Derewo River Gold Project Papua, Indonesia

Date: 11th May 2011 Report No: R152.2011

Technical Report

WEST WITS MINING LIMITED Derewo River Gold Project Papua, Indonesia

David Lennie BSc (Hons)

For: Approved:

West Wits Mining Ltd Suite 2, 1233 High Street Armadale ______Victoria 3143 Jeff Elliott Managing Director

West Wits Mining Limited Derewo River Gold Project

Executive Summary

The Derewo River Gold Project is a joint venture between Paniai Gold Ltd and local partners PT Madinah Qurrata’ain (PTMQ) whose owners are the Suhari family of Makassar. The project is located Paniai Kabupaten, Papua Province, Indonesia (see Figure 1) and consists of one granted 40ha mining licence, an application for a further 491ha mining licence, and exploration licence applications extending over approximately 129,000ha (see Figure 2).

Paniai Gold has a 50% interest in the granted 40ha mining lease as well as a further 491 ha of mining leases pending from the Provincial Government (see Figure 3). Paniai Gold also owns 50% of the exploration rights for the surrounding area, with a mechanism for them to move to 80% if the other party does not co‐contribute to further expenditure. On the 3rd February 2011 West Wits announced that they have entered into a binding Heads of Agreement with Paniai Gold to acquire its interest in the Derewo River Gold Project.

CSA Global Pty Ltd (“CSA”) was originally contracted by Paniai Gold Ltd (Paniai Gold) to complete an independent review of the Derewo River Gold project in Papua Province, Indonesia in 2008. Due to changes in Paniai Gold’s corporate plans the report by CSA was not completed and remained in draft format. Following West Wits recent acquisition of an interest in the properties CSA was requested to update and complete its report on the Derewo property.

The author was only able to visit the proposed mining area for one day in December 2008 but is able to state:

1. The local miners were working alluvial and colluvial gold deposits of a very high grade.

2. Gold occurs in the form of coarse nuggets which show clear signs of fluvial transport. These are found in Derewo River terrace deposits and are frequently covered by or mixed with colluvium.

3. The source of the gold is probably local, based on the size of the nuggets discovered and the evidence of mineralization observed in boulders and country rocks in the mining area.

4. Mineralization occurs in graphitic slate and phyllite and is associated with quartz veining, silicification and oxidation with massive pyrite and disseminated chalcopyrite, sphalerite and galena.

5. There is an excellent exploration potential for discovery of hard rock gold mineralisation within the project area however the remoteness and topography will make exploration difficult and expensive.

6. Mining of the alluvial deposits would be possible using hydraulicking and sluice boxes.

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PTMQ’s plans for the project involved bringing in equipment to establish a mining capability and developing the required infrastructure, followed by initial mining operations in one area progressively expanding mining to other areas allowing multiple parallel mining operations. Exploration for hard rock gold sources for the alluvial deposits was to be undertaken once mining operations were successfully established.

It was considered in 2009 that PTMQ’s plans for mining these alluvial/colluvial deposits were economically feasible and their budget to achieve this credible for a local company operation. As only small scale mining artisanal operations have taken place since then, the same situation should apply now. The plans could be followed by West Wits however due to the nature of how public companies must operate it is likely that the budget will require significant increases to cover risk assessment, safety, security, environmental, community, administration and other issues.

While the indications are good, with no estimate of mineral resources or ore reserves and the lack of a feasibility study the alluvial mining project contains many elements of risk. The importance of having personnel with alluvial mining experience on this kind of project cannot be overstated.

The proposed topographic survey of all the mining areas should be completed as a first step of assessing the alluvial deposits. Following this the most appropriate way of evaluating this prospect (due to the remote and inaccessible nature), is by hydraulicking, as suggested.

The placer deposit is probably the least explored one of significance in the world. It occurs in a highly mineralized district and there is good potential that the source of the alluvials is quite close by. A comprehensive exploration and evaluation program is strongly recommended but it will be important to resolve any issues surrounding tenement ownership and access permits before significant works begin.

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Contents

Executive Summary ...... II

Contents ...... IV

1 Introduction ...... 1 1.1 Scope and Terms of Reference ...... 1 1.2 Property Location and Access ...... 2 1.3 Discovery ...... 3 1.4 Ownership and Tenure ...... 3 1.5 Adjacent Properties ...... 4 2 Geography ...... 7 3 History of Local Mining...... 10 4 Regional Geology ...... 15 4.1 Mineral Deposits of New Guinea ...... 16 4.2 Local Geology ...... 18 5 Mining Area ...... 19 6 Gold Origin and Mineralization ...... 23 7 Alluvial Mining Potential ...... 26 8 Proposed Work Program and Budget ...... 32 8.1 Stage 1 ...... 32 8.2 Stage 2 ...... 33 8.3 Stage 3 ...... 35 9 Conclusions & Recommendations ...... 36 10 References & Acknowledgments ...... 38 Figures Figure 1. Location Map, Papua Province, Indonesia ...... 2 Figure 2. Project tenements ...... 4 Figure 3. Derewo River gold occurences, mining licence (Area 81), mining licence applications and surrounding exploration licence applications ...... 5 Figure 4. Generalised geological map of the project area (Stevens, 2010) ...... 6 Figure 5. Island of New Guinea ...... 7 Figure 6. : New Guinea Island ‐ Topography ...... 8 Figure 7. Local Wolani People with Paniai Gold’s community affairs officer ...... 9 Figure 8. Satellite image showing collapsed mountainside ...... 9 Figure 9. Shallow surface mining and sluicing operations ...... 12 Figure 10. Underground operations ...... 13 Figure 11. Helicopter view of mining camp, downstream of PTMQ’s lease ...... 14 Figure 12. Tectonic elements of Indonesian Papua ...... 15 Figure 13. Process of collisional delamination – Cloos et al (2005) ...... 17 Figure 14. Geology of the project area ...... 18 Figure 15. Colluvial gravel with angular to sub‐rounded boulders in a rubble matrix ...... 20 Figure 16. Gold nuggets with rounded edges and suture line of fold on the largest ...... 21 Figure 17. Oval‐shaped nuggets shaped by hydraulic transport ...... 21 Figure 18. Gold from Area 81 ...... 22 Figure 19. Gold from Area 99 ...... 22 Figure 20. Gold farming in the Derewo mainstream ...... 25 Figure 21. Wooden cages filled with boulders trap gold bearing sand and silt ...... 25 Figure 22. Location of terraces and pits in Areas 45, 81 and 99 ...... 29

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Figure 23. Two terrace levels ...... 30 Figure 24. Low terrace above main river channel ...... 30 Figure 25. Road from Nabire to transit site on the Siriwo River ...... 33 Figure 26. Slate bedrock show abundant quartz veining ...... 37 Tables

Table 1: Gold production figures for Area 81 (source PTMQ) ...... 11 Table 2. Area 81 rock samples ...... 24 Table 3. PTMQ’s budget for mine development ...... 33

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1 Introduction

1.1 Scope and Terms of Reference This report is prepared for West Wits Mining Ltd (West Wits) and represents an update to a previously completed technical assessment on the Derewo River Gold Project in Paniai Kabupaten, Papua Province, Indonesia (see Figure 1). The report is based on a review of historical activities together with field observations and supporting data that followed a one‐ day site visit undertaken by the author on 15 December 2008. Subsequent information has been provided by West Wits in a report by an Independent Consultant Geologist (Chris Roberts of CR Mining Services Pty Ltd) following his one‐day site visit in March 2011.

Paniai Gold Ltd (Paniai Gold) is a company incorporated in Australia which was, in conjunction with an Indonesian partner PT Madinah Qurrata’ain (PTMQ), granted mining leases in an area with a recent history of alluvial gold mining activity on the Derewo River in West Papua. Additional mining and exploration permits in the region have been applied for but are not yet granted. In early 2011, West Wits Mining entered into an agreement to acquire Paniai Gold’s interests in all these properties.

CSA Global Pty Ltd (“CSA”) was originally contracted by Paniai Gold to complete an independent review of the Derewo property in 2008. Due to changes in Paniai Gold’s corporate plans the report by CSA was not completed and remained in draft format. Following West Wits acquisition of an interest in the properties CSA was approached to update and complete its report on the Derewo River Gold Project.

CSA did not undertake any due diligence regarding tenure of the Derewo River Gold Project or associated legal agreements. It was outside the original scope of our engagement to do so. The original information with respect to project tenure and ownership was provided by Paniai Gold and has not been validated in anyway. This update to our original report has relied upon the original information supplied to the author plus additional data sourced from Roberts (2011) and the websites of ECR Minerals and West Wits.

This Independent Technical Report was prepared in accordance with the Code and Guidelines for Assessment and Valuation of Mineral Assets and Mineral Securities for Independent Expert Reports (“The Valmin Code”), which is binding upon Members of the Australasian Institute of Mining and Metallurgy (AusIMM), the Australian Institute of Geoscientists (AIG), and the rules and guidelines issued by such bodies as the ASIC and Australian Securities Exchange (ASX), which pertain to Independent Expert Reports.

CSA is an exploration, mining and resource consulting firm, which has been providing services and advice to the international mineral industry and financial institutions since 1984. This report has been compiled by Mr David Lennie, BSc (Hons), who is a professional geologist with 27 years experience in the exploration and evaluation of mineral properties mainly in Africa and Southeast Asia. Mr Lennie has particular expertise in alluvial gold and diamond deposits. Mr Lennie is an Associate Geologist with CSA, and a Member of the Australasian Institute of Mining and Metallurgy (AusIMM). Mr Lennie has the appropriate relevant qualifications, experience, competence and independence to be considered an

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“Expert” under the definitions provided in the VALMIN Code and a "Competent Person" as defined in the JORC Code.

Neither CSA, nor the author of this report, has or has had previously, any material interest in Paniai Gold or West Wits or the mineral properties in which Paniai Gold and its Indonesian partners have an interest. No member or employee of CSA is, or is intended to be, a director, officer or other direct employee of Paniai Gold or West Wits.

Our relationship with Paniai Gold and subsequently West Wits is solely one of professional association between client and independent consultant. This report is prepared in return for professional fees based upon agreed commercial rates and the payment of these fees is in no way contingent on the results of this report. There is no formal agreement between CSA and Paniai Gold or West Wits as to CSA providing further work for either company.

1.2 Property Location and Access The project is located on the northern tributaries of the Derewo River situated roughly 85 kilometres (km) southeast of the town of Nabire, on the north coast of Papua and about 110km northwest of the Grasberg copper mine operated by Freeport McMoran (Figure 1). There are no roads and the only access to the mining sites is by helicopter from Nabire.

Figure 1. Location Map, Papua Province, Indonesia

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1.3 Discovery The alluvial mining area was discovered by miners from Sangir Island in North Sulawesi in 2004. Sangir has a long history of gold mining, but as deposits there became exhausted, the miners moved further afield. They began by mining isolated alluvial gold pockets close to Nabire and then discovered high concentrations of alluvial gold in the main stream of the Derewo River where it exits the central mountains on to the coastal plain. They prospected the Derewo River by digging pits along its tributaries upstream of the mountain/plain junction.

Since 2004 large mining camps have developed with several thousand people engaged in gold mining from alluvial and colluvial gravel along six northern tributaries of the Derewo. Two Bell 212 helicopters are operating a service bringing people and supplies to the mining camps. The camps are now well established with wooden housing, shops and numerous satellite dishes. These have been built in completely virgin rain forest over the last six years with everything and almost everyone brought in by helicopter as there is no boat or road access. Isolated groups of miners are also working low terraces along the mainstream of the Derewo for about 50km, to where the river exits the Central Highlands of Papua on to the coastal plain.

1.4 Ownership and Tenure The Derewo River Gold Project is a joint venture between Paniai Gold Ltd and local partners PT Madinah Qurrata’ain (PTMQ) whose owners are the Suhari family of Makassar. The project consists of one granted 40ha mining licence, an application for a further 491ha mining licence, and exploration licence applications extending over approximately 129,000ha (see Figures 2 and 3).

On the 3rd February 2011 West Wits announced that they have entered into a binding Heads of Agreement with Paniai Gold to acquire its interest in the Derewo River Gold Project.

The terms of the joint venture between Paniai and PTMQ are as follows:

• With regard to the mining licences, Paniai is to fund the establishment of a modern alluvial mining operation, revenues from which will be distributed equally between the joint venture partners after the deduction of all operational costs.

• With regard to the exploration licences, Paniai is to fund the first US$2 million of exploration, beyond which the joint venture partners are to fund activities pro rata. Paniai’s joint venture partner may be reduced to a carried interest in the exploration licences of 20% in the event that it does not fund its share of exploration (Indonesian law requires a local party to hold a minimum of 20% equity in mining and exploration licences).

• Paniai is to manage both mining and exploration activities.

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• The rights and obligations of Paniai under the joint venture will be assumed by West Wits on completion of the sale.

The exploration KP applications were lodged by Paniai Gold in 2008 to cover the Derewo River drainage from downstream of the 40ha mining lease in the west to the boundary of Freeport’s COWB in the east (see Figures 3 and 4).

During 2010 the granted mining licence and the mining and exploration licence applications comprising the project were brought into compliance with revised Indonesian mining laws. An EIS (environmental impact statement) has been submitted to provincial authorities and is at an advanced stage of processing. Paniai Gold has also executed a Landowners Agreement with the local indigenous Wolami People which was one of the first of its kind in Papua Province.

Figure 2. Project tenements

1.5 Adjacent Properties The Derewo River Gold Project area is situated just north of a 25,000ha COW (Contract of Work) tenement area which was explored by Freeport Indonesia from 1990 onwards. Freeport did not identify this Derewo prospect area but retains sections of this COW (known as COWB) as well as their original COW of 1967 (known as COWA) where the Grasberg mine is located. They also hold other tenements as PT Irian Eastern Minerals and in Joint Venture with Goldfields as PT Nabire Bakti Mining. The locations of these tenements in relation to the Derewo River Gold Project area and Paniai Gold’s tenement applications are shown in Figure 4.

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The Freeport mine at Grasberg is a giant, if slightly unusual, porphyry Cu/Au deposit with associated skarn and base metal deposits. The Wabu deposit is a 4 million oz gold skarn, discovered by Freeport in 1992 and the other prospects shown are all examples of porphyry‐ related mineralization discovered by either Freeport or Gold Fields in the 1990’s.

Figure 3. Derewo River gold occurrences, mining licence, (Area 81), mining licence application and surrounding exploration licence applications

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Figure 4. Generalised geological map of the project area (Stevens, 2010)

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2 Geography

The Indonesian Provinces of Papua and West Papua (now renamed from Irian Jaya as on map) form the western half of the island of New Guinea. New Guinea has been described as similar to a bird flying west with its mouth open (Figure 5). As a result the island is commonly divided into the bird’s head, neck, body and tail; Papua New Guinea forms the tail, Papua the body and West Papua province the bird’s neck and head.

Figure 5. Island of New Guinea Papua is the largest province in Indonesia with the provincial capital in Jayapura on the northern coast close to the border with Papua New Guinea. The province is made up of 19 regencies (Kabupaten). These now have greater devolved powers than in the past following democratization since 1998. The project area lies within the Paniai Regency which is administered from the town of Enarotali in the Central Highlands. The nearest town is the port of Nabire on the north coast which has regular flights to Jayapura, Biak and Timika from where there are daily flights to Jakarta and other centres in Indonesia.

A central east‐west mountain range dominates the geography of New Guinea, running 1300km from the bird’s tail in Papua New Guinea to the base of the bird’s neck in Papua. The western section runs for 600km from the Papua New Guinea border to the bird’s neck and is up to 100km wide. The highest peak is Puncak Jaya at 4884m but there are several peaks above 4000m and three that are permanently snow capped even in an equatorial region. The Grasberg mine lies next to Puncak Jaya. There are some smaller mountain ranges to the north of the Central Highlands but the other main features are the flat southern and northern lowlands (Figure 6).

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Figure 6. : New Guinea Island ‐ Topography

Above 4000m, the central mountain range is bare rock and has an alpine climate. Almost all of the rest of the island is covered by thick equatorial rain forest. Climate is tropical and rainfall is exceptionally high at 7 – 11m per year. There are almost no roads in the interior or navigable rivers so the only means of transport is by air, either commercial flights in small planes (often run by missionary organizations), or by helicopter. Many of the larger villages have grass airstrips.

Although the area of Papua province is 420,000km2 in size, the population is less than 3 million and is concentrated in coastal towns and the fertile Baliem valley. The people of the interior are often still in a primitive state relying on subsistence farming, hunting and gathering and still using stone tools. The project area is sparsely populated with the local people being the Wolani tribe (Figure 7). The mining lease has been bought from the local landholders by the Indonesian partners and there is an agreement by PTMQ to provide them with continuing development assistance.

The Derewo River flows WNW through the Central Highlands of Papua for approximately 75km before turning northwards to the south of Nabire and flowing a further 35km to the sea. It is actively down‐cutting at a very fast rate due to the extremely rapid uplift and massive rainfall in Papua. This results in a steep V‐shaped valley with perched terrace remnants such as the ones the mine camps are situated on.

The extremely high rainfall combines with the steep topography to cause frequent landslips and mudslides along the Derewo River valley often covering the terraces with colluvium. This can be seen in the image of the Derewo valley in Figure 8 where it appears that a section of the northern mountainside surrounding the project area has collapsed.

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Figure 7. Local Wolani People with Paniai Gold’s community affairs officer

Collapse

Figure 8. Satellite image showing collapsed mountainside

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3 History of Local Mining

The presently worked local mining areas on the Derewo River were first discovered in 2004 by miners from Sangir Island to the north of Sulawesi – almost 2000km to the west. Sangir Island has a long history of gold mining but as deposits have run out, the miners have moved further afield.

The mining area lies just to the north of the Freeport COWB area which covered over 25,000km2 and has been explored from 1990 through to the present. Freeport did not develop an interest in this area probably because there is little visible gold at surface in most tributaries of the Derewo and only sporadic samples were taken outside their tenement. Freeport was aware of substantial alluvial gold in the Derewo mainstream where it exits the central mountain range on to the northern coastal plain but this was not followed up.

The Sangir miners followed the Derewo from the same spot, digging pits along its tributaries until they found the present mining areas in early 2004. Originally everyone and everything had to come in on foot until helipads were constructed and thereafter miners from Sulawesi flocked in. It is reported that by 2005 over 20,000 miners were working along the river but this has now declined substantially. Complete villages sprang up of solid wooden houses with shops, churches, mosques and brothels. Several thousand miners were still working along the river in December 2008.

This area has proved extremely rich with several tonnes of gold reported having been extracted over the last few years. Work was taking place on six tributaries of the Derewo in December 2008 when the author visited the site with the mining areas named as multiples of the lucky number nine e.g. 81, 45, 99. The Suhari family, via PTMQ, are still extracting gold from the alluvial terraces using a small workforce of miners who hand dig shafts and tunnels and hand wash the material extracted (Roberts, 2011).

The 40ha mining lease held by PTMQ covers the areas furthest upstream and the most productive to date, namely Areas 81, 45 and 99 which are reported to have collectively produced in excess of four tonnes of gold since 2004. The proceeds were used to buy two Bell 212 helicopters which are used to ferry supplies and people to the mine site. At one stage about 1000 miners were working on areas 81 and 45 but these had been reduced to 30 by mid 2009. About 500 miners were still working on Area 99 at that time. PTMQ hoped to have these miners removed but some still remain. The miners are mostly from Sulawesi and none are local people. Their operations are actually illegal but such operations are rarely closed down in Indonesia unless there is some pressing reason.

Production figures for Area 81 supplied by PTMQ are shown in the following table. It is not possible to independently verify these figures but they seem credible. There are no figures after mid‐2009 but mining was already on a much smaller scale by then so production was probably low over the last two years.

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Table 1: Gold production figures for Area 81 (source PTMQ)

Year Production Period

Kg oz 2005 93.40 3,003.1 8 months 2006 632.42 20,335.0 12 months 2007 162.79 5,234.5 12 months 2008 50.62 1,627.5 12 months 2009 16.58 533.0 4.5 months TOTAL 955.80 30,733.1

At the time of discovery, the gold could be collected from the surface as nuggets in Area 81 although most of the gold along the river is buried under colluvial and alluvial cover. Mining of the near surface wash soon progressed to mining with underground methods which continue as the principle extraction method today. Downstream of Area 81, most of the gold is recovered using small inefficient sluice boxes.

Within the mining lease, mining is now conducted by pot‐holing and tunnelling. Holes are dug down to the basal wash or until the water inflow is too great. Large boulders are removed from the holes by primitive hand operated hoists. The wash is similarly hauled out in 44 gallon drums (Figure 9).

The wash is dumped into a header box (sluice box without riffles) and washed to recover the nuggets. Nuggets range in size from about 100mm down to 5mm. The tailings from the header box flow over a basic sluice box lined with fishing net. The sluice does not employ any riffles and any fine gold is lost. The boulders range up to about two metres in diameter.

Tunnelling is also employed to access the basal wash. Figure 10 shows the air supply system and one of the access shafts. Tunnels at the base of this shaft extend out for about 150m. The gold is handpicked from the wash between the boulders and some of the wash is hoisted out in bags and processed as described above.

The volume of gravels processed each day is small and would not exceed 10m³. Daily gold recoveries can vary from 50g to over 1kg. There are reports of pockets containing up to 100kg of gold having been found but these are rare.

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A B

C D

Figure 9. Shallow surface mining and sluicing operations A: Pot Hole ‐ 200kg Au reportedly recovered from this hole B: Boulders removed with hoist C: Sluice Boxes D: Large boulders removed from wash

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Figure 10. Underground operations A: Air supply for tunnelling operations B: Shaft to tunnelling operations C: Underground in the gravels

The author was able to visit the area only once in mid‐December 2008. As the visit was arranged at short notice, the police only allowed a visit to Area 81 which is controlled by the local partners in PTMQ. The miners and officials were very accommodating and hospitable and answered all questions willingly.

Both the settlements and the mining are conducted in a very orderly fashion. The deposits worked are in a narrow valley of a third order tributary of the Derewo. The deposits mined here are of gravels from 17 – 20m thick consisting of large boulders in a matrix of fine rubble of the local black graphitic metamorphosed sediments and black clay which is weathered from the country rock. The boulders are often over several metres in diameter. Elsewhere it is reported that the deposits are closer to 10m thick.

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A large central drainage shaft of 10m diameter had been dug out and shored up and water is constantly being pumped from here to drain the gravel. Timbered shafts are then sunk by hand into the gravels and radiating horizontal tunnels are then extended from the base of the shafts. The gravel matrix consisting of 95% phyllite, slate and clay is dug out by hand, packed in small rice sacks or drums and brought to the surface by a windlass. The gravel is then washed by a pump in a crude sluice box without either carpet or riffles and therefore only very coarse gold recovered.

The largest operating shaft on Area 81 has a crew of 25 men but only four are employed in digging on any one day. The work is extremely dangerous with frequent collapses. The miners reported one man having died after being overcome by “foul smelling gas”.

The miners in the main shaft in Area 81 extract about 1.5 to 2m3 per day and from that were recovering between 30‐90g of gold. Considering that the boulder volume must be taken into account and that mining is selective, this suggests that the mined layer, at that time, had a grade of 7‐20g/m3. The author was shown one week’s production of 1.2kgs of coarse gold nuggets. This was regarded as nothing unusual.

The miners have sunk up to 50 shafts over a 300m length of river. The most northerly yielded very little and shows the deposit does not appear to extend upstream. The tunnelling indicates it turns to the southwest. There is very little surface gold in the river and no‐one is panning the active streams.

The only mechanised mining on the Derewo River is located about 10km downstream of Area 81. It is small scale and operates without a mining permit. Figure 11 shows a typical mining settlement on the banks of the Derewo River.

Figure 11. Helicopter view of mining camp, downstream of PTMQ’s lease

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4 Regional Geology

The island of New Guinea, and in particular its Central Mountain Range spine, is a major orogenic belt which formed as a result of collision between the Australian Continental Plate and an island‐arc formed on the Pacific Plate (Dewey and Bird 1970). Mountain building has occurred on a grand scale with the New Guinea orogen comparable in size to the Western US Cordillera (Silver and Smith 1983).

The Central Mountain Range began to form when the Australian Continental Plate margin entered a northward‐dipping subduction zone in the mid‐Miocene. The Continent – Arc collision pushed a deformed forearc basement complex on top of Australian continental crust forming the orogenic belt. Cloos et al (2005) described this in detail and also the process of lithospheric collisional delamination to which they attributed the magmatism responsible for the mineral deposits throughout New Guinea and Papua.

Most of the island of New Guinea can be divided into five tectonic belts. From north to south these are an accreted arc terrain, an upturned forearc basement, an underlying metamorphic belt, a highlands fold and thrust belt and a foreland basin (see Figure 12).

135°E 141°E REGIONAL GEOLOGY AND MAIN STRUCTURAL ELEMENTS OF PAPUA, INDONESIA

WABU PROSPECT Pacific Plate Margin Metamorphic Belt

STRATIGRAPHIC COLUMN Timika QUATERNARY Sedimentary Grasberg Pliocene deposits Miocene Miocene-Pliocene Basin Sediment Intermediate Oligocene Utawa Diorite Rouffaer Volcanic Rocks Australian Metamorphic Belt Intermediate to Plate Margin Basic Igneous New Guinea N Rocks Mobile Belt Irian Jaya W E Australian Opiolite Belt Sedimentary Rocks S Idenburg Inlier 0 100 200 Kilometers Kemun Paleozoic Metamorphic Rocks Basement Devonian ? Basenment Modified from the geological Map of Irian Jaya by D.B. Dow, G.P. Robinson, U. Hartono and N. Ratman, 1988 Figure 12. Tectonic elements of Indonesian Papua

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In Papua, the accreted arc/ forearc is the northwestern end of the Melanesian Arc Terrain produced by subduction volcanism since the Eocene but it is largely buried under debris shed from the Central Range. Its crystalline leading edge is the Irian Jaya Ophiolite Belt of ultrabasic rocks of Jurassic age which forms the north flank of the Central Range.

The ophiolite is underlain by the Ruffaer Metamorphic Belt, composed of continental slope and trench sediments that underwent subduction deformation and metamorphism in the early Miocene. The Derewo Metamorphics of the project area belong in this group and are composed of graphitic phyllite and slate.

The metamorphic belt grades into the highlands fold and thrust belt of gently folded carbonate shelf strata such as the early Tertiary New Guinea limestone and Cretaceous Kembelangan sandstone and mudstone which form the highest part of the Central Mountain Range. Minor but widespread magmatism occurred in the western highlands from 7.5ma to 2.5ma forming the mineral deposits of Grasberg, Ertsberg and Wabu. To the south of the mountain chain lies the flat plain of the foreland basin where thick alluvium covers older Australian continental sedimentary rocks.

4.1 Mineral Deposits of New Guinea The Central Mountain Range of New Guinea is host to many mineral deposits: the porphyry copper districts of Grasberg in Papua and OK Tedi, Freida River, Yandara and Gopu in New Guinea and the gold districts of Freeport’s Wabu Ridge plus Porgera, Mt Kare, Wafi and Wau/Edie Creek/Hidden Valley in Papua New Guinea. The widespread distribution of deposits indicates that ore forming processes occurred throughout the total length of the highlands from the base of the bird’s tail almost to the base of the neck. These deposits are all associated with intermediate magmatism which occurred between 7ma and 1.5ma ago.

Cloos at al (2005) argued that these dioritic magmas were generated by a process of collisional delamination, whereby the lithosphere separated from continental crust and sank away to be replaced by hot rising asthenosphere in which the magma was generated. The process has been proposed to explain events in the Himalayas and the western USA. Cloos argued that the jamming of the northern subduction zone by the continent – island arc collision caused the denser lithosphere to break off from the continental crust and continue to sink. It was then replaced by hotter asthenospheric mantle (Figure 13).

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Figure 13. Process of collisional delamination – Cloos et al (2005)

As this occurred the mountain chain underwent massive isostatic uplift in a short space of time and widespread magmatism took place between 7ma and 2.5ma. Magma intrusion was concentrated along the spine of the highlands because the highest elevations developed above the zone of maximum asthenospheric upwelling and thus maximum magma generation.

Plate collision also brought about strike slip faulting across the highlands of Papua in the 5‐ 3ma age range. Cloos described this in the Grasberg mining district as the Derewo fault zone and the Yapen fault zone to the north. Magma rose from deep magma chambers by passive intrusion into pull‐apart pathways along strike‐slip faults bringing massive hydrothermal fluid flow and generating the Cu‐Au porphyry and skarn deposits of Grasberg/Ertsberg and Wabu and the mineralization seen in the Komopo to Obano areas. The Derewo River project area lies along the Derewo Fault zone, northwest of Grasberg and Wabu, along the trend of these late WNW ‐ ESE strike slip faults as picked out by the Derewo River.

The extremely high rates of uplift which continue to the present day, combined with the equatorial climate to produce very high rates of erosion in the steep topography in Papua. Together with the gold prospectivity of the bedrock, it is a perfect environment to produce alluvial gold deposits and probably the least explored one of significance in the world.

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4.2 Local Geology The country rocks of the project area are part of the Ruffaer Metamorphic Belt and are locally known as the Derewo Metamorphics by Freeport geologists. They consist of graphitic phyllite and slate and were almost certainly formed from the Cretaceous Kembelangan shale and siltstone exposed in the thrust belt to the south which they greatly resemble. The presence of relict ammonite fossils in the slate supports this theory.

Metamorphism is of high pressure greenschist facies as shown by the presence of chloritoid, paragonite and muscovite. Metamorphism is dated between 28ma and 20ma with the heat source likely to come from the Irian Ophiolite Belt to the north. The boundary of the Ruffaer Metamorphics and the southern fold and thrust belt is gradational (Warren, 1995). In the project area, the Derewo Fault, which forms a WNW‐ESE valley for almost 200km through the highlands, separates slate and phyllite from folded Kembelangan shale, siltstone and sandstone on its southern side (Figure 14).

Warren (2005) concluded that the fault is an almost vertical strike slip fault that only locally marks the boundary between metamorphic and sediments. Movement along the fault is likely to be tens of kilometres making it a very significant regional structure.

In mining area 81, which is the only one the author was able to visit, the graphitic slate and phyllite country rocks have a sub‐vertical cleavage or schistosity and very occasional quartzite bands. The author knows the general area well from having worked in the region for Freeport, Battle Mountain and Gold Fields in the past.

Figure 14. Geology of the project area (Roberts, 2011)

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5 Mining Area

In Area 81, the gravels are very poorly sorted consisting of large boulders of 1‐2m in diameter in a rubble matrix of 95% black graphitic phyllite, slate and black clay derived from these. The boulders and around 20% of the smaller clasts are rounded to sub‐angular while the rest are angular to sub‐angular (Figure 15).

The boulders are predominantly of the local metamorphics which are often veined, silicified and oxidized. Other boulders are of intrusive rock, meta‐conglomerate and quartzite. Finer clasts are mostly (90%) black angular fragments of the local country rock of graphitic slate and phyllite with some intermediate intrusives, quarzite and vein quartz. These can be rounded to angular.

The “matrix” consists mostly of the same black metamorphic rock fragments and black clay as the clasts. There is almost no sand or silt in the matrix, nor any sign of layering or structures laid down by water flow. The bedrock is described by the miners as “hard, black, white and brown” and is probably the silicified, oxidized, veined graphitic slate which is exposed in the stream valley.

The sorting and composition of the gravels suggest a definite colluvial origin in that they are the product of slumping from the sides of the valley which are extremely steep. The rapid uplift and erosion in Papua and the nature of the slate and phyllite give rise to frequent slumping. The slates are also impermeable which gives rise to frequent mudslides as water builds up in the soil. Slumped deposits can also dam up streams which then break through causing flooding, erosion and further catastrophic slumping.

Among the gravels is a large content of massive pyrite in graphitic slate and shale. The miners report that the matrix material at depth is blue in patches this indicates dominant Fe2+ ions and a reducing environment. The massive pyrite clasts and the pyrite concentrate are yellow‐white in colour without a trace of tarnish. The miners also report a foul smelling gas which has killed one man and which is probably hydrogen sulphide (H2S) or perhaps sulphur dioxide (SO2). At surface many of the larger boulders are heavily oxidized and the pyrite concentrate in the stream is brown and tarnished.

There are clasts in the gravels which do not appear to be of local origin and the mining camps appear to be built on perched terrace remnants of the Derewo River. The flat zone on which the camp at Area 81 is placed is such a terrace and it seems to be composed mostly of black slate bedrock. This might well be what most of the Derewo River terrace deposits are like as slate appears to form the country rock throughout its length. Photographs provided by PTMQ show a number of remnant terrace levels in the project area.

The gold is found only at depth in the gravels and there is no panning or sluicing being carried out at surface in the rivers. According to the local miners, the highest grades are not on bedrock probably due to the disruption of the terraces by slumping. The gold is extremely coarse and consists of flattened elongate nuggets ranging from 50mm to several centimetres in size. The largest nugget seen by the author weighed 75g and nuggets of over a kilo are

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reported. There is reportedly no fine gold. In the author’s opinion, this is an extremely unusual situation.

Gold does not form like this in many hard rock deposits nor is it found in this form in most alluvial deposits. The nuggets show definite signs of fluvial transport. The largest nugget of 75g mentioned above (Figure 16) is a folded wafer with a strong suture line where the folded edges have been joined. Other nuggets show the typical oval shapes formed by rolling in fluvial transport (Figure 17). The nuggets do not show the typical highly irregular wire forms found in nuggets growing in situ such as at Serra Pelada in Brazil ‐ also a deposit formed in graphitic schists.

Therefore, in the part of Area 81 that the author observed, gold has been transported in a river bed since covered by colluvial deposits. This suggests the gold has come from remnant terrace deposits included in, or just covered by, colluvium arising from massive slumping. These terraces would themselves be highly unusual, containing only coarse gold, which suggests they must be the result of very high energy and are close to source.

This is analogous to the “potato patch” in the Sierra Nevada of California where nugget‐only deposits were derived from the “Mother Lode” formed high in the mountains with lower grade deposits of finer gold forming downstream and on the alluvial plains. The Mother Lode is a deposit of gold‐bearing quartz veins in graphitic schist and phyllite.

Figure 15. Colluvial gravel with angular to sub‐rounded boulders in a rubble matrix

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Figure 16. Gold nuggets with rounded edges and suture line of fold on the largest

Figure 17. Oval‐shaped nuggets shaped by hydraulic transport

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The nature of the gold also varies from area to area. The gold in Area 81 is soft, very yellow and has a fineness of ~96% whereas the gold in Area 99 is harder, less yellow and slightly less in fineness. The size of the gold found in Area 99 is also larger than that found in Area 81 (see Figures 18 and 19). Nuggets up to 1kg are reported from Area 99.

Figure 18. Gold from Area 81

Figure 19. Gold from Area 99

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6 Gold Origin and Mineralization

Boulders and clasts in the gravel show strong mineralization with massive pyrite found in graphitic slate and phyllite. Quartz veining, vuggy quartz and silicification are well developed in the same rocks. There is widespread iron staining and oxidation seen in boulders and disseminated pyrite, chalcopyrite, sphalerite and galena occur in the slate with quartz veins. Thirteen rock samples were collected for analysis during the author’s short visit in December 2008. A sample list and results are shown in the Table 2.

Only one sample (81002) contains significant gold and base metal assays: Au 1.79 ppm, Cu 1472 ppm, Zn 1170 ppm and As 4320 ppm while sample 81010 shows traces of higher Au, Cu and As. Both these samples are of massive pyrite with quartz and chalcopyrite (highlighted in Table 2).

Local miners report the same mineralization in the bedrock. There is also strong propylitic alteration of both phyllite and some intrusive clasts with strong development of chlorite and epidote.

It does not seem likely that the gold has been transported any great distance even if the clasts in the gravels are from remnant terraces of an earlier course of the Derewo. All the mining areas seem within 2‐3km of each other and a fairly local gold source seems most likely. Normally, very large gold nuggets are unlikely to travel far from source although in a very rapidly eroding mountain environment, they could move many kilometres. The most likely source would seem to be quartz vein stockworks in the graphitic slate and phyllite, i.e. a mesothermal vein deposit.

The majority of high grade gold placers such as this one form from such deposits. Examples are seen in the American Cordillera from British Columbia through California all the way to Chile with the most famous being the “Mother Lode” of the Sierra Nevada: the source of the California gold rush of 1849. Other examples would be the gold deposits of Southland and Westland in New Zealand where the source rocks are mesothermal veins in low grade schist and turbidites.

Mesothermal gold deposits are commonly associated with regional structures where new terrain has been accreted onto continental margins or island arcs and where there has been significant horizontal shortening, uplift and late magmatism (Kerrich and Wyman, 1990). This describes the Derewo fault zone almost exactly. The metals found in the veins are usually derived from the surrounding rocks by rising hot water moving though them as they were uplifted from depth rather than from a magmatic source. A very low percentage of the float observed is of intrusive rocks and these don’t show significant signs of mineralization.

The collisional delamination model with its with rapidly rising hot mantle, massive uplift and deep strike‐slip faulting would be entirely consistent with the formation of such deposits as hot solutions are driven upward by the massively increased heat flow.

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To the southeast of this area lie both Freeport’s Grasberg porphyry‐copper and skarn deposits and the Wabu ridge gold skarn. South‐southeast are Freeport’s Komopo prospects where porphyry‐style mineralization is reported.

As previously discussed, these deposits formed 3‐4ma ago and are associated with intermediate intrusion and strike‐slip faulting as seen along the Derewo River valley. All of the known deposits or mineralized areas are outside the Derewo River catchment area and none is currently eroding into the Derewo River. Currently gold is being worked both in the terraces and by “farming” (see Figure 20 and Figure 21) in the present day stream where large wooden cages filled with boulders are left in the stream to trap gold bearing silt (the rapid flow prevents the river being worked directly). The likely source of the gold in the Derewo River terraces and the present day stream is a mesothermal vein deposit.

Table 2. Area 81 rock samples

Sample No. Description Float RC81001 Qtz Sphalerite Vein Float RC81002 Massive pyrite and Quartz with trace chalcopyrite Float RC81003 Qtz veining with massive pyrite and chalcopyrite Float RC81004 Graphitic slate with qtz veining and10% pyrite Float RC81005 Massive pyrite ‐ fine grain size Float RC81006 Massive pyrite ‐ very bright as no oxidation Float RC81007 Massive pyrite forming in black graphitic slate Float RC81008 Massive pyrite forming in black graphitic slate wih qtz veining Float RC81009 Graphitic slate with 40% qtz veining and 5% disseminated pyrite Float RC81010 Massive pyrite and Quartz with trace chalcopyrite Float RC81011 Qtz sericite schist with 5‐10% disseminated pyrite Float RC81012 Black graphitic mudstone with 5% diss pyrite and trace Arsenopyrite Float RC81013 Vuggy carbonaceous rock with tarnished pyrite cubes 10 ‐ 15% Sample ID Method : FAA40 GAA03 GAA03 GAA03 GAA03 GAA03 Units : PPM PPM PPM PPM PPM PPM Detection Limit : 0.01 5 20 20 20 100 Element : Au (ppm) Ag (ppm) Cu (ppm) Pb (ppm) Zn (ppm) As (ppm) RC ‐ 81001 0.01 <5 <20 <20 27 <100 RC ‐ 81002 1.79 <5 1472 306 1176 4320 RC ‐ 81003 0.01 <5 <20 <20 26 <100 RC ‐ 81004 0.01 <5 <20 <20 <20 <100 RC ‐ 81005 0.09 <5 1156 451 67 681 RC ‐ 81006 0.14 <5 <20 <20 26 566 RC ‐ 81007 0.01 <5 498 172 516 113 RC ‐ 81008 0.12 <5 401 504 343 235 RC ‐ 81009 0.01 <5 24 41 91 <100 RC ‐ 81010 0.20 <5 348 294 46 579 RC ‐ 81011 0.10 <5 <20 <20 22 <100 RC ‐ 81012 <0.01 <5 39 <20 <20 <100 RC ‐ 81013 <0.01 <5 21 <20 <20 <100

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Figure 20. Gold farming in the Derewo mainstream

Figure 21. Wooden cages filled with boulders trap gold bearing sand and silt

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7 Alluvial Mining Potential

A company related to PTMQ (CV Delapan Satu) has been mining on a small scale in the area known as Area 81 and adjacent areas Area 45 and Area 99 for the past four years (see Figure 22). The production figures outlined previously (Table 1) are those reported by PTMQ based on data obtained from mining and exploration during that time.

Alluvial gold deposits form in gravel laid down by rivers. The gravels are usually found resting on bedrock. Overlying sand, silt and clay are overburden and do not normally contain gold. To form an alluvial gold deposit requires:

i) A source of gold;

ii) Rapid rates of erosion (such as that caused by tropical weathering or glaciations, and usually in areas of high elevation);

iii) A means of transport; and

iv) A site of deposition.

Alluvial gold deposits usually form in mountainous terrain where a major orogeny with massive uplift has taken place, e.g. the American Cordillera from Alaska to Chile, New Zealand, the Philippines and PNG.

An eluvial gold deposit is one that has formed immediately adjacent to, or over a hard‐rock gold deposit.

A colluvial deposit is one formed by slumping or mass wasting of a hard rock deposit.

In the case of the Derewo River Gold Project, it appears to be an alluvial deposit formed in terraces of the Derewo River subsequently affected by slumping. The gold shows definite signs of fluvial transport and seems to have come from terraces of the Derewo River. It is found in an elevated area with a very high rate of uplift and erosion as would be expected.

However, the size of the nuggets, which are nearly all coarse with some reported over 1kg in weight, suggests that the gold source is nearby. In addition slumping of the steep slopes along the Derewo River valley has led to colluvium either covering the gold bearing terraces or mixing with them to form new deposits.

The technique best suited to exploring and evaluating a deposit depends on its nature. However, in the Derewo River project area none of the commonly accepted methods can be employed. The nature of this alluvial deposit does not allow for mineral resources to be developed in accordance with the JORC code.

The high variability in the size and distribution of gold particles within alluvial gravel deposits presents certain problems in determining the ore reserves but it is possible to estimate volume, tonnage and grade with some degree of confidence provided a sufficient number of

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samples are collected in a correct way. Alluvial deposits are tested using three main methods:

Pitting

Samples are recovered at regular intervals from pits dug on a grid over the deposit, whether alluvial flood plain or terrace. The grade determined by calculating the amount of gold obtained from a certain volume of gravel. This is often used in used in areas with large boulders where drilling would be impossible or where gravel deposits are shallow. Pitting can be by hand or using backhoe or clamshell excavators. If excavators are used, then a small trammel and jig plant is required to process samples whereas with hand pitting, smaller samples can be washed manually.

Drilling

The drills most commonly used for exploration of alluvial projects are either Bangka Drills, Cable–Tool Drills or Becker Drills. Bangka drills and cable tool rigs drive casing of 15 or 20cm diameter into the gravels and then use a bailer on the end of a cable line to extract the sample. A Becker drill uses a hydraulic hammer to drive a hollow drill stem into the gravels, which are then sampled by an RC air flush. The Becker system is very rapid but is usually only used in drilling very deep deposits. All three methods are reliable and have been used in numerous alluvial gold mines although care must be taken in estimating volume, tonnage and grade.

Bulk Testing or Trial Mining

Bulk testing entails mining and processing a fixed volume of gravel to recover the gold. This provides the most reliable results and also provides information on possible future mining and processing issues. Usually a combination of drilling and later bulk testing is used.

Pitting by hand would be slow, dangerous and unreliable for determining grade in the gravel deposits of this area as it involves tunnelling among the boulders which are extremely hard to remove yet need to be included when calculating the volumes of material extracted and washed. The gravels in the PTMQ mining location contain rock and boulders exceeding 1m in diameter. Therefore, any drilling method used as an exploration tool is unlikely to provide reliable results.

The best exploration method for this type of deposit would be bulk sampling although even here there is a problem in removing and separating large boulders. If a small mobile plant is used to process the gravel all boulders have to be separated out first and there is almost no means of transporting gravel without bulldozing new roads in the jungle.

As this is an area where the only current access is by helicopter, bulk testing would require an excavator and mobile plant to be transported to the site in sections by heavy–lift helicopter and then assembled. This is an expensive and time consuming process and the same as that required for mining. Local government and local people would probably regard the bulk sampling phase as mining.

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In this exceptional case where mining has been going on for several years, the most effective way to obtain information is by surveying all the past pits and shafts, interviewing the local miners and collating their production records.

Within the 40ha mining lease, several hundred pits have been excavated to test for the location of the gold bearing wash. However, no data was systematically collected at the time of excavation. During 2009 PTMQ was collecting information from the local miners and surveying the pits but this information was not available to the author at the time of his site visit.

It is reported that in excess of four thousand kilograms of gold has been recovered from Areas 81, 45 and 99 during the past four years. Pit depths apparently range up to 53m. The volume of gravel processed is relatively small. PTMQ report that there are indications based on local reports that the gold layer near the bottom is very rich and may exceed 20 g/m³ in places. This grade would be consistent with what the author estimated (7 –20g/m3) on a visit to one site. However, this does not take into account the 20‐30m of colluvial gravel overburden which must be removed which contains little or no gold.

In alluvial gold deposits, grade is typically stated as mg/m3. In larger placer deposits that are distal to source and often formed at the foot of mountain ranges, (California, Peru), gold grades of 300‐500mg/m3 are normal. In deposits closer to source, grades of up to 1g/m3Au can be found with pockets of higher grades in places. An example is the alluvial deposit formed adjacent to the Kelian epithermal deposit in Kalimantan, Indonesia. Examples of much higher grades would be the “Potato Patch” of the California gold rush or the Yukon in the 1890’s.

The grade of an alluvial deposit will vary with the energy of formation, the degree of reworking, the proximity to source and the grade of the source. The Derewo terrace deposits have formed in a very high energy environment. The grades observed suggest a nearby source as does the very coarse nature of the gold recovered. The author cannot confirm or endorse any grade estimates as no independent systematic survey has been completed as yet. Roberts (2011) suggests grades of between 0.5 and 1.0g/m3 as estimates. The writer believes these may be realistic but are just speculation on present knowledge.

PTMQ reported that six different terrace levels have been identified to date. As mapping continues, it is possible that more levels will be revealed. These terraces vary in height from a few metres to 100m above the present river level. Pitting in many of the terraces did not reach basement because of high water inflows and large boulders, therefore the pitting undertaken to date does not provide a complete picture. It is reported that the basal gravel layer is not uniformly high‐grade and it is thought that the highest grade gravels are contained in an ancient river channel or palaeo‐channel which follows the base of the mountains. This seems to be confirmed by the present tunnelling by the miners. PTMQ report that the sequence was initially thought to contain little fine gold however it now appears that finer gold is present within the sequence for up to 5m above the basal high grade layer where the coarse gold is found. This probably represents a slowing of the depositional water flow.

The potential volume of gravel material reported by PTMQ has been determined by interpretation of the Digital Terrain Model (DTM) for the area and site inspection but their

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detailed mapping is still in progress. The writer cannot independently verify any figures reported as to gravel volumes and therefore this report does not include any statement as to what these may be. Roberts (2011) estimates potential volumes of gravel in the range of 20 million cubic metres but the author cannot confirm this.

The gravels in PTMQ area are poorly sorted and contain sub‐rounded boulders of >1m, particularly in the basal section of the terraces, and are chaotically emplaced suggesting landslide formation. Multiple terraces are present at this site, some up to 40m in height. The total gravel thickness may exceed 100m (see Figure 23 and Figure 24 below).

Based on experience and the previous mining in the area, PTMQ estimate that the average depth of the gravels will be approximately 20‐30m.

Figure 22. Location of terraces and pits in Areas 45, 81 and 99

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Figure 23. Two terrace levels

Figure 24. Low terrace above main river channel

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The mining and processing of gravels using conventional shakers or trammels is very difficult due to the size and high proportion of boulders. The traditional method usually used for this type of gravel formation is hydraulicking and this is the method proposed to be used by PTMQ. PTMQ suggest using a combination of sluicing (hydraulicking) and earthmoving equipment. They plan to move the matrix material and small gravel by high pressure water delivered to the mining face using water cannons and passing this material over multiple sluice boxes to recover the gold. Sluice boxes can effectively recover this gold due to its exceptionally coarse nature. If made long enough with riffles and a suitable matting base, the sluices would be able to recover any finer gold found in the upper levels of the gravels.

The boulders and larger sized gravel will be moved away from the mining face using a 20 tonne excavator and a 15 tonne wheel loader. The removed boulders and gravel will be placed below the sluice box outflow to build tailings retention dams and settling ponds to reduce the sediment load impacts in the Derewo River. The Derewo River constantly carries a high sediment load of black graphic clay and silt and as there are no agricultural areas downstream and therefore any increased sediment loading in the river should have negligible impact. An environmental impact statement was submitted by PTMQ in 2009.

This proposed mining approach is considered appropriate for this size and type of gravels. The mining method is simple and relatively low cost which will allow mining of quite low grade provided economies of scale can be achieved.

Other issues which could be described as of a political nature involve the local government and artisanal miners. It should be noted that the local miners are not landowners but groups from other parts of Indonesia, mostly Sulawesi. The Paniai Regency (Local Government) is highly supportive of this project and has granted the initial mining KP using its devolved powers as it regularises mining in the Regency and provides benefits to the local community whereas the illegal miners add very little.

The local government has indicated to PTMQ that it will facilitate removing of the miners without permits once the necessary regulatory framework is in place. This is a sensitive issue and will need to be handled with care.

Although the miners have been working in the area for several years, their methods can only exploit a small proportion of the gravel deposits. Only a limited number of tunnels can be dug at probably only one level before they would all collapse. The miners appear to be focused on the higher grade sections of the deposit.

It is possible that the mined layers may have been worked very selectively, the gold distribution could be very patchy and the overall grade lower than currently observed due to high grading by the local miners over the last few years . As the author was not able to visit anywhere other than Area 81, no estimation can be given of the total size of the deposits so far. A detailed survey of the entire mining area should be the next step before bulk sampling or mining begins.

In spite of this, the author has no doubt that this is an excellent project, and even based on one brief visit, it is the author’s view that it would likely be economically feasible to proceed with the planned alluvial mining on Area 81, then moving on to other areas in time once the necessary environmental and mining permits are granted.

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8 Proposed Work Program and Budget

PTMQ’s plan was for operations to proceed in three stages:

In Stage 1 the main earthmoving equipment of excavator and loaders will be moved to site and ground preparation of the site for mining will begin.

Stage 2 will first involve construction of a gold room, pipelines, sluice boxes and monitors, followed by the start of mining operations at Area 81 with camp construction proceeding simultaneously. The aim was to overcome any difficulties in the mining process and develop a positive cash flow within three months.

Stage 3 was to expand operations to other areas with multiple mining operations proceeding at the same time. Once this is successfully underway, exploration for the potential hard rock gold source would begin.

Details of each stage and the proposed budget are given below.

8.1 Stage 1 The initial plan was to move the earthmoving equipment to Area 81 and begin preparing access roadways and the area to be mined. There is accommodation on site belonging to the local partners in PTMQ which can be used temporarily so work could begin almost immediately after the equipment and fuel arrived.

The equipment to be used is a 20 tonne Cat320D excavator and a Xugong XCMG 571 loader of ~17 tonnes. A staging station will be established at a location 95km along the road south of Nabire approximately 70km west of Area 81 and only a 40 minute helicopter flight to site (Figure 25). The excavator and loader can be trucked to the staging point and then dismantled and airlifted to site by a Russian Kamov hevi‐lift helicopter. This helicopter can carry a maximum 4 tonnes. It will require seven trips for the excavator and five for the loader. The Kamov will also be used to bring in an initial fuel supply of 100 drums.

The excavator and loader was to be re‐ assembled and used to undertake preparations of the first mining area, water supply, mine access roads and camp site. The estimated time frame for this was one month. A support/logistics office was also to be established in Nabire. The helicopter moves were originally scheduled for mid‐August 2009 but mining permits were not obtained.

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Figure 25. Road from Nabire to transit site on the Siriwo River

8.2 Stage 2 The proposed budget for Stage 2 of PTMQ’s plans of 2009 is listed in the table below. The budget column on the left refers to minimum requirements and that on the right to an optimal situation where more funds are available. The only difference is in contingency and funds available for surveying and exploration.

Table 3. PTMQ’s budget for mine development

Item A$ (min) A$ (ideal) Tenement management 130,000 130,000 Mining equipment 260,000 260,000 Camp construction 202,500 202,500 Vehicle 40,000 40,000 Communications& office equip 36,000 36,000 Surveying & exploration 30,000 130,000 Insurance 10,000 10,000 3 months operating capital 690,000 690,000 Contingency 101,500 201,500 Total 1,500,000 1,700,000

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Tenement Management included completion of the AMDAL, moving the illegal miners off the site and completing the acquisition of the exploration KP’s. As mining is planned to start on Area 81 where only a handful of miners are left, the initial removal of the artisanal miners should not delay the start of operations.

Work was to begin with the purchase of mining equipment and moving it to the site using the Bell 212 support helicopter. Mining and processing equipment will include the water pipelines, monitors and sluice box construction materials. The final design of the gold room was to be determined following test treatment of the first concentrates. A Knelson concentrator or shaking table may be bought for the gold room if there is sufficient fine gold in the gravels. An electric induction furnace will be used to smelt dore bars on site.

The first activities planned are the construction of the gold processing room and installation of water piping and monitors. Mining was then planned to begin at the base of Area 81 where the tributary enters the Derewo mainstream. The water will be brought by gravity feed to the 80mm diameter monitors which are to be operated by remote control. Wooden fluming will direct the water to three sluice boxes in parallel so that production need not stop as one box is cleaned out. The six metre long sluice boxes will use 3M matting with Hungarian riffles. Concentrate will be washed into boxes which will be sealed and taken to the gold room. Concentrate will be screened and the gold handpicked as it is generally very coarse. Fine gold may require the use of a Knelson concentrator or shaking table.

As the gravel is washed, the large boulders will be removed and stacked by the excavator and smaller ones by hand. The loader will be used to move boulders to build retaining walls below the sluice boxes to contain solids from flowing into the Derewo River. Work will advance gradually upstream on the tributaries at Area 81 with the sluice boxes and fluming moving forwards as mining advances.

The material worked will be a mixture of terrace and colluvium formed by slumping. A proportion of the colluvium may be barren or low grade but using gravity fed water should allow for a low cost operation and the establishment of a positive cash flow soon after the start of mining.

Camp construction was to proceed simultaneously with mining. It was planned to build an 80 man camp including accommodation, mess, office, security office, health facility, warehouse and gold room. The design is one already used in PNG and the construction will be of timber from the abundant felled trees on the site. A sawmill will be brought in and set up. Satellite equipment for voice and data communication would be set up on site and security will be provided by the local Paniai police and Brimob (Indonesian paramilitary police) under the supervision of a Company Security Officer.

Once mining has begun a topographic survey was planned. This is required to establish the exact locations and elevations of the remnant terraces of the Derewo and the positions, elevations and depths of all the previously worked shafts. When this is known, accurate calculations of gravel volumes will be possible and mine planning can take place for the next phase of operations.

Initial operating costs of A$230,000 per month were projected of which A$110,000 is helicopter support. Helicopter access is nearly always possible before early afternoon and it

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would be rare for the site to be cut off for more than a day or two by bad weather. A community benefit package for the local Wolani people has been considered comprising health services and preferential employment. Skilled labour will be sourced both from Papua and other parts of Indonesia.

8.3 Stage 3 Once the mining system has been successfully established at Area 81, PTMQ planned to multiply the system and begin working in several areas simultaneously. The next area identified for mining is Area 99.

The most prospective areas at the base of the terraces will be targeted first. In future, stripping of colluvial gravel or barren top terrace material will likely be required.

As mining becomes established and more becomes known about the local geology, hard rock exploration was planned to start.

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9 Conclusions & Recommendations

Based on the high gold grades and the mineralization observed at Area 81, the Derewo River Gold Project is a truly outstanding exploration prospect. Gold occurrences like this are extremely rare and this area deserves to be thoroughly explored to assess the quantity and quality of the alluvial deposits and to search for the potential hard rock gold source of the alluvial gold.

Although the gold nuggets and the mineralized clasts originate in Derewo remnant terraces and may come from further upstream on the Derewo, the coarse nature of the gold and the mineralization in the clasts suggests that the source is not too distant. Nuggets of the sizes described, of several kilos, would not normally move far from source.

The placer deposits are found among graphitic slate and phyllite with abundant mineralized vein quartz seen both in place (see Figure 26) and as float in the colluvium/alluvium. Quartz‐ pyrite veins, massive pyrite and vein quartz with disseminated chalcopyrite, sphalerite and galena are noted in float. Silicification, oxidation and propylitic alteration are also observed in the country rocks and in float. This suggests that the primary source may be mesothermal vein or stockwork mineralization within the graphitic slate and phyllite.

Many high‐grade gold placers have been derived from similar types of deposits e.g. the already mentioned “Potato Patch” in the Sierra Nevada of California formed from the “Mother Lode” deposit (mesothermal veins in graphitic schist). Similar deposits are found throughout the American Cordillera from British Columbia to Chile. Mesothermal vein deposits were also the source of the high‐grade gold placers of South Island, New Zealand, e.g. at Shotover River.

The project area needs to be mapped along all the tributaries of the Derewo River. Systematic sampling of stream sediment, rock‐chip and soils is required with panning for gold, multi‐element analysis and mineralogical and petrological studies. The initial exploration should be conducted upstream throughout the tenement area.

Sampling of old terraces of the Derewo will be required, probably by pitting, to assess the distribution of areas of alluvial gold and to help to locate the source rocks. Whilst there appears to be little visible gold at surface this may indicate that the source rocks are covered by colluvium and are not presently eroding directly into the Derewo or its tributaries. Therefore the geochemical signature may also be weak. High levels of As, Sb and Hg may be in evidence if the source is mesothermal veins. High As levels are observed in four of the twelve samples collected by the author. However, other possible sources should not be completely discounted until more work has been completed.

If exploration work is carried out at any distance from Area 81 and the other alluvial mining sites, it will become much more expensive as the only access is by helicopter. Freeport used a Bell 412 helicopter and rescue hoist to insert and extract its geologists during exploration work and was thus able to cover a very large area in a reasonable time. This approach would be very expensive however, exploration of the 1,290 km2 upstream area would be extremely slow without using a helicopter to insert and extract crews.

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Figure 26. Slate bedrock show abundant quartz veining

In the author’s judgment the PTMQ plans to exploit the alluvial deposits appear economically feasible and the budget reasonable for an operation by a local company. The plans could be followed by West Wits however due to the nature of how public companies must operate it is likely that the budget will require significant increases to cover risk assessment, safety, security, environmental, community, administration and other issues.

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West Wits Mining Limited Derewo River Gold Project

10 References & Acknowledgments

Cloos, M. et al., 2005, Collisional Delamination in New Guinea: The Geotectonics of Subducting Slab Breakoff. Geological Society of America, Special Paper 400

Kerrich, R., and Wyman, D.A., 1990, The geodynamic setting of mesothermal gold deposits: An association with accretionary tectonic regimes. Geology, 18, 882‐885.

Roberts, C., 2011, Derewo River Gold Prospect. CR Mining Services Pty Ltd – unpublished report to West Wits Mining Ltd.

Stevens, M., 2010, Memorandum Derewo Gold Project. Stevens and Associates – unpublished report. http://www.ecrminerals.com/investors‐%26‐media/press‐releases/paniai‐gold‐update‐ 20110204368/

Thanks to Dr Richard Garnett of Toronto for his assessment of the Derewo gold nuggets and descriptions of the Sierra Nevada and Serra Pelada gold deposits.

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