serves to further validate the geologic polygon method and the reliability of Shandong Gold’s exploration methodology. A comparison between 1-year production forecasts based on polygonal modeling and actual end-of-year production at a number of Shandong Gold’s mines supports the assumption that the polygon method is accurate and conservative, within practical tolerances. Mined tonnes and gold grades typically match 1-year forecast tonnes and grade within several percent or better, after accounting for planned mining losses and dilution. The reliability of the 1-year forecasts conveys a reasonably high degree of confidence in the Resource classifications.
Various studies conducted by independent government and academic institutions have concluded that the geologic polygon method, as specifically applied at Shandong Gold’s mines, complies with the Specifications for Hard-rock Gold Exploration (PRC MLR 2002) and that the method’s estimation results are reliable for reporting under the PRC standard.
14.4 Mineral Resource Statement
The Mineral Resource estimate for the Chifeng Chaihulanzi Mine properties is summarized in Table 14-4 and has an effective date of 31 March 2018. The Mineral Resource is reported in accordance with NI 43-101 standards. Shandong Gold, either by direct ownership or agreement with SDG, controls 73.52% of the mineral assets stated in Table 14-4. The resource was estimated by Leonard Karr, P.G. Mineral Resources, as stated, are inclusive of Mineral Reserves. Figure 14-10 is a drill hole and sample location map. The 3D oblique view of the upper surface of the Vein(s) is included in Appendix B.
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Figure 14-10. Drill Hole and Sample Location Map APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 10
Table 14-4. Chifeng Chaihulanzi Mine Mineral Resource (effective date 31 March 2018)
Tonnes Attributable Contained Metals to Shandong Attributable to Gold Shandong Gold Mineral Resource Category Tonnes 73.52% Grades Contained Metals 73.52% (Mt) (Mt) Au (g/t) Ag (g/t) Au (t) Ag (t) Au (t) Ag (t)
Chaihulanzi Mine (C1500002011074120119786) Measured None None None None None None None None Indicated 0.06 0.04 4.28 None 0.25 None 0.18 None Subtotal Measured and Indicated 0.06 0.04 4.28 None 0.25 None 0.18 None Inferred 0.23 0.17 3.93 None 0.89 None 0.65 None Wenjiadi Exploration Area (T15120091202037787) Measured None None None None None None None None Indicated 0.84 0.62 5.95 None 4.99 None 3.67 None Subtotal Measured and Indicated 0.84 0.62 5.95 None 4.99 None 3.67 None Inferred 0.20 0.14 4.49 None 0.88 None 0.65 None Chaihulanzi Mine Deep Prospecting Area (T15520161102053340) Measured No resource reported Indicated Subtotal Measured and Indicated Inferred Hadagou Mine Exploration (T15120080402005224) Measured No resource reported Indicated Subtotal Measured and Indicated Inferred Combined Licenses Measured None None None None None None None None Indicated 0.90 0.66 5.84 None 5.24 None 3.85 None Subtotal Measured and Indicated 0.90 0.66 5.84 None 5.24 None 3.85 None Inferred 0.42 0.31 4.19 None 1.77 None 1.30 None
Notes: 1. Mineral Resources were reviewed by Mr. Leonard Karr, CPG, consulting to AAI, who is the Qualified Person for the estimate and independent of Shandong Gold. 2. Mineral Resources are reported inclusive of Mineral Reserves. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. 3. Mineral Resources are reported using polygonal estimation methods. Polygons assume underground mining methods, a minimum thickness of 0.8 m to 1 m depending on the mineralized zone, a 1.0-g/t Au cut-off grade, a gold price of 1,231.03 USD per troy ounce, and a gold metallurgical recovery of 94.3%. 4. Estimates have been rounded as required by reporting guidelines. Totals may not sum due to rounding.
Gold is the primary resource commodity. Silver is a minor associated by-product. Sulfur, Pb, Zn, Cu, iron, and other elements present in detectable concentrations are considered insignificant to mining economics and are not included in the resource statement.
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The Mineral Resource excludes polygons that have been mined and accounts for mining depletion up to the effective date of the estimate. Depletion has been applied to the Resource to account for the extraction since the date of the verification or annual report that served as the basis to establish the Resource and Reserve. The depletion was provided by Shandong Gold and is the result of internal accounting for the production allocated against the verified resource. Resource depletion is allocated first from Measured, then Indicated, and any remainder from Inferred.
Planned future mining will continue to deplete the resource. Resource classifications can change in the vicinity of mining as geological information is collected during mining. Historical practice shows that polygons adjacent to mining often times can be upgraded to higher resource classifications as a result of improved geological control. Even without additional exploration drilling, resource upgrading due to mining can replenish some part of the Measured and Indicated resource and, correspondingly, some part of the Proven and Probable reserves. Historically, this mechanism of replenishment has allowed Shandong Gold to maintain a reliable reserve inventory ahead of mining where a large base of Inferred resource is available for upgrading.
The reader is cautioned that a Mineral Resource is an estimate only and not a precise and completely accurate calculation, being dependent on the interpretation of limited information on the location, shape, and continuity of the occurrence and on the available sampling results. Actual mineralization can be more or less than estimated depending upon actual geological conditions.
Mineral Resources that are not Mineral Reserves have not demonstrated economic viability. The Mineral Resource statement includes Inferred Mineral Resources. There is a low level of geological confidence associated with Inferred Mineral Resources and there can be no certainty that further exploration work will result in estimation of Indicated or Measured Mineral Resources.
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15 MINERAL RESERVE ESTIMATES
The CIM Definitions Standards (CIM 2014) define a mineral reserve as follows:
A Mineral Reserve is the economically mineable part of a Measured or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at Pre-Feasibility or Feasibility level as appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified.
The CIM Definitions Standards (CIM 2014) further state that:
Mineral Reserves are those parts of Mineral Resources which, after the application of all mining factors, result in an estimated tonnage and grade which, in the opinion of the Qualified Person(s) making the estimates, is the basis of an economically viable project after taking account of all relevant Modifying Factors. Mineral Reserves are inclusive of diluting material that will be mined in conjunction with the Mineral Reserves and delivered to the treatment plant or equivalent facility. The term ‘Mineral Reserve’ need not necessarily signify that extraction facilities are in place or operative or that all governmental approvals have been received. It does signify that there are reasonable expectations of such approvals.
Dr. Douglas F. Hambley, P.E., P.Eng., and P.G., of AAI is responsible for the Mineral Reserve estimate presented here. Dr. Hambley is a QP as defined by NI 43-101 and is independent of Shandong Gold. The Mineral Reserve estimate for Shandong Gold’s Chifeng Chaihulanzi Mine and associated mining and exploration rights in the Inner Mongolia Autonomous Region of China was completed in accordance with NI 43-101, and is based on all data and information available as of 31 March 2018. The mineral reserves presented herein are classified according to Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards (CIM 2014). Mined rock from the Chaihulanzi Mine is processed in the on-site Chaihulanzi Mine mill facility, which is capable of processing 1,250 tpd.
15.1 Estimation Parameters and Modifying Factors
The Chifeng Chaihulanzi Mine is comprised of four licenses issued by the PRC’s MLR and reviewed by the Inner Mongolia DLR. One license comprises mining rights and three have exploration rights. The mining right consists of the Chaihulanzi Mine, which is an active developed underground mine. The three exploration rights are for exploration in the Wenjiadixi Exploration Area, the deep exploration below the Chaihulanzi Mine at Chaihulanzi Mine Deep Prospecting Area, and exploration in the Hadagou Mine General Exploration. The Wenjiadixi Exploration Area and Chaihulanzi Mine Deep Prospecting Area exploration rights are adjacent to the Chaihulanzi Mine; and the Hadagou Mine Exploration is located approximately 2.4 km south of the Wenjiadixi Exploration Area.
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Reserves have been declared only where either underground development is in place nearby or a prefeasibility or feasibility study has been completed to demonstrate economic viability. Reserves have been declared for the Chaihulanzi Mine mining license and the Wenjiadixi Exploration Area exploration license.
The Chaihulanzi Mine mining method is shrinkage with delayed fill, with the fill composed of broken waste rock and paste tailings. This method will be discussed in more detail in Section 16 of this report.
The reserve polygons were created based solely on Indicated Resources that have been demonstrated to be economically viable; therefore, allowing for dilution above an estimated cut-off grade, Measured and Indicated Mineral Resources within active or feasible areas have been converted to Proven and Probable Mineral Reserves as defined by NI 43-101. Inferred Mineral Resources cannot be converted to mineral reserves and are not considered as part of the Reserve statement.
15.1.1 Dilution, Extraction Ratio, and Mill Recovery
Dilution and mining recoveries are functions of many factors including workmanship, design, vein width, mining method, extraction, and transport. Dilution was applied to Measured and Indicated Resource polygons in the amount of 12.9% at a grade of zero. A mining recovery ratio of 90.49% was applied assuming that sill and crown pillars below and above haulage levels, respectively, and longitudinal pillars at the end of stopes on strike would eventually be extracted. The actual dilution and mining recovery factors at the Chaihulanzi Mine have varied over time as a result of the conversion to cut-and-fill from shrinkage stoping. Mill recovery was determined from reconciliation between reported planned and actual tonnage, and gold production between 2010 and Q1 2018, as discussed in the following subsection.
15.1.2 Reconciliation of Mineral Reserves to Production
Production monitoring and reconciliation of Mineral Reserves are the ultimate activities by which the Mineral Reserve estimate can be continuously calibrated and refined. The only valid confirmation of both the Mineral Resource and Mineral Reserve estimates is through appropriate production monitoring and reconciliation of the production estimates with mine and mill production. Proper reconciliation is required to validate the Mineral Reserve estimates and allows a check on the effectiveness of both estimation and operating procedures. Reconciliations identify anomalies that may prompt changes to the mine/processing operating practices and/or to the estimation procedure.
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As part of the ore verification reports that are produced for each property, an ore reconciliation is produced for each active mill. Table 15-1 shows the reconciliations for the Chaihulanzi Processing Plant.
Table 15-1. Chaihulanzi Mine Production Reconciliation
Mining Mined Mill Year Dilution Recovery Grade Recovery (%) (%) (g/t) (%)
2010 8.16 92.36 3.30 94.30 2011 9.82 90.65 2.42 93.70 2012 9.64 94.63 2.27 94.08 2013 9.26 93.85 2.19 92.95 2014 9.17 94.44 2.50 92.30 2015 13.75 94.17 2.26 94.08 2016 22.92 83.60 2.45 93.45 2017 14.18 85.38 2.58 94.50 Q1 2018 13.87 85.72 2.54 94.50 2010-Q1 2018 12.92 90.49 2.47 93.87
Note: Listed values are those used to determine cut-off grade; they are not intended to be a full reconciliation of yearly production.
15.1.3 Breakeven Cut-off Grade
A mining breakeven cut-off grade is used for defining the reserves. The actual production cost data is from 2015 through March 2018, reserve price assumptions, and mill recoveries are used to calculate the reserve breakeven cut-off grade. The parameters used for the calculation are presented in Table 15-2.
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15.2 Reserve Classification
Mineral Reserves are those parts of Mineral Resources which, after the application of all mining factors, result in an estimated tonnage and grade, which is the basis of an economically viable project after taking account of all relevant Modifying Factors. As discussed in Section 15.1, Mineral Reserves for the Chifeng Chaihulanzi Mine have been derived and classified according to the following criteria (CIM 2014):
• A Proven Mineral Reserve is the economically mineable part of a Measured Mineral Resource. A Proven Mineral Reserve implies a high degree of confidence in the Modifying Factors.
• A Probable Mineral Reserve is the economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Reserve. The confidence in the Modifying Factors applying to a Probable Mineral Reserve is lower than that applying to a Proven Mineral Reserve.
The feasibility studies and/or mining experience in adjacent polygons have determined that extraction of the polygons is feasible based on grade, tonnes, costs, and access requirements.
Table 15-2. Chaihulanzi Mine Estimated Reserve Cut-off Grades
Unit Cost (USD/process tonne) Weighted Item 2015 2016 2017 Q1 2018 Average
Gold metallurgical recovery 94.3% 94.3% 94.3% 94.3% 94.3% Total cash cost (USD/t) 40.88 53.94 53.23 53.56 49.88 Gold selling price (USD/oz.-t) 1,231.03 1,231.03 1,231.03 1,231.03 1,231.03 Cut-off grade (Au g/t) 1.10 1.45 1.43 1.43 1.34
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15.3 Mineral Reserves
AAI took the resource polygons in or adjacent to developed mining areas, and those in exploration rights having a completed feasibility study, and applied the following parameters in order to estimate the reserves:
• Mine cut-off grade: 1.34 g/t Au
• Minimum mining width: 0.8 m
• Mining dilution: 12.92%
• Mining extraction ratio: 90.49%
• Metallurgical recovery: 94.3%
• Gold Price: 1,231.03/oz. USD
Proven and Probable Mineral Reserves for the Chifeng Chaihulanzi Mine properties, as of 31 March 2018, are summarized in Table 15-3. The Mineral Reserves before application of the Modifying Factors are a subset of the mineral resources reported in Section 14 of this report.
15.4 Factors That May Affect the Mineral Reserve Estimate
The Chaihulanzi Mine is an operating mine with more than 30 consecutive years of production (9 years since purchase by Shandong Gold). Chifeng Chaihulanzi Mine management and technical staff possess considerable experience and knowledge with regard to the nature of the mineral deposits in and around the mine. It is unlikely that there will be a major change in processing methods during the life of the current reserves because all of the mineralization to be mined will be extracted from veins with historic, recent, or current production. Note that the mill has been expanded since the mine began production, but the processing method has not changed from the RIP cyanidation method of the original (1988) design.
The process of mineral reserve estimation includes technical information which requires subsequent calculations or estimates to derive subtotals, totals, and weighted averages. Such calculations or estimations inherently involve a degree of rounding and consequently introduce a margin of error. The QP does not consider these errors to be material to the reserve estimate.
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Table 15-3. Chifeng Chaihulanzi Mine Mineral Reserve Summary (effective date 31 March 2018)
Ore Tonnes Contained Contained Attributable Shandong Shandong to Shandong Gold Gold Ore Gold Au Contained Attributable Ag Contained Attributable License Tonnes 73.52% Grade Au 73.52% Grade Ag 73.52% (Mt) (Mt) (g/t) (t) Au (t) (g/t) (t) Ag (t)
Chaihulanzi Mine (C1500002011074120119786) Proven None None None None None None None None Probable 0.05 0.04 3.66 0.19 0.14 None None None Total Proven and Probable 0.05 0.04 3.66 0.19 0.14 None None None Wenjiadixi Exploration Area (T15120091202037787) Proven None None None None None None None None Probable 0.85 0.63 5.28 4.50 3.31 None None None Total Proven and Probable 0.85 0.63 5.28 4.50 3.31 None None None Chaihulanzi Mine Deep Prospecting Area (T15520161102053340) Proven None None None None None None None None Probable None None None None None None None None Total Proven and Probable None None None None None None None None Hadagou Mine Exploration (T15120080402005224) Proven None None None None None None None None Probable None None None None None None None None Total Proven and Probable None None None None None None None None Combined Licenses Proven None None None None None None None None Probable 0.90 0.67 5.19 4.69 3.45 None None None Total Proven and Probable 0.90 0.67 5.19 4.69 3.45 None None None
Notes: 1. Mineral Reserves were reviewed by Dr. Douglas Hambley, RM-SME, of AAI, who is the Qualified Person for the estimate and independent of Shandong Gold. 2. Reserves were based on a cut-off grade of 1.34-g/t Au, which was based on average operating costs for January 2015 through March 2018. 3. Gold price assumptions is 1,231.03 USD per troy ounce, based on the 3-year monthly average London PM Fix gold price from 1 April 2015 through 31 March 2018. 4. Figures in the table are rounded to reflect estimate precision; small differences generated by rounding are not material to estimates. 5. Reserves are estimated based on delivery to the mill stockpile.
Areas of uncertainty that may materially impact the Mineral Reserves presented in this report include the following:
• Changes in geotechnical conditions due to increasing depths
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• Dilution assumptions
• Variations in commodity price(s)
• Ability to convert exploration rights into mining rights
16 MINING METHODS
Mineralized zones in the Chifeng Chaihulanzi Mine area are accessed by vertical shafts used for both men and muck hoisting, and ventilation. Personnel access for these mines is by a series of vertical shafts, with the deeper levels accessed by internal shafts (winzes) with underground hoistrooms. Shafts are multilevel, having levels on 40- to 50-m spacing. Figure 16-1 shows a longitudinal section through a typical mine. The Chaihulanzi Mine was active at the time of the mine visits in September 2017.
The mining method used depends on the thickness and dip of the ore horizon as follows:
• For thin mineralized zones with a thickness less than 4 m and a dip angle greater than 45Њ, overhand shrinkage is used;
• For thicknesses of more than 4 m and dip greater than 45Њ, sublevel longhole stopes are used; and
• For areas with a dip of less than 45Њ, room-and-pillar mining is used.
Both shrinkage and sublevel longhole stoping are accompanied by delayed filling to reduce the potential for damage and safety hazards. At the Chaihulanzi Mine, shrinkage with delayed filling is used. (Mine management called it cut-and-fill, but what we saw wasn’t true cut-and-fill.) At the Wenjiadixi Exploration Area, the anticipated mining is projected to be 60% by shrinkage, 15% by longhole, and 25% by room-and-pillar. These mining methods are described in greater detail in later subsections.
16.1 Geotechnical and Hydrogeological Considerations
The country rock surrounding mineralized veins in the Chaihulanzi Mine consists of granite and altered zones. The main alteration consists of silicification, sericitization, and pyrite mineralization, which are closely related to the gold mineralization. The granites are very strong, brittle rocks that are prone to rockbursts at depth; the altered zones are weaker but well-cemented though subject to platy fractures. The mines are concerned about the rockburst issue, and Shandong Gold corporate management is considering setting up centers for backfill and deep mining research. The authors recommend that these centers be implemented.
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Figure 16-1. Typical Longitudinal Section along a Vein System showing Mine Workings APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 10
Ground support consists of 1.6-m-long, 32-mm-diameter split-set-type rock bolts. Bolts are 1-m spacing. Intersections between drawpoints and the haulage ן installed on an approximately 1-m mains were occasionally supported by cast-in-place concrete and steel channels supporting wood lagging. Blasting powder factors appeared to be adequate judging from the common presence of drill-hole half-barrels in the roofs and sides of the openings. Little blast-related fracturing or overbreak was seen in the roofs or walls of the drifts.
Although the mine workings are generally below the water table (piezometric surface), the granitic host rocks are highly impermeable and the water in the mine is generally from water required for drilling and backfilling activities. Minor seeps may occur on faults.
16.2 Description of Stoping Methods
16.2.1 Shrinkage with Delayed Filling
Shrinkage stoping is performed in the classic manner, overhand mining using horizontal mining cuts, with the broken rock used to support the walls of the openings. Development is initiated on a lower haulage level by drifting along the vein. The mineralized zone is divided into blocks of 40 to 50 m in length along strike. The block width corresponds to the mineralized thickness; the block height corresponds to the level spacing of 40 m. Other important dimensions are the end pillar width of 8 m and crown pillar thickness of 4 m, resulting in an extraction ratio of 75% without pillar recovery. Cross-cuts are driven oblique to the drift on 6-m horizontal intervals that are belled out upwards to serve as drawpoints. With the drawpoints in place, mining proceeds upward with horizontal cuts. Mining is by drill-and-blast using jackleg drills, and mucking is by railbound, model ZW-26 overshot mucking machines, similar to an Eimco 12B, into side-dump rail cars. A manway raise is driven at one end of a stope and an exhaust raise is driven at the other end for ventilation. These raises are driven in the end pillars and are shared with adjacent stopes. Stoping is by 3-m high, 3.8-m long breast rounds across the full economic width of the vein. A plan and vertical section through a typical stope is presented in Figure 16-2.
16.2.2 Sublevel Longhole Stoping with Delayed Filling
Similar to shrinkage stoping, the mineralized block length for longhole stoping is 40 to 50 m, the width is the mineralized thickness, and block height is the level spacing of 40 m. Allowing for a crown pillar thickness, the vertical spacing between drill drifts is 9 m. From the drill drifts, the mineralized block is ring-drilled on a 1.2-m spacing. Access to the mining area and broken muck removal are performed as for shrinkage stoping above.
16.2.3 Room-and-Pillar Mining
The mineralized zone is subdivided into 50-m long blocks that rise 50 m along the dip. The block is divided into four rooms, with each room being 11-m wide, including pillars. The room height is the mineralized thickness. Blocks are separated by 4-m-wide crown pillars along strike. The block is .4-m rectangular pillars on a center-to-center spacing of 11 m ן supported by 3-m
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16.3 Production Rates and Number of Mining Faces, and Dilution and Extraction Ratio
The Chaihulanzi Mine was established in 1983 by the local government and was purchased by Shandong Gold in 2008. Shandong Gold owns 73.52% and the remaining 26.48% is owned by two investors. Under previous ownership, production was at a rate of 180 tpd; since coming under Shandong Gold ownership, production has risen to 1,000 tpd. The mine is seeking to grow further by incorporating smaller individual mines in the area, of which there are more than 180. Currently, the company is negotiating with two other mines and have received one smaller mine (Hadagou Mine General Exploration) from the local government. ROM grade at the Chaihulanzi Mine was stated to average 2.7 g/t gold and contains other metals and rare earth elements (REEs).
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Figure 16-2. Plan and Sections for a Typical Shrinkage Stope
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16.4 Mine Facilities and Equipment
This subsection provides information on the in-mine services and equipment at the Chifeng Chaihulanzi Mine area mines. Details for the Chaihulanzi Mine were obtained from mine management and from the prefeasibility report for Wenjiadixi exploration (SDG 2016). Table 16-1 provides a list of the mobile equipment used underground at the Chaihulanzi Mine. Table 16-1 does not include the side-dump ore cars, and trolley locomotives seen in the mine. The aforementioned equipment and the equipment listed in Table 16-1 are sufficient to produce the daily tonnages at the Chaihulanzi Mine.
16.4.1 Hoisting
Ore is hoisted to surface from the mines in a series of vertical shafts. Mine management stated that the No. 1 shaft is inactive and that production is obtained from the No. 2 and No. 3 shafts. A fourth shaft is being developed to service the Wenjiadixi Exploration Area license once it has been converted to a mining license. The hoisting facilities are summarized in Table 16-2. The hoisting facilities are sufficient to meet the 1,000 tpd rate to the Chaihulanzi Mine mill.
Table 16-1. Underground Mobile Mining Equipment
Quantity (set) Equipment Name Operating Standby Subtotal Manufacturer/Supplier
YT-27 jackleg drill 18 Shandong China Coal Industry and Mining Group MLW-40E Qingdao Bohwa Machinery wheel-mounted Corp., Qingdao, Shandong, backhoe loader China 0.5 m electric LHD 1 0 1 Unknown 0.75 m electric LHD 1 0 1 Unknown 0.75 m3 LHD (diesel) 1 0 1 Unknown SYG2600 fixed rock 2 0 2 Unknown breaker LHD = load-haul-dump
Table 16-2. Chaihulanzi Mine Shaft Hoisting Facilities
Number Top Bottom Shaft Shaft Hoist Hoist of Hoist Shaft Elevation Elevation Depth Inclination Type Power Ropes Conveyance Type
(m MSL) (m MSL) (m) (kW)
No. 1 885 691.5 193.5 Vertical Drum 70 1 Double cages in balance No. 2 905 700 205 Vertical Drum 250 1 Double cages in balance No. 3 930 540 390 Vertical Friction 590 4 Double cage and counterweight
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16.4.2 Ventilation
Air for breathing, atmosphere temperature control, and controlling diesel equipment exhaust is generally supplied to the mines through the service shafts and returned to surface through exhaust shafts. At the Chaihulanzi Mine, diesel LHD equipment is used. According to the Safety Regulations for Metal and Nonmetal Mines (PRC 2006), the air volume required where diesel equipment is used is 4 cubic meters per minute (m3/min) per kilowatt (kW) of engine power, and the standard for air supply volume for personnel under the shaft is 4 m3/min/person. According to mine management personnel, ventilation air is supplied by three fans whose power totals 824 kW. Air velocity at the faces is 0.25 m/s and total airflow is 96 cubic meters per second (m3/s) (Table 16-3).
Table 16-3. Chifeng Chaihulanzi Mining Area Ventilation System Information
Total Air Airspeed at No. of Main Power per Total Fan Mine Flow Face Fans Fan Power (m3/s) (m/s) (kW) (kW)
Chai 96 0.25 3 275 824
16.4.3 Compressed-Air Supply
In the mines, compressed air is used to provide the power to the jackleg drills and overshot mucking machines. The compressed air supply appeared to be sufficient for the mine needs.
16.4.4 Mine Water Supply
Water is provided in the mines to control dust during drilling. Water is supplied to the lower parts of the mine through pipes in the main shaft and escape shaft. The pipelines are provided with pressure-reducing valves for counteracting the water pressure increase due to auto compression prior to distribution to the various working locations and refuge chambers.
Total mining water consumption of 450 cubic meters per day (m3/d) is provided by water inflows into the mine that have been collected and purified. The water supply appeared to be adequate for the mine needs.
16.4.5 Mine Drainage and Pumping
Water used for drilling, water that drains from backfilling, and groundwater draining into the mine must be removed from the mine. At the Chaihulanzi Mine, the normal inflow rate is 1,200 m3/d, with a maximum of 1,500 m3/d during monsoon season. The pumping capacity of 120 m3/hr at the mine is satisfactory.
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16.4.6 Mine Backfill System
At the Chaihulanzi Mine, a backfilling station has been constructed with a capacity of 24 cubic meters per hour (m3/hr). This plant capacity is more than sufficient for the needs of the mine. Because the processing plant is not located at the mine site, tailings are not used for backfill. Instead, the fill material consists of mined waste rock, stone powder, cement, and sand. The proportions of the solids are: waste rock 40.6%, stone powder 30.5%, cement 13.7%, and sand 15.2%. Solids content is 91.2% by weight. Backfill transport pumps consisted of high-pressure positive-displacement pumps.
16.5 Mining Schedule
For the economic analysis discussed in Section 22, AAI developed a life-of-mine (LOM) production schedule for the Proven and Probable Mineral Reserves estimated in Section 15. The location of mining and exploration licenses that contain reserves and the location of the reserves within the licenses, is shown in Figure 16-3.
The objective of the LOM schedule was to provide a reasonably consistent mill feed grade while maximizing the after-tax net revenue. This was done by sequencing the mining in a logical fashion to minimize development costs, mining reserves with similar grades concurrently, or blending ore from reserve areas of dissimilar grade. The sequencing was done on a polygon by polygon basis, generally dividing the reserve into mining levels, and scheduling mining of the highest levels before proceeding to lower levels. It was assumed that the same mining methods as discussed throughout Section 16 would be employed.
The LOM production schedule is shown in Table 16-4. The mining sequence by year is shown in Figures 16-4 through 16-14.
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Figure 16-3. Chifengchai Mining Area Location of Reserves by License
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Table 16-4. Chifengchai Mining Area Production Schedule by License
Year 1 Q2-Q4 Year 2 Year 3 Years 1-3 License 2018 2019 2020 Totals Chifeng Chaihulanzi Gold Mining Co. Mine Development (linear m) 1,290 None None 1,290 Ore Production (1,000 tonnes) 50 None None 50 Average Gold Grade (g/t) 3.66 None None 3.66 Contained Gold (kg) 190 None None 190
Wenjiadi West Gold Mine Exploration Mine Development (linear m) 3,340 5,470 3,980 12,800 Ore Production (1,000 tonnes) 220 360 270 850 Average Gold Grade (g/t) 3.87 5.63 5.97 5.28 Contained Gold (kg) 860 2,060 1,590 4,500 Total Mine Development (linear m) 4,630 5,470 3,980 14,090 Total Ore (1,000 tonnes) 270 360 270 900 Average Gold Grade (g/t) 3.83 5.63 5.97 5.19 Contained Gold (kg) 1,050 2,060 1,590 4,690 Contained Gold (koz) 34 66 51 151 Projected Gold Recovery (%) 94 94 94 94 Payable Gold (kg) 990 1,930 1,490 4,400 Payable Gold (koz) 32 62 48 142
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Figure 16-4. Production Schedule for Orebody 1-6 at Chaihulanzi Mining Area PEDXIICMEETPRO’ EOT—AIRPR IE10 SITE REPORT AAI — REPORT PERSON’S COMPETENT III APPENDIX I1-5— III10-95 —
Figure 16-5. Production Schedule for Orebodies I-1 and I-7 at Chaihulanzi Mining Area APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 10
Figure 16-6. Production Schedule for Orebody I-1-1 at Chaihulanzi Mining Area
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Figure 16-7. Production Schedule for Orebody I-2 at Chaihulanzi Mining Area PEDXIICMEETPRO’ EOT—AIRPR IE10 SITE REPORT AAI — REPORT PERSON’S COMPETENT III APPENDIX I1-8— III10-98 —
Figure 16-8. Production Schedule for Orebody 1-3 at Chaihulanzi Mining Area PEDXIICMEETPRO’ EOT—AIRPR IE10 SITE REPORT AAI — REPORT PERSON’S COMPETENT III APPENDIX I1-9— III10-99 —
Figure 16-9. Production Schedule for Orebody 1-4 at Chaihulanzi Mining Area PEDXIICMEETPRO’ EOT—AIRPR IE10 SITE REPORT AAI — REPORT PERSON’S COMPETENT III APPENDIX I1-0 — III10-100 —
Figure 16-10. Production Schedule for Orebody II-1 at Chaihulanzi Mining Area PEDXIICMEETPRO’ EOT—AIRPR IE10 SITE REPORT AAI — REPORT PERSON’S COMPETENT III APPENDIX I1-0 — III10-101 —
Figure 16-11. Production Schedule for Orebody II-2 at Chaihulanzi Mining Area PEDXIICMEETPRO’ EOT—AIRPR IE10 SITE REPORT AAI — REPORT PERSON’S COMPETENT III APPENDIX I1-0 — III10-102 —
Figure 16-12. Production Schedule for Orebody 1-9 of the West Wenjiadi Ore Section at Chaihulanzi Mining Area PEDXIICMEETPRO’ EOT—AIRPR IE10 SITE REPORT AAI — REPORT PERSON’S COMPETENT III APPENDIX I1-0 — III10-103 —
Figure 16-13. Production Schedule for Orebody I-9-3 at Wenjiadii Mining Area PEDXIICMEETPRO’ EOT—AIRPR IE10 SITE REPORT AAI — REPORT PERSON’S COMPETENT III APPENDIX I1-0 — III10-104 —
Figure 16-14. Production Schedule for Orebody 1-9-2 at Wenjiadii Mining Area APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 10
17 RECOVERY METHODS
The Chaihulanzi Processing Plant is designed to treat 1,250 tpd. A schematic flow diagram is presented in Figure 17-1.
Figure 17-1. Chaihulanzi Processing Plant Overall Flowsheet
Processing plant labor is scheduled for three 8-hour shifts, 350 days per year. The total number of processing plant employees is 93, consisting of 6 people working in management, 2 technicians, 72 people in operations, and 13 maintenance personnel.
ROM material is processed through two stages of crushing. The crushing unit operation includes a primary C80 jaw crusher, a closed-circuit secondary HP300 cone crusher, and associated screening system. The fine ore storage bin provides crushing surge capacity for the mill.
The grinding circuit incorporates two stages of closed-circuit size reduction. The primary 4.5-m-long overflow ball mill and ן grinding and classification system consists of a 3.6-m-diameter a 500-mm-diameter cyclone cluster. The secondary grinding and classification installation consists of 3.6-m-long overflow ball mill and a 300-mm-diameter cyclone cluster. The ן a 2.7-m-diameter overflow from 300-mm cyclones is screened using a trash screen and then is pumped to a 20-m-diameter thickener for sedimentation prior to leaching. Thickener overflow is recycled back to the grinding system, and thickener underflow proceeds by gravity through the rip tanks .8.5-m-high) where the soluble gold will be adsorbed onto ion exchange resin ן 8.0-m-diameter)
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The resin treatment and refinery plant includes resin stripping, resin reactivation, electrowinning, and smelting facilities. The spent resin is processed through a thermal reactivation process and recycled back to the rip unit operation.
The pregnant solution generated by the resin treatment plant is processed by electrowinning. Electrowon metal will be washed from the cells periodically, dried, mixed with fluxes, and refined to a dorÉ product.
Tailings from the leach circuit pass through a safety screen to recover fine particles of resin and then are pumped to the tailing filter feed tank to provide slurry to the tailing filters. After filtration, the filtered tailings solids are transported to a tailing disposal area by trucks. Filtrate is recycled back to the processing plant.
A cyanide destruction/detoxification test was being conducted at the mine site during the site visit in order to meet the less than 50 parts per million (ppm) cyanide discharge standard in PRC.
18 PROJECT INFRASTRUCTURE
As the Chaihulanzi Mine is a producing facility, the infrastructure is in place and in AAI’s opinion is adequate and appropriate for the current operation.
18.1 Roads
The Chaihulanzi Mine is serviced by paved, all-weather roads that form part of the national road system. Site roads are also mainly paved, with secondary gravel roads. All roads are suitable for the equipment used at the sites and provide adequate access for necessary work.
18.2 Mine Waste Dumps
Mine waste that is not used for backfill underground, is hoisted from underground and dumped to a pocket in the various mines’ headframes. The waste is then loaded from the pocket to surface dump trucks that haul the waste to designated waste dumps. Some of the waste rock may be sold at a nominal price for use as aggregate. AAI did not observe any waste storage issues.
18.3 Mine Ore Stockpiles
Mined ore is hoisted to the surface in 2.5-t side-dump ore cars in the mine cages, with four cars hoisted at a time. Ore in the side-dump ore cars is dumped into stockpiles. All stockpiles are located near the Chaihulanzi Processing plant. Stockpiles are covered with geotextile to prevent loss from wind, rain, and snow melt.
18.4 Electrical Energy
The Chaihulanzi Mine has one 35/10-kV main step-down substation, and a 10-kV/380-volt (V) transformer to provide power underground and to the mill. The main power supply is fed from the regional grid on 35-kV transmission lines and the supply is reliable. There is adequate electrical energy for all of present and planned work at the Chifeng Chaihulanzi Mine area.
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18.5 Tailings Impoundments
Tailings from the mill are filtered with the dewatered solids trucked to a tailings facility where they are dry-stacked. To minimize leakage of leachate into groundwater, the bottom of the tailings facility has been leak-proofed. Filtrate is recycled to the processing plant.
19 MARKET STUDIES AND CONTRACTS
19.1 Markets
Because gold is a commodity that is highly liquid and widely tracked in the world market, a detailed market study on the potential sale was not completed. The 99.99% pure gold bullion produced by Shandong Gold is currently sold through the Shanghai Gold Exchange.
Figure 19-1 shows the annual London PM Fix price per oz. from 2000 through the first quarter of 2018. For the purposes of this report, and as reviewed by QP Carl Brechtel, the resources and reserves are stated at the three-year monthly average from 1 April 2015 through 31 March 2018 London PM Fix gold price of 1,231.03 USD/oz.
Figure 19-1. Gold Price History (Source www.kitco.com)
19.2 Contracts
Shandong Gold has no contracts or agreements for mining, smelting, refining, transportation, handling or sales, that are outside normal or generally accepted practices within the mining industry.
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20 ENVIRONMENTAL STUDIES, PERMITTING, AND SOCIAL OR COMMUNITY IMPACT
20.1 Introduction
The mining licenses as outlined in Section 4 give the right to carry out full mining and mineral processing operations. The assignment of a mining license requires an approved Environmental Impact Assessment (EIA). The EIA is a comprehensive assessment of the expected environmental impacts (groundwater, surface water, solid waste, etc.) with monitoring and follow-up assessment requirements.
Typical gold mine sources of environmental concern include potential water contamination from dewatering, tailings, heavy metals in soil, cyanide process water, and domestic wastewater. Subsidence can also be a concern when mining is shallow. Noise pollution is sourced from the production and processing equipment.
The mine operates under PRC laws, regulations, and guidelines. The relevant permits and approvals have been obtained for the Chifeng Chaihulanzi mines.
20.2 Laws and Regulations
Shandong Gold mines operate under PRC laws, regulations, and guidelines as briefly outlined in Table 20-1. The listing is not comprehensive, but is representative of the level of oversight.
20.3 Waste and Tailings Disposal Management
Solid waste sources are primarily development waste rock, tailings, and domestic waste. Waste rock will be used first to fill the voids underground to reduce the subsidence potential and then as fill rock in low-lying areas during reclamation.
Table 20-1. Overview Listing of PRC Laws Relevant to Mines and Mining Projects
Area of Focus Legislation
Mining Mineral Resource Law of the PRC Implementation Rules of the Mineral Resources Law Administrative Measures Concerning the Registration of Mineral Resources Exploitation Provisions of the Administration of Obtaining Gold Mining Approval Provisions of the Protection of the Geologic Environment of Mines Environmental Water Law of the PRC Water and Soil Conservation Law of China Water Pollution Prevention and Control Law of China Detailed Rules for the Implementation of the Water Pollution Prevention and Control Law of China
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Area of Focus Legislation
Regulation on the Implementation of the Water and Soil Conservation Law of China Regulation on the Administration of the License for Water Drawing and the Levy of Water Resource Fees Measures for the Administration of Water Use Permit Notice of the State Council on the Action Plan for the Prevention and Treatment of Water Pollution Environmental Protection Law of China Law on Appraising of Environment Impact Regulation on Environmental Assessment of Planning Cleaner Production Promotion Law of China Circular Economy Promotion Law of China Law on the Prevention and Control of the Environmental Pollution Caused by Solid Waste Environmental Quality Standard for Surface Water Quality Standard for Ground Water Integrated Water Discharge Standard Prevention and Control of Geological Disasters Design Regulation for Environmental Protection of Construction Projects Ambient Air Quality Standards Environmental Quality Standard for Noise Emission Standard of Air Pollutants for Boiler Emission Standards of Industrial Enterprises Noise at Boundary Identification Standards for Hazardous Wastes-Standards for Extraction Toxicity Pollution Control Standard for Storage of General Industrial Solid Waste and Disposal Site
20.4 Water Management
Potential water contaminants generated at the Chifeng Chaihulanzi Mine include suspended solids from the water produced in the underground mine drainage process. The tailings wastewater is a source of suspended solids and residual chemicals from ore processing. The domestic wastewater is a potential source of suspended solids, chemical and biological oxygen demand.
A cyanide destruction plant is being tested to minimize the potential for cyanide release from the tailings impoundment.
20.5 Air
Air contaminants potentially generated at the site include radon, and underground and beneficiation dusts. Radon gas will be diluted by ventilation. Water sprays are utilized where necessary.
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20.6 Permitting Requirements
The permitting process is briefly outlined in Table 20-2. It appears that all applicable permits and approvals are in place for the Chifeng Chaihulanzi mines. The existing exploration and mining licenses cover all the active exploration and mining areas. Mining licenses are subject to annual fees and taxes. Renewal of mining licenses and extending mining depth are a normal business process if the mineral resources are defined, the required documentation is submitted, and the government resources royalties are paid.
20.7 Social and Community
In this region there are ethnic enclaves of Mongol, Han, and Hui. The main economic sectors include agriculture and mining, and limited animal husbandry. Industry in the area is relatively undeveloped, but there is a sufficient labor resource. No nature reserve, landscape or scenic spot reserves were noted.
20.8 Remediation and Reclamation
Remediation and reclamation plans were developed during the project permitting process. Expenditures for environmental control and restoration for the past three years are included in Table 20-3.
Table 20-2. Environmental Permit
Permit Regulatory Body Description
Environmental Impact Ministry of Evaluations of impacts to the environment. Report (EIA) Environmental Protection
Water Permit Ministry of Water Issued separate from mining permits and cover Resources the drainage basin and water consumption. Gold mining projects water permits generally granted at provincial level in alignment with the Catalogue of Investment Projects Subject to Government Confirmation. Water permit sets the tariffs for water use.
Water Discharge Permit Ministry of Water Sets water quality monitoring standards. Includes Resources requirements for recycling water.
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Permit Regulatory Body Description
Mining Permit/License Ministry of Land Bond payments for mine site rehabilitation are required to obtain a miming license. A company holding a mining license must pay a security deposit for the treatment and restoration of the mines geological environment, based on the relevant state provisions. The deposit and interest will be refunded if the mining company has fulfilled its obligations and has passed inspection by the relevant Ministry of Land representative. Once a mine has ceased operation the mining company will no longer be liable for water contamination.
Tailings and Waste Ministry of Companies that produce tailings must develop a Storage Pollution Environmental pollution prevention plan and establish a liability Prevention Plan Protection system.
Mine Closure Ministry of Land Mining company must submit a mine closure Application application as well as a geological report on mine closure for approval to the original issuer of the mine permit. Closure plan must include the basic information of the mine, the current status of the geologic environment of the mine, an analysis and evaluation of the impact on the geologic environment, proposed measures to be taken to protect control and restore of the geologic environment, a budgetary estimate of the operating funds for projects and commitment to depositing a security for the protection, control and restoration of geologic environment of the mine.
Mining Approval (Gold National Development Gold mining projects must be approved by the Specific) and Reform National Development and Reform Commission. Commission
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Table 20-3. Chifeng Chaihulanzi Mine Environmental Related Expenditures
Item Unit Q1 2018 2017 2016 2015
Restoration and environmental control in Yuan 447,269 3,436,784 1,737,602 13,610 mine area Restoration and environmental control in Yuan/t 3.83 9.32 4.46 0.04 mine area (per ore ton) Restoration and environmental control in Yuan/g 1.60 3.82 2.01 0.02 mine area (per gold gram) Ore processed t 116,908 368,872 389,384 361,190 Gold output kg 280.09 900.67 866.00 830.09
21 CAPITAL AND OPERATING COSTS
Capital and operating costs (CAPEX and OPEX) for the Chifeng Chaihulanzi Mine have been derived from comprehensive annual production and financial reports supplied by Shandong Gold. The reports cover the periods 2015, 2016, 2017 and Q1 2018. Detailed costs listed in the reports include mining costs, processing costs, administration costs, selling costs, environmental protection costs, production taxes, resource tax, interest on loans, depreciation, and amortization.
Ore is processed at the Chifeng Chaihulanzi Mine to produce a concentrate, which is shipped to a Shandong Gold-owned smelter. Payable products include gold and silver, with the quantity, received price, and revenue listed in the annual reports.
Costs in the reports are in RMB. the costs have been converted into USD, using an exchange rate of 6.571 RMB/USD.
21.1 Capital Cost Estimate
No mine expansion is currently underway, and no CAPEX are projected to occur over the remaining mine life based on this reserve. Waste development costs are captured in OPEX and are expensed.
AAI is of the opinion that the lack of capital budgeted is reasonable for the short reserve life.
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21.2 Operating Cost Estimate
Operating costs are classified by cost objects in Table 21-2 for reported actual production and financial data for the periods 2015, 2016, 2017, and Q1 2018 and for estimated production and financial data for Q2-Q4 2018, 2019, and 2020. The data are also normalized to actual and estimated process tonnage and payable gold ounces. Unit OPEX are reported for three areas: Mining (direct mining, tunneling, drilling, in-mine transport, surface transport, ventilation, backfilling, hoisting, and water handling); Processing (milling and concentration, and smelting and refining); and General & Administrative (G&A), tax, financing, sales, and amortization and depreciation). Non-cash costs of amortization and depreciation have been removed from the OPEX. Table 21-2 lists the actual costs for 2015, 2016, 2017, and Q1 2018. The actual costs are normalized to cost/process tonne, and used to calculate a 45-month average cost to forecast the OPEX for mining the remaining reserves listed in Table 21-3.
AAI is of the opinion that the OPEX and Total cost are reasonable and provide an adequate basis to project the future operations costs. The total cost per Au oz. provides a very good margin in recent production, and the substantial increase in gold grade for the remaining reserve will further reduce the cost per payable gold oz.
Table 21-1. Buildup of Property Operating Costs by Cost Objects, Historical and Forecast Prediction
Forecast Prediction Historical (USD/t) (USD/t) Q2-Q4 Cost Object (Ore processed) 2015 2016 2017 Q1 2018 2018 2019 2020
Workforce Employment 11.42 13.39 14.05 14.90 13.2 13.2 13.2 Consumables 8.45 8.56 8.79 6.98 8.4 8.4 8.4 Fuel, electricity, water and other services 4.27 4.04 4.31 3.76 4.2 4.2 4.2 On- and Off-site Administration 12.42 18.94 17.75 23.74 17.1 17.1 17.1 Environmental protection and monitoring 0.01 0.68 1.42 0.58 0.7 0.7 0.7 Transportation of workforce 0.06 0.09 0.12 0.07 0.1 0.1 0.1 Product marketing and support None None None None None None None Non-income taxes, royalties and other government charges 4.29 7.99 6.46 3.31 6.0 6.0 6.0 Contingencies (0.05) 0.26 0.33 0.22 0.2 0.2 0.2 Cash OPEX Cost 40.88 53.94 53.23 53.56 49.9 49.9 49.9
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Forecast Prediction Historical (USD/g) (USD/g) Q2-Q4 Cost Object (Produced Gold) 2015 2016 2017 Q1 2018 2018 2019 2020
Workforce Employment 4.94 5.98 5.75 6.22 3.7 2.5 2.3 Consumables 3.66 3.82 3.60 2.91 2.4 1.6 1.5 Fuel, electricity, water and other services 1.85 1.80 1.77 1.57 1.2 0.8 0.7 On- and Off-site Administration 5.38 8.46 7.27 9.91 4.8 3.2 3.1 Environmental protection and monitoring 0.00 0.30 0.58 0.24 0.2 0.1 0.1 Transportation of workforce 0.03 0.04 0.05 0.03 0.0 0.0 0.0 Product marketing and support None None None None None None None Non-income taxes, royalties and other government charges 1.86 3.57 2.65 1.38 1.7 1.1 1.1 Contingencies (0.02) 0.12 0.13 0.09 0.1 0.0 0.0 Cash OPEX Cost 17.69 24.10 21.80 22.36 13.9 9.4 8.9
Table 21-2. Chifeng Chaihulanzi Mine Historical Total Costs/Process Tonne
2015 2016 2017 Q1 2018
Process tonnes 361,190 389,384 368,872 116,908 Mining cost (RMB) 37,568,035 61,811,891 53,839,288 19,941,159 RMB/t 104.01 158.74 145.96 170.57 USD/t 15.83 24.16 22.21 25.96 Processing cost (RMB) 28,462,228 33,947,131 31,183,399 10,410,178 RMB/t 78.80 87.18 84.54 89.05 USD/t 11.99 13.27 12.87 13.55 Administration cost (RMB) 30,980,093 42,253,472 43,996,633 10,793,933 RMB/t 85.77 108.51 119.27 92.33 USD/t 13.05 16.52 18.15 14.05 Total Cash OPEX (RMB) 97,010,356 138,012,494 129,019,320 41,145,271 RMB/t 268.59 354.44 349.77 351.95 USD/t 40.88 53.94 53.23 53.56 Produced Gold (g) 834,631 871,737 900,670 280,091 Cash OPEX cost per Au g (RMB/Au g) 116.23 158.32 143.25 146.90 Cash OPEX cost per Au g (USD/Au g) 17.69 24.10 21.80 22.36
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2015 2016 2017 Q1 2018
Cash OPEX cost per Au oz. (USD/Au oz.) 550.15 749.36 678.02 695.31 CAPEX cost (RMB) — — — RMB/t — — — USD/t — — — Total cost (RMB) 97,010,356 138,012,494 129,019,320 41,145,271 RMB/t 268.59 354.44 349.77 351.95 USD/t 40.88 53.94 53.23 53.56 Cash OPEX cost per Au g (RMB/Au g) 116.23 158.32 143.25 146.90 Cash OPEX cost per Au g (USD/Au g) 17.69 24.10 21.80 22.36 Cash OPEX cost per Au oz. (USD/Au oz.) 550.15 749.36 678.02 695.31
Table 21-3. Projected Operating and Capital Costs for the Chifeng Chaihulanzi Mine
Q2-Q4 2018 2019 2020
Process Tons 270,000 360,000 270,000 Mining Cost (RMB) 38,400,000 51,100,000 37,200,000 RMB/t 140.10 140.10 140.10 USD/t 21.30 21.30 21.30 Processing Cost (RMB) 23,000,000 30,700,000 22,400,000 RMB/t 84.10 84.10 84.10 USD/t 12.80 12.80 12.80 Administration Cost (RMB) 28,400,000 37,800,000 27,500,000 RMB/t 103.50 103.50 103.50 USD/t 15.80 15.80 15.80
Total Cash Operating Cost (RMB) 89,800,000 119,600,000 87,100,000 RMB/t 327.70 327.70 327.70 USD/t 49.90 49.90 49.90
Produced Gold (g) 990,000 1,930,000 1,490,000 Cash Opex Cost/Au G (RMB/Au g) 91.20 62.00 58.50 Cash Opex Cost/Au G (USD/Au g) 13.90 9.40 8.90 Cash Opex Cost/Au oz (USD/Au oz) 431.40 293.50 276.80
Capex Cost (RMB) — — — RMB/t — — — USD/t — — —
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Q2-Q4 2018 2019 2020
Total Cost (RMB) 89,800,000 119,600,000 87,100,000 RMB/t 327.70 327.70 327.70 USD/t 49.90 49.90 49.90
Total Cost/Au G (RMB/Au g) 91.20 62.00 58.50 Total Cost/Au G (USD/Au g) 13.90 9.40 8.90 Total Cost/USD/Au oz 431.40 293.50 276.80
22 ECONOMIC ANALYSIS
An economic analysis of the Chifeng Chaihulanzi Mine operations has been conducted using the mining reserves as adjusted to the beginning of Q2 2018. The annual production schedule used in the economic analysis can be found in Table 16-4. Methodology for forecasting productions and cost rates have been explained in section 21. Non-cash charges in the mine reporting have been removed.
Calculations are based on RMB. No inflation or cost escalation is assumed and a flat gold price of 1,231.03 USD is used in the analysis (3-year monthly average from 1 April 2015 through 31 March 2018 London PM fix gold price). A currency conversion of 6.571 RMB per 1.00 USD is assumed.
22.1 Taxes
Resource tax and local taxes, plus other government charges, are contained in the mine operating reports. They are accounted for in the forecast OPEX because they are contained in the projected unit cost rates. These costs contain the resource tax, which is currently based on 4% of revenue from the major products before tax.
Income tax is 25% of net operating profit, calculated as revenue less OPEX and depreciation plus amortization.
22.2 Economic Projection
An economic model of future financial performance of the Chifeng Chaihulanzi Mine was developed based on the historical production rates and costs, and the remaining reserves. The average reserve grade was used to estimate the future gold production. Silver grades have been defined in historic production, but have not been included in the reserves and therefore, have not been included in revenue. Historical reporting of silver production indicates it contributed minor revenue (approximately 0.2%) compared to gold. The production schedule and costs are listed in Table 22-1. Chifeng Chaihulanzi Mine is 73.5% owned by Shandong Gold.
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Table 22-1. Chifeng Chaihulanzi Mine Production and Cost Forecast
Ore Payable Period Processed Au Grade** Au** Revenue* OPEX CAPEX (t) (g/t) (oz.) (USD) (USD) (USD)
Q2-Q4 2018 270,000 3.59 32,000 39,000,000 13,700,000 — 2019 360,000 5.28 62,000 76,400,000 18,200,000 — 2020 270,000 5.60 48,000 59,000,000 13,300,000 — Total 900,000 4.87 142,000 174,300,000 45,100,000 —
* Does not include payable silver. ** Payable gold grade and gold production based on process assumptions defined in Section 15 Mineral Reserve Estimate. Note: Figures in the table are rounded to reflect estimate precision; small differences generated by rounding are not material to estimates.
22.3 Sensitivity of Reserves to Gold Price
The reserve’s sensitivity to gold price assumptions has been investigated for a range of gold prices between 80% and 120% of the forecast price assumption of 1,231.03 USD/Au oz. This resulted in a range of gold prices between 984.82 and 1,477.24 USD/Au oz. Table 22-2 lists the associated cut-off grades for the active mining license(s) and corresponding estimated reserves by gold price.
Table 22-2. Sensitivity of Gold Reserves to Gold Price
Shandong Jinzhou Mining Group -20% -10% 0% +10% +20%
Gold metallurgical recovery 94.3% 94.3% 94.3% 94.3% 94.3% Total cash cost (USD/t) 49.88 49.88 49.88 49.88 49.88 Gold selling price (USD/oz.-t) 984.42 1,107.93 1,231.03 1,354.13 1,477.24 Cut-off grade Au (g/t) 1.67 1.49 1.34 1.22 1.11 Proven and Probable Reserves Ore tonnes (million) 0.90 0.90 0.90 0.90 0.90 Grade (g/t) 5.19 5.19 5.19 5.19 5.19 Contained Au (t) 4.69 4.69 4.69 4.69 4.69
23 ADJACENT PROPERTIES
The Chifeng Chaihulanzi Mine mining and prospecting area is located in the Songshan District. While there are other mines in the region, there are no immediately adjacent properties that might materially affect the interpretation or evaluation of the mineralization or exploration targets of the Chifeng Chaihulanzi Mine area.
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24 OTHER RELEVANT DATA AND INFORMATION
24.1 Risk Assessment
Mining by its nature is a relatively high risk business when compared to other industries except construction. Each mine is hosted in a geologic deposit, the occurrence and mineralized grade of which and the resultant response to mining and processing of which are unique.
Under PRC mining regulations, periodic verification reports are prepared for each mining and exploration right by external entities. These verification reports include verifications of the mining right and reserve estimates within the integrated mining area, examination of whether surrounding mineral rights overlap, evaluation of the technical conditions of the deposit and a discussion of the main problems that could arise and require mitigation in mining and exploration. This includes a ranking of the complexity of the geologic environment per the requirements of the Provisions of the Protection of the Geologic Environment of Mines.
A risk analysis was undertaken in line with Guidance Note 7 (Rule 1.06 of the HKEx Listing Rules). Risk assessments address the likelihood and consequences of possible threats to the success of a particular project and are necessarily subjective and qualitative. Risk is classified from minor to major as follows:
• Major Risk: immediate danger of a failure, which if uncorrected, will have a material effect (>15% to 20%) on the project cash flow and performance and could lead to failure of the project.
• Moderate Risk: the factor, if uncorrected, could have a significant effect (10% to 15%) on the project cash flow and performance.
• Minor Risk: the factor, if uncorrected, will little or no material effect (<10%) on the project cash flow and performance and could lead to failure of the project.
The degree or consequence of a risk and its likelihood are combined into an overall risk assessment as shown in Table 25-1. The likelihood of a risk within a 7-year time frame is considered as likely, possible or unlikely. A likely risk will probably occur, a possible risk may occur and unlikely risk will probably not occur.
Table 24-1. Overall Risk Assessment Guide
Consequence of Risk Likelihood of Risk (within 7 years) Minor Moderate Major
Likely Medium High High Possible Low Medium High Unlikely Low Low Medium
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Table 24-2 presents the risk assessment for the Chifeng Chaihulanzi property. The risks are assigned before mitigation is taken into account. Mining projects are highly regulated in the PRC. Interruptions to production can occur if Chifengchai is not diligent in complying with the requirements of the various agencies. If the agencies are in conflict, Chifeng Chaihulanzi may experience delays or nonrenewal of licenses that are not within their immediate control. The only high risk area that has been identified refers to compositing of samples intervals. Chifeng Chaihulanzi is aware of the risk and is working on mitigation.
Table 24-2. Project Risk Assessment Table before Mitigation
Discussion of Hazard/Risk and Consequence Hazard/Risk Issue Mitigation Plans Likelihood Rating Risk
Geological & Resources
Drilling data quality Diamond core drilling serves as Unlikely Moderate Low the basis for the vast majority of mineral resources. Great care has been taken by Shandong Gold and its contractors to insure quality samples are obtained for assaying. Risk exists in older, non-gyroscopic down-hole surveys of the drill hole that may create minor shifts in the 3D position of mineralization in the drill holes. Shandong Gold has indicated new drilling with include gyroscopic down-hole surveys to correct this risk.
Drill sample density Drill-hole density is regulated by Possible Moderate Medium PRC for this type of gold deposit and may or may not be sufficiently dense to accurately sample the resource.
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Discussion of Hazard/Risk and Consequence Hazard/Risk Issue Mitigation Plans Likelihood Rating Risk
Sampling techniques Sampling technique has changed Possible Moderate Medium recently from mechanical splitting of core into half-core for sampling to diamond sawing of the core into half-core to obtain the assay samples. This recent change will improve the accuracy and reliability of the core hole assay results.
Compositing The practice of excluding below Likely Moderate High methodology cutoff-grade sample intervals within a vein intercept calculation is not consistent with industry best practices. There is a risk that veins with significant amounts of below cutoff-grade material may not be mineable at a profit. Inclusion of this material in dilution calculations and mine designs mitigates this risk.
Gold analysis There is a risk that the resource Likely Minor Medium methodology estimate based on aqua regia gold assays does not accurately represent the mineral resources of the Project. The fire assay method is the international standard for producing total gold analyses for use in resource estimation. Aqua regia digestion gold assays do not necessarily represent the total gold content of the sample under analysis. Shandong Gold reportedly regularly confirms aqua regia gold analyses with fire assay check assays, which mitigates this risk.
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Discussion of Hazard/Risk and Consequence Hazard/Risk Issue Mitigation Plans Likelihood Rating Risk
Geologic interpretation Misinterpretation may result in the Unlikely Moderate Low loss of ore by non-discovery, or the development of areas which prove less well mineralized than expected
Mineral Resources/ Estimates of tonnes and grade and Possible Moderate Medium Reserves expected mining and processing conditions are derived from small samples of the whole. Verified historical data at producing properties may provide a more certain basis for assessing future conditions. Shandong Gold mines have considerable experience with the deposits.
Mining
Surface subsidence Near-surface old works that have Possible Minor Low not been backfilled could collapse and cause surface subsidence. This can occur at any underground mine site with near-surface workings.
Ore process/handling No significant risks were detected Unlikely Minor Low in evaluation of the mineral recovery processes.
Tailings storage facility Storage of tailings are subject to Possible Moderate Medium risk associated with dam failure. The dam is constructed of waste rock and tailings. An evaluation of the dam safety shows it is stable.
Enviromnental Liability
Ground or surface Waste waters are discharged to the Likely Minor Medium water quality tailings pond for sedimentation deterioration with the clarified water recycled back to the site for use in the plant.
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Discussion of Hazard/Risk and Consequence Hazard/Risk Issue Mitigation Plans Likelihood Rating Risk
Economic
Capital and Operating As China develops, labor and Possible Moderate Medium Costs equipment costs will tend to rise. Significant cost history is available for estimating future costs; however emphasis must be on recent costs
Commodity pricing, Commodity prices, exchange rates Possible Moderate Medium interest rates, and interest rates are subject to exchange rates change with the world markets. Metals are typically priced in USD so the RMB to USD exchange rate is an important variable.
Seismic damage to According to the Seismic Intensity Unlikely Minor Low surface structures Zoning Map of China issued in 2001 by the China Seismological Bureau, the seismic intensity of the mine areas is classified as Grade VI, which means that the potential for severe earthquakes is low.
Occupational health An occupational health and safety Possible Moderate Medium and safety program is in place to monitor and minimize risk of exposure to workers. Compliance is monitored by external agencies.
High-risk items are noted even if current practices result in a lower risk, because, if, in the next 7 years, Shandong Gold fails to continue the current mitigation, the impact on the Property could be significant.
Chifeng Chaihulanzi may experience delays or nonrenewal of licenses that are not within their immediate control. The only high-risk area that has been identified refers to compositing of sample intervals. Chifeng Chaihulanzi is aware of the risk and is working on mitigation.
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Other Risks:
In addition to the specific and general risks assessed in the Table 24-2, AAI sought input from Shandong Gold and other sources to provide additional disclosure where relevant and material to Shandong Gold’s business operations, in line with Rule 18.05(6) of the Listing Rule:
1. Project risks arising from environmental, social, and health and safety issues:
Mining projects may be affected by a variety of risks and issues, including environment as well as health and safety risks.
Environmental risks may occur as a result of human negligence such as mishandling of explosive or other dangerous articles in the operations, or force majeure such as flood, earthquake, fire and other natural disasters. The occurrence of any environmental hazards may delay production, increase production costs, cause personal injuries or property damage, result in liabilities and damage reputations. According to Shandong Gold, it has implemented certain measures to address environmental issues arising from the operations and to reduce the impact of operations on the environment. See “Business — Environmental Protection” of this prospectus for details. As advised by Shandong Gold’s Legal Advisors (King & Wood Mallesons 2018), during the Track Record Period, Shandong Gold did not have any material incidents of non-compliance with PRC environmental laws and regulations at its PRC Mines that resulted in material penalties.
According to Shandong Gold, it has implemented a comprehensive occupational health and safety system, which includes operational manuals with respect to its mining and production safety operations, procedures for handling hazardous chemicals and explosive materials, emergency plans, reporting and accident handling, among other things, based on national requirements or policies. It seeks continued improvement in its implementation and standards. See “Business — Occupational Health and Safety” of this prospectus for details. As advised by Shandong Gold’s Legal Advisors (King & Wood Mallesons 2018), during the Track Record Period, Shandong Gold had been in compliance with applicable PRC laws and regulations in respect of occupational health and safety in all material respects.
Mining projects may be subject to actions by local communities or other interested parties who object to the actual or perceived environmental impact of the projects. These actions may delay or halt the mining projects or create negative publicity related to the mining projects. Shandong Gold has confirmed that there has been no material environmental concern from the local community, and Shangdong Gold has established a good relationship with the local community.
Mining projects are also subject to extensive laws, rules, and regulations imposed by the PRC government regarding production safety, in particular, when the mining projects involve the handling and storage of explosives and other dangerous articles.
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2. Any non-governmental organization impact on sustainability of mineral and/or other exploration projects:
Shandong Gold confirmed that, as of the date of this report, there was no non-governmental organization impact on the sustainability of Shandong Gold’s mining and/or exploration activities.
3. Compliance with host country laws, regulations and permits, and payments made to host country governments in respect of tax, royalties, and other significant payment on a country-by-country basis:
As the amount of the PRC tax penalties received by Shandong Gold during the Track Record Period accounts for an insignificant portion of the latest audited net assets of Shandong Gold and has been fully paid, the PRC Legal Advisers of Shandong Gold (King & Wood Mallesons 2018) have advised that the PRC tax penalties received by Shandong Gold during the Track Record Period will not have a material adverse impact on the operations of Shandong Gold. The Directors of Shandong Gold confirmed that, with the support of the legal opinion of its PRC Legal Advisers, during the Track Record Period and as of the Latest Practicable Date, Shandong Gold have complied with the relevant PRC laws and regulations in all material respects.
4. Sufficient funding plans for remediation, rehabilitation, and closure and removal of facilities in a sustainable manner as well as environmental liabilities of its projects or properties:
Mining projects are subject to extensive laws, rules, and regulations imposed by the PRC government regarding environmental matters, such as the treatment of wastes and environmental rehabilitation. In particular, mining companies are required to establish a plan on the protection, control, and restorage of the geologic environment of a mine.
Shandong Gold has prepared a rehabilitation plan and stating that it seeks to adhere to its rehabilitation plan. Shandong Gold has made security deposits for restoration provisions and environmental governance. Please see the Shandong Gold’s accountant report for details.
5. Its historical experience in dealing with host country laws and practices, including management of differences between national and local practice:
Shandong Gold confirmed that, as of the date of this report, it had not experienced any material impediment in complying with PRC laws and practices or dealing with the differences between national and local practice in the PRC.
6. Its historical experience of dealing with concerns of local governments and communities on the sites of its mines, exploration properties, and relevant management arrangements:
The Directors of Shandong Gold confirmed that, with the support of the legal opinion of its PRC Legal Advisers, during the Track Record Period and as of the Latest Practicable Date, Shandong Gold have complied with the relevant PRC laws and regulations in all material respects. Shandong Gold
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Shandong Gold confirmed that, as of the date of this report, it had not experienced any material conflict with local governments and communities on the sites of its mines and exploration properties.
7. Any claims that may exist over the land on which exploration or mining activities are being carried out, including any ancestral or native claims:
Shandong Gold is required to obtain various licenses, permits, and certifications for its PRC operations. As advised by Shandong Gold’s PRC Legal Advisors (King & Wood Mallesons 2018), as of the Latest Practicable Date, other than the mining permits and exploration permits being renewed, Shandong Gold has obtained the requisite licenses, permits and certificates required by PRC laws and regulations for its current operations in material aspects. See the section headed “Business — Licenses and Permits” in the prospectus for more details.
As of the Latest Practicable Date, according to Shandong Gold, based on its knowledge, it is not aware of any pending or threatened litigation, arbitration, or administrative proceedings which it or its subsidiaries involved in and may have material adverse impacts on Shandong Gold’s financial condition or results of operation. Based on the material provided by Shandong Gold and after the proper verification by the PRC Legal Advisers of Shandong Gold, as of March 31, 2018, Shandong Gold was not involved in any unresolved litigation or arbitration in PRC, each of which had a disputed amount exceeding RMB 1 million. As the amount of the PRC administrative penalties received by Shandong Gold during the Track Record Period accounts for an insignificant portion of the latest audited net assets of Shandong Gold and has been fully paid, the PRC Legal Advisers of Shandong Gold have advised that the PRC administrative penalties received by Shandong Gold during the Track Record Period will not have a material adverse impact on the operations of Shandong Gold. The Directors of Shandong Gold confirmed that, with the support of the legal opinion of its PRC Legal Advisers, during the Track Record Period and as of the Latest Practicable Date, Shandong Gold have complied with the relevant PRC laws and regulations in all material respects.
25 INTERPRETATION AND CONCLUSIONS
The resource and reserve estimates presented here form the basis for Shandong Gold’s ongoing mining operations at the Chifeng Chaihulanzi Mine. AAI is unaware of any significant technical, legal, environmental, or political considerations which would have an adverse effect on the extraction and processing of the resources and reserves located at the Chifeng Chaihulanzi Mine properties.
Mineral resources which have not been converted to mineral reserves, and do not demonstrate economic viability, shall remain mineral resources. There is no certainty that all or any additional part of the mineral resources estimated will be converted into mineral reserves.
The Chifeng Chaihulanzi Mine has an extensive mining history with well-known gold-bearing vein systems. Ongoing exploration has continued to demonstrate the potential for the discovery of additional resources at the project and within the district surrounding the mine.
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Since Shandong Gold took control of the Chifeng Chaihulanzi Mine, new mining areas have enabled Shandong Gold to increase production by providing additional sources of mill feed. Shandong Gold’s operation management teams continue to search for improvements in efficiency, lowering costs, and researching and applying low-cost mining techniques.
The mine staff possess considerable experience and knowledge with regard to the nature of the mineralized zones in and around the Chifeng Chaihulanzi Mine. Mine planning and operations need to continue to assure that the rate of pre-production development is sufficient to maintain the planned production rates.
The processing flowsheet is a standard flowsheet that is commonly used in the mining industry, including whole ore leaching and RIP recovery methods. The Au recovery of 94.25% has been achieved in the recent plant operation.
Overall the processing plant is well designed. No significant problems have been identified during the review. The use of the latest high-quality equipment from highly respected manufacturers in the mining industry, such as Metso, was observed.
A major change in ore metallurgy during the life of the current reserves is very unlikely, as nearly all of the ore to be mined will come from veins with historic, recent, or current production.
Areas of uncertainty that may materially impact the Mineral Resources and Reserves and subsequent mine life presented in this report include the following:
• Changes in geotechnical conditions due to increasing depths
• Increases in the amount of water entering the mining areas
• Dilution assumptions
• Variations in commodity price
• Conversion of exploration license into mining license
26 RECOMMENDATIONS
It was noted during the site visits that some geologic procedures could be improved with internationally accepted best practices. These mostly deal with the collection of geologic data. Review of the verification reports reveal that in many cases these procedures are already part of Shandong’s documented continuing improvement to standardize and advance geologic practice over all of its multiple operations including recent acquisitions.
The Chifeng Chaihulanzi Mine is currently in production and the majority of the infrastructure is already in place for future operations. AAI recommends that the Chifeng Chaihulanzi Mine continue to explore the deposits downdip and along strike to add resources and reserves to the current operations.
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27 REFERENCES
Canadian Institute for Mining, Metallurgy and Petroleum (CIM) (2014), CIM Definition Standards - For Mineral Resources and Mineral Reserves, CIM, Montreal, May 10, 10 p. available at
Chifeng Chaihulanzi Gold Mines Ltd. (2012), “柴胡欄子礦區金礦生產詳查報告” [Chaihulanzi Mining Area Gold Produces Detailed Reports] [Area 1 2012 Wenjiadi Mining Rights], July 2012, translated CCG 2012.
Chifeng Chaihulanzi Gold Mines Ltd. (2016), “柴胡欄子2016資源儲量核實排版後” [Chaihulanzi Gold Reserves in Mining Areas to Verify Reports] [C9786 Chaihulanzi Verification Report 2017.docx], July 2016, 110 pp. translated C9786.
Chifeng Chaihulanzi Gold Mines Ltd. (2016), “內蒙古自治區赤峰市松山區柴胡欄子礦區溫家 地西礦段岩金礦勘探報告” [General Exploration Report of Wenjiadixi Mine in Chaihulanzi Mining Area, Songshan District, Chifeng City, Inner Mongolia Autonomous Region Wen Jiadi Chaihulanzi Mining Area West], December 2016, 109 pp., translated CCG 2016. (10-1)
General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), (2010), “Code for Seismic Design of Buildings,” Standard GB 50011-2010.
Institute of Geophysics (2001), “National Seismic Zoning Map of China (GB-18306-2001),” Institute of Geophysics China Seismological Bureau, Beijing 100081, China.
King & Wood Mallesons (2018), “北京市金杜律師事務所關於山東黃金礦業股份有限公司首次 公開發行境外上市外資股並上市的法律意見書,” PRC Legal Opinion, September. (in Chinese).
Liaoning Geology Minerals Institute (2014), “柴胡欄子金礦選礦試驗研究報告” [Chaihulanzi Gold Ore Mineral Processing Test Study Report], April, pp. 1-22.
Liu, Hongtao, Jianming Liu, Changming Yu, Jie Ye, and Qingdong Zeng (2006), “Integrated Geological and Geophysical Exploration for Concealed Ores Beneath Cover in the Chaihulanzi Goldfield, Northern China,” Geophysical Prospecting, 2006, 54:605-621.
Liu, Y., et al. (2016), “A Review of the Paleozoic Tectonics in the Eastern Part of Central Asian Orogenic Belt,” Gondwana Research, http://dx.doi.org/10.1016/j.gr.2016. 03.013.
People’s Republic of China, General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), Standardization Administration of PRC, (SAC) (2006), “Safety Regulations for Metal and Nonmetal Mines,” Standard GB 16423-2006.
People’s Republic of China, Ministry of Land and Resources (2002), “Industrial Stand on Geology and Minerals of the People’s Republic of China - Specifications for Hard-rock Gold Exploration,” DZ/T0205-2002, ICS 73.020;73.060.99 D 12.
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People’s Republic of China, Ministry of Geology and Mineral Resources (1993), “The Procedure on the Gold and Silver Ore Analysis,” DZG93-09.
People’s Republic of China, Ministry of Land and Resources (2006), “The Mineral Analysis for Rocks,” DZG2006-01.
People’s Republic of China, Ministry of Land and Resources, “The Procedure on the Physical and Mechanical Property Testing for Rocks,” DY-94.
Shandong Gold Group Yantai Design and Research Engineering Co., Ltd. (2016), “Chaihulanzi Mine, Wenjiadixi Sub-Mine Engineering Prefeasibility Study, Inner Mongolia Autonomous Region, Chifang City,” translated.
She H., D. Zhang, D. Li, and C. Feng (2006), “Mafic Granulite Xenoliths and Their Implications for Mineralization at the Chaihulanzi Gold Deposit, Inner Mongolia, North China,” Mineral Deposit Research: Meeting the Global Challenge, Springer, Berlin, Heidelberg.
Standardization Administration of the People’s Republic of China (2010), “Specification for Comprehensive Exploration and Evaluation of Mineral Resources,” GB/T 25283-2010, issued November 10, 47 pp. (in Chinese).
Xiao, W., B. F. Windley, J. Hao, and M. Zhai (2003), “Accretion Leading to Collision and the Permian Solonker Suture, Inner Mongolia, China: Termination of the Central Asian Orogenic Belt,” Tectonics, 22, 1069, doi:10.1029/2002TC001484, 6.
Zhao, G. C., S. A. Wilde, P. A. Cawood, and M. Sun (2001), “Archean Blocks and Their Boundaries in the North China Craton: Lithological, Geochemical, Structural and P-T Path Constrains and Tectonic Evolution,” Precambrian Research, 107, pp. 45-73
Zheng, Yong-Fei, Wenjiao Xiao, and Guochun Zhao (2013), “Introduction to Tectonics of China,” Gondwana Research, 23, pp. 1189-1206, 10.1016/j.gr.2012.10.001.
Zondy Cyber (2017), “MapGIS K9 Professional,” available at http://www.mapgis.com/.
28 DATE AND SIGNATURE
28.1 Statement of Certification by Timothy A. Ross
I, Timothy A. Ross, P.E., RM-SME do hereby certify that:
1. I am a Mining Engineer and Vice President and Principal of Agapito Associates, Inc. at its office located at 1536 Cole Boulevard, Building 4, Suite 220, Lakewood, Colorado, USA and co-author of the report “Independent Technical Report, Site 10 Chifengchai Mine, Inner Mongolia, China” dated 14 September 2018 and effective as of 31 March 2018 (the “Independent Technical Report”). I assume overall responsibility for this report and specifically for Sections 1, 2, 3, 4, 5, 6, 20, 23, 24, 25, 26 and 27 of this Independent
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Technical Report and I have reviewed and jointly edited all sections of this Independent Technical Report, except for Sections 7 through 12. Additionally, I have relied on the Qualified Persons for which Statements of Certification are also included in this Section 28. Each of those Qualified Person’s Statement of Certification specifies the report sections for which they are accepting responsibility.
2. I am licensed as a Professional Engineer in the states of Alabama (28419-E), Colorado (33117), Georgia (PE038920), Idaho (16397), Illinois (062.066368), Kentucky (22923), New Mexico (15973), Nevada (22061), Pennsylvania (P085961), Utah (363545-2202), Virginia (0402038410), West Virginia (9242), and Wyoming (9757).
3. I have practiced my profession as a Mining Engineer since 1977 and as a Consulting Mining Engineer since 1997.
4. I am a graduate of Virginia Polytechnic Institute and State University, Virginia, USA and earned my Bachelor of Science in Mining Engineering in 1977.
5. I am a Registered Member of the Society for Mining, Metallurgy, and Exploration, Inc. (Member Number 2768550RM) since 2006. I also serve on the Mining PE Exam Committee.
6. As a consulting engineer, I have been involved from 1997 to present with evaluation of resources and reserves and/or design of mines and other underground facilities in aggregates, industrial salts, coal, potash, gold, silver, copper and other trace minerals in the USA and Mexico, Columbia, Peru, Canada, China, Thailand, Australia, India, Germany, United Kingdom, and Russia.
7. As a result of my experience and qualifications, I am a Qualified Person as defined in National Instrument 43-101 and have five years’ experience which is relevant to the style of mineralization and type of deposit described in this report, and to the activities for which I am accepting responsibility.
8. I have no involvement with the Chifengchai Mine or Shandong Gold Mining Co., Ltd. beyond my involvement with the preparation and writing of this Independent Technical Report. I am independent of the issuer according to the definition of independence presented in Section 1.5 of National Instrument 43-101.
9. I did not visit the Chifengchai Mine or any if its mining or exploration properties.
10. As of the effective date of this Independent Technical Report, to the best of my knowledge, information, and belief, those sections or parts of the Independent Technical Report for which I was responsible contain all scientific and technical information that is required to be disclosed to make those sections or parts of the Independent Technical Report not misleading.
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11. I have read National Instrument 43-101 and Form 43-101 F1. This report has been prepared in compliance with these documents to the best of my understanding.
12. I consent to the filing of the Independent Technical Report with any stock exchange and other regulatory authority and any publication by them for regulatory purposes, including electronic publication in the public company files on their web sites accessible by the public, of the Independent Technical Report.
Dated this 14 September 2018.
SIGNED AND SEALED
PROFESSIONAL SEAL Timothy A. Ross, P.E. (Colorado)
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28.2 Statement of Certification by Douglas F. Hambley
I, Douglas F. Hambley, Ph.D, P.E., P.Eng., P.G., RM-SME, do hereby certify that:
1. I am a mining engineer and geologist and Senior Associate of Agapito Associates, Inc. at its office located at 1536 Cole Blvd., Suite 220, Lakewood, Colorado, USA and co-author of the report “Independent Technical Report, Site 10 Chifengchai Mine, Inner Mongolia, Peoples Republic of China” dated 14 September 2018 and effective as of 31 March 2018 (the “Independent Technical Report”). I am solely responsible for Sections 15, 16, 18, 19, and jointly responsible for Sections 1, 25, 26 and 27 of this Independent Technical Report and I have reviewed and jointly edited all sections of this Independent Technical Report, except for Sections 13 and 17.
2. I am a member in good standing of the Association of Professional Engineers and Geoscientists of Saskatchewan, being registered as a Professional Engineer (No. 16124) since January 2009 and of Professional Engineers Ontario, being registered as a Professional Engineer (No. 18026013) since July 1975.
3. I am also licensed as a Professional Engineer in the states of Colorado, Illinois, Michigan, Nebraska, Pennsylvania and Wisconsin and as a Professional Geologist in Illinois and Indiana. I served on the Board of Licensing for Professional Geologists of Illinois during its initial four years (1996 to 2000).
4. I have practiced my profession as a mining engineer and geologist since 1972.
5. I graduated from the Faculty of Applied Science at Queen’s University at Kingston, Ontario with a Bachelor of Science with Honours degree in Mining Engineering in May 1972. I earned a Doctor of Philosophy in Earth Sciences from the University of Waterloo in May 1991.
6. I am a Life Member of the Canadian Institute of Mining, Metallurgy, and Petroleum (CIM) and a Registered Member (No. 1299100RM) of the Society for Mining, Metallurgy, and Exploration (SME). I am a member of the Potash Subcommittee of the CIM Committee on Mineral Resources and Mineral Reserves, the SME Resources and Reserves Committee and the SME Registered Member Admissions Committee.
7. As an engineer and geologist with mining companies from 1972 to 1980 and as a consulting mining engineer and geologist since 1980, I have been involved with evaluation of resources and reserves and design of mines and other underground facilities in iron ore, base and precious metals, uranium, salt and potash and industrial minerals in Canada, the United States, Germany, Brazil, Kazakhstan, Russia, Congo (Brazzaville), South Korea, Ethiopia and China.
8. As a result of my experience and qualifications, I am a Qualified Person as defined in National Instrument 43-101 and have five years’ experience which is relevant to the style of mineralization and type of deposit described in this report, and to the activities for which I am accepting responsibility.
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9. I have no involvement with the Chifengchai Mining Area or Shandong Gold Mining Co., Ltd. beyond my involvement with the due diligence for and preparation and writing of the Independent Technical Report. I am independent of the issuer according to the definition of independence presented in Section 1.5 of National Instrument 43-101.
10. I visited the site on 4–5 September 2017, and inspected the drill core from the Chifeng Chaihulanzi Gold Mining Co., Ltd. boreholes at the client’s core warehouse near Chaihulanzi, China on 5 September 2017.
11. As at the effective date of the Independent Technical Report, to the best of my knowledge, information, and belief, those sections or parts of the Independent Technical Report for which I was responsible contain all scientific and technical information that is required to be disclosed to make those sections or parts of the Independent Technical Report not misleading.
12. I have read National Instrument 43-101 and Form 43-101 F1. This report has been prepared in compliance with these documents to the best of my understanding.
13. I consent to the filing of the Independent Technical Report with any stock exchange and other regulatory authority and any publication by them for regulatory purposes, including electronic publication in the public company files on their web sites accessible by the public, of the Independent Technical Report.
Dated this 14 September 2018.
SIGNED AND SEALED
PROFESSIONAL SEAL Douglas F. Hambley, Ph.D., P.E. (Colorado), P.Eng. (Saskatchewan), P.G. (Illinois), RM-SME
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28.3 Statement of Certification by Leonard J. Karr
I, Leonard J. Karr, CPG, QP do hereby certify that:
1. I am a Certified Professional Geologist and Qualified Person under Canadian National Instrument 43-101 and a self-employed consultant located at 173 White Ash Drive, Golden, Colorado, USA and co-author of the report “Independent Technical Report, Site 10 Chifengchai Mine, Inner Mongolia, China” dated 14 September 2018 and effective as of 31 March 2018 (the “Independent Technical Report”). I am solely responsible for Sections 7, 8, 9 10, 11, and 12, and jointly responsible for Sections 1, 6, 14, 23, 25, 26, and 27 of this Independent Technical Report and I have reviewed and jointly edited all sections of this Independent Technical Report, except for Sections 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, and 24.
2. I am a member in good standing of the American Institute of Professional Geologists and a Certified Professional Geologist, being registered as a Certified Professional Geologist (CPG-11072) since June 2006.
3. I have practiced my profession as a Geologist since 1980.
4. I am a graduate of Michigan Technological University, and earned a Bachelor of Science in Geologic Engineering in February 1980. I am a graduate of Colorado State University and earned a Master of Science in Geology in June of 1984.
5. I am a member of the Society of Economic Geologists, the Rocky Mountain Association of Geologists, and the Denver Regional Exploration Geologists.
6. As a consulting geologist, I have been involved from 1980 to 2017 with evaluation of resources and reserves in base and precious metals, coal, industrial minerals, and petroleum in the United States, Papua New Guinea, Mexico, Honduras, El Salvador, Guatemala, Nicaragua, Colombia, Ecuador, Peru, Bolivia, Brazil, Egypt, China, Australia, and Turkmenistan.
7. As a result of my experience and qualifications, I am a Qualified Person as defined in National Instrument 43-101 and have five years’ experience which is relevant to the style of mineralization and type of deposit described in this report, and to the activities for which I am accepting responsibility.
8. I have no involvement with the Chifeng Chaihulanzi Mine and associated mining and exploration rights or Shandong Gold Mining Co., Ltd., beyond my involvement with the preparation and writing of the Independent Technical Reports. I am independent of the issuer according to the definition of independence presented in Section 1.5 of National Instrument 43-101.
9. I visited the site on 4–5 September 2017, and inspected the drill core from the Chifeng Chaihulanzi Mine’s diamond drill holes at the client’s core warehouse at the Chaihulanzi Mine on 5 September 2017.
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10. As at the effective date of the Independent Technical Report, to the best of my knowledge, information, and belief, those sections or parts of the Independent Technical Report for which I was responsible contain all scientific and technical information that is required to be disclosed to make those sections or parts of the Independent Technical Report not misleading.
11. I have read National Instrument 43-101 and Form 43-101 F1. This report has been prepared in compliance with these documents to the best of my understanding.
12. I consent to the filing of the Independent Technical Report with any stock exchange and other regulatory authority and any publication by them for regulatory purposes, including electronic publication in the public company files on their web sites accessible by the public, of the Independent Technical Report.
Dated this 14 September 2018.
SIGNED AND SEALED
PROFESSIONAL SEAL Leonard J. Karr, CPG (CPG-11072)
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28.4 Statement of Certification by Qinghua Jin
I, Qinghua Jin, P.E., do hereby certify that:
1. I am currently employed as a Senior Process Engineer with SGS North America Inc. with an office at 3845 N. Business Center Drive, Suite 111, Tucson, Arizona 85705 USA and a co-author of the report “NI 43-101 Technical Report, Site 10 Chifengchai Mine, Inner Mongolia, China” dated 14 September 2018 and effective as of 31 March 2018 (the “Independent Technical Report”). I am solely responsible for Sections 13 and 17, and jointly responsible for Sections 1, 25, 26, and 27 of this Independent Technical Report.
2. I am a member in good standing of Association of Arizona State Board of Technical Registration, being registered as a Professional Engineer (License No. 53463).
3. I have practiced mineral processing for 26 years. I have worked on scoping, prefeasibility, and feasibility studies for mining projects in North America, South America, Europe, and Asia as well as worked on the design phases of some of these projects.
4. I am a graduate of Northeastern University in Shenyang, China, and earned a Bachelor of Engineering degree in Mineral Processing Engineering in 1990. I obtained two Master of Science degrees in Mining Engineering and Statistics, both from West Virginia University, USA, in 2002 and 2006, respectively.
5. I am a registered member of the Society for Mining, Metallurgy & Exploration (04138753RM).
6. As a result of my experience and qualifications, I am a Qualified Person as defined in National Instrument 43-101 and have five years’ experience which is relevant to the style of mineralization and type of deposit described in this report, and to the activities for which I am accepting responsibility.
7. I have no involvement with the Chifeng Chaihulanzi Mine and associated mining and exploration rights or Shandong Gold Mining Co., Ltd. I am independent of the issuer according to the definition of independence presented in Section 1.5 of National Instrument 43-101.
8. I visited the site on 14 September 2017 and inspected the Chaihulanzi Processing plant.
9. As of the effective date of this Independent Technical Report, to the best of my knowledge, information, and belief, those sections or parts of the Independent Technical Report for which I was responsible contain all scientific and technical information that is required to be disclosed to make those sections or parts of the Independent Technical Report not misleading.
10. I have read National Instrument 43-101 and Form 43-101 F1. This report has been prepared in compliance with these documents to the best of my understanding.
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11. I consent to the filing of the Independent Technical Report with any stock exchange and other regulatory authority and any publication by them for regulatory purposes, including electronic publication in the public company files on their web sites accessible by the public, of the Independent Technical Report.
Dated this 14 September 2018.
SIGNED AND SEALED
PROFESSIONAL SEAL Qinghua Jin, P.E. (RM-SME Arizona 53463)
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28.5 Statement of Certification by Carl E. Brechtel
I, Carl E. Brechtel, P.E., RM-SME, do hereby certify that:
1. I am a Mining Engineer for Carl Brechtel Consulting LLC and Consultant to Agapito Associates, Inc. at its office located at 1536 Cole Boulevard Building 4, Suite 220, Golden, CO 80401, USA and co-author of the report “Independent Technical Report, Site 10 Chifengchai Mine, Inner Mongolia, China” dated 14 September 2018 and effective as of 31 March 2018 (the “Independent Technical Report”). I am solely responsible for Sections 19, 21 and 22, and jointly responsible for Sections 1 through 27 of this Independent Technical Report and I have reviewed and jointly edited all sections of this Independent Technical Report.
2. I am a Registered Member in good standing of the Society for Mining, Metallurgy and Exploration (SME), Registered Member No. 0035300.
3. I am also licensed as a Professional Engineer in the states of Colorado (No. 23212) and Nevada (No. 8744).
4. I have practiced my profession as a Mining Engineer since 1975.
5. I am a graduate of the University of Utah, and earned a Bachelor of Science in Geologic Engineering in May of 1973, and a Master of Science in Mining Engineering in May of 1978.
6. I am a Registered Member of the Society of Mining, Metallurgy and Exploration (SME) USA and a Member of the AusIMM (Australia).
7. As a Mining Engineer, I have been involved from 1979 to 2017 with evaluation of resources and reserves and design of mines and other underground facilities in gold, coal, trona, and oil shale in the USA, Honduras, Colombia, Guyana, Brazil, Argentina, Morocco, Ghana, Tanzania, Namibia, Russia, and Australia..
8. As a result of my experience and qualifications, I am a Qualified Person as defined in National Instrument 43-101 and have five years’ experience which is relevant to the style of mineralization and type of deposit described in this report, and to the activities for which I am accepting responsibility.
9. I have no involvement with the Chifengchai Mine or Shandong Gold Mining Co., Ltd. beyond my involvement with the preparation and writing of the Independent Technical Reports. I am independent of the issuer according to the definition of independence presented in Section 1.5 of National Instrument 43-101.
10. I have not visited the mine site.
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11. As of the effective date of the Independent Technical Report, to the best of my knowledge, information, and belief, those sections or parts of the Independent Technical Report for which I was responsible contain all scientific and technical information that is required to be disclosed to make those sections or parts of the Independent Technical Report not misleading.
12. I have read National Instrument 43-101 and Form 43-101 F1. This report has been prepared in compliance with these documents to the best of my understanding.
13. I consent to the filing of the Independent Technical Report with any stock exchange and other regulatory authority and any publication by them for regulatory purposes, including electronic publication in the public company files on their web sites accessible by the public, of the Independent Technical Report.
Dated this 14 September 2018.
SIGNED AND SEALED
PROFESSIONAL SEAL Carl E. Brechtel, P.E. Colorado and Nevada USA
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APPENDIX A
MINING AND EXPLORATION LICENSES
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APPENDIX B
3D OBLIQUE VIEW OF VEIN UPPER SURFACE
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Figure B-1. Neimenggu Mine 3D Oblique View of Upper Surface—Vein I-9
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