Report to:
Azarga Metals Corp.
Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation
Document No. 782-SWIN03024AA_R_001B
Report to:
AZARGA MINERALS CORP.
TECHNICAL REPORT AND PRELIMINARY ECONOMIC ASSESSMENT FOR THE UNKUR COPPER-SILVER PROJECT, KODAR-UDOKAN, RUSSIAN FEDERATION
EFFECTIVE DATE: 30TH AUGUST 2018
Prepared by Joseph Hirst, BSc (Hons), MSc, CGeol, EurGeol, FGS Robin Simpson, MAIG Eur Ing Andrew Carter, BSc, CEng, MIMMM, MSAIMM, SME Matthew Randall, BSc (Hons), PhD, CEng, MIMMM
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UK Registration No. 06328315 Coffey Geotechnics Ltd., 1 Northfield Road, Reading Berks, RG1 8AH, UK Trading as Tetra Tech Mining and Minerals, from 2 Apple Walk, Kembrey Park, Swindon, SN2 8BL, UK Tel: +44 (0) 1793 512305 www.tetratech.com
TABLE OF CONTENTS
1.0 SUMMARY ...... 1-1 1.1 INTRODUCTION ...... 1-1 1.2 PROPERTY DESCRIPTION ...... 1-2 1.2.1 MINERAL TENURE ...... 1-2 1.3 ACCESSIBILITY, CLIMATE, LOCAL RESOURCE, INFRASTRUCTURE AND PHYSIOGRAPHY .... 1-3 1.4 HISTORY ...... 1-3 1.5 GEOLOGICAL SETTING AND MINERALISATION ...... 1-4 1.6 DEPOSIT TYPE ...... 1-4 1.7 EXPLORATION ...... 1-4 1.8 DRILLING ...... 1-5 1.9 SAMPLE PREPARATION AND ANALYSES ...... 1-5 1.10 DATA VERIFICATION...... 1-6 1.11 MINERAL PROCESSING AND METALLURGICAL TESTING ...... 1-6 1.12 MINERAL RESOURCE ESTIMATES ...... 1-6 1.13 MINING METHODS ...... 1-7 1.14 RECOVERY METHODS ...... 1-8 1.15 PROJECT INFRASTRUCTURE ...... 1-8 1.16 ENVIRONMENTAL STUDIES, PERMITTING AND SOCIAL OR COMMUNITY IMPACT ...... 1-9 1.17 CAPITAL AND OPERATING COST ESTIMATES ...... 1-11 1.17.1 CAPITAL COST ESTIMATE ...... 1-11 1.17.2 OPERATING COST ESTIMATE ...... 1-12 1.18 ECONOMIC ANALYSIS ...... 1-12 1.19 RECOMMENDATIONS ...... 1-16 2.0 INTRODUCTION ...... 2-1 2.1 QUALIFIED PERSONS ...... 2-1 2.1 SOURCES OF INFORMATION ...... 2-2 2.2 UNITS OF MEASUREMENT AND CURRENCY ...... 2-2 3.0 RELIANCE ON OTHER EXPERTS ...... 3-1 4.0 PROPERTY DESCRIPTION AND LOCATION ...... 4-1 4.1 LOCATION ...... 4-1 4.2 DESCRIPTION ...... 4-1 4.3 PERMIT ACQUISITION AND LEGISLATIVE REQUIREMENTS ...... 4-3 4.4 ROYALTIES, RIGHTS, PAYMENTS AND AGREEMENTS ...... 4-4 4.4.1 EXPLORATION FEES ...... 4-4 4.4.2 ROYALTIES ...... 4-4 4.4.3 ENVIRONMENTAL LIABILITIES ...... 4-4 4.4.4 PERMITS REQUIRED FOR THE PROPOSED WORK ...... 4-4
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4.5 SURFACE RIGHTS AND LEGAL ACCESS ...... 4-5 4.6 OBLIGATIONS TO VENDOR ...... 4-6 4.7 PERMITS...... 4-7 4.8 OTHER FACTORS OR RISKS ...... 4-7 5.0 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY...... 5-1 5.1 ACCESSIBILITY ...... 5-1 5.2 LOCAL RESOURCES AND INFRASTRUCTURE ...... 5-1 5.3 CLIMATE ...... 5-1 5.4 PHYSIOGRAPHY ...... 5-2 5.5 SEISMICITY ...... 5-2 5.6 VEGETATION ...... 5-3 6.0 HISTORY ...... 6-1 6.1 EXPLORATION HISTORY ...... 6-1 6.1.1 GENERAL EXPLORATION HISTORY TO 2016 ...... 6-1 6.1.2 THE 1969-1971 CAMPAIGN ...... 6-1 6.1.3 THE 1975-1978 CAMPAIGN ...... 6-2 6.2 DRILLING ...... 6-3 6.3 SAMPLE PREPARATION AND ANALYSES ...... 6-4 6.3.1 QUALITY CONTROL PROGRAMS ...... 6-5 6.4 GEOPHYSICAL SURVEYS ...... 6-5 6.5 HISTORICAL RESOURCE ESTIMATES ...... 6-7 6.5.1 HISTORICAL NON-COMPLIANT RESOURCE ESTIMATES ...... 6-7 6.5.2 THE 1972 ESTIMATE ...... 6-8 6.5.3 THE 1979 ESTIMATE ...... 6-8 6.5.4 THE 1988 ESTIMATE ...... 6-9 6.5.5 THE 2014 ESTIMATE ...... 6-9 6.5.6 HISTORICAL NI 43-101 COMPLIANT RESOURCE ESTIMATE ...... 6-10 7.0 GEOLOGICAL SETTING AND MINERALISATION ...... 7-1 7.1 REGIONAL GEOLOGY ...... 7-1 7.2 LOCAL GEOLOGY...... 7-1 7.3 PROPERTY GEOLOGY ...... 7-4 7.3.1 UDOKAN SERIES FORMATIONS ...... 7-4 7.3.2 STRUCTURE ...... 7-4 7.3.3 INTRUSIVE ROCKS ...... 7-5 7.3.4 QUATERNARY COVER ...... 7-5 7.4 MINERALIZATION ...... 7-7 8.0 DEPOSIT TYPES ...... 8-1 9.0 EXPLORATION ...... 9-1 9.1 CHANNEL SAMPLING OF TRENCHES AND OUTCROPS ...... 9-1 9.2 GROUND MAGNETIC SURVEY ...... 9-1 10.0 DRILLING ...... 10-1 10.1 TYPE AND EXTENT ...... 10-1
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10.2 FACTORS THAT COULD MATERIALLY AFFECT THE ACCURACY AND RELIABILITY OF RESULTS ...... 10-1 10.3 SRK COMMENTS ...... 10-1 11.0 SAMPLE PREPARATION, ANALYSIS AND SECURITY ...... 11-1 11.1 SAMPLE PREPARATION ON SITE ...... 11-1 11.2 SAMPLE PREPARATION AND ANALYSIS AT LABORATORY ...... 11-1 11.3 QUALITY CONTROL/QUALITY ASSURANCE ...... 11-2 11.3.1 CERTIFIED REFERENCE MATERIALS ...... 11-2 11.3.2 CHECK ASSAYS BY AN UMPIRE LABORATORY ...... 11-2 11.4 SRK COMMENTS ...... 11-3 12.0 DATA VERIFICATION ...... 12-1 12.1 DATA VERIFICATION BY THE QUALIFIED PERSON ...... 12-1 12.2 LIMITATIONS ON DATA VERIFICATION ...... 12-1 12.3 ADEQUACY OF DATA FOR THE PURPOSES USED IN THIS TECHNICAL REPORT ...... 12-2 13.0 MINERAL PROCESSING AND METALLURGICAL TESTING ...... 13-1 13.1 SUMMARY ...... 13-1 13.2 MINERALOGICAL TEST WORK ...... 13-1 13.3 METALLURGICAL TEST WORK ...... 13-2 13.3.1 TEST WORK SAMPLE ...... 13-2 13.3.2 WHOLE ROCK ANALYSIS ...... 13-2 13.3.3 DIAGNOSTIC LEACH ...... 13-3 13.3.4 SIZE FRACTION ANALYSIS...... 13-3 13.3.5 GRAVITY CONCENTRATION ...... 13-4 13.3.6 FLOTATION ...... 13-4 13.3.7 LEACH TESTS ...... 13-6 13.3.8 PRE-CONCENTRATION FOLLOWED BY CONCENTRATE LEACH ...... 13-7 14.0 MINERAL RESOURCE ESTIMATES ...... 14-1 14.1 SUMMARY ...... 14-1 14.2 UNKUR MINERAL RESOURCE ESTIMATE ...... 14-1 14.2.1 SUMMARY OF ESTIMATION TECHNIQUES ...... 14-1 14.2.2 DATABASE ...... 14-1 14.2.3 GEOLOGICAL INTERPRETATION ...... 14-2 14.2.4 WIREFRAME MODELLING ...... 14-3 14.2.5 EXPLORATORY DATA ANALYSIS/DOMAINING ...... 14-4 14.2.6 DENSITY ...... 14-12 14.2.7 VARIOGRAPHY ...... 14-12 14.2.8 RESOURCE BLOCK MODELS ...... 14-12 14.2.9 BLOCK MODEL VALIDATION ...... 14-13 14.2.10 MINERAL RESOURCE CLASSIFICATION ...... 14-18 14.2.11 MINERAL RESOURCE TABULATION ...... 14-19 15.0 MINERAL RESERVE ESTIMATES ...... 15-1 16.0 MINING METHODS ...... 16-1 16.1 OPERATING PARAMETERS AND ASSUMPTIONS ...... 16-1 16.2 OPEN PIT OPTIMIZATION ...... 16-2 16.2.1 INPUT PARAMETERS AND ASSUMPTIONS ...... 16-2
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16.2.2 RESULTS – BASE CASE ...... 16-4 16.2.3 SENSITIVITY ANALYSIS ...... 16-7 16.3 MINE DESIGN ...... 16-9 16.3.1 DESIGN PARAMETERS ...... 16-9 16.3.2 PIT LIMIT DESIGN ...... 16-10 16.3.3 PIT STAGE DESIGNS ...... 16-11 16.4 MINE SCHEDULE ...... 16-13 16.5 GENERAL MINE LAYOUT ...... 16-16 16.6 MINE EQUIPMENT ...... 16-16 17.0 RECOVERY METHODS ...... 17-1 17.1 SUMMARY ...... 17-1 17.2 PROCESS FLOWSHEET SELECTION ...... 17-1 17.2.1 OPTION 1 – CYANIDE TANK LEACH FOLLOWED BY SART (BASE CASE) ..... 17-2 17.2.2 OPTION 2 – SEQUENTIAL TANK LEACH FOLLOWED BY SX/EW AND MERRILL CROWE ...... 17-4 17.2.3 OPTION 3 – CYANIDE HEAP LEACH FOLLOWED BY SART ...... 17-6 17.2.4 OPTION 4 – SEQUENTIAL HEAP LEACH FOLLOWED BY SX/EW ...... 17-8 17.2.5 SUMMARY OF ECONOMIC PARAMETERS ...... 17-10 17.3 PROCESS DESIGN CRITERIA ...... 17-11 17.4 AVAILABILITY AND UTILISATION ...... 17-13 17.5 PRIMARY EQUIPMENT LIST ...... 17-13 17.6 PROCESS DESCRIPTION ...... 17-15 17.6.1 CRUSHING ...... 17-18 17.6.2 GRINDING ...... 17-18 17.6.3 LEACH FEED THICKENERS ...... 17-19 17.6.4 LEACH AND CCD CIRCUIT ...... 17-19 17.6.5 SART CIRCUIT ...... 17-20 18.0 PROJECT INFRASTRUCTURE ...... 18-1 18.1 SITE LOCATION AND DESCRIPTION ...... 18-1 18.1.1 PERMAFROST CONDITIONS...... 18-1 18.1.2 SEISMIC CONDITIONS ...... 18-2 18.2 EXISTING INFRASTRUCTURE AND SITE LAYOUT ...... 18-2 18.2.1 MINE ...... 18-4 18.2.2 WASTE ROCK DUMP ...... 18-4 18.2.3 PROCESS PLANT ...... 18-4 18.2.4 TAILINGS MANAGEMENT FACILITY ...... 18-5 18.3 ACCESS AND LOGISTICS ...... 18-6 18.3.1 ROADS ...... 18-6 18.3.2 RAIL ...... 18-7 18.3.3 AIRPORT ...... 18-7 18.3.4 PORT ...... 18-7 18.3.5 CONSTRUCTION LOGISTICS ...... 18-7 18.3.6 OPERATIONAL LOGISTICS ...... 18-8 18.4 SERVICES AND UTILITIES ...... 18-9 18.4.1 WATER ...... 18-9 18.4.2 ELECTRICAL POWER ...... 18-10 18.4.3 FUEL STORAGE ...... 18-10 18.4.4 COMMUNICATIONS ...... 18-10
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18.5 ANCILLARY FACILITIES ...... 18-11 18.5.1 ADMINISTRATION AND OPERATIONS FACILITIES ...... 18-11 18.5.2 HEATING PLANT ...... 18-11 18.5.3 LABORATORY ...... 18-12 18.5.4 EXPLOSIVES STORAGE AREA...... 18-12 18.6 MINING CONTRACTOR FACILITIES ...... 18-12 18.7 WASTE MANAGEMENT ...... 18-12 19.0 MARKET STUDIES AND CONTRACTS ...... 19-1 20.0 ENVIRONMENTAL STUDIES, PERMITTING, AND SOCIAL OR COMMUNITY IMPACT ...... 1 20.1 PROJECT SETTING ...... 1 20.2 LEGISLATION AND PROJECT PERMITTING ...... 2 20.2.1 INTERNATIONAL STANDARDS ...... 3 20.3 ECOLOGY AND BIODIVERSITY ...... 4 20.3.1 PROTECTED AREAS ...... 5 20.4 WATER ...... 5 20.5 SOCIAL AND COMMUNITY ...... 6 20.5.1 INDIGENOUS PEOPLE ...... 6 20.5.2 ARCHAEOLOGY AND CULTURAL HERITAGE ...... 7 20.6 ENVIRONMENTAL ASPECTS AND POTENTIAL IMPACTS ...... 7 20.7 ENVIRONMENTAL AND SOCIAL MANAGEMENT PLANS ...... 8 20.8 MINE CLOSURE REQUIREMENTS ...... 9 21.0 CAPITAL AND OPERATING COST ESTIMATES ...... 21-1 21.1 CAPITAL COST ESTIMATE ...... 21-1 21.1.1 SUMMARY ...... 21-1 21.1.2 MINING...... 21-1 21.1.3 PROCESS PLANT ...... 21-2 21.1.4 INFRASTRUCTURE AND TAILINGS ...... 21-3 21.1.5 OTHER CAPITAL COSTS ...... 21-4 21.1.6 WORKING CAPITAL ...... 21-4 21.1.7 SUSTAINING CAPITAL COSTS ...... 21-4 21.2 OPERATING COST ESTIMATE ...... 21-5 21.2.1 SUMMARY ...... 21-5 21.2.2 MINING...... 21-5 21.2.3 PROCESSING ...... 21-6 21.2.4 TAILINGS MANAGEMENT FACILITY ...... 21-7 21.2.5 GENERAL AND ADMINISTRATIVE ...... 21-7 21.2.6 OFF-SITE CHARGES ...... 21-7 22.0 ECONOMIC ANALYSIS ...... 22-1 22.1 PRINCIPLE ASSUMPTIONS ...... 22-2 22.1.1 METAL PRICES ...... 22-2 22.1.2 SALES ASSUMPTIONS AND OFF-SITE CHARGES ...... 22-2 22.1.3 CONTRACT MINING ...... 22-3 22.2 PRE-TAX ANALYSIS ...... 22-3 22.2.1 FINANCIAL MODEL ...... 22-3 22.2.2 OFF-SITE CHARGES ...... 22-3 22.2.3 CASH FLOW ...... 22-4
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22.2.4 NPV, IRR AND PAYBACK PERIOD ...... 22-4 22.2.5 PRE-TAX SENSITIVITY ...... 22-5 22.3 POST-TAX ANALYSIS ...... 22-6 22.3.1 TAXES AND ROYALTIES ...... 22-6 22.3.2 CASH FLOW ...... 22-7 22.3.3 NPV, IRR AND PAYBACK PERIOD ...... 22-7 22.3.4 POST-TAX SENSITIVITY ...... 22-7 23.0 ADJACENT PROPERTIES ...... 23-1 24.0 OTHER RELEVANT DATA AND INFORMATION ...... 24-1 25.0 INTERPRETATIONS AND CONCLUSIONS ...... 25-1 25.1 GEOLOGY ...... 25-1 25.2 METALLURGY AND PROCESS ...... 25-1 25.3 MINING ...... 25-2 25.4 PROJECT INFRASTRUCTURE ...... 25-3 25.5 ENVIRONMENTAL ...... 25-3 25.6 CAPITAL AND OPERATING COSTS ...... 25-4 25.7 ECONOMIC ANALYSIS ...... 25-5 26.0 RECOMMENDATIONS ...... 26-1 26.1 GEOLOGY ...... 26-1 26.1.1 GEOLOGY PHASE 1 ...... 26-1 26.1.2 GEOLOGY PHASE 2 ...... 26-1 26.2 METALLURGY AND PROCESS ...... 26-2 26.3 MINING ...... 26-2 26.4 PROJECT INFRASTRUCTURE ...... 26-3 26.5 ENVIRONMENTAL ...... 26-3 26.5.1 ENVIRONMENTAL PHASE 1...... 26-5 26.5.2 ENVIRONMENTAL PHASE 2...... 26-5 26.6 MARKET STUDIES ...... 26-5 27.0 REFERENCES ...... 27-1
L IST OF TABLES
Table 1.1 Unkur Copper-Silver Project Key Outcomes ...... 1-1 Table 1.2 Licence Coordinates ...... 1-3 Table 1.3 Unkur Mineral Resource Estimate – Effective Date 7th March 2018 ...... 1-6 Table 1.4 Initial Capital Cost Summary ...... 1-12 Table 1.5 Operating Cost Summary ...... 1-12 Table 1.6 Pre-tax Analysis Summary ...... 1-13 Table 1.7 Post-Tax Analysis Summary ...... 1-14 Table 1.8 Project Recommendations Summary and Budget ...... 1-16 Table 2.1 Summary of QPs ...... 2-1 Table 4.1 License Details ...... 4-2 Table 4.2 License Coordinates ...... 4-3
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Table 6.1 Exploration Works on the Unkur Project, 1969-1978 ...... 6-2 Table 6.2 Unkur Project Diamond Drilling ...... 6-3 Table 6.3 Results from the 1972 Estimate for the Unkur Project, Classified According to the Soviet Union Resource/Reserve Classification System of 1960 ...... 6-8 Table 6.4 Results from the 1979 Estimate for the Unkur Project, Classified According to the Soviet Union Resource/Reserve Classification System of 1960 ...... 6-9 Table 6.5 Results from the 1988 Estimate for the Unkur Project, Classified According to the Soviet Union Resource/Reserve Classification System of 1980 ...... 6-9 Table 6.6 Results from the 2014 estimate for the Unkur Project, Classified According to the Russian Resource/Reserve Classification System of 1980 ...... 6-10 Table 6.7 Unkur Cu-Ag Project Mineral Resource Statement as at March 31, 2017 ...... 6-11 Table 9.1 Trench Intersections used for Mineral Resource Estimation ...... 9-1 Table 10.1 Drillhole Location, Maximum Depth, and Orientation ...... 10-2 Table 10.2 Drillhole Intersections used for Mineral Resource Estimation ...... 10-3 Table 11.1 Summary of Results from Analyses of Certified Reference Materials ...... 11-2 Table 13.1 Whole Rock Analysis ...... 13-2 Table 13.2 Diagnostic Leach Results ...... 13-3 Table 13.3 Fractional Analysis Results ...... 13-3 Table 13.4 Gravity Concentration Results ...... 13-4 Table 13.5 Flotation Results ...... 13-5 Table 13.6 Acid Leach Results ...... 13-6 Table 13.7 Cyanide Leach Conditions ...... 13-7 Table 13.8 Cyanide Leach Results ...... 13-7 Table 14.1 Raw Drillhole Statistics ...... 14-5 Table 14.2 Descriptive Statistics for Selected Samples ...... 14-7 Table 14.3 Table Statistics of Selected Raw Samples and 1 m Composites ...... 14-10 Table 14.4 Unkur Block Model Parameters ...... 14-12 Table 14.5 Estimation Parameters...... 14-13 Table 14.6 Statistics Comparing Block Estimate and Composite Grades ...... 14-15 Table 14.7 Unkur Mineral Resource Estimate – Effective Date 7th March 2018 ...... 14-20 Table 15.1 Mineral Inventory for the Unkur Project (0.2% CuEq Cut-off) ...... 15-1 Table 16.1 Pit Optimisation Parameters ...... 16-4 Table 16.2 Pit Optimisation Results – Base Case ...... 16-7 Table 16.3 Ranges for Sensitivity Analysis ...... 16-8 Table 16.4 Mine Design Parameters...... 16-10 Table 16.5 Pit Limit Design ...... 16-10 Table 16.6 Mineral Inventory by Pit Stage ...... 16-13 Table 16.7 Small Pit Case LOM Schedule...... 16-14 Table 16.8 Indicative Equipment Requirements ...... 16-17 Table 17.1 Capital Cost Estimate – Option 1 – Cyanide Tank Leach Followed by SART (Base Case) ...... 17-3 Table 17.2 Operating Cost Estimate – Option 1 – Cyanide Tank Leach Followed by SART (Base Case) ...... 17-4 Table 17.3 Capital Cost Estimate – Option 2 – Sequential Tank Leach Followed by SX/EW and Merrill Crowe ...... 17-5 Table 17.4 Operating Cost Estimate – Option 2 – Sequential Tank Leach Followed by SX/EW and Merrill Crowe ...... 17-6 Table 17.5 Capital Cost Estimate – Option 3 – Cyanide Heap Leach Followed by SART...... 17-7 Table 17.6 Operating Cost Estimate – Option 3 – Cyanide Heap Leach Followed by SART...... 17-8
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Table 17.7 Capital Cost Estimate – Option 4 – Sequential Heap Leach Followed by SX/EW ...... 17-9 Table 17.8 Operating Cost Estimate – Option 4 – Sequential Heap Leach Followed by SX/EW ...... 17-10 Table 17.9 Process Options Economic Parameters Summary ...... 17-10 Table 17.10 Process Design Criteria ...... 17-11 Table 17.11 Primary Equipment List ...... 17-13 Table 18.1 Estimated Electrical Power Requirements ...... 18-10 Table 21.1 Initial Capital Cost Summary ...... 21-1 Table 21.2 Initial Mining Capital Cost Summary ...... 21-2 Table 21.3 Initial Process Plant Capital Cost Summary ...... 21-2 Table 21.4 Initial Infrastructure and Tailing Capital Cost Summary ...... 21-3 Table 21.5 Sustaining Capital Cost Summary ...... 21-5 Table 21.6 Operating Cost Summary ...... 21-5 Table 21.7 Mine Operating Cost Summary ...... 21-6 Table 21.8 Process Plant Operating Cost Summary ...... 21-7 Table 21.9 Off-site Charges Summary ...... 21-7 Table 22.1 Pre-tax Analysis Summary ...... 22-1 Table 22.2 Post-Tax Analysis Summary ...... 22-2 Table 22.3 Pre-tax Analysis Summary ...... 22-4 Table 22.4 Post-Tax Analysis Summary ...... 22-7 Table 23.1 Udokan Mineral Resources as of March 2014 ...... 23-1 Table 25.1 Initial Capital Cost Summary ...... 25-5 Table 25.2 Operating Cost Summary ...... 25-5 Table 25.3 Pre-tax Analysis Summary ...... 25-6 Table 25.4 Post-Tax Analysis Summary ...... 25-6
LIST OF FIGURES
Figure 1.1 Unkur Project Location ...... 1-2 Figure 1.2 Unkur Project Existing Local Infrastructure and Proposed Site Layout ...... 1-9 Figure 1.3 Base Case Undiscounted Annual and Cumulative Pre-tax Cash Flow ...... 1-13 Figure 1.4 Pre-tax NPV Sensitivity ...... 1-14 Figure 1.5 Base Case Undiscounted Annual and Cumulative Post-tax Cash Flow ...... 1-15 Figure 1.6 Base Case Post-tax NPV Sensitivity ...... 1-15 Figure 1.7 Alternate Case Post-tax NPV Sensitivity ...... 1-16 Figure 4.1 Unkur Property Location Map ...... 4-1 Figure 4.2 Unkur License Area ...... 4-3 Figure 5.1 Topography Map for the Unkur Project ...... 5-2 Figure 6.1 Unkur Project Drillholes, Trenches and Geophysical Survey Profiles ...... 6-3 Figure 6.2 Unkur Project Area Magnetic Survey ...... 6-6 Figure 6.3 Zones of High Polarizability ...... 6-7 Figure 7.1 Regional Geology Setting. In addition to the Unkur and Udokan deposits, the other copper occurrences shown on the map are: Luktursky (1); Nirungnakanskaya group (2 and 3); Ingamakitskaya group (4, 5 and 6) ...... 7-2 Figure 7.2 Property Geology ...... 7-6 Figure 7.3 Typical Geological Cross-Section, Central Part of the Unkur Project ...... 7-7 Figure 9.1 Ground Magnetic Survey Results with Selected Drillholes Overlaid and Targets for Future Exploration Phases Highlighted ...... 9-2 Figure 10.1 Histogram of Sample Weights for 1 m Samples from Zone 1 Mineralised Domain ...... 10-2
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Figure 10.2 Plan Showing Collar Locations and Drillhole Traces in Relation to Modelled Mineralisation Domain ...... 10-4 Figure 10.3 Vertical Cross Section 1. View Looking Northwest. Section Width 50 m ...... 10-5 Figure 10.4 Vertical Cross Section 2. View Looking Northwest. Section Width 50 m ...... 10-6 Figure 10.5 Vertical Cross Section 3. View Looking West-northwest. Section width 50 m ...... 10-7 Figure 11.1 ALS Check Assays on Pulp Samples from SGS ...... 11-3 Figure 12.1 Old Core Storage, the Unkur Project ...... 12-1 Figure 12.2 Core Recovered from Hole С-118 ...... 12-2 Figure 14.1 Plan View of Mineralised Domains at Unkur with Collar Locations ...... 14-3 Figure 14.2 West-East Cross Section through Mineralisation (4367800N) ...... 14-4 Figure 14.3 Log Histogram of all Raw Samples - Cu ...... 14-5 Figure 14.4 Log Histogram of all Raw Samples - Ag ...... 14-6 Figure 14.5 Log Histogram of all Selected Samples - Cu ...... 14-8 Figure 14.6 Log Histogram of all Selected Samples - Ag ...... 14-8 Figure 14.7 Decile Analysis - Cu ...... 14-11 Figure 14.8 Decile Analysis - Ag ...... 14-11 Figure 14.9 Plan Showing Estimated Block Grades for Unkur – Looking Northeast ...... 14-13 Figure 14.10 Plan Showing Search Pass for Unkur ...... 14-14 Figure 14.11 Easting Swath Plot Comparing the Informing Composite and the ID2 Estimated Copper Grades for Unkur ...... 14-16 Figure 14.12 Northing Swath Plot Comparing the Informing Composite and the ID2 Estimated Copper Grades for Unkur ...... 14-17 Figure 14.13 Easting Swath Plot Comparing the Informing Composite and the ID2 Estimated Silver Grades for Unkur...... 14-17 Figure 14.14 Northing Swath Plot Comparing the Informing Composite and the ID2 Estimated Silver Grades for Unkur...... 14-18 Figure 14.15 Plan Showing Classification for Unkur ...... 14-19 Figure 16.1 Pit Optimisation Results (Base Case) ...... 16-6 Figure 16.2 NPV Sensitivity Analysis ...... 16-8 Figure 16.3 Mineral Inventory Sensitivity Analysis ...... 16-9 Figure 16.4 Pit Limit Design ...... 16-10 Figure 16.5 Stage 1 Pit Design ...... 16-11 Figure 16.6 Stage 2 Pit Design ...... 16-11 Figure 16.7 Stage 3 Pit Design ...... 16-12 Figure 16.8 Stage 4 Pit Design ...... 16-12 Figure 16.9 LOM Schedule by Material Type ...... 16-15 Figure 16.10 LOM Schedule by Stage ...... 16-16 Figure 17.1 Conceptual Block Flow Diagram – Option 1 – Cyanide Tank Leach Followed by SART (Base Case) ...... 17-3 Figure 17.2 Conceptual Block Flow Diagram – Option 2 – Sequential Tank Leach Followed by SX/EW and Merrill Crowe ...... 17-5 Figure 17.3 Conceptual Block Flow Diagram – Option 3 – Cyanide Heap Leach Followed by SART...... 17-7 Figure 17.4 Conceptual Block Flow Diagram – Option 4 – Sequential Heap Leach Followed by SX/EW ...... 17-9 Figure 17.5 Conceptual Block Flow Diagram – Comminution and Leaching ...... 17-16 Figure 17.6 Conceptual Block Flow Diagram – SART ...... 17-17 Figure 18.1 Unkur Project Location and Permafrost Areas ...... 18-1 Figure 18.2 Russian Federation Seismicity Classification Map ...... 18-2 Figure 18.3 Unkur Project Existing Local Infrastructure and Proposed Site Layout ...... 18-3 Figure 18.4 Plant Layout and Infrastructure ...... 18-5 Figure 18.5 Transport Routes to Potential Markets ...... 18-8 Figure 22.1 Base Case Undiscounted Annual and Cumulative Pre-tax Cash Flow ...... 22-4 Figure 22.2 Pre-tax NPV Sensitivity ...... 22-5 Figure 22.3 Pre-tax IRR Sensitivity ...... 22-6
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Figure 22.4 Base Case Undiscounted Annual and Cumulative Post-tax Cash Flow ...... 22-7 Figure 22.5 Base Case Post-tax NPV Sensitivity ...... 22-8 Figure 22.6 Alternate Case Post-tax NPV Sensitivity ...... 22-9 Figure 22.7 Base Case Post-tax IRR Sensitivity ...... 22-9 Figure 22.8 Base Case Post-tax IRR Sensitivity ...... 22-10 Figure 25.1 ESIA Process ...... 25-4
GLOSSARY
UNITS OF MEASURE centimetre ...... cm cubic centimetre ...... cm3 cubic metre ...... m3 cubic metre ...... m3 cubic metres per hour ...... m3/h day ...... d degree ...... ° degrees Celsius ...... °C dry metric ton ...... dmt foot ...... ft gram ...... g grams per cubic centimetre ...... g/cm3 grams per litre ...... g/t grams per tonne ...... g/t horsepower ...... hp hour ...... h kilogram per tonne ...... kg/t kilogram ...... kg kilometre ...... km kilotonne ...... kt kilovolt ...... kV kilowatt hour ...... kWh kilowatt ...... kW litre ...... L megawatt ...... MW meters below ground level ...... mbgl metre ...... m metres above sea level ...... masl micron ...... µm millimetres ...... mm million pounds ...... Mlb million tonnes per year ...... Mt/a million tonnes ...... Mt minute arc ...... ' parts per million ...... ppm
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percentage ...... % pound...... lb pounds per year ...... lb/a Russian Ruble ...... RUB₽ second arc ...... " square kilometre ...... km2 square metre ...... m2 tonne ...... t tonnes per cubic metre ...... t/m3 tonnes per day ...... t/d tonnes per hour ...... t/a tonnes per year ...... t/a troy ounce ...... t oz troy ounces per year ...... t oz/a US Dollar ...... US$ weight to weight ...... w/w year (annum) ...... a
ABBREVIATIONS AND ACRONYMS A.P. Karpinsky Russian Geological Research Institute ...... VSEGEI acid rock drainage ...... ARD ALS Global ...... ALS atomic absorption spectroscopy ...... AAS atomic absorption spectroscopy ...... AAS Azarga Metals Corp...... Azarga Baikal-Amur Mainline ...... BAM calcium cyanide ...... Ca(CN)2 Canadian Institute of Mining, Metallurgy and Petroleum ...... CIM carbon ...... C certified reference material ...... CRM Commonwealth of Independent States ...... CIS contain specific, measurable, achievable, relevant and time-bound ...... SMART copper equivalent ...... CuEq copper sulphide ...... Cu2S copper ...... Cu corporate income taxes ...... CIT corporate property tax ...... CPT counter current decantation ...... CCD Department of Subsoil Use for Central and Siberian District of Russia ...... Tsentrsibnedra digital terrain map ...... DTM east ...... E environmental and social impact assessment (also known as a Russian OVOS) ...... ESIA environmental and social management plan ...... ESMP environmental and social management system ...... ESMS Environmental, Health and Safety ...... EHS Equator Principles ...... EP fire assay ...... FA
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framework resettlement action plan ...... FRAP general and administrative ...... G&A global positioning system ...... GPS gold ...... Au hydrogen cyanide ...... HCN hydrohyanic acid ...... HCN(ag) inductively coupled plasma ...... ICP inductively coupled plasma-atomic emission spectroscopy ...... ICP-AES internal rate of return ...... IRR International Electrotechnical Commission ...... IEC International Finance Corporation ...... IFC International Organization for Standardization ...... ISO International System of Units ...... SI International Union for Conservation of Nature ...... IUCN inter-ramp angle...... IRA Inverse Distance Squared ...... ID2 life-of-mine ...... LOM loss on ignition ...... LOI mineral extraction tax ...... MET National Instrument 43-101 ...... NI 43-101 Nektorov, Saveliev & Partners ...... NSPLaw net present value ...... NPV net smelter royalty ...... NSR non-acid generating ...... NAG non-governmental organization ...... NGO north ...... N not-potentially acid generating ...... NPAG NPV Scheduler ...... NPVS overall slope angle ...... OSA Performance Standards ...... PS Preliminary Economic Assessment ...... PEA Qualified Person ...... QP Quantitative Kriging Neighbourhood Analysis ...... QKNA Regional Investment Project ...... RIP resettlement action plan ...... RAP run-of-mine ...... ROM Russian State Commission on Mineral Resources ...... GKZ semi-autogenous grinding ...... SAG SGS Vostok Limited ...... SGS Vostok silver sulphide ...... Ag2S silver ...... Ag sodium hydrosulphide ...... NaHS solvent extraction and electrowinning ...... SX/EW south ...... S SRK Consulting (Russian) Ltd...... SRK sulfuric acid ...... H2SO4 sulphur ...... S sulpidisation, acidification, recycling and thickening ...... SART
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tailings management facility ...... TMF United Kingdom ...... UK Unkur Copper-Silver Project ...... the Project or the Property waste rock dump ...... WRD west ...... W World Geodetic System ...... WGS x-ray diffraction ...... XRD x-ray fluorescence ...... XRF
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1.0 SUMMARY
1.1 INTRODUCTION
In January 2018, Azarga Metals Inc. (Azarga) engaged Tetra Tech to complete a National Instrument 43-101 (NI 43-101) Technical Report and Preliminary Economic Assessment (PEA) for the Unkur Copper-Silver Project (the Project or the Property) located in the Kodar-Udokan Area of the Russian Federation. The work for this report was led by Tetra Tech’s Swindon, United Kingdom (UK) office, through Tetra Tech’s wholly-owned subsidiary Coffey Geotechnics Ltd.
The key project outcomes from the PEA are shown in Table 1.1.
Table 1.1 Unkur Copper-Silver Project Key Outcomes
Area Unit Value Commodity - Cu/Ag Mining Method - open pit LOM years 8 Processing Method - Comminution/Cyanide Leach/SART Average Cu Head Grade % 0.76 Average Ag Head Grade g/t 66.6 Cu Metallurgical Recovery % 94 Ag Metallurgical Recovery % 94 Total Initial Capital US$ million 186.6 Average Cu Product Grade % 75 Average Ag Product Grade g/t 6,500 Operating Cost US$/t processed 40.76 Cu Price US$/lb 3.25 Ag Price US$/t oz 20.00 Foreign Exchange Rate RUB₽:US$ 62.50:1.00 Pre-tax IRR % 28.9 Pre-tax NPV (8%) US$ million 203.6 Pre-tax Payback Period years 3 Post-tax IRR (Base Case) % 24.4 Post-tax NPV (8%) (Base Case) US$ million 147.5 Post-tax Payback Period (Base Case) years 3.2 Notes: The PEA is preliminary in nature and includes Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves, and there is no certainty that the PEA will be realized. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. Cu – copper; Ag – silver; LOM – life-of-mine; IRR – internal rate of return; NPV – net present value; US$ - US Dollars; RUB₽ - Russian Ruble
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The effective date of this Technical Report and PEA is 30th August 2018 and the effective date of the Mineral Resource estimate is 7th March 2018.
All currency is reported in US Dollars and all measurements are reported using the International System of Units (SI) unless otherwise noted.
1.2 PROPERTY DESCRIPTION
The Project is located in the Kalarsky district of the Zabaikalsky administrative region of Russia, 15 km east of the Novaya Chara town (Figure 1.1). The centre of the licence is located at coordinates 598,061 E, 6,300,586 N World Geodetic System (WGS)84.
Figure 1.1 Unkur Project Location
1.2.1 MINERAL TENURE The License (ЧИТ02522БР) covers an area of 53.9 km2 and is valid until December 31, 2039. The licence belongs to LLC Tuva-Cobalt, an affiliated company of Azarga, allowing for geological exploration and mining of copper and associated components.
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The licence coordinates are presented in Table 1.2.
Table 1.2 Licence Coordinates
Latitude Longitude Point (dd° mm' ss"’) (dd° mm' ss"’) 1 56 48 01N 118 34 20E 2 56 52 36N 118 32 03E 3 56 52 14N 118 38 45E 4 56 47 59N 118 40 45E
At the time of writing there is no information available regarding any environmental liabilities to which the Project may be subject for. Any historical disturbance from exploration activities that may exist on site are outside of current Licensee liabilities according to existing legislation unless Licensee voluntarily accepts them.
1.3 ACCESSIBILITY, CLIMATE, LOCAL RESOURCE, INFRASTRUCTURE AND PHYSIOGRAPHY
The Property is accessible from the Chara village and Novaya Chara town by a natural road passing along the Baikal-Amur Mainline (BAM) railway. Novaya Chara is located approximately 22 km from the Property. During winter snow roads are used to access the city of Chita and town of Taksimo.
Chara has an airstrip that accommodates flights to and from Chiata (approximately.800 km southwest).
The climate of the Property is a harsh continental climate with very cold and long winters coupled with short hot summers. The cold long winters (October to April) are characterised by high pressure. The average air temperature in January at the upper elevation of the Project area is –27.8°C, with minimum temperatures of –57°C at lower elevations and –47°C, at altitude. Precipitation is unevenly distributed with first snow typically falling mid-September and melting in mid-April at lower elevations and in May at higher elevations.
The district is generally economically poorly developed. As of the 2010 census the district had a population of 9,579 people across an area of 56,000 km2.
The Project area is located on the northern slopes of the Udokan Range in the catchment of the Kemen and Unkur Rivers. The Project area is characterised by low and medium relief with absolute elevations of 1,100 to 1,200 m and local elevation differences of 100 to 200 m.
1.4 HISTORY
The Unkur deposit was discovered in 1962 by the All-Union Aerogeological trust during 1:1,200,00 geological mapping. The mineralized layer was observed within a canyon of the Unkur River and traced for 1 km through limited outcrops of copper- bearing sandstone. In these exposures, the thickness of the layer varied from
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approximately 5 to 8 m. Based on the chemical assays of channel and chip samples an average copper grade of 1% was determined. It was established that the mineralization is stratabound within the Lower Sakukan subformation
Historical drilling at the Project was undertaken across two campaigns between 1969 and 1978. In total 6,703 m of drilling was undertaken, returning copper grades ranging from 0.2 to 3.5% copper, with an average of 1.30% copper.
Multiple historic resource estimates were completed at the Project in accordance with Russian reporting standards. In addition to these non-compliant resources, a NI 43- 101 Mineral Resource estimate was completed in March 2017 for the Project. Full details of the historic resources are presented in Section 6.0. These historic resource estimates have all been superseded by the Mineral Resource reported in Section 14.0.
1.5 GEOLOGICAL SETTING AND MINERALISATION
The Project is situated on the southern Siberian platform within the Unkurskaya syncline formed by Lower Proterozoic metamorphosed sediments of the Alexandrovskaya, Butunskaya and Sakukanskaya formations. The syncline extends northwest-southeast approximately 12 km and is 4 km wide.
Mineralisation is confined to the south-western limb of the Unkur syncline within weakly metamorphosed deposits of the Lower Sakukanskaya subformation (Zone 1). The zone dips northeast at 45 to 60° along a strike length of 4.6 km.
Sulphide mineralisation is comprised of chalcopyrite, pyrite, bornite, chalococite and covellite. Oxide minerals include malachite and brochantite. Accessory minerals include magnetite, hematite and ilmenite.
1.6 DEPOSIT TYPE
Based on the available exploration data and observations from previous Technical Reports, the Unkur deposit is interpreted as a sediment-hosted stratiform copper deposit.
1.7 EXPLORATION
During the 2016-2017 exploration campaign, Azarga took channel samples from two exposures of the mineralised zone in the bank of the Unkur River, and from four sites of historical trenching that were cleared to re-expose the bedrock. In total, 67 m of samples were collected from the outcrops, and 186 m from the trenches. Three of the trenches intersected copper-silver mineralisation. The trench samples were used for both modelling the contacts of the mineralisation domains, and for the geostatistical grade estimation within these domains.
Approximately 130-line kilometres of detail ground magnetics data were collected during Azarga’s exploration program. The results showed that copper-silver mineralisation is associated with a strong magnetic signature and that ground magnetics may be useful targeting tool on the Project.
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1.8 DRILLING
The main source of information for the Mineral Resource estimate presented in this report is 4,580 m of diamond core drilling (from 16 drillholes) completed during Azarga’s exploration campaign from August 2016 until February 2017. Section lines for drilling are spaced approximately 300 m apart. Where there are two Zone 1 intersections on the same drill section, the spacing between intersections is typically 200 to 300 m.
Based on the weight of the core, SRK Consulting (Russia) Ltd. (SRK) estimates that the average recovery from the mineralised zone is approximately 90%. Given the style and grade of mineralisation at Unkur, SRK considers this recovery to be sufficient for the samples to support mineral resource estimation, and there are no material data quality issues related to drilling, sampling or recovery factors.
1.9 SAMPLE PREPARATION AND ANALYSES
All core was digitally photographed. Intervals identified by the geologists as likely to be mineralised were selected for sampling, and the sampling interval was extended for at least 10 m beyond the limits of the identified mineralisation. Hand-held x-ray fluorescence (XRF) measurements were used as a further check, to ensure that all mineralised zones were identified for sampling.
Core selected for sampling was cut with a core saw. Sample lengths were nominally 1.0 m, but adjustments to the sample lengths were made in order to honour geological boundaries. Half core from the intervals selected for sampling was dispatched by road to SGS Vostok Limited laboratories in Chita (SGS Vostok).
The primary laboratory used for analysing Azarga’s samples is SGS. Samples received by SGS were dried, crushed to 85% passing 2 mm, and then ground to 90% passing 0.7 mm. A subsample of 0.5 to 1.0 kg was collected for a further stage of fine grinding, to 95 % passing 75 µm. A 50% split of this subsample (250 to 500 g) was used for analysis.
SGS analysed the samples for copper and silver. The copper content was determined by SGS method ICP90A (sodium peroxide fusion, then inductively coupled plasma- atomic emission spectroscopy [ICP-AES]). The silver content was determined by SGS method AAS12E (two-acid digest, then atomic absorption spectroscopy [AAS]).
External quality control samples used by Azarga included certified reference material, submitted to SGS with the primary samples, and check assays by an umpire laboratory (ALS Global [ALS] in Chita).
In SRK’s opinion, the sample preparation, security and analytical procedures are adequate for the purpose of providing sufficient confidence to use the assay database for Mineral Resource estimation.
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1.10 DATA VERIFICATION
The Qualified Person (QP) visited site in December 2014 and October 2016. The QP has also verified the database the Mineral Resource estimate is based on. This verification was done by personal inspection of drill core, drill sites and trenches during the 2016 site visit, and by checking database content against primary data sources and historical information.
In the opinion of the QP, the quantity and quality of data collected by Azarga are sufficient to support a Mineral Resources estimation.
1.11 MINERAL PROCESSING AND METALLURGICAL TESTING
Mineralogical and metallurgical test work was carried out by SGS Vostok in Chita, Russia. Between December 2014 and February 2015, they tested a single copper- bearing oxide sample weighing 350 kg.
The diagnostic leach investigations completed by SGS Vostok indicate that the mineralised material is a non-refractory type, with less than 5% of the copper locked in sulphides and silicates at a grind size of approximately P80 = 75 µm. Further, it was found that more than 95% of the copper is oxidised and that an overall copper extraction of at least 95% can be attained at this grind.
The metallurgical investigations also confirmed the diagnostic leach findings, where the optimal grind size is estimated to be P80 = 75 µm with average of copper extraction of 95%. In addition, the metallurgical test work demonstrated that the material is amenable to cyanidation with an average silver extraction of 96%.
1.12 MINERAL RESOURCE ESTIMATES
Tetra Tech completed a new Mineral Resource estimate for the Unkur deposit, with an effective date of 7th March 2018. The most recent data included in the estimate was received on 7th March 2018. Mr. Joseph Hirst, BSc (Hons), MSc, EurGeol, CGeol, FGS an independent QP as defined by NI 43-101, estimated the Mineral Resources.
A summary of the current Mineral Resource for the Unkur deposit are presented in Table 1.3.
Table 1.3 Unkur Mineral Resource Estimate – Effective Date 7th March 2018
Cu Ag Cu Ag Tonnes Grade Grade CuEq Metal Metal Class (t) Density (%) (g/t) (%) (t)* (t oz) Inferred 62,000,000 2.67 0.53 38.6 0.9 328,600 76,881,000
Notes: The effective date of the Mineral Resources is 7th March 2018. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. The estimate of Mineral Resources may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing, or other relevant issues. Numbers may not sum due to rounding. *1 328,600 t Cu = 724,234,400 lb
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Tetra Tech created wireframe models using Leapfrog Geo (version 4.2) based upon lithology, metal grade, and structural interpretations. Grades greater than 0.2% copper equivalent (CuEq) were used for this purpose. Block modelling and Mineral Resource modelling were completed in Datamine (Studio 3).
The Unkur copper and silver grades were estimated using Inverse Distance Squared (ID2) interpolation methodology. A mean density value of 2.57 g/cm3 was used for all blocks, except for glacial moraine which was given a value of 1.8 g/cm3.
Statistical and grade continuity analyses were completed in order to characterise the mineralisation and were subsequently used to develop grade interpolation parameters. Grade estimation was completed using ID2. The search ellipsoid dimensions and orientations were chosen to reflect the continuity revealed by geostatistical studies. Block size, discretisation, search size, and sample numbers were optimised using Quantitative Kriging Neighbourhood Analysis (QKNA).
Tetra Tech adopted the definition of Mineral Resources as outlined within the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards on Mineral Resources and Mineral Reserves (CIM 2014) in order to classify the Mineral Resources.
In order to demonstrate that the deposit has reasonable prospect for economic extraction, a cut-off grade of 0.3% CuEq was applied for Mineral Resources constrained by the second search pass. The cut-off grade is based on the following assumptions:
• silver price of US$20/t oz • copper price of US$3.00/lb • silver and copper recovery of 100%.
1.13 MINING METHODS
An evaluation of the Unkur copper-silver deposit was undertaken in order to establish the optimum pit size and production rate. Two distinct scenarios were considered:
• Option 1 – Maximise Mineral Resource recovery by mining to the maximum economic pit size. • Option 2 – Minimise initial capital costs by selecting a smaller pit and lower production rate.
Tetra Tech concluded that there was a natural break between these two scenarios, as demonstrated by the pit optimisation work. The larger pit contains approximately 26 Mt of mineral inventory whilst the smaller pit contains approximately 15 Mt of mineral inventory. In both cases the strip ratio was relatively high with the total rock movement varying between 180 and 340 Mt.
The smaller pit was selected for detailed pit design and four pit stages were created that are suitable for a mining rate of 2 Mt/a of mineralised material.
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The pit stages were scheduled so as to maximise project value and adhere to practical mining constraints such as minimum access width and maximum vertical advance rate.
The resultant mine plan assumes 136 t class trucks and 200 t hydraulic excavators working 10 m benches. The LOM plan extends to nine years, which includes one year of pre-strip of 10 Mt.
To reduce capital costs, it has been proposed to use a contract mining company to undertake all the mining and waste management activities on site. These activities will be planned and managed by an Owners Mining team to ensure quality and grade control and to manage the mining contract.
1.14 RECOVERY METHODS
The Unkur deposit mineralised material is moderately hard and amenable to cyanidation as well as acid leaching. The conceptual process flowsheet was developed and based on the test work reported in Section 13.0 and standard industry practices with the objective of maximising the economic performance of the Project. The process plant will be constructed for a 2.19 Mt/a capacity based on a flowsheet that maximises the overall silver and copper recoveries.
The ROM material will be fed through a jaw crusher and then ground in a two-stage conventional milling circuit (semi-autogenous grinding (SAG) mill and ball mill) in order to produce a slurry with an optimum size distribution for leaching. The ground slurry, with a particle size of P80 = 75 µm, will be fed into pre-leach thickeners. The thickener underflows will be leached in agitated leach tanks and subsequently washed in a counter current decantation (CCD) circuit prior to through a sulphidisation, acidification, recycling and thickening (SART) circuit. The SART circuit will produce a combined copper and silver concentrate product and regenerates cyanide. Any tailings from the process plant will be pumped to the tailings management facility (TMF).
1.15 PROJECT INFRASTRUCTURE
The Project location has good established infrastructure. The towns of Chara and Novaya Chara can provide facilities for worker accommodation, as well as airport and rail connections. The Project is approximately 2.6 km away from the main high- voltage power line, which is understood to have a capacity of 100 MW. There are existing roads which pass within 12 km of site. The Project will need to upgrade 8 km of existing tracks and construct a new 3.5 km access road.
The proposed site layout is shown in Figure 1.2. The proposed pit area runs parallel to the east of the river and it is proposed to place the waste rock dump (WRD) close to the pit on the west to reduce any potential impacts. A potentially suitable valley for the TMF has been identified to south of the pit.
The run-of-mine (ROM) pad will be located close to the pit exit, south of the pit. ROM mineralised material will be crushed and conveyed to the plant via a covered stockpile. The process plant will be located in a compact building to minimise costs.
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The mining contractor’s facilities will be located adjacent to the process plant. The mining contractor will provide their own offices and workshop facilities.
Figure 1.2 Unkur Project Existing Local Infrastructure and Proposed Site Layout
1.16 ENVIRONMENTAL STUDIES, PERMITTING AND SOCIAL OR COMMUNITY IMPACT
The Project is located in mountainous terrain and in close proximity to water courses of the Chara River catchment and Kemen and Unkur sub-catchments. The climate is harsh with long, cold winters and short, hot summers. The concession is located in a zone with severe earthquake potential and therefore potential impacts to water (quality and quantity) are possible. Any earthquake could trigger geohazards such as rock falls, mudslides, and slope failures. Such potential impacts and hazards will need to be considered during engineering design and layout of infrastructure and facilities.
The populations of the Zabaikalsky Region and Kalarsky District have fluctuated since the 1960s when the BAM railway was constructed and exploration for several mineral deposits took place. Settlements and infrastructure were developed in response to the increasing population. However, some projects have closed, and economic reforms took place which resulted in people leaving the area. The latest population
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figures were recorded during the 2010 census; these figures will be out of date and will need to be updated during the course of social baseline studies.
There are existing roads (including snow roads), and the BAM railway with links to a port at Vladivostok and an airport at Chara. A national grid powerline crosses the concession and there is a 200 MW high-voltage substation at Novaya Chara. The Udokan mine project has put considerable investment into infrastructure and this will benefit Unkur (e.g., the regional airport at Chara, roads, and expansion of facilities in Novaya Chara).
Russian legislation requires an OVOS (the equivalent of an environmental and social impact assessment [ESIA]) be completed in order to obtain Project authorisation. There are differences between an OVOS and international-standard ESIA to the extent that two separate documents are required. However, there needs to be consistency in the overall findings and conclusions so the teams producing the two documents need to be collaborate and be aligned.
The Unkur mining license is valid until 31st December 2039. A condition of the license is that environmental monitoring should begin during exploration (pre- engineering phase) and continue through all phases of the Project. Monitoring shall cover air, water, soil and biological resources.
The law states that historical liabilities associated with exploration are excluded from the current license. However, any historical liabilities discovered on the Unkur concession should be documented during baseline studies. Not all legacy issues can be ring-fenced, and some have to be dealt with by new operators (e.g., abandoned equipment, waste and other materials, contaminated soils, polluted water and waste dumps).
In terms of international standards such as the Equator Principles (EP) (2013), the Project is classified as a Category A project because it has the potential for significant adverse environmental and social risks/impacts that are diverse, irreversible, or unprecedented. Thus, a full assessment will have to be carried out to address the environmental and social risks and impacts, with measures to mitigate and offset adverse impacts. Seven of the eight International Finance Corporation (IFC) Performance Standards (PS) would be triggered for the Project and the findings of an ESIA would determine if PS5 (Land Acquisition and Involuntary Resettlement) is triggered.
The Unkur concession is located in the mountainous taiga or forest vegetation that is typical of the zone between 1,100 and 1,400 m in the Kalarsky District. Vegetation zones are influenced by elevation, micro-climates, soil, and the prevailing water regime. Rocky outcrops may be present and host to communities such as lichens and moss. Faunal species that frequent the taiga habitat include Siberian stag, musk deer, lynx, Gulo gulo, grouse, black-capped marmot with water birds in the valleys. Some International Union for Conservation of Nature (IUCN) Red List species are known to occur in Kalarsky District but no information about whether protected species are found on the concession is available. Previous aquatic ecology studies of the Chara River catchment and sub-catchments have recorded 20 fish species including two protected species. There are 14 areas that have natural heritage status in Kalakarsky District (Russian classification).
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The Project is in a large catchment (674 km2) and the concession is approximately 38 km downstream of the headwater. As the area is mountainous there is potential for significant flows particularly during the spring thaw of snow which reaches the highest rate in June.
The hydrogeological environment comprises aquifers in superficial deposits such as fluvio-glacial sediments, and moraines; and confined aquifer based on borehole evidence (phreatic surfaces at 140 and 110 mbgl).
The population of the Zabaikalsky Region was 1,117,030 in 2009, and 18 nationalities were recorded. Ninety-four percent were Russians, and 1 to 2% Buryats and Ukrainians (SRK 2010). Importantly, exploration and mining projects are already familiar to communities and authorities which could be beneficial in terms of acceptance of the proposed mine and support for it. Indigenous people, the Evenks, comprise an estimated 5% of the population which means that IFC PS7 (Indigenous Peoples) is triggered and the guidelines would be a key reference for the social studies that will be required for the Project. The objectives of PS7 include predicting and avoiding adverse impacts on indigenous communities and respecting and preserving the culture, knowledge, and practices of the communities. Twenty or so archaeological objects (tangible assets) were discovered in the Chara River during the 1970s and 1980s and included settlements, camps, and rock art. In the 1990s, modern religious objects were found by State researchers near Udokan (SRK 2010).
Potential negative impacts include loss of habitat; acid rock drainage (ARD); impacts on human health and the environment associated with cyanide, air quality, and loss of soil; and on water quality and quantity. Potential positive impacts include job opportunities, skills transfer, and raising of revenues and taxes. Management plans developed as part of an ESIA would include measures to mitigate negative impacts and enhance positive impacts.
Mine closure planning should be initiated during the initial engineering design phase so that cost-effective plans can be developed. Rehabilitation and closure planning should address planned and unplanned closure. Post-mining land-use should be a topic included in public consultation.
1.17 CAPITAL AND OPERATING COST ESTIMATES
1.17.1 CAPITAL COST ESTIMATE The initial capital cost estimate has been prepared based on the use of contract mining. The contract mining company will also be used for pre-stripping activities and to assist with the earthworks for construction of the process plant, TMF, and other infrastructure.
The initial capital cost estimate is US$186.6 million as shown in Table 1.4.
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Table 1.4 Initial Capital Cost Summary
Cost Area (US$ million) Mining Pre-strip 17.9 Mining Contractor Mobilisation 3.0 Process Plant 100.5 Infrastructure and Tailings 17.9 Owners Costs 5.0 Preliminaries and General 5.0 Contingency 37.3 Total Initial Capital Cost 186.6 Note: Excluding project studies and development costs
1.17.2 OPERATING COST ESTIMATE The average operating cost over the LOM is US$40.76 and is summarised in Table 1.5.
Table 1.5 Operating Cost Summary
Cost (US$/t Area processed) Mining 18.88 Processing 16.89 TMF 0.60 G&A 1.50 Off-site Charges 2.89 Total Operating Cost 40.76 Note: G&A – general and administrative
1.18 ECONOMIC ANALYSIS
Tetra Tech prepared an economic evaluation of the Project based on a pre-tax financial model. Table 1.6 shows the pre-tax financial parameters for the eight-year LOM, with 16.9 Mt selected open tonnage, and nominal 2 Mt/a of feed to the process plant.
The following metals price assumptions were used as the basis of the PEA at the request of Azarga:
• copper price: US$3.25/lb (US$7,165/t) • silver price: US$20.00/t oz.
The PEA is preliminary in nature and includes Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorised as mineral reserves. Furthermore, there is no certainty that the conclusions or results as reported in the PEA will be
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realized. Mineral resources that are not Mineral Reserves do not have demonstrated economic viability.
Table 1.6 Pre-tax Analysis Summary
Base Case Area Unit (2 Mt/a) IRR % 28.9 NPV (8% discount rate) US$ million 203.0 Payback years 3.0 Initial Capital Cost US$ million 187.0
Figure 1.3 shows the base case undiscounted annual and cumulative pre-tax cash flow.
Figure 1.3 Base Case Undiscounted Annual and Cumulative Pre-tax Cash Flow
Cumulative Discounted Cash Flow Cash Flow Source: Tetra Tech
Sensitivity analyses were carried out on the pre-tax model. Figure 1.4 indicates that the Project NPV, at an 8% discount rate, is most sensitive to the changes in metals prices affecting the Project revenue. As copper and silver account for approximately 56% and 44% of revenue, respectively, the Project is slightly more sensitive to changes in the copper price.
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Figure 1.4 Pre-tax NPV Sensitivity
Initial Capital Cost Operating Cost Revenue
Source: Tetra Tech
Azarga appointed Russian legal and accounting firm Nektorov, Saveliev & Partners (NSPLaw) to prepare the Project post-tax analysis based on the Tetra Tech pre-tax economic model.
NSPLaw assessed that the Project should be eligible to be considered as a Regional Investment Project (RIP), which will allow the Project tax to be assessed under the RIP tax regime. NSPLaw has considered the RIP scheme as the post-tax base case for the PEA. However, at this stage, the eligibility of the Project has not been formally confirmed and so a second alternative post-tax analysis was prepared under the general taxation system.
Table 1.7 shows the base case post-tax analysis for the project under the RIP tax regime, as well as the alternative post-tax analysis under the general tax scheme.
Table 1.7 Post-Tax Analysis Summary
Base Case Alternative Case RIP Tax General Tax Area Unit Scheme Scheme IRR % 28.9 16.9 NPV (8% discount rate) US$ million 203.0 76.0 Payback years 3.0 3.9 Initial Capital US$ million 187.0 187.0
Figure 1.5 shows the undiscounted annual and cumulative post-tax cash flow.
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Figure 1.5 Base Case Undiscounted Annual and Cumulative Post-tax Cash Flow
Post-tax Cash Flow (Base Case) Post-tax Cash Flow (Alternate Case)
Cumulative Discounted Cash Flow (Base Case)
Cumulative Discounted Cash Flow (Alternate Case)
Source: Tetra Tech
Sensitivity analyses were carried out on the following post-tax model. Figure 1.6 and Figure 1.7 indicate that for both cases the Project NPV at an 8% discount is most sensitive to the changes in the metals prices affecting the Project revenue.
Figure 1.6 Base Case Post-tax NPV Sensitivity
Initial Capital Cost Operating Cost Revenue
Source: Tetra Tech
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Figure 1.7 Alternate Case Post-tax NPV Sensitivity
Initial Capital Cost Operating Cost Revenue
Source: Tetra Tech
1.19 RECOMMENDATIONS
The PEA results indicate that the Project has the potential to be economic and could be enhanced by the better definition and expansion of the Mineral Resource. However, there are a number of uncertainties that need to be investigated to better define the Project, reduce risks, and improve confidence.
The recommendations presented in Section 26.0 detail the work required to develop the Unkur deposit to the next stage of study. At this stage of project development most recommendations relate to further drilling, exploration, and test work in order to progress towards the completion of a Prefeasibility Study. Table 1.8 outlines a summary of recommendation and corresponding budget.
Table 1.8 Project Recommendations Summary and Budget
Budget Area Recommendation (US$) Geology Phase 1 – Drilling (2,000 m) 650,000 Phase 2 – Drilling (2,500 m) 800,000 Metallurgy Metallurgical Test Work Program 400,000 to 800,000 Process Options Trade-off Study Update Infrastructure Site Investigations 500,000 to 700,000 Tailings Trade-off Study Digital Terrain Map table continues
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Budget Area Recommendation (US$) Environmental Phase 1 – Desktop Studies, Site Visit, Analysis, 15,000 to 25,000 and Terms of Reference for Baseline Studies and EISA Phase 2 – Baseline Studies and EISA 125,000 to 1,000,000 Market Production Transport and Logistics Study 50,000 Studies Market Trade-off Study Total Estimated Recommendations Budget 2,540,000 to 4,025,000
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2.0 INTRODUCTION
Azarga engaged Tetra Tech to complete a NI 43-101 compliant PEA for the Unkur Copper-Silver Property, located in the Kalarsky District, Zabaikalsky Region, Russia. Azarga is a mineral exploration and development company that owns 100% of the Project.
In compliance with NI 43-101 and the CIM, this Technical Report and PEA includes, as of the effective date, all material scientific and technical information in respect of Azarga’s Unkur Property and therein presents the current status and Mineral Resources of the Unkur deposit.
The effective date of this report is 30th August 2018 and the effective date of the Unkur Mineral Resource estimate is 7th March 2018.
2.1 QUALIFIED PERSONS
Table 2.1 summarises the QP responsibility for each report section.
The following QPs completed a site visit of the Property:
• Robin Simpson, MAIG, completed a site visit on 10th December 2014 and 13th October 2016, and as such, is responsible for the site visit and some of the data verification aspects of this report.
Table 2.1 Summary of QPs
Report Section Company QP 1.0 Summary All Sign-off by Section 2.0 Introduction Tetra Tech EurIng Andrew Carter, CEng, BSc, MIMMM, MSAIMM, SME 3.0 Reliance on Other Experts Tetra Tech EurIng Andrew Carter, CEng, BSc, MIMMM, MSAIMM, SME 4.0 Property Description and Location Tetra Tech Joseph Hirst, BSc (Hons), MSc, CGeol, EurGeol, FGS 5.0 Accessibility, Climate, Local Resources, Tetra Tech Joseph Hirst, BSc (Hons), Infrastructure and Physiography MSc, CGeol, EurGeol, FGS 6.0 History Tetra Tech Joseph Hirst, BSc (Hons), MSc, CGeol, EurGeol, FGS 7.0 Geological Setting and Mineralisation Tetra Tech Joseph Hirst, BSc (Hons), MSc, CGeol, EurGeol, FGS 8.0 Deposit Types Tetra Tech Joseph Hirst, BSc (Hons), MSc, CGeol, EurGeol, FGS 9.0 Exploration SRK Robin Simpson, MAIG 10.0 Drilling SRK Robin Simpson, MAIG table continues…
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Report Section Company QP 11.0 Sample Preparation, Analyses and SRK Robin Simpson, MAIG Security 12.0 Data Verification SRK Robin Simpson, MAIG 13.0 Mineral Processing and Metallurgical Tetra Tech Eur Ing Andrew Carter, BSc, Testing CEng, MIMMM, MSAIMM, SME 14.0 Mineral Resource Estimates Tetra Tech Joseph Hirst, BSc (Hons), MSc, CGeol, EurGeol, FGS 15.0 Mineral Reserve Estimates Tetra Tech Matthew M. Randall, BSc (Hons) PhD, CEng, MIMMM 16.0 Mining Methods Tetra Tech Matthew M. Randall, PhD, CEng, MIMMM 17.0 Recovery Methods Tetra Tech EurIng Andrew Carter, CEng, BSc, MIMMM, MSAIMM, SME 18.0 Project Infrastructure Tetra Tech EurIng Andrew Carter, CEng, BSc, MIMMM, MSAIMM, SME 19.0 Market Studies and Contracts Tetra Tech EurIng Andrew Carter, CEng, BSc, MIMMM, MSAIMM, SME 20.0 Environmental Studies, Permitting and Tetra Tech EurIng Andrew Carter, CEng, Social or Community Impact BSc, MIMMM, MSAIMM, SME 21.0 Capital and Operating Cost Estimates Tetra Tech EurIng Andrew Carter, CEng, BSc, MIMMM, MSAIMM, SME 22.0 Economic Analysis Tetra Tech EurIng Andrew Carter, CEng, BSc, MIMMM, MSAIMM, SME 23.0 Adjacent Properties Tetra Tech Joseph Hirst, BSc (Hons), MSc, CGeol, EurGeol, FGS 24.0 Other Relevant Data Tetra Tech EurIng Andrew Carter, CEng, BSc, MIMMM, MSAIMM, SME 25.0 Interpretations and Conclusions Tetra Tech Sign-off by Section 26.0 Recommendations Tetra Tech Sign-off by Section 27.0 References Tetra Tech Sign-off by Section
2.1 SOURCES OF INFORMATION
All sources of information for this study are in Section 27.0.
2.2 UNITS OF MEASUREMENT AND CURRENCY
All units of measurement used in this Technical report are in metric.
All currency is in US Dollars unless otherwise noted.
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3.0 RELIANCE ON OTHER EXPERTS
The QPs who prepared this report relied on information provided by experts who are not QPs. The relevant QPs believe that it is reasonable to rely on these experts, based on the assumption that the experts have the necessary education, professional designations, and relevant experience on matters relevant to the technical report.
Eur Ing Andrew Carter, BSc, CEng, MIMMM, MSAIMM, SME relied on Marion Thomas, BSc, MSc for matters concerning environmental studies, permitting and social and community impact relevant to this report. Ms. Thomas is an independent environmental and social consultant with over 20 years of experience in environmental and social impact assessments, as well as environmental due diligence assessments, high conservation value assessments, and environmental audits. Her background includes environmental assessments for mining, oil and gas, land development and water resources. Mr. Carter relied on Ms. Thomas for disclosure relating to environmental matters contained in Section 20.0.
Mr. Carter also relied on Nektorov, Saveliev & Partners concerning tax matters relevant to this report. The reliance is based on a letter to Azarga titled “Taxation of the Unkur Copper-Silver Project” and dated 23rd August 2018. Mr. Carter relied on NPSLaw for disclosure relating to tax matters contained in Section 22.0
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4.0 PROPERTY DESCRIPTION AND LOCATION
4.1 LOCATION
The Project lies in the Kalarsky district of the Zabaikalsky administrative region of Russia, 15 km east of the Novaya Chara town (Figure 4.1). The centre of the licence is located at coordinates 598,061 E, 6,300,586 N WGS84.
Figure 4.1 Unkur Property Location Map
4.2 DESCRIPTION
Azarga holds the subsoil license to the Property through its 60% ownership of Azarga Metals Limited, which in turn indirectly holds 100% ownership of LLC Tuva-Cobalt. LLC Tuva-Cobalt was awarded the license on August 26, 2014 via a bidding process
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in Chita. The license was registered with the Department of Subsoil Use for Central and Siberian District of Russia (Tsentrsibnedra) in Krasnoyarsk on 2nd September 2014.
The license (No. ЧИТ02522БР) covers an area of 53.9 km2 and allows the owner to perform geological study; exploration; and production of copper, silver and associated components.
The licence details and conditions are shown in Table 4.1. The license area is shown Figure 4.2 and the coordinates of the licensed area are listed in Table 4.2.
Table 4.1 License Details
Item Description License No. ЧИТ02522БР License Name Licence Agreement on conditions of subsoil use for mining of copper, silver, and associated minerals in the Unkur Project Valid From 02/09/2014 Expiry 31/12/2039 Area 53.9 km2 GKZ Resource Approval Not included in the State Balance Sheet The GKZ Prognostic Prognostic Resources: Resources, 1988 Р1 – ore tonnage is 83,501 kt, metal (Cu) content – 660 kt, metal (Ag) content – 5703 t Р2 – ore tonnage is 58,108 kt, metal (Cu) content – 436 kt, metal (Ag) content – 3969 t Р3 – ore tonnage is 87533 kt, metal (Cu) content – 674 kt, metal (Ag) content – 5979 t Conditions Compliance with the Russian legislation, advanced geological survey, full-extraction of on-balance Mineral Reserves/Resources Industrial and occupational safety Environmental protection Social and economic development of region Note: GKZ – Russian State Commission on Mineral Resources
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Figure 4.2 Unkur License Area
Table 4.2 License Coordinates
Latitude Longitude Point (dd° mm' ss") (dd° mm' ss") 1 56 48 01N 118 34 20E 2 56 52 36N 118 32 03E 3 56 52 14N 118 38 45E 4 56 47 59N 118 40 45E
The subsoil user shall be guided by the Subsoil Law of the Russian Federation when undertaking exploration works.
4.3 PERMIT ACQUISITION AND LEGISLATIVE REQUIREMENTS
The licence appears to cover all the existing resources of the deposit, including an unexplored north-eastern part of the deposit; the licence covers all the potential resources of the deposit at depth.
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4.4 ROYALTIES, RIGHTS, PAYMENTS AND AGREEMENTS
The licence states the charges and taxes relating to subsoil use, which include the following:
• mineral extraction tax as per Russian Federation laws • water tax as per Russian Federation laws
• a single payment of RUB₽20.856 million for the right to use subsoil for mining copper and associated minerals • other charges and taxes prescribed by the tax laws of the Russian Federation.
4.4.1 EXPLORATION FEES According to the license conditions, the holder of the license (LLC Tuva-Cobalt) shall pay the following rates:
• Early Stage Exploration: For the entire subsoil area, except for the deposit areas at the exploration stage, the rate for the first year is RUB50/km2; for years 2 to 5 the rate will be RUB₽162/year/km2; and from the fifth year RUB₽225/year/km2.
• Exploration Stage: RUB₽1,900/km2 for the first year, then RUB₽8,707/year/km2 for the second and third years of work.
4.4.2 ROYALTIES The royalties to be paid to the Russian Federation for extracting copper and silver are 8% and 6.5%, respectively. In addition, as described in more detail in Section 4.6, the vendors who sold part of their shareholding to European Uranium Resources Ltd. will retain a 5% net smelter return (NSR) royalty.
4.4.3 ENVIRONMENTAL LIABILITIES According to the license agreement, the subsoil user (LLC Tuva-Cobalt) is obliged to follow the statutory regulations of the Russian Federation on subsoil and environmental protection.
The subsoil user shall perform environmental monitoring (atmosphere, subsoil, waters, soil, biological resources) in the area of the mining enterprise influence.
Currently, no information is available regarding any environmental liabilities to which the Project may be subject. Any historical disturbance from exploration activities that may exist on site are outside of current licensee liabilities according to existing legislation, unless the licensee voluntarily accepts them.
4.4.4 PERMITS REQUIRED FOR THE PROPOSED WORK The license is valid through December 31, 2039. Upon approval of detailed project development, the license validity period shall become the mine life of the deposit,
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which will be calculated based on the technical and economic justification for the deposit development.
The license for the right to explore and mine subsurface mineral resources contains the terms of developing the project, reporting documentation, as well as exploration work, including:
• approval of a project design for geological investigation of subsurface mineral resources (early-stage exploration) which has previously received a positive conclusion in accordance with Article 36.1 of the Russian Federation Subsoil Law • submission of prepared documents, no later than 02/09/2020, based on geological study of the subsurface mineral resources to the State Appraisal of Reserves of Commercial Minerals in accordance with Article 29 of the Russian Federation Subsoil Law • approval of a project design for detailed exploration, no later than 02/09/2020, which has previously received a positive government conclusion in accordance with Article 36.1 of the Russian Federation Subsoil Law of the Russian Federation • submission of prepared documents, no later than 02/09/2024, based on detailed exploration results to the State Appraisal of Reserves of Commercial Minerals in accordance with Article 29 of the Russian Federation Subsoil Law • preparation and approval, no later than 02/09/2026, of the technical project of deposit exploration arranged in accordance with Article 23.2 of the Russian Federation Subsoil Law • preparation and approval of the technical project of abandonment and suspension of workings, drillholes, and other underground workings arranged in accordance with Article 23.2 of the Russian Federation Subsoil Law a year ahead of the planned completion of the deposit development • submission of the annual information report on the works carried out on site, no later than January 15 of the year following the reporting period; the order of presentation of these materials is determined by the Federal Agency on Subsoil Use and its territorial bodies • submission of annual statistical reporting (5-GR, 70-TP, 71-TP, 2-LS, 2-GR, 7- GR forms, etc.) within the prescribed time limits.
The deposit development project plan determines the dates to bring the deposit into development and to drive up to the rated capacity.
4.5 SURFACE RIGHTS AND LEGAL ACCESS
Exploration and development of mineral deposits is generally not possible without the use of the ground surface. Under Russian law, relevant subsoil use licences do not automatically entitle a company to occupy the land necessary for mining and associated industrial activities. The issue of obtaining the necessary land rights is addressed by a company separately from, but in parallel with, obtaining the subsoil
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licence. Land use rights are obtained for the parts of the licence area being used, including the plot to be mined, access areas, and areas where other mining-related activities will occur.
Russian legislation on land does not definitively state at what stage the subsoil user should initiate the procedure for obtaining land rights. Under existing subsoil legislation, the formalisation of a subsoil user’s land rights for the purposes of geological exploration and subsoil use are carried out under the procedure stipulated by the Land Code. In practice, the procedure for obtaining land rights to a land plot required for exploration and mine development may take several months.
The process of obtaining land rights is governed by federal and regional legislation. Although regional legislation should not contradict Russian federal law, in practice, some parts do. This results in certain ambiguity and irregularity in the procedure of obtaining land rights. Under the Land Code, mining companies generally have either the right of ownership or lease regarding a land plot in the Russian Federation.
Most land plots in the Russian Federation (including all of the license area for the Property) are owned by federal, regional, or municipal authorities, which, through public auctions, tenders, or private negotiations can sell, lease, or grant other rights of use over the land to third parties. The general principle, as fixed in the Land Codes, states that the land plots required for the performance of works associated with subsoil use out of lands in state or municipal ownership, should be granted for lease outside a tender or an auction. The government establishes the procedure for calculating the amount of rental payments for such land plots.
4.6 OBLIGATIONS TO VENDOR
On March 1, 2016, European Uranium Resources Ltd and Azarga Metals Limited executed a share purchase agreement whereby the six shareholders of Azarga Metals Limited (the Selling Shareholders) sold 60% of the issued shares of Azarga Metals Limited to European Uranium Resources Ltd in exchange for shares of European Uranium Resources Ltd and deferred cash payments. Subject to terms and conditions, the Selling Shareholders agreed to grant European Uranium Resources Ltd the right to purchase the remaining 40% of the shares of Azarga Metals Limited (the Call) and European Uranium Resources Ltd granted the Azarga Metals Limited Selling Shareholders the right to sell the remaining 40% of the shares of Azarga Metals Limited to it (the Put). The fair value of that 40% interest will be negotiated at the time of exercise.
Azarga Metals Limited owns 100% of the issued shares of Shilka Metals LLC (Cyprus) which in turn owns 100% of the issued capital of LLC Tuva-Cobalt (Russia). LLC Tuva- Cobalt was awarded the Unkur mineral exploration and exploitation license via a bidding process on August 26, 2014 and is valid through December 31, 2039.
On closing, European Uranium Resources Ltd issued the Selling Shareholders 15,776,181 common shares, approximately 37% of the number of shares as constituted after closing the transaction, the Private Placement, the Debt Settlement and the Consolidation (the Consideration Shares). In exchange for the Consideration Shares, the Selling Shareholders transferred 60% of the issued shares of Azarga Metals Limited to European Uranium Resources Ltd. The Consideration Shares are
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restricted from trading for two years from issue date. European Uranium Resources Ltd was assigned existing loans made by the Selling Shareholders to Azarga Metals Limited of up to US$800,000 that bear interest at the rate of 12% per annum, which can be capitalized or paid in cash (the Debt). The Debt must be paid within seven years from closing. The Selling Shareholders will retain a 5% NSR and their combined 40% interest in Azarga Metals Limited will be free carried to initial production and profitability subject to the Put/Call Options. European Uranium Resources Ltd has the right to buy back up to 2% of the NSR at a cost of US$5 million per percentage point so that upon paying US$10 million the NSR will be reduced to 3%. In addition, European Uranium Resources Ltd agreed to make deferred cash payments to the Selling Shareholders of US$1,680,000 (the Deferred Cash Payments) beginning with US$80,000 payable on 1st June 2017, with a payment on each annual anniversary that increases by US$80,000 a year so that the final payment of US$480,000 will be due on 1st June 2022. In the event of a change of control of European Uranium Resources Ltd, the Debt and Deferred Cash Payments will become due and payable within five days.
European Uranium Resources Ltd undertook to spend a minimum of US$3 million on exploration activities on the Project prior to 30th June 2019, and an additional US$6 million between 1st July 2019 and 30th June 2023.
If at any time, a Mineral Resource (adding Measured, Indicated and Inferred of all combined deposits within the Project area) is estimated to contain copper and silver to the equivalent of 2 Mt or more of copper, where Measured plus Indicated Resources comprise at least 70% of that estimate, taking the value of silver as copper equivalent (the Bonus Payment Threshold), an additional US$6.2 million will be payable to the Selling Shareholders within 12-months’ notice that the Bonus Payment Threshold has been met.
On 30th May 2016, European Uranium Resources Ltd was renamed as Azarga Metals Corp.
4.7 PERMITS
No permitting is required until the Project reaches the Feasibility Study stage. The exploration stage only requires observation of existing environmental laws and regulations.
The Project is not in a protected woods territory and Azarga expects that no tree cutting will be required for the purposes of exploration; therefore, it should be possible for exploration to proceed without a forestry permit.
4.8 OTHER FACTORS OR RISKS
If the Project proceeds to Feasibility Study stage or production, then the right to use the licensed area may also be suspended or restricted in the following cases:
• failure to submit the required documentation outlined in Section 4.4.4 within six months of the specified deadlines • failure to make the regular payments specified in Section 4.4.1
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• failure to comply with the Project deadlines and production output requirements, as relating to the geological investigation of subsurface, deposit exploration and deposit development stages.
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5.0 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY
5.1 ACCESSIBILITY
The Property is accessed from Chara village and the town of Novaya Chara by the year-round natural road passing along the BAM. The road distance from the site to Novaya Chara is approximately 22 km, and to Chara is approximately 33 km.
In Chara there is an airport with a paved airstrip that accommodates regular flights from Chita, approximately 800 km to the southwest.
Novaya Chara railway station is accessed by the BAM from Bratsk (1,356 km) through the town of Severobaikalsk (637 km).
In winter snow roads are used to access the city of Chita and the town of Taksimo.
5.2 LOCAL RESOURCES AND INFRASTRUCTURE
The Kalarsky district is sparsely populated with an estimated population of 8,253 as of January 2016, spread across an area of 56,000 km2. The main towns of Novay Chara and Chara have approximately 4,300 and 2,200 inhabitants, respectively.
The Project is cut by a 100 MW federal electric power line that passes through the north-eastern corner of the licence area (Figure 5.1)
5.3 CLIMATE
The Project area has a harsh continental climate with very cold and long winters and short hot summers. During the cold period, the terrain is dominated by a stable Siberian anticyclone with significant temperature inversions. The air temperature varies depending on the relief. Average air temperature in January range from –27.8°C at altitude in the Project area and –33.2°C in the Chara valley. The winter air temperature minimum is –57°C at lower levels and –47°C at altitude. The July air temperature maximum is +32°C and at the foothills it is +27°C. The cold and long winters (October to April) are characterised by high air pressure.
Yearly precipitation distribution is very uneven with first snow usually falling in mid- September. By mid-October a stable snow cover typically forms. The snow cover typically melts in mid-April at lower elevations and in May at higher elevations.
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Figure 5.1 Topography Map for the Unkur Project
Source: Compiled by SRK (2015)
5.4 PHYSIOGRAPHY
The Project area is located in the northern slopes of the Udokan Range in the catchment of the Kemen and Unkur Rivers, which are right-bank tributaries of the Chara River. The area of the deposit is characterized by low and medium mountain relief with absolute elevations of 1,100 to 1,200 m, with local differences in elevation of 100 to 200 m. Flat watersheds and smooth hillsides are found in the northern portion of the area with an elevation of 400 m (Figure 5.1).
5.5 SEISMICITY
The area of the deposit and adjacent areas is quoted as being 9 points on the 12- point Russian MSK-64 scale of seismicity used throughout the Commonwealth of Independent States (CIS). This constitutes a severe earthquake potential zone, with at least one catastrophic earthquake likely to occur over a 25-year period.
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5.6 VEGETATION
The deposit and surrounding area is covered by taiga vegetation (swampy coniferous forest), as is typical between the tundra and steppes of Siberia. The main forest- forming species is Dahurian larch.
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6.0 HISTORY
6.1 EXPLORATION HISTORY
6.1.1 GENERAL EXPLORATION HISTORY TO 2016 Mineralisation at the Property was discovered by a geologist from the All-Union Aerogeological trust during 1:1,200,00 geological mapping in 1962 (Shulgina et al. 1962). The mineralised layer was observed within a canyon of the Unkur River and traced for 1 km through limited outcrops of copper-bearing sandstone. In these exposures, the thickness of the layer varied from approximately 5 to 8 m. Based on the chemical assays of channel and chip samples, an average copper grade of 1% was determined. It was established that the mineralisation is stratabound within the Lower Sakukan subformation.
In 1963. the Udokan expedition team (a state-owned company that includes Lukturskaya, Naminginskaya, and other exploration teams), carried out trenching every 200 to 300 m for 1.2 km to further define the copper mineralisation zone. Sampling from the trenches showed mineralised intervals of 10 to 12 m thick, with an average copper grade of 1.02%. Also in 1963, the Udokan team carried out magnetic and electric geophysical surveys over limited areas of the south-eastern syncline at 100 m spacings between profiles and 20 m spacing between measurement points. The magnetic survey identified distinct magnetic suites, but did not directly reveal the zone of copper mineralisation.
In 1966 geologists from the A.P. Karpinsky Russian Geological Research Institute (VSEGEI) visited the Unkur site. Based on several lithological characteristics, the sediments hosting the mineralised layer were classified as shallow-marine and deltaic strata.
6.1.2 THE 1969-1971 CAMPAIGN Between 1969 and 1971, further prospecting work at the Project was undertaken by the Naminginskaya Exploration Team. This work included mapping, geophysics, and drilling on 250 to 500 m profile spacings, as outlined in Table 6.1.
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Table 6.1 Exploration Works on the Unkur Project, 1969-1978
Period Unit 1969-1971 1975-1978 Core Drilling m 5,549.10 1,154 Trench Volume m3 20,524.30 19,144 Mapping Traverses km 50 - Core Sampling no. 194 36 Trench Sample Length m 62.7 192 Geochemical Sampling no. 370 580 Chemical Analysis no. 2,486 100 Combined Sampling for Silver Grade no. 8 11 Composite Sampling no. 51 -
From the work completed between 1969 and 1971, the geological setting of the mineralised area and the internal structure and geochemical characteristics of the mineralisation became better understood. Based on the new drilling and trenching data the copper-bearing horizon of 20 to 50 m thick was traced from southeast to northwest for 4 to 6 km to a depth of 350 m. The average copper grade for the mineralised zone was determined as 0.75%. Geophysical methods identified the copper-bearing horizon for a further 4 km northwest under moraine sediments 150 to 180 m thick. Based on the results of the 1969-1971 work, geologists from the Naminginskaya Exploration Team prepared an estimate of copper and silver resources.
6.1.3 THE 1975-1978 CAMPAIGN Geologists from the Lukturskaya Exploration Team (Berezin G. 1978) carried out detailed exploration work from 1975 to 1978, at a 25 m profile spacing, in order to assess the potential of the Klyukvenny copper-bearing deposit, southeast of the Udokan deposit, and the potential of the Luktursky gabbroid massif, which borders the northwest flank of the Unkur deposit. The Klyukvenny and Luktursky deposits fall outside the licensed area owned by Azarga, but secondary to the focus on Klyukvenny and Luktursky, further sampling and geophysical assessments took place on the Unkur deposit. The Unkur work included drilling four core holes. The aim of this drilling was to test the lateral extents of the deposit. Only one of these holes (C-102) intersected the copper-bearing horizon, at a depth of 250 m.
The summary of the exploration works from the 1968-1971 and 1975-1978 programs is shown in Table 6.1. Figure 6.1 is a map of drillholes and trenches for all the campaigns and shows the profiles of geophysical surveys. The surface position of the copper-bearing horizon, derived from mapping, drilling and trenching, is shown in Figure 6.1 as a green line.
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Figure 6.1 Unkur Project Drillholes, Trenches and Geophysical Survey Profiles
Source: LLC GeoExpert Ltd. (2014)
6.2 DRILLING
Historical drilling at the Property was undertaken across two campaigns between 1969 and 1978 (Table 6.2). In total, 6,703 m of drilling was undertaken, returning copper grades ranging from 0.2 to 3.5% copper, with an average of 1.30% copper.
Table 6.2 Unkur Project Diamond Drilling
Type 1969-1971 1975-1978 Core Drilling (m) 5,549 1,154
Tetra Tech notes that reports from the 1969-1971 and 1975-1978 campaigns list no coordinates for drillhole collars. Instead, the drillholes are depicted on maps and sections. These historical collars have not been found; therefore, it is not possible to
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verify these locations. The historic collar locations were determined by SRK in 2015 by scanning and geo-referencing the historical hard copy maps (SRK 2015). SRK estimated that the X and Y collar coordinates derived in this manner could have an uncertainty of up to 100 m. Tetra Tech has not independently verified this data.
A total of eight drill holes intersected significant copper mineralisation in the bedrock. The deepest mineralised intersection is from hole C-104, from a down hole depth of 242.4 m.
Core drilling during 1969-1971 campaign aimed to assess the copper-bearing horizon, under the moraine sediments. All these drillholes are vertical.
As part of the 1969-1971 campaign, a set of “mapping” holes were drilled to 30 to 40 m in depth. The profile spacing for this group of holes was 400 m, with a distance between holes of 15 to 20 m. This drilling was carried out by UPB-25 rigs using a single-tube core barrel. A hard metal bit (76 mm diameter) was used for drilling through the sedimentary cover, and then a diamond bit (59 mm diameter) for the bedrock. The total length of the mapping hole drilling was 1,200 m.
A deeper set of drill holes were drilled in 1969-1971 to define copper mineralization to 200-350 m depth. This single-tube drilling was carried out by ZIF-300, ZIF-650 and SBA-500 rigs. The distance between the profiles of these drillholes was 400-800 m, and the distance between holes was 80 to 200 m. A 146 mm diameter bit was used for the sedimentary cover, a 90 mm bit was used for bedrock, and a 76 mm bit was used for the mineralised zone.
A deviation survey was carried out for all drillholes. The dip deviations from vertical did not exceed 1 to 2°.
From 1969-1978, 56 drill holes were drilled in the Project area. The drilling method was single-tube core barrel. The average length-weighted core recovery from the mineralised intersections was 65.2%.
The mineralised zone in the area covered by the historical drilling generally dips to the northeast at 40 to 60°, therefore the vertical drillholes were not at the optimum orientation for testing this zone.
A total of 11 composite samples were made from the core sample duplicates in order to determine the grades of associated elements (primarily silver). The composite samples ranged from 11.2 to 164.6 g/t silver with an average of 67.4 g/t silver.
6.3 SAMPLE PREPARATION AND ANALYSES
Sampling of historical drill holes and trenches was performed by geologists of the Naminginskaya and Lukturskaya Parties of the Udokanskaya expedition. The intervals selected for sampling included the mineralised zone, as identified by the geologists, and the host rock for 2 to 4 m either side.
The average sample length for the exploration drillholes (200 to 350 m deep) was 2 m, but varied to fit lithology and mineralization intensity boundaries. Intersections of reasonably intact core were manually halved: one half was used as a sample, and
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the other half was stored as a duplicate. Frequently though, the core returned from drilling was very broken, with poor recovery, and for these intersections all the available chips were included in the sample.
Sample lengths for the mapping drillholes (hole depths of up to 30 m) were typically close to 6 m, but the exact sampling boundaries were chosen with regard to mineralization intensity zones, as identified by the geologists. The longer length of the samples from mapping drill holes was adopted to compensate for the smaller core diameter (26 to 28 mm) compared to the exploration drill hole diameter (59 mm), in order to obtain comparable sample weights.
Samples were prepared by the Central Chemical Laboratory, Chita. The historical information available for the Project does not include a description of sample preparation procedures and equipment. Trench, core and composite samples (composed of several core samples) were analysed for copper; geochemical samples were submitted for a semiquantitative spectral analysis for 10 elements. Composite samples were fire assayed for gold and silver and analysed by spectral analysis for 36 elements.
No information on the certification of the Central Chemical Laboratory is available.
6.3.1 QUALITY CONTROL PROGRAMS Quality control on the historical sample preparation and analytical test work of the Unkur samples was not done to presently accepted international best practises.
During the 1969-1971 campaign, the Central Chemical Laboratory inserted its own duplicate samples, at a rate of 17% of the total primary sampling. This limited set of results does not show a significant problem with precision.
No quality control samples were analysed for the Project from the 1975-1978 campaign.
6.4 GEOPHYSICAL SURVEYS
Ground geophysical surveys at the Project were carried out in 1963 and during the 1969-1972 and 1975-1978 exploration campaigns. Geophysical methods included electric logging (induced polarization, dipole electric profiling), time-variable natural magnetic field, magnetic and gravity survey.
In order to study physical properties of the copper-bearing horizon, samples were taken from outcrops and drillhole core. These samples were used to determine degrees of magnetization, polarizability, resistivity, and specific gravity.
Based on geological description of outcrops, trenches and drillhole core, the geological unit underlying the copper-bearing horizon was identified as highly pyritized. Disseminated pyrite will potentially act as a geophysical marker, for induced polarization in particular, that may identify the base of the copper-bearing horizon.
The results from magnetic and polarizability surveys are shown in Figure 6.2 and Figure 6.3.
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Cumulative data on gravity, magnetic, and electric survey helped determine trends for fold hinges at the north-western and south-eastern margins of the deposit, and defined a series of northeast- and northwest-striking faults which break the Unkur Syncline into several blocks.
Figure 6.2 Unkur Project Area Magnetic Survey
Source: Illustration provided by LLC GeoExpert Ltd. (2014)
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Figure 6.3 Zones of High Polarizability
Source: Illustration provided by LLC GeoExpert Ltd. (2014)
6.5 HISTORICAL RESOURCE ESTIMATES
6.5.1 HISTORICAL NON-COMPLIANT RESOURCE ESTIMATES Four historical non-compliant Resource estimations have been undertaken at the Project: Mulnichenko (1972), Berezin (1979), a 1988 estimate for the licence agreement, and a 2014 estimate by the Central Geological Research Institute. These estimates are all in accordance with Russian resource/reserve estimation and reporting systems.
Historical Mineral Resource estimates presented in this section have been superseded by the Mineral Resource estimate discussed in Section 14.0. The historical estimates presented in this section are relevant to provide context but should not to be relied upon.
NI 43-101 requires Mineral Resource reporting to adhere to the resource category definitions of the CIM in the Estimation of Mineral Resources and Mineral Reserves
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Best Practice Guidelines. The categories in the Soviet resource/reserve system are incompatible with these definitions, and the estimation methods mandated by the Soviet system are different to the geological modelling and geostatistical estimation methods the qualified person would recommend as optimal for the Unkur deposit. Furthermore, the poor quality of the core remaining from the previous exploration programs, and the difficulty of doing detailed verification of historical results, means that any future program of resource definition drilling is likely to replace rather than build on the historical drilling data. Therefore, the historical estimates reported here should be regarded as an indication of exploration potential, instead of an inventory that will necessarily be converted into Mineral Resources.
6.5.2 THE 1972 ESTIMATE The results of the estimation based on the 1972 data are presented in Table 6.3. Prognostic silver resources were estimated within the copper mineralization domain. Average silver grades were determined based on the chemical assays of eight composite samples. The arithmetic mean of these samples is 73.3 g/t, and this grade was applied to all the blocks. Therefore, the prognostic resources of silver amount to 10.1 kt silver.
Table 6.3 Results from the 1972 Estimate for the Unkur Project, Classified According to the Soviet Union Resource/Reserve Classification System of 1960
Zone Average Contained Block Thickness Tonnes Cu Grade Metal Category No. (m) (kt) (%) (kt) С2 Block 1 12.4 77,760 0.8 622 Block 2 4.3 9,978 0.6 60 Total, С2 Category 9.8 87,738 0.78 682 Prognostic Resources Block 3 12.4 33,849 0.8 271 Block 4 8.3 16,409 0.75 123 Total, Prognostic Resources 10.7 50,258 0.78 394 Total 10.1 137,996 0.78 1,076 Source: Mulnichenko V. (1972)
This estimate should not be relied upon as it has been superseded by the Mineral Resource discussed in Section 14.0 of this report.
6.5.3 THE 1979 ESTIMATE Upon completion of the second phase of exploration works for the Project carried out in 1979, the second resource/reserve estimate for the Unkur deposit was performed with regard to the new drilling data (Table 6.4). Prognostic silver resources were estimated within the copper mineralisation domain. Average silver grades were determined based on the chemical assays of eleven composite samples. The arithmetic mean of these samples is 68.3 g/t, and this grade was applied to all the blocks. Therefore, the prognostic resources of silver amount to 9.7 kt silver.
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Table 6.4 Results from the 1979 Estimate for the Unkur Project, Classified According to the Soviet Union Resource/Reserve Classification System of 1960
Zone Average Contained Block Thickness Tonnes Cu Grade Metal Category No. (m) (kt) (%) (kt) С2 Block 1 12.9 91,820 0.8 725 Block 2 4.3 9,978 0.6 60 Total, С2 Category 8.6 101,798 0.77 785 Prognostic Resources Block 3 12.9 24,685 0.8 195 Block 4 8.3 16,409 0.75 123 Total, Prognostic Resources 10.6 41,095 0.77 318 Total 10.1 142,893 0.77 1,103 Source: Berezin (1979)
This estimate should not be relied upon as it has been superseded by the Mineral Resource discussed in Section 14.0 of this report.
6.5.4 THE 1988 ESTIMATE In 1980 the Soviet resource/reserve classification system was updated. The changes primarily affected the definitions of the C2 resource category and prognostic resources: under the new system, the C2 category was grouped with estimated reserves, and the prognostic resources were divided into three categories: P1, P2, and P3. In 1988 the Unkur deposit was re-estimated and re-classified in accordance with the new classification system. A consequence of this revision was the entire inventory was classified as prognostic resources (Table 6.5).
For the 1988 estimate, a 0.4% copper grade threshold was used for defining the resource domain, compared to the 0.6% copper threshold used for the 1972 and 1979 estimates.
Table 6.5 Results from the 1988 Estimate for the Unkur Project, Classified According to the Soviet Union Resource/Reserve Classification System of 1980
Tonnes Average Contained Category Component (kt) Grade Metal P1 Copper 83,500.90 0.79% 660 kt Silver 68.3 g/t 5,703 t P2 Copper 58,107.70 0.75% 436 kt Silver 68.3 g/t 3,969 t P3 Copper 87,532.50 0.77% 674 kt Silver 68.3 g/t 5,979 t Source: Unkur Licence Agreement
This estimate should not be relied upon as it has been superseded by the Mineral Resource discussed in chapter 14 of this report.
6.5.5 THE 2014 ESTIMATE The most recent assessment of the prognostic copper and silver resources for the Project was by the geologists of the Central Geological Research Institute (TsNIGRI).
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The results of this estimate are presented in Table 6.6. The data supporting the 2014 estimate are the same as for the 1979 and 1988 estimates (there have been no material additions to the supporting data since 1978); the resource/reserve reporting system is the same as was in place for the 1988 estimate; the threshold for defining the resource domain (0.4% copper) is also the same as used for the 1988 estimate, but the estimated tonnes and metal in 2014 were an order of magnitude lower than in the 1988 estimate.
The differences between the prognostic resource statements of 1988 and 2014 are due to different interpretations of how the Russian resource/reserve reporting system should be applied to the Unkur deposit. The main reasons for the substantially lower tonnage of the 2014 estimate are:
• The 1988 estimate included a substantial portion of P3 material, representing mineralization on the northeast limb of the Unkur Syncline. All of this northeast limb material was omitted from the 2014 estimate. • From the southwest limb of the Unkur Syncline, the P2 category of the 1988 estimate included about 1,000 m of interpolation along strike, between areas covered by drilling and trenching, and about 1,000 m extrapolation along strike to the northwest. This along strike interpolation and extrapolation was not included in the 2014 estimate. • For the 2014 estimate, extrapolation down dip was limited to 300 m below surface, on the assumption that this would be the maximum depth of open pit mining. A greater depth limit, of 1,000 m below surface, was used to constraint the 1988 and earlier estimates, on the basis that the deposit could potentially be mined by underground methods.
Table 6.6 Results from the 2014 estimate for the Unkur Project, Classified According to the Russian Resource/Reserve Classification System of 1980
Block Tonnes Average Contained Category No. Component (kt) Grade Metal P1 1 Copper 16,516.50 0.90% 148.6 kt 2 3,964 0.65% 25.8 kt Total P1 Copper 20,480.50 0.85% 174.4 kt Silver 77.96 g/t 1,600 t Source: Volchkov and Nikeshin (2014)
This estimate should not be relied upon as it has been superseded by the Mineral Resource discussed in Section 14.0 of this report.
6.5.6 HISTORICAL NI 43-101 COMPLIANT RESOURCE ESTIMATE In March 2017, SRK published an initial NI 43-101 compliant Mineral Resource estimate for the Unkur deposit (SRK 2017). This Mineral Resource estimate is present below in Table 6.7.
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Table 6.7 Unkur Cu-Ag Project Mineral Resource Statement as at March 31, 2017
Cu Ag Metal Tonnes Cu Ag CuEq Metal (million Domain Classification (Mt) (%) (ppm) (%) (Mlb) t oz) Zone 1, Near Surface Inferred 23 0.54 40 0.93 270 29 Zone 2 North, Near Surface Inferred 9 0.47 43 0.89 90 12 Zone 2 South, Near Surface Inferred 1 0.42 4 0.46 10 0 Total Near Surface Inferred 33 0.52 39 0.9 380 41 Zone 1, Underground Inferred 8 0.53 34 0.86 100 9 Zone 2 North, Underground Inferred 1 0.47 43 0.89 10 2 Total Underground Inferred 10 0.52 35 0.87 110 11 Zone 1 Inferred 31 0.54 38 0.91 370 38 Zone 2 Inferred 11 0.46 38 0.84 120 14 Total Inferred 42 0.52 38 0.9 480 52 Notes: CIM Definition Standards were followed for Mineral Resources. Reporting of near surface Mineral Resources is constrained by a conceptual pit shell. Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. Mineral Resources are reported at a cut-off grade of 0.3% CuEq for near surface and 0.7% CuEq for underground. Copper and silver equivalent grades were estimated using US$3.00/lb copper price, US$20.00/oz silver prices, and assuming 100% recovery for both; the equivalence formula is CuEq = Cu + (0.009722 x Ag). Numbers may not add due to rounding.
This estimate has been superseded by the Mineral Resource discussed in Section 14.0 of this report.
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7.0 GEOLOGICAL SETTING AND MINERALISATION
7.1 REGIONAL GEOLOGY
The Property is located within the southern Siberian platform in the Kodar-Udokan structural zone. Within this zone, Archaen, Lower-Proterozoic, Vendian, Lower- Cambrian, Mesozoic and Cenozoic formations are present.
The bedrock in the vicinity of the Project is dominated by Lower-Proterozoic, weakly metamorphosed terrigenous-sedimentary rocks. This sedimentary succession is intruded by Early-Proterozoic, Proterozoic and Mesozoic igneous complexes.
7.2 LOCAL GEOLOGY
Locally, the geology is composed of Lower Proterozoic metamorphosed sediments of the Udokan Series, Lower Proterozoic granitoids of the Chuisko-Kodarsly complex, gabbroid massifs and dykes of the Late Proterozoic Chiney complex, and Quaternary alluvial and glacial cover (Figure 7.1).
The sediments of the Udokan series were deposited in a shallow marine environment. In ascending stratigraphic order, the formations of the series are named as the Ikabyinskaya, Inyrskaya, Chitkandinskaya, Alexandrovskaya, Butunskaya, and Sakukanskaya. The overall thickness of the series is 5,350 m.
The copper-bearing horizon is confined to sediments of the Lower subformation of the Sakukanskaya formation. This subformation is a 500 m thick package of alternating pinkish-grey medium-grained sandstones and grey to black siltstones.
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Figure 7.1 Regional Geology Setting. In addition to the Unkur and Udokan deposits, the other copper occurrences shown on the map are: Luktursky (1); Nirungnakanskaya group (2 and 3); Ingamakitskaya group (4, 5 and 6)
Source: Modified by SRK from Mulnichenko, 1972
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7.3 PROPERTY GEOLOGY
7.3.1 UDOKAN SERIES FORMATIONS In the vicinity of the deposit, the Udokan Series sediments are folded into a broad, doubly-plunging syncline, with an approximately vertical axial plane striking northwest (Figure 7.2). The northwest-southeast extent of this synclinal structure is about 12 km.
Three of the Udokan Series formations have been identified within the Project area: Alexandrovskaya, Butunskaya and Sakukanskaya
The rocks of the Alexandrovskaya formation are exposed in the south-western limb of the syncline, and comprise a package of interstratified siltstone and argillites, with quartzites about 1 m thick occurring every 25 to 30 m. The formation is characterized by a magnetic low. Based on geophysical data, the thickness of the formation in the project area is about 450 to 600 m.
The upper part of the Butunskaya formation is exposed in the canyon of the Unkur river, and occurs as a package of alternating siltstone and fine-grained sandstone. The formation is characterized by a magnetic high. Based on the geophysical data, the thickness of the formation in the project area is 500 to 600 m.
The Sakukanskaya formation hosts copper mineralization and occupies most of the Project area. In the east and northeast this formation is intruded by the Chuisko- Kodarsly granitoids of the Kemensky massif. The Sakukanskaya formation is mainly medium-grained grey sandstone.
Of the Sakukanskaya subformations, the Middle and Lower have been identified in the project area. The Lower subformation is 1,000 to 1,200 m thick, characterized by grey and pinkish-grey sandstones alternating with grey and black siltstone. The Middle subformation mainly consists of grey and pinkish-grey sandstones interlayered with calcareous sediments. Rough cross-bedding is characteristic of the sandstone. The overall thickness of the Middle subformation is about 1,000 m.
7.3.2 STRUCTURE As noted above, the major structure of the deposit is a syncline with a northwest- striking axial plane. The southwest limb of the fold dips to the northeast at 40-60° and is complicated by higher order folding.
The Butunskaya and Sakukanskaya formations outcrop in the northeast limb of the fold, and dip 15 to 30° southwest, increasing to 35 to 60° closer to the axial plane.
To the southeast the syncline gradually flattens. In the northwest, geophysical evidence implies the syncline is cut by a branch of the Kemensky Fault.
The Kemensy Fault is one of three large northwest-striking faults. The other in this group is the Burunginsky Fault. The displacement in vertical direction on these major faults does not exceed 300 m.
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The Unkur Syncline is also cut by the Charskaya northeast-striking fault system. Displacements on these faults do not exceed 150 to 200 m.
All the faults have undergone tectonic-magmatic re-activation at various stages. There is no reliable information on the cross-cutting relationships between faults.
7.3.3 INTRUSIVE ROCKS The Udokan Series formations are intruded by gabbro-diorite dykes of the Chineisky complex. Dyke thicknesses range from metres to tens of meters, with observed strike lengths of 200 to 1,000 m. The dykes strike northeast and northwest, corresponding to the strikes of the two main fault systems.
7.3.4 QUATERNARY COVER Glacial sediments cover most of the project area and form numerous moraines. The average thickness of the moraine cover is 40 m; however, this cover increases to 180 to 200 m thickness in both the northwest and southeast of the Project area.
Recent alluvial sediments have been deposited by the Unkur and Kemen Rivers. These sediments are composed of gravel and sandy soil and form 5 to 20 m high terraces above flood-plains.
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Figure 7.2 Property Geology
Source: Modified by SRK from Berezin (1979)
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7.4 MINERALIZATION
The main copper-bearing horizon (Zone 1) was initially identified and traced in the south-western limb of the Unkur syncline. It is confined to weakly metamorphosed deposits of the Lower Sakukanskaya subformation. Stratigraphically, the position of the copper-bearing horizon is 80 to 100 m above the base of the Sakukanskaya formation. Copper oxide minerals among Pleistocene sediments are a possible indicator of the location of the horizon on the opposite (northeast) limb of the Unkur syncline.
The Zone 1 horizon dips northeast at 45 to 60° (Figure 7.3) and has been traced along the strike for 4.6 km, including a 3 km length of drillhole and trench intersections. The maximum drillhole intersection depth is 300 m. The true thickness of the horizon ranges from 7 to 50 m.
Figure 7.3 Typical Geological Cross-Section, Central Part of the Unkur Project
Source: Modifed by SRK from Mulnichenko (1972)
The main copper-bearing horizon is composed of carbonate and non-carbonate sandstone and siltstone. A rhythmical-layered structure is characteristic of the horizon. This rhythmicity is from the alternation of carbonate and non-carbonate sandstones and siltstones. The true thickness of the layers varies from 1 to 40 m.
Geophysical methods have traced a high polarizability copper-bearing horizon under moraine sediments for 4 km.
Radioactivity of the Udokan Series in the Unkur area is low.
The recent sampling by Azarga has not defined a consistent, continuous high-grade zone within the overall mineralised zone, but there is a general tendency for the highest grades (greater than 0.5% copper) to be concentrated near the centre of intersections instead of at the edges. At a larger scale, the northern part of the deposit (north of 6302300N) tends to be higher grade than the southern part, and the relatively high grade and thick intersection in drillhole AM-001 coincides with a
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change in strike, from approximately northwest-southeast, to approximately north- south (Figure 7.3).
Sulphide copper minerals comprise chalcopyrite, pyrite, bornite, chalcocite and covellite. Oxide minerals include malachite and brochantite. Accessory minerals include magnetite, magnetite, hematite and ilmenite.
A hypogene zonation is noted in the distribution of the copper minerals: a chalcopyrite-pyrite-bornite association is found in the centre; either side of this there is a monomineral chalcopyrite association, and then a distal pyrite association at the edges of the mineralized zone.
The weathered zone is poorly developed, to a depth of 5 to 10 m from surface. Copper oxide minerals are also observed at deeper levels in fractured zones.
The mineralized zone is displaced by northeast-striking fault and breccia zones. The displacements are typically 20 to 70 m, but for some faults displacements are as much as 150 m.
Below the copper-bearing horizon are pyritized calcareous sandstones and siltstones; above the horizon are sandstones and siltstones of the upper part of the Lower Sakukanskaya subformation.
Based on samples collected by Azarga from drillholes, trenches and outcrops, a second mineralised horizon (Zone 2) has been identified to the west, stratigraphically 100 to 150 m below Zone 1. The sparse information available so far for Zone 2 suggest that this zone has a similar orientation, thickness, intensity and mineralogy to Zone 1.
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8.0 DEPOSIT TYPES
The Unkur deposit is interpreted as a sediment-hosted stratiform copper deposit. This geological model is considered appropriate for the deposit because of the following observations:
• There is a clear stratigraphic control on copper mineralisation, which is confined to the upper part of the Lower Sakukanskaya subformation. • Several sedimentary features (such as cross-bedding, wave rippling and desiccation cracks) imply a shallow and relatively low-energy depositional environment. This facies type is a key requirement for many models of other stratiform copper deposits. • There is an absence of obvious igneous or structural first order controls on mineralisation. The faulting in the Project area generally appears to be post- mineralisation. • There is a simple copper mineral composition, which is characteristic of sandstone-hosted copper deposits.
The nearby Udokan copper deposit is also an example of a sediment-hosted stratiform copper deposit. Globally, other prominent examples of this deposit type are the Dzhezkazgan copper deposits in Kazakhstan, the Zambian copper belts, and the Kuperschiefer in Central Europe.
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9.0 EXPLORATION
9.1 CHANNEL SAMPLING OF TRENCHES AND OUTCROPS
Azarga collected channel samples from two exposures of the mineralised zone in the bank of the Unkur River, and from four sites of historical trenching that were cleared to re-expose the bedrock. In total, 67 m of samples were collected from the outcrops, and 186 m from the trenches. The locations of these sampling sites are shown in red (trenches) and blue (outcrops) in Figure 10.2. Sampling was done on 1 m lengths, with a nominal width of 5 cm and depth of 3 cm. Sample locations were derived based on several hand-held global positioning system (GPS) measurements along each sampling profile.
The outcrop channel samples were approximately orientated along the strike of the mineralisation, and the irregular outcrop surface meant that it was difficult to obtain a consistent sample width and depth. For the Mineral Resource estimation, the outcrop sampling was used as a guide for projecting the interpreted mineralisation contacts to surface, but the outcrop samples themselves were not directly used for the geostatistical estimation of grade.
The trenches are oriented on azimuths approximately perpendicular to the mineralisation. The trench sampling information was merged into the drillhole database, effectively as a set of horizontal drillholes. Three of the trenches intersected copper-silver mineralisation (Table 9.1). None of the samples from trench K801 returned results indicating significant copper-silver mineralisation. The channel samples from the trenches, which the QP considers to be similarly reliable and representative as samples obtained from drill core, were used for both modelling the contacts of the mineralisation domains, and for the geostatistical grade estimation within these domains.
Table 9.1 Trench Intersections used for Mineral Resource Estimation
True Trench Zone From To Length Cu Ag Thickness ID Intersected (m) (m) (m) (%) (ppm) (m) K601 Zone 2 0 10 10 0.73 2.07 8.7 K615 Zone 1 8 17 9 0.30 14.03 6.9 K616 Zone 1 18 29 11 0.41 6.32 8.1
9.2 GROUND MAGNETIC SURVEY
Approximately 130-line kilometres of detail ground magnetics data were collected during Azarga’s first phase exploration program (Figure 9.1). The results show that copper-silver mineralisation is associated with a strong magnetic signature and that ground magnetics may be useful targeting tool on the Project.
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Figure 9.1 Ground Magnetic Survey Results with Selected Drillholes Overlaid and Targets for Future Exploration Phases Highlighted
Source: Azarga (2017)
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10.0 DRILLING
The main source of information for the Mineral Resource estimate presented in this report is 4,580 m of diamond core drilling (from 16 drillholes) completed during Azarga’s exploration campaign from August 2016 until February 2017. Section lines for drilling are spaced approximately 300 m apart. Where there are two Zone 1 intersections on the same drill section, the spacing between intersections is typically 200 to 300 m.
10.1 TYPE AND EXTENT
Summary information for individual holes and intersections is listed in Table 10.1 and Table 10.2. Figure 10.2 shows a plan of the collar locations, and representative sections are presented in Figure 10.3, Figure 10.4 and Figure 10.5.
The holes were drilled by two Christensen CS14 rigs. Core was collected on 3 m drilling lengths, using a double tube core barrel. Drilling through the loose sediments of the moraine was done at PQ diameter. The hole diameter was reduced to NQ, or (less frequently) HQ, for drilling the bedrock. Hole collars were surveyed using a hand- held GPS device. The down hole orientation was surveyed using an IMMN-42 magnetometric inclinometer.
10.2 FACTORS THAT COULD MATERIALLY AFFECT THE ACCURACY AND RELIABILITY OF RESULTS
SRK has considered drilling, sampling and recovery factors that could materially affect the results from Azarga’s sampling. The core from the mineralised zones is often very broken, so it is often not practical to estimate recovery by piecing together the fragments and measuring the length. Instead, recovery can be estimated based on sample weight. The mean weight of 1 m half core samples from the Zone 1 domain is 2.2 kg (Figure 10.1). The theoretical weight of a 1 m half core sample, at NQ diameter, with a density of 2.67, is 2.4 kg. Therefore, the average recovery from the mineralised zone is approximately 90%. Given the style and grade of mineralisation at Unkur, SRK considers this recovery to be sufficient for the samples to support Mineral Resource estimation.
10.3 SRK COMMENTS
In the opinion of SRK, the sampling procedures used by Azarga are consistent with generally accepted industry best practice. All drilling sampling was conducted under the direct supervision of appropriately qualified geologists. Accordingly, there are no known drilling, sampling or recovery factors that could materially impact the accuracy and reliability of the results.
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Figure 10.1 Histogram of Sample Weights for 1 m Samples from Zone 1 Mineralised Domain
Table 10.1 Drillhole Location, Maximum Depth, and Orientation
Collar Coordinates (Pulkovo 42 datum, Zone 20) Maximum Starting Starting Depth Dip Azimuth Hole ID X Y Z (m) (°) (°) AM-001 20595871 6303108 930 400.5 -69 241 AM-002 20596077 6303227 919 520.5 -70 248 AM-003 20595911 6302753 931 100.0 -72 242 AM-004 20596093 6302871 936 382.9 -70 242 AM-005 20596247 6302510 914 160.0 -71 241 AM-006 20596388 6302620 955 572.0 -69 221 AM-007 20596411 6302155 928 80.0 -70 222 AM-008 20596611 6302365 1008 601.3 -72 228 AM-009 20596725 6301968 983 238.0 -69 224 AM-011 20596936 6301672 952 178.5 -68 223 AM-013 20597233 6301394 996 100.0 -68 220 AM-015 20597567 6301246 1042 201.0 -68 217 AM-017 20596211 6302467 916 277.5 -71 230 AM-018 20595635 6302977 938 256.6 -73 241 AM-019 20596639 6301879 939 226.7 -69 224 AM-020 20595906 6303578 903 284.9 -70 249
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Table 10.2 Drillhole Intersections used for Mineral Resource Estimation
Composite Grades True Hole From To Length Thickness ID (m) (m) (m) Cu (%) Ag (ppm) (m) AM-001* 82.5 125.5 33.0 0.83 79.81 20.1 AM-002 432.5 472.5 40.0 0.31 12.77 33.8 AM-003** 40.5 77.5 37.0 0.43 39.63 26.9 AM-004*** 319.5 358.5 31.0 0.44 27.23 23.7 AM-006 440.5 456.5 16.0 0.34 11.02 14.4 AM-007 47.0 60.0 13.0 0.25 17.12 10.9 AM-008 352.3 364.3 12.0 0.24 6.02 9.9 AM-011 145.5 153.9 8.4 0.92 61.73 7.3 AM-013 70.0 78.0 8.0 0.53 22.62 6.8 AM-015 135 145.0 10.0 0.29 4.55 8.7 AM-017 189.5 202.5 13.0 1.28 103.91 9.8 AM-019 39.0 49.0 10.0 0.48 12.39 8.6 AM-020 227.0 241.0 14.0 0.51 28.44 10.6 Zone 2 (N) AM-001 311.5 346.5 35.0 0.47 43.49 24.5 AM-019 106.0 119.0 13.0 0.17 4.99 9.1 Notes: *AM-001 mineralisation begins at base of moraine, possibly intersection has been truncated by glacial erosion. Composite excludes barren zone from 104.5 to 114.5. **AM-003 mineralisation begins at base of moraine, possibly intersection has been truncated by glacial erosion. ***AM-004 composite excludes barren zone from 335.5 to 343.5.
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Figure 10.2 Plan Showing Collar Locations and Drillhole Traces in Relation to Modelled Mineralisation Domain
Source: SRK (2017)
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Figure 10.3 Vertical Cross Section 1. View Looking Northwest. Section Width 50 m
Source: SRK (2017)
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Figure 10.4 Vertical Cross Section 2. View Looking Northwest. Section Width 50 m
Source: SRK (2017)
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Figure 10.5 Vertical Cross Section 3. View Looking West-northwest. Section width 50 m
Source: SRK (2017)
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11.0 SAMPLE PREPARATION, ANALYSIS AND SECURITY
11.1 SAMPLE PREPARATION ON SITE
Core trays were transported from the rigs to Azarga’s exploration camp. This transportation distance was up to 3 km. All core was digitally photographed. Intervals identified by the geologists as likely to be mineralised were selected for sampling, and the sampling interval was extended for at least 10 m beyond the limits of the identified mineralisation. Hand-held XRF measurements were used as a further check, to ensure that all mineralised zones were identified for sampling. Several hand-held XRF readings of copper content were taken within each meter of core. XRF copper readings were used as a logging tool, not in the Mineral Resource estimate calculations.
Core selected for sampling was cut with a core saw. Sample lengths were nominally 1.0 m, but adjustments to the lengths were made in order to honour geological boundaries. The minimum sample length was 0.4 m and the maximum length was 1.3 m. Half-core from the intervals selected for sampling was dispatched by road to SGS. Trays of the retained half core were closed with covers, marked, and stored at Azarga’s exploration camp.
11.2 SAMPLE PREPARATION AND ANALYSIS AT LABORATORY
The primary laboratory used for analysing Azarga’s samples is SGS Vostok Limited in Chita. The laboratory is independent from Azarga, and has International Organization for Standardization (ISO)/International Electrotechnical Commission (IEC) 17025 certification for the specific procedures used.
Samples received by SGS were dried at 105 ± 5°C. Samples up to 4 kg were then crushed to 85% passing 2 mm, and ground to 90% passing 0.7 mm. Sieving checks were done on 3 to 5% of the samples. Samples more than 4 kg went through the same crushing stage, but were split to 4 kg before proceeding to the grinding stage.
A subsample of 0.5 to 1.0 kg was collected using a rotary splitter. This subsample went through a further stage of fine grinding, to 95% passing 75 µm. A 50% split of this subsample (250 to 500 g) was used for analysis.
SGS analysed the samples for copper and silver. The copper content was determined by SGS method ICP90A (sodium peroxide fusion, then inductively coupled plasma - atomic emission spectroscopy). The silver content was determined by SGS method AAS12E (two-acid digest, then AAS).
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11.3 QUALITY CONTROL/QUALITY ASSURANCE
11.3.1 CERTIFIED REFERENCE MATERIALS Among the samples submitted to SGS for analysis, Azarga included control samples from four different certified reference materials (CRMs). These CRMs were prepared by laboratory Udokanskaya Med, and certified by the institute VIMS. The results from these samples are summarised in Table 11.1. Compared to the 1,799 primary samples analysed by SGS, the 73 analyses of CRMs represent a submission rate of 4%.
The set of results from analyses of the CRMs do not show any biases significant enough to cause material concerns about the suitability of the assay database for Mineral Resource estimation.
Table 11.1 Summary of Results from Analyses of Certified Reference Materials
Quality Number Control of Mean Median Minimum Maximum Sample Certified Analyses SGS SGS SGS SGS ID Value by SGS Analysis Analysis Analysis Analysis 29-13 0.62% Cu 14 0.60% Cu 0.61% Cu 0.54% Cu 0.62% Cu 4.65 g/t Ag 4.3 g/t Ag 4.5 g/t Ag 0.3 g/t Ag 5.0 g/t Ag 30-13 1.62% Cu 14 1.59% Cu 1.60% Cu 1.49% Cu 1.69% Cu 12.4 g/t Ag 11.7 g/t Ag 11.6 g/t Ag 11.1 g/t Ag 12.6 g/t Ag 31-13 2.62% Cu 20 2.57% Cu 2.58% Cu 2.38% Cu 2.69% Cu 22.7 g/t Ag 21.4 g/t Ag 21.3 g/t Ag 20.3 g/t Ag 22.7 g/t Ag 32-13 <0.02% Cu 25 0.01% Cu 0.01% Cu 0.01% Cu 0.01% Cu <0.2 g/t Ag 0.3 g/t Ag 0.2 g/t Ag 0.2 g/t Ag 0.9 g/t Ag
11.3.2 CHECK ASSAYS BY AN UMPIRE LABORATORY From the pulps prepared by SGS, 90 samples were submitted to ALS laboratories in Chita. ALS is independent from Azarga and has ISO/IED 17025 certification for the specific procedures used. These check assays represent a submission rate of 5% (compared to the 1,799 primary samples). The ALS analytical method was ME-ICP41 (nitric aqua regia digestion, then inductively coupled plasma - atomic emission spectroscopy). In the results received by Azarga, only the copper content was reported.
The paired ALS and SGS results are plotted in Figure 11.1. For SGS results above 1.5%, several of the corresponding ALS results are notably lower, and for two samples the differences are large. A possible explanation for this difference is that the nitric aqua regia digestion used by ALS is a less complete sample decomposition method than the sodium peroxide fusion used by SGS.
The difference between the ALS and SGS results should be monitored as further samples are collected from future exploration campaigns, but, from the current set of check assays, SRK’s opinion is that the differences are neither sufficiently large nor frequent to inhibit using the assay database for Mineral Resource estimation.
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Figure 11.1 ALS Check Assays on Pulp Samples from SGS
11.4 SRK COMMENTS
In SRK’s opinion, the sample preparation, security and analytical procedures used by Azarga are consistent with generally accepted industry best practices and are, therefore, adequate for the purpose of Mineral Resource estimation.
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12.0 DATA VERIFICATION
12.1 DATA VERIFICATION BY THE QUALIFIED PERSON
The QP visited site on December 10, 2014, and October 13, 2016. The 2016 visit included a visit to the primary assay laboratory (SGS in Chita) the following day.
The QP has verified the database the Mineral Resource estimate is based on. This verification was done by personal inspection of drill core, drill sites and trenches during the 2016 site visit, by analysing the results from quality control samples, and by checking database content against primary data sources and historical information.
12.2 LIMITATIONS ON DATA VERIFICATION
During the 2014 site visit, SRK visited an old core storage facility (Figure 12.1) and inspected the state of the historical core (Figure 12.2). The historical sampling could not be verified because of the poor condition of the core, due to poor recovery during drilling, deterioration of the core and core trays over the subsequent four decades, and collapse of the core storage shed. Also, it appears that the intervals of most interest (the mineralised intersections) were generally entirely consumed by sampling during the historical exploration programs.
Because of the limitations on the confidence in the quality of the historical data, this information was not used by SRK to prepare the Mineral Resource estimation.
Figure 12.1 Old Core Storage, the Unkur Project
Source: SRK, December 2014
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Figure 12.2 Core Recovered from Hole С-118
Source: SRK, December 2014
12.3 ADEQUACY OF DATA FOR THE PURPOSES USED IN THIS TECHNICAL REPORT
The quantity and quality of data collected by Azarga are sufficient to support estimation of Mineral Resources.
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13.0 MINERAL PROCESSING A ND METALLURGICAL TESTIN G
13.1 SUMMARY
This section details the mineralogical and metallurgical test work completed to date on the Project. Tetra Tech has not reviewed any historical investigations on the Project.
As part of this PEA, SGS Vostok, located in Chita, Russia, carried out mineralogical and metallurgical test work. SGS Vostok tested a single, 350 kg copper-bearing oxide sample between December 2014 and February 2015.
The diagnostic leach investigations completed by SGS indicate that the mineralised material is a non-refractory type with less than 5% of the copper locked in sulphides and silicates at a grind size of approximately P80 = 75 µm. Further, it was found that more than 95% of the copper is oxidised, and an overall copper extraction of at least 95% can be attained at this grind size (P80 = 75 µm).
The metallurgical investigations also confirm the diagnostic leach findings where the optimal grind size is estimated to be P80 = 75 µm with an average copper extraction of 95%. In addition, the metallurgical test work demonstrates that the material is amenable to cyanidation with an average silver extraction of 96%.
13.2 MINERALOGICAL TEST WORK
SGS Vostok undertook a mineralogical analysis of the Unkur mineralised material using XRF, x-ray diffraction (XRD), and scanning electron microscope methods and reported that the sample is represented by fine-grained sandstones and siltstones with impregnation of iron oxides and oxide copper minerals. The analysis also indicates that the ratio between fine-grained sandstones and siltstones is 3:1. Fine- grained sandstones (15%) and siltstones (50%) contain impregnation, rinds, films and thin veinlets of the oxide copper minerals (malachite, azurite, and copper silicate).
It was further reported that the primary minerals of the non-oxide matrix are magnetite and hematite, however, the occurrence of sulphides such as bornite, chalcocite, chalcopyrite, and pyrite was also observed. The dominant oxide copper minerals are malachite and azurite, with rare occurrences of copper silicates. It was also reported that the malachite contains inclusions of native silver and silver sulphide.
SGS Vostok also noted that the textural and structural features and mineralogical composition of the Unkur mineralised material are similar to those of the material mined at Udokan copper project, which is some 30 km south of the Unkur site.
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13.3 METALLURGICAL TEST WORK
13.3.1 TEST WORK SAMPLE Tetra Tech was not involved with the sample selection for the metallurgical test work completed by SGS Vostok; the samples were selected by Azarga, under the supervision of SRK. It is understood that 29 sample bags, weighing 350 kg in total, were shipped to SGS Vostok. The top size of the samples was reported as 250 mm. Upon receipt, the sample was stage crushed, mixed, and split into various sub- samples for further test work.
13.3.2 WHOLE ROCK ANALYSIS SGS Vostok used the following methods to analyse the sample:
• copper – atomic absorption spectroscopy (AAS) • silver – aqua reiga digest followed by AAS • gold – fire assay (FA) and AAS • sulphur and carbon – combustion in inductive furnace • other elements – inductively coupled plasma (ICP).
The results of the whole rock analysis are shown in Table 13.1.
Table 13.1 Whole Rock Analysis
Element Unit Assay Element Unit Assay Cu Total % 1.31 Mo ppm <10 Cu Oxide % 1.25 P % 0.12 Ag g/t 28.2 Pb ppm <20 Au g/t 0.03 Sb % <0.005 C % 0.74 Sc ppm 11 S Total % 0.02 Sn ppm <50 S Sulphide % 0.01 Sr ppm 70 Al % 6.45 Ti % 0.26 As % <0.003 V ppm 80 Ba ppm 720 W ppm <50 Be ppm <5 Y ppm 17 Ca % 2.54 Zn % 0.01 Cu % 1.3 Al2O3 % 11.80 Cd ppm <10 CaO % 3.79 Cr ppm 190 Fe2O3 % 4.61 Co ppm 10 K2O % 4.01 Fe % 3.19 MnO % 0.16 K % 3.33 MgO % 2.33 La ppm 30.00 Na2O % 1.80 Li ppm 20 P2O5 % 0.30 table continues…
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Element Unit Assay Element Unit Assay
Mg % 1.39 SiO2 % 65.40 Mn ppm 1250 TiO2 % 0.46 Ni % 0.004 LOI* % 5.42 Note: LOI – loss on ignition
13.3.3 DIAGNOSTIC LEACH SGS Vostok conducted copper diagnostic leach tests on a representative sample at a grind of P80 = 75 µm, according to the standard procedure. Table 13.3 shows the summary test results.
Table 13.2 Diagnostic Leach Results
Cu Cu Cu Deportment Grade Distribution (%) (%) Cu Soluble (Chalcanthite) 0.0002 0.02 Cu Oxide (Malachite, Azurite) – Carbonate 1.1830 95.40 Cu Secondary (Chalcocite, Covellite, Bornite) 0.0070 0.56 Cu Primary (Chalcopyrite) 0.0130 1.05 Cu Silicate (Chrysocolla) 0.0370 2.97 Cu Total 1.2400 100.00
The results in Table 13.2 clearly indicate that approximately 95% of the copper is available as oxides and could be extracted using leaching methods.
13.3.4 SIZE FRACTION ANALYSIS SGS Vostok completed a fractional analysis on a sample crushed to 100% passing 1.7 mm (Table 13.3).
Table 13.3 Fractional Analysis Results
Yield Assay Distribution Fraction (mm) g % Cu (%) Ag (g/t) Cu (%) Ag (%) -1.7 +1.18 175.03 17.50 1.27 27.60 16.62 17.68 -1.18 +0.600 331.00 33.10 1.28 27.30 31.69 33.08 -0.600 +0.425 113.84 11.38 1.23 25.80 10.47 10.75 -0.425 +0.212 124.30 12.43 1.22 25.30 11.34 11.51 -0.212 +0.106 82.18 8.22 1.21 24.10 7.44 7.25 -0.106 +0.075 27.47 2.75 1.35 25.60 2.77 2.57 -0.075 +0.053 22.99 2.30 1.47 28.10 2.53 2.36 -0.053 123.19 12.32 1.86 32.80 17.14 14.79 Head (Calculated) 1,000.00 100.00 1.34 27.32 100.00 100.00
The results in Table 13.3 clearly demonstrate that copper and silver are uniformly distributed among the size fractions with a slight increase in the finer
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(-53 µm) fraction. This indicates that separation methods based on particle size distribution will not be effective in making copper/silver concentrates.
13.3.5 GRAVITY CONCENTRATION Gravity concentration tests were carried out on a representative sample using the batch laboratory-scale Knelson test unit and Mozely laboratory separator. The Knelson concentrator acted as a primary gravity concentrator, while the Mozely concentrator was used to clean the primary concentrates. These gravity tests were conducted at various grinds (P80 = 600 µm, 212 µm, 75 µm, and 53 µm) to estimate silver recovery at various grind sizes. Table 13.4 shows a summary of the gravity test results.
Table 13.4 Gravity Concentration Results
Cu Ag Feed Size Mass Cu Recovery Ag Recovery (P80 – µm) Product (%) (%) (%) (g/t) (%) 600 Concentrate -Mozely 0.04 1.68 0.04 191 0.24 Middlings 0.75 1.75 0.96 84 2.17 Concentrate - Knelson 0.79 1.75 1 89 2.41 Tailings 99.21 1.37 99 29 97.59 212 Concentrate -Mozely 0.06 1.87 0.09 184 0.4 Middlings 0.76 1.79 0.97 89 2.35 Concentrate - Knelson 0.82 1.8 1.06 96 2.75 Tailings 99.18 1.38 98.94 28 97.25 75 Concentrate -Mozely 0.12 2.36 0.2 205 0.85 Middlings 0.63 2.37 1.05 119 2.59 Concentrate - Knelson 0.75 2.37 1.25 133 3.44 Tailings 99.25 1.41 98.75 28 96.56 53 Concentrate -Mozely 0.09 2.38 0.15 216 0.65 Middlings 0.64 2.22 1.01 109 2.41 Concentrate - Knelson 0.73 2.24 1.16 122 3.06 Tailings 99.27 1.4 98.84 28 96.94
The results shown in Table 13.4 demonstrate that copper and silver recoveries (copper less than 1.25% and silver less than 3.50%) are extremely low at lower concentrate grades (copper less than 2.4% and silver less than 133 g/t). These results are a clear indication that gravity concentration is not effective as a pre- concentration step for the Unkur mineralised material.
13.3.6 FLOTATION
The flotation test work included nine optimisation tests at a standard grind of P80 = 75 µm. In addition, a single flotation test was conducted with two-stage grinding (P80 = 75 µm and 53 µm). All flotation tests were conducted in a laboratory bench scale Denver flotation cell with a number of reagent combinations. Table 13.5 shows a summary of the flotation test work results.
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Table 13.5 Flotation Results
Grade Recovery Test Mass Reference Products (%) Cu (%) Ag (g/t) Cu (%) Ag (%) F-1 Concentrate 1 1.8 3.0 586.0 4.1 34.9 Concentrate 2 1.3 2.7 117.0 2.7 5.3 Concentrate 3 2.1 16.4 252.0 26.2 17.8 Concentrate 4 1.7 5.1 116.0 6.7 6.8 Concentrate 5 1.1 2.7 52.4 2.3 2.0 Tailings 92.0 0.8 10.6 58.0 33.3 F-2 Concentrate 1 1.4 12.8 844.0 14.0 38.1 Concentrate 2 1.6 4.5 161.0 5.7 8.4 Concentrate 3 1.2 3.3 99.2 3.1 3.9 Concentrate 4 1.8 2.7 64.8 3.6 3.7 Concentrate 5 1.8 2.2 43.9 3.1 2.5 Concentrate 6 2.3 7.3 153.0 12.9 11.2 Tailings 90.0 0.8 11.1 57.7 32.2 F-3 Concentrate 1 5.0 8.3 346.0 32.4 57.1 Concentrate 2 8.3 1.4 38.3 8.8 10.4 Concentrate 3 5.1 1.4 30.4 5.4 5.0 Tailings 81.6 0.8 10.3 53.4 27.5 F-4 Concentrate 1 4.0 3.3 196.0 10.1 26.8 Concentrate 2 3.0 2.8 94.4 6.5 9.9 Tailings 93.0 1.2 19.8 83.5 63.3 F-5 Concentrate 1 0.8 2.2 207.0 1.3 5.5 Concentrate 2 2.2 3.9 158.0 6.4 11.6 Concentrate 3 4.0 2.6 86.3 7.9 11.5 Concentrate 4 1.8 2.5 88.9 3.3 5.3 Tailings 91.4 1.2 21.4 81.0 66.1 F-6 Concentrate 1 0.9 3.5 302.0 2.3 9.0 Concentrate 2 1.2 3.8 180.0 3.4 7.2 Concentrate 3 3.9 2.2 88.1 6.5 11.7 Concentrate 4 2.9 2.9 101.0 6.4 9.9 Tailings 91.1 1.2 20.2 81.4 62.1 F-7 Concentrate 1 3.5 10.1 398.0 29.3 49.9 Concentrate 2 2.4 4.0 197.0 7.7 16.9 Concentrate 3 1.6 2.1 55.8 2.7 3.2 Tailings 92.5 0.8 9.0 60.4 29.9 F-8 Concentrate 1 2.4 12.5 535.0 23.0 44.0 Concentrate 2 1.4 5.4 154.0 5.6 7.1 Tailings 96.2 1.0 15.1 71.5 48.9 F-9 Concentrate 1 3.1 10.9 452.0 25.3 48.4 Concentrate 2 1.8 5.1 118.0 6.8 7.2 Tailings 95.2 0.9 13.4 68.0 44.4 F-10 Concentrate 1 5.6 7.3 299.0 30.7 59.8 Concentrate 2 1.3 5.5 124.0 5.4 5.8 Tailings 93.1 0.9 10.4 63.8 34.5
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The results shown in Table 13.5 indicate that the best recoveries of copper and silver (approximately 47% and 72%, respectively) were observed during test F3. The corresponding concentrate grades at the best recoveries were reported as 3.3% for copper and 120.3 g/t for silver. These results clearly indicate that saleable flotation concentrates cannot be produced at acceptable recoveries.
13.3.7 LEACH TESTS SGS Vostok conducted run-of-mine leach tests in two stages. The ground sample was initially acid leached with sulphuric acid to dissolve copper, and the residue from the acid leach was neutralised with lime and then re-leached with cyanide in alkaline conditions.
ACID LEACH SGS Vostok conducted nine acid leach tests with the objective of optimising the test conditions. Table 13.6 shows a summary of the test conditions and the results.
Table 13.6 Acid Leach Results
Leach Grind Pulp Retention H2SO4 Cu Test Size Density Time Consumption Extraction Reference (P80 – µm) (% - w/w) pH (h) (kg/t) (%) 1 75 33 2.0 6 73.6 50.6 2 75 33 1.5 4 92.4 98.4 3 75 33 2.0 4 90.5 95.9 4 75 33 3.0 4 75.1 56.2 5 600 33 2.0 2 78.0 87.0 6 212 33 2.0 2 84.1 93.8 7 75 40 2.0 2 87.4 94.3 8 75 50 2.0 2 87.1 95.3 9 75 50 1.5 2 92.3 96.2
The results indicate that copper extraction is strongly related to acid consumption, followed by other parameters. The results also demonstrate that approximately 95% of the copper can be dissolved into solution at the optimal process conditions. This could be potentially interpreted as approximately 95% of the copper is either liberated or exposed at the target grind of P80=75 µm. Further, the reported extraction of 95% is comparable to the diagnostic leach results.
CYANIDE LEACH The leach residue from acid leach tests 1, 2, 3, and 6 were neutralised, re-pulped, and dissolved in cyanide for silver extraction under alkaline conditions (Table 13.7).
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Table 13.7 Cyanide Leach Conditions
Parameter Unit Value Cyanide Concentration g/L 2 pH - 10.5 to 11.0 Pulp Density w/w % 33 Leach Time h 48
Table 13.8 shows a summary of the cyanide leach test results.
Table 13.8 Cyanide Leach Results
Cyanide Ag Test Consumption Extraction Reference (kg/t) (%) 1 3.9 91.6 2 1.3 97.9 3 0.8 96.0 6 0.8 93.9
The results in Table 13.8 indicate that silver extraction and cyanide consumptions range from 91.6 to 97.9% and 0.8 to 3.9 kg/t, respectively.
It is important to note that Test 3 provided better extraction for both copper (95.9%) and silver (96%). The acid and cyanide consumptions for Test 3 were 90.5 kg/t and 0.8 kg/t, respectively.
13.3.8 PRE-CONCENTRATION FOLLOWED BY CONCENTRATE LEACH SGS Vostok conducted two bulk flotation tests (each with a 10 kg) to make a concentrate product for further processing. The first bulk flotation test was completed under optimal conditions as a single-stage rougher flotation and demonstrated that 41.5% of the copper and 74.6% of the silver can be recovered into the concentrate product.
The second bulk flotation test was completed as a rougher-cleaner configuration but was discounted due to poor metal recoveries.
The concentrate product from the rougher bulk test was leached with acid and cyanide solutions to dissolve the copper and silver.
The results indicate that approximately 95% of the copper from the concentrate could be extracted by acid leaching. The sulfuric acid (H2SO4) consumption was in the range of 170.0 to 286.4 kg/t of concentrate.
Silver extraction from the concentrate was 71.6% with a cyanide consumption of 3 kg/t of concentrate.
Tetra Tech calculated the overall copper and silver extraction from the pre- concentration followed by concentrate leach as 39.4% and 53.4%, respectively. The
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results clearly demonstrate that metal recoveries for the concentrate leach is poor and unacceptable as an economically viable process option.
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14.0 MINERAL RESOURCE ESTIMATES
14.1 SUMMARY
Tetra Tech completed a new Mineral Resource estimate for the Unkur deposit, with an effective date of 7th March 2018. The most recent data included in the estimate was received on 7th March 2018. Mr. Joseph Hirst, BSc (Hons), MSc, EurGeol, CGeol, an independent QP as defined by NI 43-101, estimated the Mineral Resources.
14.2 UNKUR MINERAL RESOURCE ESTIMATE
14.2.1 SUMMARY OF ESTIMATION TECHNIQUES Tetra Tech produced a set of wireframes to represent the mineralisation in Leapfrog Geo, which were imported as .dxf files into Datamine Studio 3 (version 3.24). The wireframes were created to represent mineralised bodies and represent two discrete mineralised areas. Block modelling and Mineral Resource estimation was completed in Datamine.
The metal grades for the Unkur deposit were estimated using the ID2 interpolation method. Density was applied as a global value to convert the volume to a tonnage.
Statistical and grade continuity analyses were completed in order to characterise the mineralisation and were subsequently used to develop grade interpolation parameters. The search ellipsoid dimensions and orientations were chosen to reflect the continuity from geostatistical studies. Block size, discretisation, search size, and sample numbers were optimised using QKNA.
Tetra Tech adopted the definition of Mineral Resources as outlined within CIM guidelines in order to classify the Mineral Resources.
In order to demonstrate that the deposit has reasonable prospects for eventual economic extraction, a cut-off grade of 0.3% of copper equivalent was applied for Mineral Resources within the mineralised interpretation.
14.2.2 DATABASE Azarga provided Tetra Tech with its exploration database, in the form of Microsoft® Access database, which were exported to separate .csv files by Tetra Tech prior to importing into Datamine. The sheets used were:
• collars • surveys • assays
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• domain flag • sample id.
The database includes information from drillholes logged, sampled, and analysed during the recent exploration period, and does not include historical sampling. See Sections 9.0 and 10.0 for details.
The updated Mineral Resource for Unkur is based on additional geological study of the mineralised structures, and a reinterpretation of the block model parameters to support this PEA.
Additionally, the update to the Unkur Resources will inform an updated infill drilling programme to target areas that require further investigation, as well as identifying more prospective mineralisation along the strike of the deposit. It is thought that there are additional stratabound mineralised structures, which may be identified with infill drilling, that will help the overall mining scenario tested in the PEA.
14.2.3 GEOLOGICAL INTERPRETATION Figure 14.1 illustrates the mineralised domain wireframes that have been modelled for Unkur.
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Figure 14.1 Plan View of Mineralised Domains at Unkur with Collar Locations
Scale: Major grid interval 2,500 m Source: Tetra Tech
14.2.4 WIREFRAME MODELLING Wireframe models were created in Leapfog Geo by creating implicit model controls to link samples. The models were created based upon interval selections that referenced the copper grades, silver grades, lithological descriptions, and structural interpretation. Grades greater than 0.2% copper equivalent were linked together between each drill-section. The strike extrapolation was allowed to continue some distance past the last drill data on the basis that the final constraint would be applied during the estimation and classification process. The continuity of the various structures is reflected in the Mineral Resource classification. Figure 14.2 shows a typical cross section of the mineralisation across the two zones.
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Figure 14.2 West-East Cross Section through Mineralisation (4367800N)
14.2.5 EXPLORATORY DATA ANALYSIS/DOMAINING The mineralised structures at Unkur has been treated as a single domain within a single mineralising event. Despite being spatially separated, the early stage of the project, and consequently the relatively low amount of data means that the zones have been assessed as one, without conclusive evidence at this stage that they should be treated separately. This has been reflected in the Mineral Resource classification. The exploratory data analysis indicated that there are differences in mineralogy encountered in the mineralisation zones, which control the different grade populations, this is likely a structural control related to the dilation in the jog of a fold. Various statistical analyses of the data were performed and are documented in this section.
RAW DRILLHOLE STATISTICS Tetra Tech received a total of 1,569 metal assay results from a series of 1,982 m of sampling.
Analysis for copper, and silver was completed for most of these samples.
Table 14.1 presents the statistics for all raw copper and silver assays.
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Table 14.1 Raw Drillhole Statistics
Field Cu Ag Count 1738 1737 Minimum 0 0.1 Maximum 3.71 356 Mean 0.109 7.373 Variance 0.11 832.3 Standard Deviation 0.334 28.849 Standard Error 3.07 3.91 Skewness 5.53 7.16 Kurtosis 37.54 59.87 Geometric Mean - 0.699
Statistical analysis of raw samples presents mixed grade populations (Figure 14.3 Figure 14.4). After assessment, there was not enough data to attempt resolving the populations into domains.
Figure 14.3 Log Histogram of all Raw Samples - Cu
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Figure 14.4 Log Histogram of all Raw Samples - Ag
Statistics for the Unkur mineralised samples are presented in the log histogram plots in Figure 14.5, Figure 14.5, and descriptive statistics in Table 14.2.
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Table 14.2 Descriptive Statistics for Selected Samples
Standard Coefficient Geometric Metal Domain Count Minimum Maximum Mean Variance Deviation of Variation Skewness Kurtosis Mean Median CU All 325 0.003 3.71 0.502 0.37 0.612 1.22 2.54 7.03 0.286 0.282 CU 1 73 0.003 2.46 0.317 0.22 0.465 1.47 3.05 10.12 0.147 0.158 CU 2 252 0.008 3.71 0.556 0.41 0.639 1.15 2.44 6.39 0.347 0.31 AG All 325 0.4 356 34.739 3453 58.76 1.69 3.03 9.71 13.789 12.3 AG 1 73 0.6 202 27.911 1771 42.088 1.51 2.75 7.91 12.227 10.7 AG 2 252 0.4 356 36.717 3931 62.701 1.71 2.94 8.84 14.278 12.4
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Figure 14.5 Log Histogram of all Selected Samples - Cu
Figure 14.6 Log Histogram of all Selected Samples - Ag
The wireframe models presented in Section 14.3.3, successfully differentiate the two zones of mineralisation in the main and subordinate zone, from waste material, based on a copper equivalent grade, so as to include silver grades as discrete from the copper minerals, as shown by the reasonably well-developed log histograms (Figure 14.5 and Figure 14.6).
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The grade distribution in the log histograms and probability plots associated with the selected raw data are reasonably well developed.
SAMPLE LENGTH AND COMPOSITING Statistics on the sample lengths were analysed using histograms and statistics. The samples were overwhelmingly sampled to 1m within the mineralised zones.
Composites were produced for the selected samples at 0.5, 1.0, 1.5, and 2.0 m intervals and statistics were run on each length to assess which length best preserved the raw sample characterisation.
A length of 1 m was chosen as it is statistically closer to the raw samples, as well as the standard sampling length, where 1 m samples have overwhelmingly the highest frequency in the data set. Compositing was completed in Datamine using a 1 m best fit routine, applying hard domain boundaries, which forces all samples to be included in one of the composites by adjusting the composite length, while keeping it as close as possible to the selected interval of 1 m.
The compositing routines have been reasonably effective in preserving the grade distribution (Table 14.3).
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Table 14.3 Table Statistics of Selected Raw Samples and 1 m Composites
Standard Coefficient Geometric Type Metal Domain Count Minimum Maximum Mean Variance Deviation of Variation Skewness Kurtosis Mean Median Selected CU All 325 0.003 3.71 0.502 0.37 0.612 1.22 2.54 7.03 0.286 0.282 Composite CU All 343 0 2 0.447 0.26 0.509 1.14 1.9 2.77 NaN 0.265 Selected CU 1 73 0.003 2.46 0.317 0.22 0.465 1.47 3.05 10.12 0.147 0.158 Composite CU 1 92 0 2 0.244 0.16 0.402 1.65 3.05 9.97 NaN 0.116 Selected CU 2 252 0.008 3.71 0.556 0.41 0.639 1.15 2.44 6.39 0.347 0.31 Composite CU 2 251 0.008 2 0.522 0.27 0.524 1 1.73 1.95 0.342 0.312 Selected AG All 325 0.4 356 34.739 3453 58.76 1.69 3.03 9.71 13.789 12.3 Composite AG All 343 0 200 30.457 2317 48.131 1.58 2.49 5.51 NaN 11.5 Selected AG 1 73 0.6 202 27.911 1771 42.088 1.51 2.75 7.91 12.227 10.7 Composite AG 1 92 0 200 22.05 1526 39.058 1.77 3.06 10.09 NaN 7.3 Selected AG 2 252 0.4 356 36.717 3931 62.701 1.71 2.94 8.84 14.278 12.4 Composite AG 2 251 0.4 200 33.538 2578 50.776 1.51 2.34 4.57 14.138 12.45
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TOP CUTS The Parrish method of quantile analysis was performed on the composited samples to assess what proportion of the total metal was represented in the top 10% of the data. The decile analysis (Figure 14.7 and Figure 14.8) indicates that the data has bias in the high-grade bins and therefore a top cut was applied to limit this influence.
Figure 14.7 Decile Analysis - Cu
Lode population - Cu
60
50
40
30
% % Total Metal 20
10
0 D 0 10 - P 90 - 91 P 91 - 92 P 92 - 93 P 93 - 94 P 94 - 95 P 95 - 96 P 96 - 97 P 97 - 98 P 98 - 99 D 10 20 - D 20 30 - D 30 40 - D 40 50 - D 50 60 - D 60 70 - D 70 80 - D 80 90 - P 99 - 100 D 90 100 -
Deciles Upper 10 Percentiles
Figure 14.8 Decile Analysis - Ag
Lode population - Ag
70
60
50
40
30 % % Total Metal 20
10
0 D 0 10 - P 90 - 91 P 91 - 92 P 92 - 93 P 93 - 94 P 94 - 95 P 95 - 96 P 96 - 97 P 97 - 98 P 98 - 99 D 10 20 - D 20 30 - D 30 40 - D 40 50 - D 50 60 - D 60 70 - D 70 80 - D 80 90 - P 99 - 100 D 90 100 -
Deciles Upper 10 Percentiles
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A top-cut of 2% for copper, and a top-cut of 200 g/t silver was selected to limit the influence of the outlier high grade samples. Fifteen copper and 12 silver assays were cut to the specified ceilings.
14.2.6 DENSITY Specific gravity measurements were completed by Azarga for the Unkur deposit. A mean value of 2.57 g/cm3 was used for all blocks, except for the blocks coded as recent, representing glacial moraine, which was given a value of 1.80 g/cm3.
14.2.7 VARIOGRAPHY Variography was attempted for the Unkur data. Tetra Tech considers that with the low number of samples within the mineralised interpretation, and the spacing between those samples, that no spatial continuity exists for the current dataset, i.e. the results of the variographic study were all sill in each tested direction. It is probable that with infill drilling that an assessment of spatial continuity can be made in the future. The absence of any established spatial continuity is reflected in the Resource classification.
14.2.8 RESOURCE BLOCK MODELS The block model was constructed in Datamine. The non-rotated model block model parameters are given in Table 14.4.
Table 14.4 Unkur Block Model Parameters
Type X Y Z Minimum Coordinates 20594650 6299900 0 User Block Size (m) 25 25 20 Minimum Block Size (m) 5 5 10 Rotation (degrees) 0 0 0
Block size optimisation was performed to balance the mean grade of the declustered samples and the volume of the blocks. The sizes in Table 14.4 were optimum for the dataset and wireframe geometry. Standardised sub-cell splitting to the minimum block sizes was employed to enable subsequent pit optimisation and mine design. Sub-cells received parent cell grades during estimation. The larger parent cell is selected for best estimation performance during the grade interpolation, whilst the smaller sub-cell allows the narrow wireframes to fill with blocks and help to maintain consistency between the final block volumes and the wireframe volume.
INTERPOLATION STRATEGY Grades were estimated using ID2, adopting a multi-pass methodology. A summary of the estimation strategy is show in Table 14.5.
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Table 14.5 Estimation Parameters
Samples Numbers Search Search Semi- Search Maximum Pass Major major Minor Samples Number Minimum Maximum (m) (m) (m) Discretisation per hole 1 6 12 260 150 50 x3 y3 z3 3 2 3 9 520 300 100 x3 y3 z3 3 3 3 12 1240 600 200 x3 y3 z3 3
14.2.9 BLOCK MODEL VALIDATION Block model validation was completed using graphical and statistical methods, to confirm that the estimated block model grades appropriately reflect the local composite grades for the classification applied. This is completed primarily by statistical and swath plot methods. The visual inspection demonstrated reasonable correlation between composite and block grades. Table 14.6 presents table statistics comparing the informing composites with the block.
Graphical analysis of the informing samples versus estimated block grades was completed on plans (Figure 14.9) and by QKNA slope of regression performance (Figure 14.10).
Figure 14.9 Plan Showing Estimated Block Grades for Unkur – Looking Northeast
Notes: For scale: Major grid interval 500 m.
The visual inspection demonstrated reasonable correlation between composite and block grades. Without strong directional control the grade distribution is fairly even across the deposit, with concentrations of higher grades in the jog of the structure, where it is understood dilation has occurred.
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Figure 14.10 Plan Showing Search Pass for Unkur
Note: For scale: Major grid interval 500 m; Green Pass 1; Orange Pass 2; Red Pass 3.
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Table 14.6 Statistics Comparing Block Estimate and Composite Grades
Standard Coefficient Geometric Type Metal Domain Count Minimum Maximum Mean Variance Deviation of Variation Skewness Kurtosis Mean Median Model CU All 111635 0 1.961 0.491 0.13 0.366 0.75 1.19 0.53 NaN 0.362 Composite CU All 343 0 2 0.447 0.26 0.509 1.14 1.9 2.77 NaN 0.265 Model CU 1 31722 0 1.206 0.301 0.07 0.272 0.91 1.39 0.81 NaN 0.198 Composite CU 1 92 0 2 0.244 0.16 0.402 1.65 3.05 9.97 NaN 0.116 Model CU 2 79913 0.146 1.961 0.566 0.14 0.371 0.65 1.14 0.14 0.469 0.408 Composite CU 2 251 0.008 2 0.522 0.27 0.524 1 1.73 1.95 0.342 0.312 Model AG All 111635 0 180.835 35.668 1429 37.802 1.06 1.51 1.14 NaN 20.258 Composite AG All 343 0 200 30.457 2317 48.131 1.58 2.49 5.51 NaN 11.5 Model AG 1 31722 0 110.906 25.484 640.4 25.307 0.99 1.13 0.43 NaN 22.73 Composite AG 1 92 0 200 22.05 1526 39.058 1.77 3.06 10.09 NaN 7.3 Model AG 2 79913 2.356 180.835 39.711 1685 41.043 1.03 1.36 0.42 24.317 20.196 Composite AG 2 251 0.4 200 33.538 2578 50.776 1.51 2.34 4.57 14.138 12.45
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SWATH PLOTS Swath plots have been used to assess the differences and similarities between the block estimate gold grades and the informing composite grades (Figure 14.11, Figure 14.12, Figure 14.13 and Figure 14.14).
Figure 14.11 Easting Swath Plot Comparing the Informing Composite and the ID2 Estimated Copper Grades for Unkur
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Figure 14.12 Northing Swath Plot Comparing the Informing Composite and the ID2 Estimated Copper Grades for Unkur
Figure 14.13 Easting Swath Plot Comparing the Informing Composite and the ID2 Estimated Silver Grades for Unkur
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Figure 14.14 Northing Swath Plot Comparing the Informing Composite and the ID2 Estimated Silver Grades for Unkur
The swath plots for Unkur present reasonable conformance between informing composites and estimated block grades. Several iterations of the interpolation were run to achieve optimal conformance for the amount of data available. Some smoothing of the mean grade is evident with the change of support from sample to block grades as is typical for a kriged estimate, this is more apparent due to the low sample count and relatively high variance in the composite grades.
CONCLUSION The various comparators described in the foregoing subsections serve to illustrate that the block model estimates are robust for the applied classification and satisfactorily models the distribution and variability of the informing sample grades without undue bias or smoothing. The model is suitable to support the current level of study.
14.2.10 MINERAL RESOURCE CLASSIFICATION The Mineral Resource model was classified according to the guidelines presented by CIM guidelines.
The Mineral Resources at Unkur are classified as Inferred. The style of mineralisation has been identified, the controls on mineralisation are understood and measurements and sampling completed to a reasonable degree of confidence for the mineralisation present. It would be reasonable to expect that some of the Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration; however, due to the uncertainty of Inferred Mineral Resources it should not be assumed that such upgrading will always occur.
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Confidence in the estimate of Inferred Mineral Resources is sufficient to allow the results of the application of technical and economic parameters to be used for a PEA. The model was classified based on the blocks within the second search pass, with some constraint added using a distance buffer. The model classification is shown in Figure 14.15. Figure 14.15 Plan Showing Classification for Unkur
Note: For scale: Major grid interval 500 m; Green: Inferred; Red: Unclassified
14.2.11 MINERAL RESOURCE TABULATION
CUT-OFF GRADES In order to demonstrate that the deposits have reasonable prospects for economic extraction a cut-off grade of 0.3 % copper equivalent was applied for Mineral Resources at Unkur.
The parameters considered for cut-off grade derivation, based in part on analogous project parameters, use the following assumptions:
The copper equivalency formula is:
CuEq = ((Cu % * $3 * 22.04) + (Ag g/t * US$20 * 0.0321)) / $3 / 22.04
Where:
• copper price US$3.00/lb • copper recovery 100% • silver price US$20/oz • silver recovery 100%.
MINERAL RESOURCE TABULATION The updated Mineral Resource for the Unkur deposit is summarised in Table 14.7. The effective date of the updated Mineral Resource is 7th March 2018.
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Table 14.7 Unkur Mineral Resource Estimate – Effective Date 7th March 2018
Cu Ag Cu Ag Tonnes Grade Grade CuEq Metal Metal Class (t) Density (%) (g/t) (%) (t)* (t oz) Inferred 62,000,000 2.67 0.53 38.6 0.9 328,600 76,881,000 Notes: The effective date of the Mineral Resources is 7th March 2018. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. The estimate of Mineral Resources may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing, or other relevant issues. Numbers may not sum due to rounding. *1 328,600 t Cu = 724,234,400 lb
Tetra Tech is not aware of any environmental, permitting, legal, title, taxation, socio- economic, marketing, or political factors that could materially affect the Mineral Resource.
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15.0 MINERAL RESERVE ESTIMATES
As there is no Mineral Reserve associated with this PEA, the term “ore” has not been used to avoid any implication of levels of certainty. The material that has been determined as economically and metallurgically suitable for processing is referred to in this study as “mineral inventory”.
Table 15.1 Mineral Inventory for the Unkur Project (0.2% CuEq Cut-off)
Mineral Inventory Resource Tonnes Cu Ag CuEq Category (kt) (%) (g/t) (%) Inferred 15,502 0.76 66.6 1.41 Note: Includes modifying factors of 95% mining recovery and 15% waste dilution.
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16.0 MINING METHODS
16.1 OPERATING PARAMETERS AND ASSUMPTIONS
The Unkur deposit extends approximately north-south over a strike length of 5.1 km and is composed of two steeply dipping veins of predominately leachable mineralogy. The veins vary in thickness from 7 m to 60 m apparent thickness and on average have a true width of approximately 15 m.
Although the strip ratio is relatively high at 10.4:1, the deposit is amenable to open pit mining to a depth of at least 300 m below the pit exit. The mining method selected is based on a conventional truck and shovel operation with 10 m high benches. Flitch mining will be adopted where selective mining is required.
The PEA mining evaluation is based on the following initial assumptions:
• A mining fleet of medium-sized equipment with 200 to 250 t excavators and 136 t dump trucks. This was based on:
an annual peak total material movement of 27 Mt a relatively flat terrain that rises to the south by approximately 150 m a moderate to harsh climate associated with Eastern Siberia. • Mining activities will be undertaken by a local contractor to:
minimize upfront capital utilize local knowledge to accelerate project start up maximize utilization of the local workforce.
The mining component of the PEA includes:
• an open pit optimization to:
confirm the Project order of magnitude for scale evaluate the potential pit ramp configurations measure the sensitivity of the pit limit to the main input parameters • a preliminary mine design to:
breakdown the pit limit into multiple stages optimise the cashflow by targeting high grade material first delay stripping where possible • a general mine layout, including;
crusher location waste dump locations • a LOM mine schedule to:
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provide an estimate of annual material movement provide an estimate of variation in feed grade to the plant.
16.2 OPEN PIT OPTIMIZATION
Tetra Tech carried out an open pit optimisation using Datamine’s NPV Scheduler (NPVS) optimisation software. This is an industry standard tool for open pit optimisation that is very similar to the GEOVIA Whittle™ optimisation software and is also based on the Lerch Grossman algorithm. Experience has shown that these products produce near identical results.
Input parameters for the pit optimisation were based on robust calculations and/or estimates wherever possible. Where no definitive data was available, high-level assumptions were made based on comparable operations or projects, or the collective experience of the project team.
16.2.1 INPUT PARAMETERS AND ASSUMPTIONS
MINING PLANNING MODEL Tetra Tech updated the Mineral Resource model in March 2018 (Section 14.0). The mine planning model (unkfinmd.dm) was provided in Datamine format with just the essential fields:
• block number (IJK) • block centroids (X, Y, Z) • block dimensions (XINC, YINC, ZINC) • equivalent copper grade (CU_EQVI) • copper grade (CU_ID) • silver grade (AG_ID) • block density (DENSITY) • resource classification (CLASS) • rock type (ROCK).
An additional overall slope angle (OSA) field was added with the following values:
• If ROCK = “RECENT” then OSA = 30° • If ROCK = “MINERAL” then OSA = 45° • If ROCK = “COUNTRY” then OSA = 45°.
The planning model was imported into NPVS with the following field assignments:
• CU_ID = product • AU_D = product • CU_EQI = attribute
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• DENSITY = density • ROCK = rock type • OSA = slope region.
The block value was then calculated from the copper and silver revenue without having to resort to a copper equivalence.
As noted in Section 15.0, the Mineral Resource classification is limited to Inferred, with no Measured or Indicated Resources. It was therefore not necessary to import the CLASS field into NPVS.
PIT WALL SLOPE ASSUMPTIONS Very little data was available on which to base the assumptions for the pit slope parameters. The parameters proposed by SRK in the May 2017 Technical Report (SRK 2017) were adopted for the PEA.
The upper-level rock type was classified as RECENT and assigned an OSA of 30°. This material can be described as quaternary alluvials and glacial cover.
The alluvial and glacial cover overlays weakly metamorphosed sedimentary rocks (sandstones and siltstones). These rocks were classified in the model as MINERAL or COUNTRY and typically consist of alternating layers of pinkish-grey medium grained sandstones and grey to black siltstones. The OSA for rock types classified as MINERAL and COUNTRY was set at 45°.
For RECENT material, a single bench configuration of 10 m was adopted, and the berm width was adjusted to achieve a maximum OSA of 30° when allowing for ramps.
For MINERAL or COUNTRY material, a catch berm was left every 20 m (i.e., double benching). The OSA was limited to 45° after allowing for ramps. The inter-ramp angle (IRA) will exceed 45° but it was assumed that it will not exceed 50°. Checks were made to all slopes to confirm this assumption.
MINING DILUTION AND MINING RECOVERY Previous studies have assumed 95% mining recovery and 5% waste dilution. It is assumed that additional dilution was included in the modelling process as these values are low for this style of mineralisation.
Based on inspection of the updated geological model, Tetra Tech concludes that the average width of the mineralisation is approximately 15 m and may vary between 5 and 30 m. However, where the mineralisation envelope widens to approximately 30 m, there are typically zones of internal waste.
Tetra Tech concludes that a mining recovery of 95% is achievable if the waste dilution is assumed to be 15%. This allows for a skin dilution of 0.5 m for the narrower portions of the vein and skin and an internal dilution where the vein broadens and splits.
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The assumed dilution of 15% will mean that low-grade, narrow portions of the deposit are likely to be excluded during the pit optimisation process.
CUT-OFF GRADE An equivalent internal cut-off grade of 0.2% copper was calculated from the copper and silver revenue streams and the processing cost (including G&A costs). This calculation allowed for the difference in metal price, selling costs, and recovery. In this instance the recovery for copper and silver were both assumed to be 94%.
In the optimisation process, the block values, based on copper and silver grades, were used to determine the destination of a block. This calculation considered the reference mining cost at elevation 1,000 of US$1.20/t and an incremental increase in mining cost of US$0.05/t/10 m bench. The weighted average mining cost for the open pit was estimated to be US$2.01/t.
PIT OPTIMISATION PARAMETERS Table 16.1 shows the input parameters for the pit optimisation.
Table 16.1 Pit Optimisation Parameters
Input Parameter Units Value Copper Price US$/lb 3.0 Silver Price US$/t oz 20.0 Copper Royalty % 8.0 Silver Royalty % 6.5 Reference Waste Mining Cost US$/t 1.2 Reference Elevation m 1,000 Incremental Mining Cost US$/t/10 m 0.05 Mining Cost US$/t 1.5 Mining Recovery % 95 Mining Dilution % 15 Processing Cost US$/t processed 10.0 G&A US$/t processed 2.0 Copper Process Recovery % 94.0 Silver Process Recovery % 94.0 Moraine OSA degrees 30.0 Other OSA degrees 45.0 Maximum Plant Throughput Mt/a 2.0 Discount Rate % 8.0
16.2.2 RESULTS – BASE CASE The base case optimisation was run using the input parameters listed in Table 16.1. The pit optimisation output consisted of:
• nested pit shells based on price variation • report by pit shell showing:
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quantities by rock type and destination grades by rock type and destination recovered product quantities by rock type mining cost processing cost revenue NPV.
The cashflow generated by NPVS does not generally allow for capital, taxation, or other accounting treatments. However, it is possible to include capital costs by allocating them to a specific region (defined by a boundary string) such that this area would only be mined if the aggregated value of the blocks that are dependent on this area exceed the capital cost. This technique was not used in this instance and the reported NPV excludes capital.
It should also be noted that the economic outputs from NPVS are relative indicators of overall project value and are only used to a guide for the selection of the pit limit and the sequence of mining.
Figure 16.1 shows a graph of cumulative rock moved versus cumulative mineral inventory. The graph shows a significant jump in both the rock moved and the mineral inventory at a price factor of 90%. This suggests that it was possible to consider two distinct scenarios:
• Scenario 1 – Maximise the Mineral Resource by selecting a price factor of approximately 100% • Scenario 2 – Optimise the project value by selecting a price factor of approximately 86%.
Table 16.2 shows the cumulative mineral inventory. At a price factor of 1.0 (i.e., US$3.00/lb of copper):
• mineral inventory is 26.9 Mt at 0.64% copper and 54 g/t silver • EqCu grade is 1.16% copper • total rock within the ultimate pit limit is 341.2 Mt with 314.3 Mt of waste • overall waste to ore strip ratio is 11.7:1.
It is noted that there was a slight drop in the NPV for the last pit shell (Pit 46) and that to maximise the NPV the pit limit should be selected at a price factor of 0.98. This would result in a reduction in the waste tonnage of 42.6 Mt and a reduction in the mineral inventory of 1.93 Mt.
For the smaller pit (Pit Shell 39) the mineral inventory reduces to 15.6 Mt, but the grades increase to 0.76% copper and 66 g/t silver (1.41% CuEq). Meanwhile, the strip ratio reduces to 10.4:1 and the total rock movement is almost half that of the larger pit.
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Figure 16.1 Pit Optimisation Results (Base Case)
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Table 16.2 Pit Optimisation Results – Base Case
Mineral Phase Price Cu Price Rock Waste Strip Inventory Factor US$/lb Cu tonnes tonnes Ratio tonnes % Cu g/t Ag % Cu Equiv
Pit 1 10% 0.3 6,923 1,819 0.4 5,104 1.32 122 2.50 Pit 2 12% 0.4 706,950 277,426 0.6 429,524 1.13 109 2.19 Pit 3 14% 0.4 1,961,617 911,506 0.9 1,050,111 1.07 105 2.09 Pit 4 16% 0.5 3,715,250 2,172,170 1.4 1,543,080 1.06 104 2.07 Pit 5 18% 0.5 7,179,690 4,812,565 2.0 2,367,125 1.03 100 2.00 Pit 6 20% 0.6 10,228,072 7,338,808 2.5 2,889,264 1.03 100 2.00 Pit 7 22% 0.7 13,597,455 10,202,826 3.0 3,394,629 1.03 100 2.00 Pit 8 24% 0.7 15,708,960 12,046,698 3.3 3,662,262 1.02 100 1.99 Pit 9 26% 0.8 20,042,770 15,846,701 3.8 4,196,069 1.02 99 1.97 Pit 10 28% 0.8 22,448,770 17,880,787 3.9 4,567,983 1.00 96 1.93 Pit 11 30% 0.9 23,321,525 18,663,116 4.0 4,658,409 1.00 96 1.93 Pit 12 32% 1.0 27,296,255 22,265,202 4.4 5,031,053 0.99 95 1.92 Pit 13 34% 1.0 30,782,930 25,447,783 4.8 5,335,147 0.99 95 1.91 Pit 14 36% 1.1 33,720,270 28,168,537 5.1 5,551,733 0.99 94 1.90 Pit 15 38% 1.1 36,746,772 30,914,280 5.3 5,832,492 0.98 93 1.89 Pit 16 40% 1.2 43,287,227 36,958,850 5.8 6,328,377 0.97 92 1.87 Pit 17 42% 1.3 46,378,392 39,628,512 5.9 6,749,880 0.95 89 1.82 Pit 18 44% 1.3 49,587,025 42,426,581 5.9 7,160,444 0.93 87 1.77 Pit 19 46% 1.4 59,545,457 51,738,903 6.6 7,806,554 0.92 86 1.76 Pit 20 48% 1.4 59,930,955 51,999,700 6.6 7,931,255 0.91 85 1.74 Pit 21 50% 1.5 65,231,109 56,841,160 6.8 8,389,949 0.90 83 1.71 Pit 22 52% 1.6 70,969,617 62,266,822 7.2 8,702,795 0.90 83 1.71 Pit 23 54% 1.6 76,897,145 67,742,219 7.4 9,154,926 0.89 82 1.68 Pit 24 56% 1.7 79,199,842 69,772,179 7.4 9,427,663 0.88 80 1.66 Pit 25 58% 1.7 86,892,815 76,819,042 7.6 10,073,773 0.86 78 1.62 Pit 26 60% 1.8 87,977,827 77,792,479 7.6 10,185,348 0.86 78 1.61 Pit 27 62% 1.9 95,317,992 84,763,647 8.0 10,554,345 0.85 77 1.60 Pit 28 64% 1.9 103,693,582 92,634,600 8.4 11,058,982 0.85 76 1.59 Pit 29 66% 2.0 106,644,184 95,280,378 8.4 11,363,806 0.84 75 1.57 Pit 30 68% 2.0 123,174,317 110,845,722 9.0 12,328,595 0.82 74 1.54 Pit 31 70% 2.1 129,495,127 116,723,881 9.1 12,771,246 0.81 72 1.52 Pit 32 72% 2.2 130,547,889 117,619,856 9.1 12,928,033 0.81 72 1.51 Pit 33 74% 2.2 132,520,604 119,324,938 9.0 13,195,666 0.80 71 1.49 Pit 34 76% 2.3 135,964,027 122,626,888 9.2 13,337,139 0.80 71 1.49 Pit 35 78% 2.3 140,547,074 126,499,652 9.0 14,047,422 0.78 68 1.44 Pit 36 80% 2.4 145,682,494 131,398,069 9.2 14,284,425 0.78 68 1.44 Pit 37 82% 2.5 155,551,664 140,995,230 9.7 14,556,434 0.78 68 1.44 Pit 38 84% 2.5 156,442,659 141,784,131 9.7 14,658,528 0.78 68 1.44 Pit 39 86% 2.6 177,356,934 161,779,559 10.4 15,577,375 0.77 67 1.42 Pit 40 88% 2.6 182,666,452 166,768,939 10.5 15,897,513 0.76 66 1.41 Pit 41 90% 2.7 283,589,429 259,709,614 10.9 23,879,815 0.65 55 1.19 Pit 42 92% 2.8 289,968,452 265,610,983 10.9 24,357,469 0.65 55 1.18 Pit 43 94% 2.8 292,674,429 268,021,616 10.9 24,652,813 0.64 54 1.17 Pit 44 96% 2.9 292,707,004 268,041,064 10.9 24,665,940 0.64 54 1.17 Pit 45 98% 2.9 296,679,867 271,689,415 10.9 24,990,452 0.64 54 1.16 Pit 46 100% 3.0 341,221,922 314,306,265 11.7 26,915,657 0.64 54 1.16 Note: A mining recovery of 95% and waste dilution of 15% have been applied to the in-situ values.
16.2.3 SENSITIVITY ANALYSIS A sensitivity analysis was run in NPVS to establish the main drivers for NPV and mineral inventory. Table 16.3 shows the ranges used for the sensitivity analysis.
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Table 16.3 Ranges for Sensitivity Analysis
Parameter Units Base Case Minimum Maximum Increment Metal Price1 US$/lb Cu 3.0 -20% +20% 10% US$/t oz Ag 20.0 -20% +20% 10% Process/G&A US$/t processed 12.0 -20% +20% 10% Mining Cost US$/t mined 1.2 -20% +20% 10% Waste Dilution2 % 15 5 15 5 Process Recovery % 94 92 96 1 OSA3 degrees 30 28 32 1 degrees 45 43 47 1
Notes: 1Metal prices for copper and silver were adjusted equally by a given percentage. 2Waste dilution was decreased from 15% to 5% in increments of 5%. 3OSA was varied equally for RECENT and other rock types.
Figure 16.2 clearly shows that metal price is the main driver for project value, measured in terms of NPV. Note that the NPV is based on cashflow and excludes initial capital and taxes.
Figure 16.2 NPV Sensitivity Analysis
The results also show that changes in mining cost, processing cost, and slope angle all have similar impacts on NPV, within the selected ranges for the variance. Note that while costs vary between –20% and +20%, the slope varies between –2° and + 2°.
A reduction in dilution from 15% to 5% and a 20% increase in process cost both have very limited impact on the NPV, whilst a 20% reduction in process cost shows a significant impact on NPV. The latter is associated with a reduction in cut-off grade.
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The relative insensitivity to dilution is encouraging as this parameter is difficult to estimate in this type of deposit. However, the application of a global factor for dilution may be slightly misleading as the narrow veins (less than 5 m) will be subject to much higher dilution factors, and it is likely that these blocks will become uneconomic. Conversely, the areas where the vein width exceeds 15 m will have low dilution factors, and there will be a lesser overall impact on average mined grade.
A similar relationship is shown between the main variable sand the mineral inventory (Figure 16.3). Price has a significant impact on the tonnage (up to ±30 to 40%), whilst cost, dilution, process recovery, and slope angle have a fairly low impact on the inventory (up to 5 to 10%).
Figure 16.3 Mineral Inventory Sensitivity Analysis
16.3 MINE DESIGN
16.3.1 DESIGN PARAMETERS An initial pit design was created using Pit Shell 45 as a guide so as to maximise the Mineral Resource recovery. However, it was decided that this required a mining rate that was too high and a Small Pit case was selected for further analysis. This decision does not prohibit the option to expand the pit at a later date.
Using the output from NPVS as a guide, a final pit design for the Small Pit case was created using pit shell 39. Table 16.4 shows the mine design parameter.
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Table 16.4 Mine Design Parameters
Parameter Units Value Comments Bench Height m 10.0 - Stack Height m 20.0 Double benching Batter Angle (RECENT) ° 50.0 - Batter Angle (Other) ° 65.0 - OSA (RECENT) ° 30.0 OSA (Other) ° 45.0 Ramp Width m 25.0 Suitable for 150 t trucks Ramp Gradient % 10.0
After allowing for the ramp width and gradient, the berm width was adjusted in order to achieve the OSA for all sectors and rock types.
16.3.2 PIT LIMIT DESIGN Figure 16.4 shows the pit limit design.
Figure 16.4 Pit Limit Design
Table 16.5 shows the mineral inventory and waste tonnages using a cut-off grade of 0.2% CuEq.
Table 16.5 Pit Limit Design
Tonnes Cu Ag CuEq Category (kt) (%) (g/t) (%) Waste 166,193 - - - Mineral Inventory 15,502 0.76 66.6 1.41 Total Rock 181,696 - - - Notes: Modifying factors of 95% mining recovery and 15% dilution have been applied. Mineral inventory is ≥0.2% CuEq. Totals may not add up due to rounding.
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16.3.3 PIT STAGE DESIGNS The pit limit was divided into four stages of mining so as to delay waste stripping and advance high-grade material where possible. Figure 16.5 to Figure 16.8 show the pit stage designs.
Figure 16.5 Stage 1 Pit Design
Figure 16.6 Stage 2 Pit Design
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Figure 16.7 Stage 3 Pit Design
Figure 16.8 Stage 4 Pit Design
Table 16.6 shows the total mineral inventory by pit stage. The mineral inventory shows the pit stages are sequenced in order of equivalent copper grade and to a lesser extent in order of stripping ratio. The anomaly is Stage 4, which has a lower strip ratio than Stages 2 and 3, which is offset by much lower grades than the previous stages.
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Table 16.6 Mineral Inventory by Pit Stage
Pit Stage
Units 1 2 3 4 Total Rock kt 27,462 48,143 78,061 28,030 181,696 Waste kt 23,368 44,253 73,248 25,324 166,193 Mineral kt 4,094 3,890 4,813 2,705 15,502 Cu % 0.96 0.75 0.76 0.50 0.76 Ag g/t 93.8 62.1 69.2 27.1 66.6 CuEq % 1.87 1.35 1.43 0.77 1.41
16.4 MINE SCHEDULE
The mine schedule was prepared in NPVS by importing the pit stages as pushback surfaces and using the automated scheduler to target 2 Mt/a of mineralised material (in situ). Other controls included a ramp up of 75% of full production included in Period 1 and a maximum vertical sinking rate set at 100 m/stage/year.
A pre-strip period was created by manually adjusting NPVS schedule, allowing for 10 Mt of waste to be mined in Period –1. Although not explicitly modelled, it is reasonable to assume that sufficient mineralised material can be stockpiled during the pre-production period to allow for the start-up of the plant.
Table 16.7 shows the LOM schedule.
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Table 16.7 Small Pit Case LOM Schedule
Schedule Period
Units -1 1 2 3 4 5 6 7 8 Total Rock kt 10,000 10,413 27,032 27,081 27,034 27,524 26,470 23,963 2,178 181,695 Waste kt 10,000 8,754 24,866 24,889 25,340 25,340 24,280 21,784 1,426 166,193 Mineral kt - 1,659 2,166 2,193 2,180 2,184 2,190 2,179 752 15,502 Cu % - 0.51 0.76 0.80 0.87 0.67 0.92 0.69 0.95 0.76 Ag g/t - 41 69 69 84 55 84 50 87 67 CuEq % - 0.91 1.44 1.47 1.69 1.20 1.73 1.17 1.79 1.41 Strip Ratio - - 5.3 11.5 11.3 11.4 11.6 11.1 10.0 1.9 10.7
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Table 16.7 shows the mine schedule for a production rate of 2 Mt/a of mineralised material and an eight-year LOM, producing a total of approximately 105,700 t of copper and 920 t of silver metal contained in the concentrate product after allowing for mining dilution and recovery and the process metallurgical recoveries.
It should be noted that it is assumed the material classified as RECENT will not require blasting, which will help to significantly reduce the mining costs in the early periods in terms of explosives, loader performance, and wear parts.
Over the LOM, the RECENT material represents 35% of the waste rock movement. The bulk of this will be mined out in the first five years (Figure 16.9).
Figure 16.9 LOM Schedule by Material Type
Figure 16.10 shows the schedule of rock movement by pit stage and demonstrates that the larger stages have to be mined over multiple periods in order to control the vertical sinking rate.
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Figure 16.10 LOM Schedule by Stage
16.5 GENERAL MINE LAYOUT
It is assumed that the waste will be dumped to the west of the pit so as to minimise the haul distance from the pit exit. There are no restrictions on the size and location of the dumps given the relatively flat terrain.
The primary crusher can either be placed on the western side of the pit near the pit exit with a conveyor feeding the plant or located nearer to the plant so as to reduce the length of conveyor.
16.6 MINE EQUIPMENT
Equipment selection is based on a peak total rock movement of approximate 27 Mt/a and selective mining on 10 m benches. A conventional truck and shovel operation is assumed with 136 t class trucks and 200 to 250 t excavators. A smaller excavator has been added to accommodate selective mining of mineralised material as required.
The indicative equipment requirements are listed in Table 16.8. These will be provided by the contact miner.
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Table 16.8 Indicative Equipment Requirements
Type Size/Model # Period 1 # Period 2 Excavator 200 to 250 t 2 3 Trucks 136 t 7 18 Drills 150 mm 0 1 Track Dozers 4.3 m blade 4 5 Front-end Loader 12 m3 bucket 1 1 Graders 4.3 m blade 1 2 Water Trucks 30,000 L 1 2 Service Truck - 1 1 Fuel Trucks - 1 1 Tire Handler - 1 2 Explosives Truck - 0 1 Low Bed - 1 1 Light Vehicles - 8 10 Personnel Carrier - 1 1 Lighting Plants - 4 8 Pumps - 4 6
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17.0 RECOVERY METHODS
17.1 SUMMARY
Based on the results of a trade-off study, Tetra Tech completed a conceptual process design and cost estimate for a plant of 3.27 Mt/a annual throughput. However, based on project factors unrelated to metallurgy or process design the cost estimate was re-baselined for a 2.19 Mt/a annual throughput. In this regard the report presents an equipment list, a process design and description details based on a 3.27 Mt/a annual throughput, but the related costs (Section 21.0) are presented based on a 2.19 Mt/a annual throughput.
The Unkur deposit mineralised material is moderately hard and amenable to cyanidation as well as acid leaching. A conceptual process flowsheet was developed, based on the test work reported in Section 13.0 and standard industry practices, with the objective of maximising the economic performance of the Project. The process plant will be constructed for a 2.19 Mt/a capacity based on a flowsheet that maximises the overall silver and copper recoveries.
The ROM material will be fed through a jaw crusher and then ground in a two-stage conventional milling circuit (SAG mill and ball mill) in order to produce a slurry with an optimum size distribution for leaching. The ground slurry, with a particle size of P80 = 75 µm, will be fed into pre-leach thickeners. The thickener underflows will be leached in agitated leach tanks and subsequently washed in a CCD circuit prior to treatment through a SART circuit. The SART circuit will produce a combined copper and silver concentrate product and regenerate cyanide. Any tailings from the process plant will be pumped to the TMF.
17.2 PROCESS FLOWSHEET SELECTION
Tetra Tech conducted a conceptual process options trade-off assessment based on a 3.27 Mt/a annual throughput. Four flowsheet options were considered:
• Option 1 – cyanide tank leach, followed by SART (the base case) • Option 2 – sequential tank leach (acid and cyanide), followed by solvent extraction and electrowinning (SX/EW) and Merrill Crowe recovery for silver • Option 3 – cyanide heap leach, followed by SART • Option 4 – sequential heap leach (acid and cyanide) followed by SX/EW and a Merrill Crowe process.
As the primary step, capital costs for each flowsheet option were established, based on a standalone plant construction, ring-fenced from all other site areas, in order to comprehensively compare the flowsheet options. This was followed by estimating the total installed power for each option based on the rated power of the capital
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equipment. Operating costs for each option were then established by estimating the required labour, consumables, reagents, and adsorbed power requirements.
Metallurgical recoveries (silver and copper) for the process options were also estimated from the available test work results.
For the standalone plant, the capital cost of each flowsheet was developed from the conceptual process design and block flow diagram.
The cost of each capital item was established from the capital equipment list.
To create a direct capital cost estimate, standard engineering factors were used for the following areas:
• civil • structural steel • piping and valves • electrical and instrumentation • transport • erection of items • vendor services • first fills.
Indirect engineering factors—site preparation and construction management—were then applied to the direct capital cost estimate to establish the total capital cost.
The total capital costs for each flowsheet were subsequently compared.
It is important to note that the total plant capital costs used in this trade-off study have formed the base capital cost estimate of the selected plant but cannot be compared directly to the final plant capital cost.
17.2.1 OPTION 1 – CYANIDE TANK LEACH FOLLOWED BY SART (BASE CASE) The ROM material would be processed by primary crushing, followed by grinding and thickening. Thickener underflow would be treated by conventional agitated tank leach, followed by CCD washing and SART process. The SART process would consist of sequential precipitation of a synthetic copper product followed by a synthetic silver product at different pH levels. The synthetic products will be then combined and shipped as a single concentrate product. The cyanide regenerated during the SART process would be recycled back to the leach circuit.
Figure 17.1 shows a conceptual block flow diagram for Option 1 (base case).
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Figure 17.1 Conceptual Block Flow Diagram – Option 1 – Cyanide Tank Leach Followed by SART (Base Case)
ROM
CCD Crushing Tails Washing
Solution
Cu Product Grinding SART Ag Product
Cyanide Leaching Recycle
Table 17.1 and Table 17.2 show the capital and operating costs, respectively, for Option 1 (base case).
Table 17.1 Capital Cost Estimate – Option 1 – Cyanide Tank Leach Followed by SART (Base Case)
Cost Description (US$ million) Crushing 2.25 Grinding 18.52 Mill Thickener 1.07 Leach Circuit 5.06 CCD Washing 4.20 SART Process and Concentrate Handling 3.90 Reagent Preparation and Distribution 0.54 Plant Supply and Utilities 1.69 Subtotal Primary Equipment Cost 37.22 Civils 11.17 Structural Steel 7.44 Piping and Valves 14.89 Electrical and Instrumentation 14.89 Transport 7.44 Erection of Items 5.58 Vendor Services 1.12 First Fills 1.12 Subtotal Indirect Capital Cost 63.65 Installed Plant Capital Cost 100.87 table continues…
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Cost Description (US$ million) Site Preparation and Construction Management 15.13 Plant Mobile Equipment Cost 4.63 Coarse Ore Stockpile Construction 7.51 Total Plant Capital Cost 128.14
Table 17.2 Operating Cost Estimate – Option 1 – Cyanide Tank Leach Followed by SART (Base Case)
Cost (US$/t Description processed) Consumables 1.36 Reagents 11.16 Power 5.64 Labour 0.46 Maintenance and Spares 0.57 Total Plant Operating Cost 19.18
17.2.2 OPTION 2 – SEQUENTIAL TANK LEACH FOLLOWED BY SX/EW AND MERRILL CROWE The ROM material would be processed by primary crushing, followed by grinding and thickening. Thickener underflow would be treated by agitated tank acid leach, followed by CCD washing, and the solution would be processed using conventional SX/EW to make copper cathode products. The solids from the CCD washing would be repulped, neutralised and treated by conventional cyanide leaching in order to extract silver. The leached slurry would be washed in a separate CCD circuit and the solution treated using a conventional Merrill Crowe plant to make a silver product. The solids from the CCD washing would be discharged to the TMF.
Figure 17.2 shows a conceptual block flow diagram for Option 2.
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Figure 17.2 Conceptual Block Flow Diagram – Option 2 – Sequential Tank Leach Followed by SX/EW and Merrill Crowe
ROM
Cu Solution CCD Crushing SX/EW Cu Product Washing
Solids
Cyanide Grinding Leaching
Ag Solution Acid CCD Merril Ag Product Leaching Washing Crowe
Tails
Table 17.3 and Table 17.4 show the capital and operating costs, respectively, for Option 2.
Table 17.3 Capital Cost Estimate – Option 2 – Sequential Tank Leach Followed by SX/EW and Merrill Crowe
Cost Description (US$ million) Crushing 2.25 Grinding 18.52 Mill Thickener 1.07 Leach Circuit 5.06 CCD Washing (SX/EW) 3.93 Cyanide Leach Circuit 5.06 CCD Washing (Merrill Crowe) 2.93 Reagent Preparation and Distribution 0.54 Plant Supply and Utilities 1.58 Subtotal Primary Equipment Cost 40.93 Civils 12.28 Structural Steel 8.19 Piping and Valves 16.37 Electrical and Instrumentation 16.37 Transport 8.19 Erection of Items 6.14 Vendor Services 1.23 First Fills 1.23 table continues…
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Cost Description (US$ million) Subtotal Indirect Capital Cost 69.99 Installed Plant Capital Cost 110.92 Site Preparation and Construction Management 16.64 Plant Mobile Equipment Cost 4.63 Coarse Ore Stockpile Construction 7.51 SX/EW Turnkey Cost 21.53 Merrill Crowe Turnkey Cost 25.85 Total Plant Capital Cost 187.07
Table 17.4 Operating Cost Estimate – Option 2 – Sequential Tank Leach Followed by SX/EW and Merrill Crowe
Cost (US$/t Description processed) Consumables 1.36 Reagents 18.52 Power 5.88 Labour 0.46 SX/EW 1.78 Maintenance and Spares 0.65 Total Plant Operating Cost 28.64
17.2.3 OPTION 3 – CYANIDE HEAP LEACH FOLLOWED BY SART The ROM material would be processed by three stages of crushing and stacked by conveyor on to heap leach pads. This would then be followed by irrigation with cyanide solution to dissolve the silver and copper from the mineralised material. The leached solution would be collected in a pregnant solution pond and processed using SART. The SART process would consist of sequential precipitation of a synthetic copper product followed by a synthetic silver product at different pH levels. The synthetic products would then be combined and shipped as a single concentrate product. The cyanide regenerated during the SART process would be recycled back to the heap leach circuit.
Figure 17.3 shows a conceptual block flow diagram for Option 3.
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Figure 17.3 Conceptual Block Flow Diagram – Option 3 – Cyanide Heap Leach Followed by SART
ROM
Crushing
Heap Leaching
Solution
Cu Product SART Ag Product
Cyanide Recycle
Table 17.5 and Table 17.6 show the capital and operating costs, respectively, for Option 3.
Table 17.5 Capital Cost Estimate – Option 3 – Cyanide Heap Leach Followed by SART
Cost Description (US$ million) Crushing 10.23 SART Process and Concentrate Handling 3.90 Reagent Preparation and Distribution 0.54 Plant Supply and Utilities 1.33 Subtotal Primary Equipment Cost 16.00 Civils 4.80 Structural Steel 3.20 Piping and Valves 6.40 Electrical & Instrumentation 6.40 Transport 3.20 Erection of Items 2.40 Vendor Services 0.48 First Fills 0.48 Subtotal Indirect Capital Cost 27.35 Installed Plant Capital Cost 43.35 table continues…
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Cost Description (US$ million) Site Preparation and Construction Management 6.50 Plant Mobile Equipment Cost 7.44 Coarse Ore Stockpile Construction 7.51 Heap Leach Pad Costs 8.30 Ponds, Dams, and Drainage Costs 3.56 Piping and Pumping 0.77 Total Plant Capital Cost 77.43
Table 17.6 Operating Cost Estimate – Option 3 – Cyanide Heap Leach Followed by SART
Cost (US$/t Description processed) Consumables 0.54 Reagents 11.16 Power 1.46 Labour 0.46 Maintenance and Spares 0.24 Total Plant Operating Cost 13.86
17.2.4 OPTION 4 – SEQUENTIAL HEAP LEACH FOLLOWED BY SX/EW The ROM material would be processed by three stages of crushing and stacked by conveyor on to temporary heap leach pads. This would be followed by irrigation with a diluted sulphuric acid solution to dissolve the copper from the mineralised material. The leached solution would be collected in a pregnant solution pond and processed by a conventional SX/EW circuit to produce a copper cathode product. The mineralised material would be removed from the heap leach pads, neutralised, and restacked on a permanent heap leach pad. This would then be irrigated with a cyanide solution to dissolve the silver. The solution would be collected in a separate pregnant solution pond and processed using a conventional Merrill Crowe process to make a silver product.
Figure 17.4 shows a conceptual block flow diagram for Option 4.
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Figure 17.4 Conceptual Block Flow Diagram – Option 4 – Sequential Heap Leach Followed by SX/EW
ROM
Cu Solution Acid Heap Crushing SX/EW Cu Product Leaching
Neutralisation
Cyanide Ag Solution Merril Heap Ag Product Crowe Leaching
Table 17.7 and Table 17.8 show the capital and operating costs, respectively, for Option 4.
Table 17.7 Capital Cost Estimate – Option 4 – Sequential Heap Leach Followed by SX/EW
Cost Description (US$ million) Crushing 10.23 Reagent Preparation and Distribution 0.54 Plant Supply and Utilities 1.58 Subtotal Primary Equipment Cost 12.35 Civils 3.70 Structural Steel 2.47 Piping and Valves 4.94 Electrical and Instrumentation 4.94 Transport 2.47 Erection of Items 1.85 Vendor Services 0.37 First Fills 0.37 Subtotal Indirect Capital Cost 21.12 Installed Plant Capital Cost 33.47 Site Preparation and Construction Management 5.02 Plant Mobile Equipment Cost 10.26 Coarse Ore Stockpile Construction 7.51 SX/EW Turnkey Cost 21.53 Merrill Crowe Turnkey Cost 25.85 Heap Leach Pad Costs 16.60 table continues…
Azarga Metals Corp. 17-9 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation
Cost Description (US$ million) Ponds, Dams, and Drainage Costs 7.11 Piping and Pumping 1.54 Total Plant Capital Cost 128.89
Table 17.8 Operating Cost Estimate – Option 4 – Sequential Heap Leach Followed by SX/EW
Cost (US$/t Description processed) Consumables 0.54 Reagents 18.52 Power 0.96 Labour 0.46 SX/EW 1.78 Maintenance and Spares 0.19 Total Plant Operating Cost 22.45
17.2.5 SUMMARY OF ECONOMIC PARAMETERS Table 17.9 shows a summary of the economic parameters for all four process options.
Table 17.9 Process Options Economic Parameters Summary
Option 1 Option 2 Option 3 Option 4 Cyanide Tank Tank Heap Heap Leach Leach Leach Leach Description Unit (Base Case) SX/EW SART SX/EW Total Plant Capital Cost US$ million 128.14 187.07 77.43 128.89 Total Plant Operating Cost US$/t 19.18 28.64 13.86 22.45 Overall Metallurgical Recovery* Ag % 95 95 65 65 Overall Metallurgical Recovery* Cu % 95 95 65 65 Note: *The overall metallurgical recoveries for copper and silver tank leach scenarios are based on test work results; however, the heap leach recoveries are general industry assumptions
The results presented in Table 17.9 indicate that Option 2 (tank leach with SX/EW) is the most expensive option in terms of both capital and operating cost, followed by Option 4 (heap leach with SX/EW), Option 1 (base case) and Option 3 (heap leach with SART). The results also indicate that the overall metallurgical recovery for copper and silver are higher for the tank leach options as compared to the heap leach options. However, the recoveries are same for both the SX/EW and SART options.
It is clear that the SX/EW options are more expensive than the respective SART options for the same metallurgical recoveries. In this context, the SX/EW options were discounted from further analysis. However, the SART options (Option 1 and Option 3) were considered for further economic analysis. Option 1—tank leach followed by SART (base case)—was selected as the option for further study.
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17.3 PROCESS DESIGN CRITERIA
The conceptual process design criteria were derived from the following sources of information:
• test work results, as reported in Section 13.0 • conceptual mining schedule • conceptual block flow diagram and mass balance • information published in the public domain, industry standard assumptions, and knowledge gained from similar projects/unit operations • technical information regarding the SART process.
Table 17.10 summarises the principle process design criteria established for a 3.27 Mt/a Project.
Table 17.10 Process Design Criteria
Description Unit Value Source General Overall Annual Processing Rate t/a (dry) 2,190,000 Mining Schedule Plant Operating Schedule Shifts per Day - 2 Assumption Hours per Shift h 12 Assumption Hours per Day h 24 Fact Days per Year d 365 Fact Availability/Utilization Crushing Plant Utilization % 80 Assumption Daily Processing Rate t/d 7,500 Calculation Operating Processing Rate t/h 313 Calculation Milling Plant Utilization % 95 Assumption Milling Plant Availability % 95 Assumption Daily Processing Rate t/d 6,648 Calculation Operating Processing Rate t/h 277 Calculation Ore Characteristics Ore Specific Gravity t/m3 2.57 Mining Schedule Ore Bulk Density t/m3 1.6 Assumption Ore Moisture Content % 5 Assumption Head Grade - Copper % 0.66 Mining Schedule Head Grade - Silver g/t 57.9 Mining Schedule Metallurgical Recovery and Metal Production Copper Recovery % 94.0 SGS Test Work Silver Recovery % 94.0 SGS Test Work Copper Production lb/a 30,143,271 Estimate Silver Production t oz/a 3,831,410 Estimate Crushing Crusher Type - Primary Jaw Assumption
Crusher Feed Particle Size (F80) mm 416 Assumption table continues…
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Description Unit Value Source
Crusher Product Particle Size (P80) mm 150 Assumption Open Side Setting mm 150 Assumption Crushed Ore Stockpile (Live Capacity) t 13,296 Assumption Grinding Primary Mill Type - SAG Assumption
Feed Size (F80) mm 150 Assumption
Product Size (P80) mm 1.5 Assumption Secondary Mill Type - Ball Mill – Overflow Discharge Assumption
Product Size (P80) µm 75 Assumption Ball Mill Recycle Load % 250 Assumption Classification - Cyclones Assumption
Overflow Product Size (P80) µm 75 Assumption Leaching and CCD Washing Leach Type Agitated Tank Assumption - Alkaline Leach Leach Retention Time h 24 SGS Test Work Number of Tanks - 6 Assumption Leach Pulp Density % solids 45 Assumption Leach Discharge - CCD Washing Assumption Number of CCD Stages - 5 Calculation CCD Thickener Diameter m 30 Calculation Wash Efficiency per Stage % 99 Assumption Wash Efficiency Overall % 95 Assumption SART
Reactions - 4 Na2[Cu(CN)3] + 2NaSH + 5 H2SO4 Technical Data =2CU2S + 5Na2SO4 + 12HCN
- 2Na[Ag(CN)2] + NaSH + NaOH = Technical Data Ag2S + 4NaCN + H2O
- 2HCN + Ca(OH)2 = Ca(CN)2 + 2H2O Technical Data
- Ca(OH)2 + H2SO4 = CaSO4.2H2O Technical Data Solution Flow Rate m3/h 378 Conceptual Mass Balance Solution pH - 10.5 Technical Data
Copper Precipitation Reagents - NaSH, H2SO4 Technical Data Copper Precipitation pH pH 4 - 5 Technical Data Silver Precipitation Reagents - NaOH Technical Data Silver Precipitation pH Range pH 5 Neutralisation Reagent - Ca(OH)2 Technical Data Neutralisation pH pH >10 Technical Data Products - Cu2S, Ag2S, Ca(CN)2, CaSO4.2H2O Technical Data Azarga Metals Corp. 17-12 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 17.4 AVAILABILITY AND UTILISATION The crushing plant is expected to have an availability of 88%, with 90% utilisation, to give an effective utilisation of 80%. The milling and leaching plants were designed based on 347 operational days per year to allow for 1.5 days per month of planned shutdown and to provide 95% availability. The plant utilisation is considered at 95% to give 90% effective utilisation. The crushed material stockpile was designed with sufficient surge capacity to provide an uninterrupted supply to the mill to maintain a high utilisation during the crusher shut down periods. 17.5 PRIMARY EQUIPMENT LIST Table 17.11 shows the primary equipment list for the 3.27 Mt/a annual throughput conceptual process design. Table 17.11 Primary Equipment List Installed No. of Unit Power Power Equipment Units (kW) (kW) Crushing Crusher Feed Bin/Hopper (360 t) 1 0 0 Primary Jaw Crusher (42 ft x 48 ft, 200 hp motor) 1 150 150 Crushed Ore Apron Feeder (1.07 m x 6 m) 1 11.25 11.25 Conveyor (0.61 m x 150 m) 1 112.5 112.5 Conveyor Belt Scale 1 0 0 Tramp Magnet 1 0 0 Belt Sampler 1 0 0 Dust Collector Bin 1 5.625 5.625 Coarse Material Stockpile (20,000 t) 1 0 0 Sump Pump - Crusher Station 1 18.75 18.75 Sump Pump - Stockpile Area 2 18.75 37.5 Stockpile Reclaim Apron Feeder (1.07 m x 6 m) 3 1.5 4.5 SAG Mill Feed Conveyor 1 112.5 112.5 SAG Mill (30 ft x 12 ft, 6,500 hp motor) 1 4875 4875 SAG Mill Pebble Discharge Conveyor 1 15 15 Pebble Crusher Vibrating Feeder 1 0.75 0.75 Pebble Crusher (Standard Cone - 0.91 m) 1 75 75 Pebble Crusher Discharge Conveyor 1 15 15 Metal Detector 1 0 0 Tramp Magnet 1 0 0 Mill Discharge Pump 2 750 1500 Ball Mill (20 ft x 34 ft, 8,500 hp motor) 1 6,375 6,375 Ball Mill Cyclone Pack (8 x 76 cm cyclones) 1 0 0 table continues… Azarga Metals Corp. 17-13 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation Installed No. of Unit Power Power Equipment Units (kW) (kW) Ball Mill Bridge Crane 1 3.75 3.75 Mill Liner Crane 1 56.25 56.25 Ball Mill Ball Hopper 1 7.5 7.5 Media Charge Electro Magnet 1 4.875 4.875 Monorail Hoist 1 11.25 11.25 Cyclone Overflow Slurry Sampler 1 0 0 Sump Pump - Ball Mills 2 11.25 22.5 Thickener Underflow Pump 2 93.75 187.5 Thickener Overflow Surge Tank 1 0 0 Thickener Overflow Pump 2 187.5 375 Linear Safety Screen (20 m2) 1 37.5 37.5 Pre-leach Thickener (30.5 m) 1 5.625 5.625 Sump Pump 2 11.25 22.5 Leach Tanks (15.5 m x 15.5 m steel construction) 6 0 0 Leach Tank Impeller 6 110 660 Slurry Samplers 1 0 0 Spillage Pumps 2 11.25 22.5 Tailings Pumps 2 93.75 187.5 CCD Thickener 1 (30.5 m) 1 5.63 5.63 CCD Thickener 1 Underflow Pump 2 93.75 187.50 CCD Thickener 1 Overflow Pump 2 37.50 75.00 CCD Thickener 2 (30.5 m) 1 5.63 5.63 CCD Thickener 2 Underflow Pump 2 93.75 187.50 CCD Thickener 2 Overflow Pump 2 37.50 75.00 CCD Thickener 3 (30.5 m) 1 5.63 5.63 CCD Thickener 3 Underflow Pump 2 93.75 187.50 CCD Thickener 3 Overflow Pump 2 37.50 75.00 CCD Thickener 4 (30.5 m) 1 5.63 5.63 CCD Thickener 4 Underflow Pump 2 93.75 187.50 CCD Thickener 4 Overflow Pump 2 37.50 75.00 CCD Thickener 5 (30.5 m) 1 5.63 5.63 CCD Thickener 5 underflow Pump 2 93.75 187.50 CCD Thickener 5 Overflow Pump 2 37.50 75.00 CCD Water Pumps 10 37.50 375.00 Final Tailings Pumps 4 375.00 1,500.00 Sump Pumps 5 11.25 56.25 Copper Reactor Tanks 2 0 0 Copper Reactor Agitator 2 30 60 Solution Pumps 2 37.5 75 Copper Thickener/Clarifier 1 5.625 5.625 Thickener Underflow Pump 2 93.75 187.5 Thickener Overflow Pump 2 37.5 75 Copper Filter Press 1 7.5 7.5 Filtrate Pumps 1 1.875 1.875 Cloth Wash Pumps 1 1.875 1.875 table continues… Azarga Metals Corp. 17-14 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation Installed No. of Unit Power Power Equipment Units (kW) (kW) Neutralisation Tanks 2 0 0 Neutralisation Tank Agitator 2 45 90 Neutralisation Tank Pump 2 37.5 75 Gypsum Thickener 1 5.625 5.625 Thickener Underflow Pump 2 93.75 187.5 Thickener Overflow Pump 2 37.5 75 Gypsum Filter Press 1 7.5 7.5 Filtrate Pumps 1 1.875 1.875 Cloth wash Pumps 1 1.875 1.875 Absorber and Scrubber (3,400 m3) 2 0 0 Filter Cake Product Conveyor 1 3 3 Loadout Filter Cake Product Conveyor 1 3 3 Conveyor Scales 1 0 0 Belt Sampler (262 cm3 capacity) 1 0 0 Truck Scales 1 0 0 Sump Pumps 2 11.25 22.5 Reagent Mixing Tanks 4 0 0 Reagent Mixing Tanks - Agitators 4 1.5 3 Reagent Holding Tanks 4 0 0 Reagent Feeders with Metering system 1 0 0 Reagent Distributors with pumps 1 0.4 Lime Storage Bin (181 t) 1 3.75 3.75 Lime Slacker System 1 75 75 Sump Pumps 1 18.75 18.75 Plant Air Compressor 1 56.25 56.25 Leach Air Compressor 1 750.00 750.00 SART Air Blower 1 2,625.00 2,625.00 Process Water Tank 1 - - Potable Water Tank 1 - - Water Pumps 1 18.75 18.75 17.6 PROCESS DESCRIPTION A jaw crusher will crush the ROM material and then a two-stage conventional milling circuit (SAG mill and ball mill) will grind the material in order to produce a slurry with an optimum size distribution for leaching. The ground slurry, with a particle size of P80 = 75 µm, will be fed into pre-leach thickeners. The thickener underflows will then be leached in agitated leach tanks and subsequently washed in a CCD circuit prior to solution treatment in a SART circuit. This process will produce separate copper and silver concentrates and regenerate cyanide. However, the concentrates will be combined and shipped as a single synthetic concentrate product in order to minimise transport costs. Tailings from the process plant will be pumped to the TMF. Conceptual block flow diagrams of the comminution and leaching and SART processes are shown in Figure 17.5 and Figure 17.6, respectively. Azarga Metals Corp. 17-15 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation Figure 17.5 Conceptual Block Flow Diagram – Comminution and Leaching pp j p g ( g g) From Mine ROM Crushing Circuit Crushed Product To SART Circuit Leach Feed Leach Discharge Solution Mill Cyclone Cyanide Leach CCD Washing Circuit Mill Cyclone Underflow SAG Mill Discharge To Tails SAG Handling Area Product Tails Ball Mill Azarga Metals Corp. 17-16 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation Figure 17.6 Conceptual Block Flow Diagram – SART Recycle to Lime Ca(CN) Leach Circuit Solution 2 NaSH Product NaOH H SO 2 4 Scrubber From HCN Leach Leach Solution Circuit Neutralisation Tanks Copper Silver Precipitate Precipitate Effluent Gypsum Silver Product Product Leach Tails To TMF Final Tails Tails Handling Azarga Metals Corp. 17-17 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 17.6.1 CRUSHING The primary crusher will be a jaw crusher with a 150 kW drive motor and has been designed to crush at an average rate of 303 t/h, at a product size of P80 = 150 mm. The crushed material conveyor will feed the crushed material stockpile. The crushed material stockpile will have a live capacity of 12,896 t, which represents approximately 48 hours of process plant operation. This stockpile storage capacity will allow the process plant to continue operating during crusher down time. The crushed material will be reclaimed from the stockpile by three vibrating feeders located in a reclaim tunnel beneath the stockpile. Two feeders will feed the SAG mill conveyor, with each feeder having a full operational capacity of 80% of the SAG mill feed. This will allow continued SAG mill operation during vibrating feeder maintenance or unforeseen down time. The reclaim tunnel will incorporate emergency exits, drainage, and ventilation to allow maintenance to be carried out in a safe working environment. The SAG mill feed conveyor will carry the mineralised material from the stockpile reclaim feeders to the SAG mill feed chute. The feed system will incorporate conveyor scales and trash magnets (installed before the scales) to record accurate mill feed tonnage while removing tramp material. 17.6.2 GRINDING The milling plant will receive fresh ore feed at an average rate of 269 t/h operating 7 d/wk, 347 d/a, to process on average 2.18 Mt/a at an overall plant effective utilisation of 90%. Primary grinding will be achieved via a SAG mill with secondary grinding completed by a ball mill. The SAG mill will be driven by a fixed speed, 4,875 kW motor via a single pinion drive, receiving an average of 269 t/h of fresh mineralised material feed. The slurry will discharge from the SAG mills through discharge grates fitted with 50 mm pebble ports. The SAG mill discharge will pass through a classifying trommel screen with 12.5 mm apertures. The trommel undersize will pass into the plant mill sump and the +12.5 mm/-50 mm pebbles will be conveyed to a pebble bin feeding an open circuit type pebble crusher that will crush the oversize pebbles before discharging back to the SAG mill feed. The recirculating load conveyor will receive the pebble port oversize and transfer this material (pebbles) to feed the pebble crusher. The single cone type pebble crusher will be driven by a 75 kW drive motor. The product from the pebble crusher will be sized at P80 = 12 mm and will return to the SAG mill feed conveyor. The final product from the SAG circuit will then be fed to the ball mill and will have a product size of P80 = 1.5 mm, with a top size of approximately P100 = -2 mm. The ball mill will be rated at 6,375 kW and will operate in closed circuit with classifying hydro cyclones to produce a ball mill product size of P80 = 75 µm during Azarga Metals Corp. 17-18 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation normal operation. The mill sump will be equipped with two heavy duty slurry pumps, one operational and one, 100% duty standby, feeding the closed-circuit classifying hydro-cyclone cluster. The hydro-cyclone cluster will consist of eight, 760 mm in diameter cyclones. The hydro-cyclone underflow will be piped back to the mill sump where the returning load will create a recirculating feed to the ball mills of approximately 250%. The overflow stream from the hydro-cyclone cluster will pass through a linear safety screen, and the screen underflow will be fed by gravity into the pre-leach thickener de-aeration drop box. The mill bay will be equipped with an overhead bridge crane to be used for maintenance and grinding media charging. The product from the grinding circuit (hydro-cyclone overflow) will be sampled with automated in-line samplers. The particle size distribution and solids content recorded from these samplers will be used to monitor and control the grind size of the product from the milling circuit (leach circuit feed). 17.6.3 LEACH FEED THICKENERS The classified ground products from the SAG/ball mill circuit will be pumped from the hydro-cyclone cluster to the thickener de-aeration drop boxes. A high-rate, 30 m thickener will control the feed density to the leach circuit at approximately 45% solids (w/w). An automated flocculation plant will introduce flocculant into the thickener feed wells. Two thickener underflow pumps will be fitted with variable speed drive motors. One pump will be operational, while the other will be a full-duty standby. The pump speed will vary in order to control the solids density of the feed to the leach circuit. The thickener overflow will flow by gravity to a water tank dedicated to the thickener, with the water pumped back to the process water system. 17.6.4 LEACH AND CCD CIRCUIT The leach feed thickener underflow will be pumped into the first of leach tanks, the six agitated leach tanks will be arranged in series. The leach circuit was designed to provide a total leach residence time of approximately 24 hours. Each tank will be equipped with a 110 kW motor and a double impeller agitator mounted on the superstructure on the top of each tank. The leach tanks will have a volume of approximately 1,932 m3, dimensions of approximately 15.5 m in diameter and 15.5 m high and will sit at progressively lower elevations to allow the slurry to flow by gravity from tank to tank. Each leach tank will be equipped with a gas sparger to inject air into the slurry to maintain the oxygen level in the solution required for acceptable process kinetics. The leach discharge slurry will be washed in a five-stage CCD circuit to separate the pregnant solutions from the solids. The washed solution will be processed in the SART circuit to make copper and silver sulphide concentrate products. The underflow Azarga Metals Corp. 17-19 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation solids from the CCD circuit will be blended with the gypsum product (from the SART circuit) and discharged to a conventional TMF. 17.6.5 SART CIRCUIT The SART circuit was designed to recover copper and silver from their cyanide complexes as a copper and silver sulphide solid precipitate from the CCD pregnant solution. The SART process begins with the injection of sodium hydrosulfide (NaHS), recycled SART precipitate seed slurry, and H2SO4 into the SART feed pipe (CCD pregnant solution). The copper and silver cyanide species will react with free sulphide ions in the acid solution to form copper sulphide (Cu2S), silver sulphide (Ag2S), hydrocyanic acid (HCN(aq)), and small amounts of hydrogen cyanide (HCN) gas (Table 17.10), at a pH of 4 to 4.5, with stoichiometric dosages of NaHS. In the SART circuit, metal sulphide precipitates are settled in thickeners, with the thickener underflow solid concentrations in the range of 10 and 20%. The thickener underflows will be pumped to a single filter storage tank for further dewatering of concentrates. The combined concentrate product will then be filtered using a plate and frame filter and shipped to a suitable refinery in drums. The sulphide precipitate thickener overflow solution is neutralized with milk of lime to a pH of greater than 10 to convert the HCN in solution to calcium cyanide (Ca(CN)2) according to the neutralisation reaction (Table 17.10). The HCN gas generated during the SART reactions will be scrubbed with milk of lime in a scrubber in order to regenerate Ca(CN)2. The regenerated Ca(CN)2 will be recycled back to the leach circuit. The gypsum precipitate formed in the neutralization tanks will settle in a thickener. The thickener underflow will be combined with the leach tails (from the CCD circuit) and pumped to the TMF. SART barren solution (gypsum thickener overflow) will be recycled back to the process water tank. Azarga Metals Corp. 17-20 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 18.0 PROJECT INFRASTRUCTURE 18.1 SITE LOCATION AND DESCRIPTION The site is situated on the southern slopes of the Chara Valley and consists of areas of relatively gentle sloping pine and larch, forested with some rocky outcrops and areas of heathland and peat bogs. 18.1.1 PERMAFROST CONDITIONS The climate at site is described as subarctic, with long, cold winters and warm, mild summers. Average daily temperatures in the Chara Valley range from –32°C in the winter to 16.5°C in the summer. Figure 18.1 shows the site location is located on the edge of a continuous permafrost area. Further investigation is required to determine the geotechnical conditions for the design of the mine site, structures, and waste management facilities. Figure 18.1 Unkur Project Location and Permafrost Areas UNKUR W150 E150° PROJECT ° W120 E120° ° W90 E90° ° N80° W60 E60° ° N70° W30 E30° ° N60° N80°, E0° Note: There is north arrow on this map; however, the North Pole is shown in the centre of the map. At any point on the globe the north direction can be considered facing towards the North Pole. Azarga Metals Corp. 18-1 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 18.1.2 SEISMIC CONDITIONS The Project site is situated in a highly-active seismic zone that is classified as a 9 or 10 under the Russian seismic classification system. Figure 18.2 shows the peak ground acceleration map with a 10% probability of exceedance in 50 years for Northern Eurasia. Figure 18.2 Russian Federation Seismicity Classification Map UNKUR PROJECT Note: There is no north arrow on this map; however, the North Pole is shown at the top centre of the map. At any point on the globe the north direction can be considered facing towards the North Pole. Source: The Schmidt Institute of Physics of the Earth, Russian Academy of Sciences (1997) 18.2 EXISTING INFRASTRUCTURE AND SITE LAYOUT Although the Project is located in a relatively remote part of Russia, significant local infrastructure is located nearby. The proposed mine site is close to the towns of Chara and Novaya Chara, with populations of 1,900 and 4,300, respectively (Russian State Statistic Service 2011). It is understood that the population in the towns of Chara and Novaya Chara had been reducing up to the 2010 Census; however, the populations and facilities are likely to have grown significantly with the development of the Udokan copper deposit and the railway spur line from Novaya Chara to the Chineyskoye deposit. The town of Chara has a regional airport with scheduled flights connecting to Chita. The BAM railway runs thought the town of Novaya Chara; is also runs parallel to the Trans-Siberian Railway and links thought to the Pacific port of Sovetskaya Gavan in the east. An existing state road runs parallel to the railway line and close to the proposed mine site. There is also an existing unpaved road which runs from the main road across the site. Azarga Metals Corp. 18-2 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation A major high-voltage electrical power transmission line passes through the Unkur license area is reported to have between a 100 to 200 MW capacity. There are several rivers in the area which could provide a source of water, although it will need to be confirmed if these flow during the winter season. Figure 18.3 shows the existing local infrastructure and proposed site layout. Figure 18.3 Unkur Project Existing Local Infrastructure and Proposed Site Layout The mine will be designed to operate all year round within the anticipated climatic, seismic, geotechnical, and ground permafrost conditions, as well as to minimise environment impact. The key infrastructure requirements for the mine site include: • road access for construction and operations • suitable power and water supplies • locations for the extent of the open pit • WRDs • TMF • process plant Azarga Metals Corp. 18-3 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation • administration and ancillary facilities. As mining will be performed by a contract mining company, a location for the contract mining facilities will also be required. Due to the close proximity of the towns of Chara and Novaya Chara, it is assumed that workers can live in the town and travel to site on a daily basis. Materials and goods can also travel to site from the towns and the railway station in Novaya Chara. 18.2.1 MINE The proposed mine area is located on a gentle slope with a river valley to the northeast. The mine plan proposes to remove approximately 10 Mt of waste during the construction period, which will be used to build the ROM pad and the TMF starter dam. The main WRD will be located along the western side of the pit to minimise the haul distance and reduce any potential impact on the river. Both the open pit and the WRD were designed to avoid any impact on the existing high-voltage power line that runs across the license area. Figure 18.3 shows an existing track route that passes through the open pit mine are, which will need to be rerouted around the pit. Access may have to be managed during operation and blasting. 18.2.2 WASTE ROCK DUMP It is anticipated that the open pit mine will produce approximately 165 Mt of waste rock over the LOM. Some initial quantities of waste rock will be used during construction to build the ROM pad, the process plant area, and the TMF. The waste rock will be placed on a relatively flat area close to the open pit to reduce haul costs. The area will need to be prepared by removing vegetation, compacted, and adding suitable drainage ditches. Settling ponds will need to be constructed to manage the water flows and to minimise the and environmental risks. At this stage, it is believed that the waste rock is not-potentially acid generating (NPAG); however, further ARD trials and investigations should be completed to confirm and to support the design process. 18.2.3 PROCESS PLANT The ROM material will be crushed in a primary crusher and conveyed to a covered intermediate stockpile storage facility. As required, the crushed material will be drawn from the covered stockpile and fed to the process plant building, which will include the comminution circuit and cyanide leach. From there the leach slurry discharge will pass through a CCD washing circuit prior to the solution returning to the process plant building and passing through the SART process. The copper and silver concentrates will be combined, dried and stored, prior to loading into bulk bags and 20 ft ISO containers ready for dispatch to the Novaya Chara railway station. Azarga Metals Corp. 18-4 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation The tailings will be discharged from the CCD thickener underflow and be pumped to the TMF. Figure 18.4 Plant Layout and Infrastructure 18.2.4 TAILINGS MANAGEMENT FACILITY The process plant will produce approximately 2.2 Mt/a of tailings, which will need to be placed in a controlled TMF. Tailings resulting from the SART process should theoretically be clean, with the heavy metals and cyanide completely removed. This should result in clean, non-acid generating (NAG) tailings. However, this will need to be confirmed during the next stage of metallurgical test work. There are several conventional methods of safely storing tailings in use around the world, however the selection of the most appropriate method will be very site-specific and depend upon a number of factors, including: • climatic conditions • nature of the tailings • availability of water • cost of electricity • availability of suitable locations • terrain and geotechnical conditions. A detailed tailings trade-off study will be required as part of the next phase of project development, when more of the site information is known. For the purposes of this PEA, a conventional wet tailings valley fill solution is proposed, which is a similar solution currently being planned for other mines in the Azarga Metals Corp. 18-5 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation region. The tailings pumping facilities and deposition will need to be designed in accordance with the climatic and permafrost conditions. A potential valley has been identified approximately 2.4 km from the process plant (Figure 18.3). This valley will need to be investigated further, however it appears to have a relatively narrow entrance for the construction of a suitable tailings dam and has the capacity for the proposed LOM. There also appears to be a second valley further upstream that could have additional capacity to support future expansion. An upstream water retention dam and water diversion ditches around the TMF will need to be constructed to allow the safe discharge of upstream waters. It is assumed that the TMF dams will be constructed in a phased manner, with an initial starter dam constructed using pre-striped material from the mine. However, further investigation is required to determine the suitability of this material and the valley ground conditions to allow the detailed design of the TMF. Alternatively, the future tailings trade-off study may conclude that a dry stacking solution is more suitable for this location. 18.3 ACCESS AND LOGISTICS 18.3.1 ROADS ACCESS ROADS The Unkur license area can be accessed from the town of Novaya Chara via the main highway for 12 km and then a further 8 km along an unpaved road. This unpaved roadway continues through the license area to give access to the areas to the south of the Property. This unpaved road appears to pass thought the proposed pit area, so an alternative route may need to be defined if this route is still required by other users. This may entail the development of a 4.5 km track to the north of the pit area. It is proposed to upgrade the 8 km section of the unpaved road from the highway to the license area suitable for two-way mine traffic. From the edge of the licence area a new 3.5 km road will need to be built to the proposed plant and administration site area. SITE ROADS A gatehouse and weighbridge will provide access to the site. A parking area and bus stop will be located just outside the main gate so that workers can drive or be bussed from the local towns. There will be very limited accommodation on site. The site roads will be segregated to domestic roads and mine roads. The domestic roads will be limited to the area around the process plant and offices and will be designed to cater for road-going vehicles, typically up to 40 t articulated lorries. These roads will be designed in accordance with local road standards. Azarga Metals Corp. 18-6 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation The mine haul roads will be designed to accommodate up to 136 t mine haul trucks and service vehicles and will designed in accordance with international mine safety rules. The haul roads will extend from the pit exit to the WRDs, ROM pad, and though to the TMF. 18.3.2 RAIL The BAM railway, runs thought the town of Novaya Chara, which appears to be a significant rail terminal catering for both passengers and fright. A large sidings area is located southwest of the town and should be able to accommodate up to 10 train sets over 1 km in length. The main terminal area also appears to have several more sidings, warehousing, and a rail loading area. At this stage there have not been any formal discussions with the railways operators or the station management; however, for the purposes of the PEA, it is reasonable to assume that the Novaya Chara railway area will have the capacity to store, handle, and load the anticipated two to three product containers per day for export from the mine, as well as import the required equipment and materials during construction and operations. It is recommended that initial discussions are held with the railway operators during the next study stage. 18.3.3 AIRPORT The nearest airport is located in the town of Chara, approximately 20 km direct from site (40 km by road). The airport is understood to have permanent facilities and regular flights to the city of Chita. 18.3.4 PORT The nearest sea ports are the ports of Vanino and Sovetskaya Gavan, which are on the Pacific coast approximately 1,700 km southeast of the mine site (approximately 2,300 km by rail). Both are situated on the BAM railway and have facilities to handle both general and bulk cargo. Alternatively, the rail land port of Zabaykalsk on the Chinese border is 800 km south of the mine site (approximately 1,900 km by rail). This gives Azarga the option of bringing in goods and materials directly from China or selling concentrate to Chinese smelters or refineries. 18.3.5 CONSTRUCTION LOGISTICS The Project scale will make mine site logistics challenging. Prior to major equipment delivery and activity ramp-up, the following activities will be required for project execution: • complete localised road improvements to increase the capacity of existing roads where necessary • construct a new site access road and prepare the contractor construction site Azarga Metals Corp. 18-7 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation • mobilise mining contractor team to construct camp and workshop facilities early in the Project • complete a detailed assessment of equipment supply routes to site. 18.3.6 OPERATIONAL LOGISTICS Prior to operations, a detailed freight and logistic assessment will need to be completed to determine the most appropriate sources of regents and consumables and their associated transport and logistic requirements. It is proposed to outsource freight forwarding and to use on-site consumable costs for the financial analysis. Detail market research will need to be completed to establish the most appropriate markets for the final product and the associated transport costs, to allow smelter terms to be negotiated. Figure 18.5 Transport Routes to Potential Markets Azarga Metals Corp. 18-8 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 18.4 SERVICES AND UTILITIES 18.4.1 WATER RAW WATER Currently, there is limited hydrology and hydrogeology data; however, it is anticipated that raw water will either be pumped from a point in the local river system where water is available all year round (in winter it flows below the ice cap) or it will be drawn from boreholes around the pit, depending upon the depth of any continuous permafrost. If necessary, these boreholes can also be used to lower the water table around the pit to reduce water inflow. Raw water will be stored in a covered raw water tank adjacent to the process plant, which will be sized in accordance with process plant requirements and water sources, to ensure security of supply. POTABLE WATER In the absence of water quality data, Tetra Tech proposed using a 20 m³/h reverse osmosis water treatment system with 100% standby capacity to provide all site potable water requirements reliably. The system will need to be designed to take into account the sub-zero temperatures. PROCESS WATER During steady state operation, a large proportion of the process water requirements will be met by the recycled water from the TMF and seasonal site runoff. Process water will be collected in a raw water tank adjacent to the process plant and then pumped to the various process use areas. SEWAGE TREATMENT A sewage treatment plant will be located adjacent to the plant area. The facilities will consist of a packaged waste water treatment unit and will remain on site to provide long-term sewage treatment requirements during operations. The process is defined as extended aeration activated sludge biological treatment. The sludge removed will be disposed of in the TMF. Consideration must be given to the extreme climatic conditions during treatment selection. WASTE WATER Any water that is discharged to the environment will be treated to meet the minimum local water quality requirements. SITE WATER MANAGEMENT Water across the site will be carefully managed, and any clean water flows will be diverted away from potentially dirty areas. Any water arising in dusty areas around the mine, process plant, or WRD will be collected in settling ponds to reduce the particulate levels before discharge. Azarga Metals Corp. 18-9 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 18.4.2 ELECTRICAL POWER The current estimated electrical power requirements are between 20 and 25 MW (Table 18.1). The Project is located close to the national grid and a high-voltage power line, which it is assumed has the capacity to supply the Project. Table 18.1 Estimated Electrical Power Requirements Required Area Power (MW) Processing Plant 15.0 to 17.5 Plant Infrastructure 3.0 to 4.5 Mine - Mining Contractor 2.0 to 3.0 Total 20.0 to 25.0 Emergency electrical power will be generated on site using small diesel generators. It is assumed that Azarga will construct the required 2.6 km high-voltage line, connecting to the main high-voltage power line passing through the Unkur license area, to a new high-voltage switchyard on site. However, it may be more practical for the national grid company to construct this line and locate the point of common coupling at the site switchyard. From this point, the high-voltage line would be reduced to a 10 kV site medium-voltage line for distribution to key consumer areas around the site. 18.4.3 FUEL STORAGE Fuel will be stored on site to supply arctic grade diesel fuel to the generator sets, heating the process plant, and to power diesel-powered mobile equipment. The tanks will be located at least 100 m from main buildings and the prevailing wind directions will be considered. At least one month of diesel storage will be required to give the mine the security of supply throughout the winter months. A further assessment will need to be carried out to determine the location and supply logistics for the fuel source and to determine the final site fuel requirements. Diesel dispensing and accounting equipment will also be provided. Sealed containment equivalent to 110% is required to contain any spillage. 18.4.4 COMMUNICATIONS Proven and reliable telecommunications systems will be installed to ensure that personnel at the mine site have adequate data, voice, and other communication channels available. The telecommunications systems will be supplied as a design build package. The major features of the communication system will include: Azarga Metals Corp. 18-10 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation • satellite communication equipment for voice and data • ethernet cabling for site infrastructure • provision of two-way radio communications at site. 18.5 ANCILLARY FACILITIES 18.5.1 ADMINISTRATION AND OPERATIONS FACILITIES ACCOMMODATION, CHANGEROOMS, AND CATERING It is assumed that commercial facilities will be available in the towns of Novaya Chara and Chara to house the majority of the work force. A regular shuttle bus service will be established to bring personnel to site. A small hostel will be constructed on site to house critical personnel. The process plant site will include a change room and shower facilities for the process plant shift workers, as well as kitchen and dining facilities. Access to the process plant will be on foot via a covered walkway. ADMINISTRATION OFFICE A single workshop and office administration building will be constructed housing the change rooms and kitchen, as well as the administration offices and training rooms. The workshops and stores will also be located in this building to enable the efficient use of heating and services. MAINTENANCE WORKSHOPS AND WAREHOUSE The process plant maintenance and warehouse complex will provide service facilities for the process equipment, along with storage of spare parts and consumables, including: • maintenance workshops • weld bay • light vehicle repair bays • emergency response facility • warehouse • offices. 18.5.2 HEATING PLANT A central heating plant will be located adjacent to the offices and process plant building to provide efficient heating during the winter periods. Azarga Metals Corp. 18-11 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 18.5.3 LABORATORY An assay laboratory will be attached to the process plant and will contain a simple preparation area, a chemical laboratory for standard mineralisation analysis, and an environmental analysis facility. Additional laboratory facilities will also be provided to support the mining operation and grade control activities. 18.5.4 EXPLOSIVES STORAGE AREA Mine explosives will be stored in a purpose built secure complex and will conform to local regulations. The entire complex will be surrounded by a fence that is 2 m high and topped with barbed wire. To comply with Russian regulations the site will require constant security and will be accessed via a road. There will be guard post near the entrance of the facility. Electric radiators will be used to provide heat to the containers. The facility will be lit by two projector lights atop towers within the boundaries of the explosives storage area. 18.6 MINING CONTRACTOR FACILITIES The mining contractor will establish their own administration and workshop facilities adjacent to the process plant. MINE MAINTENANCE SHOP AND WAREHOUSE The mine maintenance/warehouse complex will provide service facilities for the mining operation, along with storage of spare parts and consumables, including: • heavy duty repair bays • weld bay • light vehicle repair bays • maintenance workshops • machine wash/tire change bay • warehouse • offices. 18.7 WASTE MANAGEMENT The mine will produce approximately 16 Mt of tailings and 165 Mt of waste rock, during 8 years of operation. At this stage of the Project development there is little geochemistry data available for the mineralisation, tailings, and waste rock streams. While a preliminary location has been identified for potential waste disposal, there is no geotechnical data available with regards to the thickness, strength, compressibility, and permeability characteristics of the soil overburden in the Azarga Metals Corp. 18-12 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation selected area. Therefore, Tetra Tech proposes a waste management strategy that takes into account existing site knowledge, material mineralogy, and the general geological setting. The prime objectives of any mine waste (tailings and sub-economic rock) storage facility is two-fold: • safe and economical short-term storage of wastes • construction of an erosion resistant, non-polluting structure, which is stable in the long term to eliminate the risk of physical movement of tailings or any leachate to the environment. To achieve these objectives, waste management facilities (tailings and WRDs) need to be individually tailored to the mine site, the material mineralogy, the process, and the desired long-term landform geometry. As a result, waste disposal facilities are expected to have a variety of design and construction techniques. The design approach, construction method and decommissioning concept should be selected to suit the individual local conditions. The Project is located on the edge of the Russian continuous permafrost zone, where the annual ground temperature varies and may always be below freezing, (although this needs to be confirmed). WRD designs will rely heavily on the geochemical characteristics of the waste materials and on the integrity of the permafrost in the Project area. Detailed field and laboratory assessments will need to be carried out prior to the actual construction and disposal operation in order to provide the best and most economical engineering and environmental solution for the Project. Permafrost can be used to the advantage of the design to safely store waste rock and tailings, due to the natural containment provisions the frozen ground provides (e.g. limits seepage). In addition, the frozen ground also provides a solid foundation for dams, dykes and other infrastructure components, if necessary. However, the integrity of the permafrost over the long-term should be considered in the design as potential changes in regional climate may increase the thaw cycle frequency. The Project is also located in an area with high seismic activity representing a high earthquake hazard. At this stage of the Project, with the limited data available, Tetra Tech has selected a wet tailings valley fill. It is understood that this is a similar solution proposed for neighbouring facilities, however, this will need to be re-assessed in the next stage of the project development. Water will be returned from the TMF and a separate water collection dam with an impermeable core (or lined upstream face) will be constructed at the front of the TMF dam for the collection of any potential seepage water during the summer months. All waste rock will be placed close to the mined areas. A more detailed assessment of the locations, geometry, height, slope and closure of WRDs will be completed in future studies, when more information concerning the site and waste characteristics is available. Azarga Metals Corp. 18-13 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation The crest elevations of the TMF and WRDs at closure are unknown. The final selection will be based on measured storage capacity and filling characteristics, hydrology and hydrogeology data, environmental impact mitigation, measured foundation conditions, closure and reclamation requirements and cost. Topsoil will be stockpiled for use during closure and reclamation work when all waste management facilities will be capped and re-graded; establishing natural drainage where possible. Azarga Metals Corp. 18-14 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 19.0 MARKET STUDIES AND CONTRACTS There are no market studies or contracts material to the Project. The basis of this PEA is the production of a single, high-grade copper concentrate with silver credits. This high-grade product should be very attractive to copper smelters, who may even pay a premium. However, at this stage, there have not been any discussions with either smelter or refineries and the basis of this PEA is sales of a copper concentrate to copper smelters under conventional smelter term. Following a preliminary review of the sales options for the Project, the site location is in close proximity to the railway, which opens up the potential for sales to Russian, Chinese or international smelters. The rail route to the Russian refinery at Krasnoyarsk is approximately 1,900 km, the rail route to the Chinese/Russian land port of Zabaykalsk is also approximately 1,900 km, and the rail route distance to the Pacific sea ports of Vanino and Sovetskaya Gavan is approximately 2,250 km. Further market and transport logistics studies should be completed at the next stage of the Project. Initial discussions should also be held with smelters to confirm smelter terms. Azarga Metals Corp. 19-1 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 20.0 ENVIRONMENTAL STUDIES, PERMITTING, AND SOCIAL OR COMMUNITY IMPACT This section of the PEA is based on a desktop review of technical reports and publicly available information. It presents an overview of the setting, receiving environment, and potential impacts. It should be noted that a site visit pertaining to environmental and social aspects of the PEA has not been undertaken. The information and discussion presented in this section will be verified and updated when scoping for an ESIA takes place. 20.1 PROJECT SETTING The Project is located in the Udokan Range; the maximum elevation of the concession is approximately 1,250 masl on the southern boundary and descends to just under 800 masl on the northern boundary. Slopes are moderate with plateau areas forming watersheds. The concession is located within the Kemen and Unkur River catchments, which are sub-catchments of the Chara River catchment. The setting of the proposed mine is in close proximity to watercourses in mountainous terrain which, coupled with a harsh climate, indicates there are likely to be multiple potential environmental impacts. Such potential impacts need to be considered during planning and design (e.g., storm water management and soil erosion with subsequent effects on water quality). In addition, the concession is in a zone with severe earthquake potential which, in case of an earthquake, could trigger geohazards such as rock falls, mudslides, avalanches, and slope failures, all of which will need to be considered with reference to safety and in layout of surface facilities and infrastructure. Mining is one of the main industries in the Zabaikalsky Region (including coal, copper, molybdenum, tin, lead-zinc, and uranium projects) and so the regional population and authorities are familiar with the sector, which can be advantageous in terms of a new project being accepted. Acceptance is at least, partially dependent on due process being followed by the proponent, and well-planned public consultation being implemented. The 2010 census of the Kalarsky District gives a population of 9,570 whilst an estimate in January 2016 indicates a population estimate of 8,253 (over an area of 56,000 km2), which demonstrates the population is sparse. During the 1960s to 1980s, the construction of the BAM and exploration activities for several potential mineral deposits, led to the development of settlements and infrastructure. Novaya Chara had a population of approximately 12,000 in the 1970s, but economic reforms and projects being closed led to waves of population leaving the District. SRK reported that a significant portion of the current population moved to the District in the 1960s to 1980s (SRK 2010). Thus, there has been a history of Azarga Metals Corp. 1 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation waves of out- and in-migration. The population figures that were available at the time of this review would need to be updated during the course of social baseline studies. Currently, the main sources of employment include jobs associated with the maintenance of the East Siberian Railway, State authorities, and in the service sector. In terms of the concession and Project area of influence, there is scant information and data. Tetra Tech recommends that baseline studies should begin alongside preliminary engineering and exploration activities so that seasonal data can be collected for a minimum of one year, as per international standards. The environmental and social studies for both Russian legal requirements (the OVOS) and international standards, are lengthy processes and this should be taken into account so that overall mine schedules can be maintained. In terms of services and access, the proposed Unkur mine is in a favourable position as there are roads (including snow roads for all-year access to the region), railway (BAM), and an airport at Chara. In addition, the Project is 2,800 km from Vladivostok with its Pacific sea port. A national grid powerline crosses the concession to the northeast and there is a high- voltage substation at Novaya Chara (approximately 10 km from the concession) with a 200 MW capacity. The capacity to supply Unkur and the reliability of the supply will need to be assessed as engineering plans develop. Options for back-up power should include analysis of alternatives with reference to engineering, economic, and environmental factors. Established villages and towns will have some capacity to provide goods and services albeit that most materials and equipment for construction will probably be imported from elsewhere in Russia or other countries. The Project will benefit from substantial investments that have already been made in infrastructure, particularly by the Udokan mining project which is approximately 30 km from Unkur (e.g., the regional airport at Chara, roads, and expansion of facilities in Novaya Chara). The Project will require new access roads and project-specific infrastructure on site and elsewhere, as needed. The layout and engineering designs will need to consider environmental aspects that are already known and others that will be realized during environmental baseline studies (e.g., slopes and potential for soil erosion and geohazards such as areas most susceptible to rock falls and avalanches). 20.2 LEGISLATION AND PROJECT PERMITTING The regulatory framework for the Russian mining industry is well documented and would be reviewed as part of an ESIA (Norton Fullbright 2013). The Russian Federation Subsoil Law is the principal law governing subsoil use in Russia; it introduced a licensing system for study, exploration, and production of natural resources. In order to obtain project authorisation, Russian legislation requires that an OVOS is undertaken, which is regarded as the equivalent of an EISA. However, there are Azarga Metals Corp. 2 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation differences between an OVOS and international-standard ESIAs (e.g., the extent of public consultation for an OVOS is less comprehensive than for an ESIA; assessment methodologies for an OVOS are more mathematical and do not present an accurate and defensible means to assess impacts; an OVOS may focus on satisfying statutory requirements to the extent that significant impacts may be overlooked unless they fail to meet standards). Due to the differences between an OVOS and ESIA, two separate documents are required; there should be consistency in the overall findings and conclusions. The current mining licence for Unkur is valid until 31st December 2039; once the detailed Project development is approved, the LOM will become the period for which the licence is valid. The licence for exploration and mining contains terms for project development with reference to the Russian Federation Subsoil Law. A condition of the mining licence is that environmental monitoring should begin during exploration (pre-engineering phase) and continue through all phases of the Project. The exploration phase requires only observation of environmental laws and regulations. Monitoring shall cover air, water, soil and biological resources (i.e., the biophysical environment). Historical liabilities associated with exploration are excluded from the current licence, unless accepted on a voluntary basis by the current company. Tetra Tech recommends that any legacy issues discovered on the Unkur concession are documented during baseline studies so that responsibilities and liabilities can be defined and addressed by Azarga as part of an EISA. It should be noted that legacy issues can be difficult to ring-fence, and it can transpire that legacy issues have to be dealt by a new operator regardless of legal requirements/responsibilities (e.g., abandoned equipment, waste and other materials, contaminated soils, polluted water and waste dumps). Subsoil use licences do not give the holders the rights to surface land rights; land rights are part of a separate application. The Land Code indicates that mining companies have the right of ownership or lease in the Russian Federation and obtaining land rights is governed by federal and regional legislation. 20.2.1 INTERNATIONAL STANDARDS In terms of international standards such as the EP (2013), the Project is classified as a Category A project because it has the potential for significant adverse environmental and social risks/impacts that are diverse, irreversible, or unprecedented. Thus, a full assessment to address the environmental and social risks and impacts is required, with measures to mitigate and offset adverse impacts. Good international industry practice follows the mitigation hierarchy of avoid, reduce, mitigate and lastly, compensate. The IFC PS on Environmental and Social Sustainability and the World Bank Group Environmental, Health and Safety (EHS) Guidelines are the standards adopted by the EP, including sector-specific guidelines. Seven of the eight IFC PS would be triggered for the Project and the findings of an ESIA would determine if PS5 is triggered: Azarga Metals Corp. 3 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation • PS1: Assessment and Management of Environmental Risks and Impacts • PS2: Labour and Working Conditions • PS3: Resource Efficiency and Pollution Prevention • PS4: Community Health, Safety and Security • PS5: Land Acquisition and Involuntary Resettlement • PS6: Biodiversity Conservation and Sustainable Management of Living Natural Resources • PS7: Indigenous People • PS8: Cultural Heritage. It is increasingly common for health impact assessments and human rights to be included in ESIAs as focussed studies rather than as part of the general social studies. The advantage of addressing health and human rights it that it reduces project risk (e.g., by having documentary evidence of performance and procedures) and clearly demonstrates company commitment to operating in line with good international industry practice. 20.3 ECOLOGY AND BIODIVERSITY The Unkur concession is in the mountainous taiga or forest vegetation that is typical of the zone between 1,100 and 1,400 m in the Kalarsky District. Vegetation zones are influenced by elevation, micro-climates, soil, and the prevailing water regime. Rocky outcrops may be present and host to communities such as lichens and moss. Such forests are extensive in Russia with the largest extending over 5,800 km. Boggy ground is common due to permafrost and shallow rock preventing infiltration. Forest trees include Dahurian Larch, fir trees, birches and Chosenia arbutifolia. Shrubs growing in the forests include red bilberry, bluberry, Arctic raspberry, willow, alder, dwarf arctic birch and dwarf Siberian pine. Some species are used by local communities for subsistence and medical herbs (SRK 2010). An assessment of ecosystem services is required for international ESIAs so that it can be determined how local communities use the natural environment and how the natural environment provides services that benefit communities. This assessment is a critical as negative impacts on valued ecosystem services can have far-reaching effects. Faunal species that frequent the taiga habitat include Siberian stag, musk deer, lynx, Gulo gulo, grouse, black-capped marmot with water birds in the valleys. Some species such as bear, ermine, weasel and small mammals may be found in all zones (i.e., the pre-golet and golet zones). Some IUCN Red List species are known to occur in Kalarsky District but no information about whether protected species are found on the concession is available. Identifying rare, threatened and endangered species would be a crucial part of ESIA baseline studies. It is possible that endemic species will be found on the Azarga Metals Corp. 4 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation concession as unique floral assemblages do occur on copper deposits elsewhere in the world (e.g., Tenke Fungurume in the Democratic Republic of Congo). Previous aquatic ecology studies of the Chara River catchment and sub-catchments have recorded 20 fish species including two protected species. In the Russian fishery category, these waters are in the highest category as they provide spawning, nurseries and wintering for a variety of species. Smaller tributaries that freeze in winter are a lower category because species cannot winter in them. The Chara River and other rivers have a 1 km buffer zone that prohibits activities that could impact spawning grounds. Available data provides some insight to habitats but needs to be updated, and site- specific baseline studies undertaken for the Unkur concession and its area of influence. 20.3.1 PROTECTED AREAS There are 14 areas that have natural heritage status in Kalakarsky District (Russian classification). The Chara Sands, a large body of unconsolidated sands in the Chara Valley, is approximately 4 km southwest of Chara. The Sands are 10 km long, up to 4 km wide, and rise up to 80 m above the Chara River. The Fir-Chosenia forest covers 28 ha near the Udokan settlement. Chosenia arbutifolia is a large leafed plant that forms a rare community with Siberian fir; it grows well on pebbles and sand strips that emerge from water and because it holds soil, raises the level of floodplains. If they dry out, they do not reproduce. 20.4 WATER The Project is located in a large catchment (674 km2) and the concession is approximately 38 km downstream of the headwater. As the area is mountainous there is potential for significant flows particularly during the spring thaw of snow, which reaches the highest rate in June. The hydrogeological environment comprises aquifers in superficial deposits such as fluvio-glacial sediments, and moraines; and confined aquifer based on borehole evidence (phreatic surfaces at 140 and 110 mbgl). The hydraulic conductivity in the confined aquifer is controlled by fractures and is highly variable (0.01 to 22 m/d). Recharge is through precipitation and infiltration from overlying water-bearing horizons. There is a perennial permafrost layer varying in thickness from 200 to 400 m; the upper layer varies seasonally but this has not been measured to date. Hydraulic conductivity is fairly low in the permafrost. Based on available information, water resources are potentially plentiful and indeed, managing water will be one of the key environmental issues (quantity and quality) of the Project. Comprehensive groundwater and surface water baseline studies (with Azarga Metals Corp. 5 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation modelling) will be essential so that reliable impact predictions and management methods can be developed. social and community 20.5 SOCIAL AND COMMUNITY The population of the Zabaikalsky Region was 1,117,030 in 2009, and 18 nationalities were recorded. Ninety-four percent were Russians, and 1 to 2% Buryats and Ukrainians (SRK 2010). From the beginning of the 1990s the regional population has decreased due to the death rate exceeding the birth rate and migration. Populations are dynamic, and the figures will need to be updated during social baseline studies for the Project. Information and data that is currently available is out-of-date but provides useful insight to the social environment of the Region and District. Migration in and out of the Region and District have taken place over decades in response to economic factors and job opportunities. Importantly, exploration and mining projects are already familiar to communities and authorities which could be beneficial in terms of acceptance of the proposed mine and support for it. Azarga refers to the “uniquely attractive jurisdiction for mining development” which is close to China (potential market), has strong legal environment, access to educated workforce, and government incentives. Two copper deposits in Zabaikalye have entered the construction phase and indicates that the overall region will enter a phase of development which could see positive impacts including employment opportunities, improved infrastructure, and standards of living. 20.5.1 INDIGENOUS PEOPLE It is estimated that half the District population live alongside the BAM railway line and the majority are Russians. Indigenous people, the Evenks, comprise an estimated 5% of the population which means that IFC PS7 (indigenous Peoples) is triggered and the guidelines would be a key reference for the social studies. The objectives of PS7 include predicting and avoiding adverse impacts on indigenous communities and respecting and preserving the culture, knowledge, and practices of the communities. Investors, lenders, and other groups such as non-governmental organisations (NGOs) pay particular attention to indigenous peoples and human rights. Thus, an ESIA must include adequate studies of the Evenk, in line with Russian and international standards. In the Kalarsky District, the Evenk people mostly live in Kyust-Kemda, Chapo-Ologo, Nelyaty, and Sredny Kalar which are settlements that have legislative status of residential and economic areas of Russian, indigenous minorities (Decree of Russian Government 8th May 2009, in SRK 2010). A regional office of the Association of Indigenous Minorities of the North and Far East is based in the Zabaikalsky Region. It is recommended that the office is consulted as a primary stakeholder when the Unkur ESIA is initiated. The main livelihoods of the Evenks are reindeer herding and hunting sable. The number of reindeer increased from 50 in 1994 to 1,400 in 2010 and at that time numbers continued to increase. Reindeer herding involves moving animals across Azarga Metals Corp. 6 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation extensive tracts of land, so it is essential to establish if the Evenk herders use or cross land in the concession (for hunting or herding). Land use will be part of the social baseline studies. Land-use information will be obtained through a variety of sources, including information held by authorities and consultation with the Evenk and other stakeholders. 20.5.2 ARCHAEOLOGY AND CULTURAL HERITAGE Twenty or so archaeological objects (tangible assets) were discovered in the Chara River during the 1970s and 1980s and included settlements, camps, and rock art. In the 1990s, modern religious objects were found by State researchers near Udokan (SRK 2010). There is no available archaeological nor cultural heritage information on the Unkur concession. 20.6 ENVIRONMENTAL ASPECTS AND POTENTIAL IMPACTS Based on available information about the site and Project, potential environmental and social impacts are listed in this sub-section; the significance of impacts would be assessed for each phase of the LOM in the Project ESIA. This list is preliminary and would be fully developed when baseline studies are complete, and the engineering designs are sufficiently detailed for an impact assessment to be made. The proposed processing methods may change as engineering studies progress, so the list presented here is subject to change. Potential negative impacts: • Exploration results and geological studies reveal sulphide mineralisation and, therefore, the potential for ARD with leaching metals into water (surface/groundwater). • Use of cyanide in processing has potential impacts on human health and the environment. • The concession is a greenfield site and air quality is clear in this rural area. However, temperature inversion occurs in places in the District and, if this phenomenon occurs on the concession, could cause project emissions to be trapped leading to health impacts on site personnel and others. • The topography of the site is conducive to soil erosion when areas are disturbed and cleared for exploration activities (which are ongoing) and when construction begins. • Loss of soil through erosion and/or clearing has the potential to negatively impact vegetation and water quality. • Loss of habitat. • Impacts to the water environment (surface and groundwater) have the potential to be amongst the most significant impacts associated with the Project, affecting quality and quantity. Azarga Metals Corp. 7 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation • The established transport routes provide the region with direct access to Asian and Pacific markets. However, the capacity of the routes may be exceeded as other projects in the Region are developed. Capacity should be considered as part of a cumulative impact assessment for the Unkur ESIA Potential positive impacts: • Job opportunities. • Skill development. • Improved prosperity on local level due to the multiplier effect. • Revenues will be raised through taxes and royalties that are paid at regional and national level. 20.7 ENVIRONMENTAL AND SOCIAL MANAGEMENT PLANS An environmental and social management plan (ESMP) would be included in an ESIA report and form part an environmental and social management system (ESMS). The ESMP should contain specific, measurable, achievable, relevant and time-bound (SMART) mitigation and monitoring programmes so that managers are able to implement the plans effectively, based on the guidance provided in the ESMP. Roles and responsibilities for implementing the ESMP and estimated costs should also be included so that realistic budgets can be allocated. An ESMP is a live document that should be updated and revised when there are changes during the life of the project (e.g., change from construction to operational phase, changes to processes). Although the ESMP would be part of the ESIA report, it should be developed as a stand-alone document that can be included in contract documents and handed to heads of departments for implementing. In addition to the ESMP, contractors should be required to produce method statements for work they are responsible for. Specific management plans and procedures may include, but are not limited to: • waste management • water management • community development • resettlement action plan (RAP) If the need for either economic or physical resettlement is identified during the ESIA, a framework resettlement action plan (FRAP) should be included in the ESIA report. A FRAP documents all the legislative and regulatory procedures that need to be followed. • rehabilitation and closure plan • influx management plan • emergency response and preparedness • chance-find procedure. Azarga Metals Corp. 8 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 20.8 MINE CLOSURE REQUIREMENTS Mine closure plans should be included in the ESIA as a framework that lists legal and international standards requirements. Planning for closure from the Project outset can lead to cost-effective plans being developed (e.g., costs for rehabilitation of worked out areas of the mine during the operational phase are covered by operating costs rather than a dedicated closure budget). Closure and rehabilitation plans should address planned and unplanned for closure. Post-closure land-use should be included as a topic for discussion during public consultation. Azarga Metals Corp. 9 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 21.0 CAPITAL AND OPERATING COST ESTIMATES 21.1 CAPITAL COST ESTIMATE 21.1.1 SUMMARY Table 21.1 shows the Project initial capital cost estimate. Table 21.1 Initial Capital Cost Summary Cost Area (US$ million) Mining Pre-strip 17.9 Mining Contractor Mobilisation 3.0 Process Plant 100.5 Infrastructure and Tailings 17.9 Owners Costs 5.0 Preliminaries and General 5.0 Contingency 37.3 Total Initial Capital Cost 186.6 Note: Excluding project studies and development costs FOREIGN EXCHANGE RATES The majority of the costs were estimated in US Dollars and Russian Rubles. The foreign exchange rate used for the estimate was RUB₽62.5 to US$1.00. 21.1.2 MINING Costing for the PEA is based on the appointment of a mining contract company to undertake project mining activities. In addition to operational mining activities, the mining contractor will be responsible for pre-stripping activities and may also be used for much of the preliminary earthworks required for process plant construction and developing site infrastructure. The mining contractor will need to mobilise to site at the beginning of the construction period to establish their operational and maintenance facilities and to commence pre-striping and construction activities. An allowance of US$3.0 million has been made for the mining contractor’s mobilisation costs. The mine plan assumes that approximately 10 Mt of waste rock will be moved as part of pre-stripping activities to access the mineralised material and prepare the mine for the start of operations. It is anticipated that much of this waste material can be used for construction of the TMF, WRD, ROM pad, and other infrastructure facilities. Azarga Metals Corp. 21-1 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation The total initial mining capital cost is US$20.9 million. Table 21.2 shows the initial mining capital cost breakdown. Table 21.2 Initial Mining Capital Cost Summary Cost Area (US$ million) Mining Pre-Strip 17.9 Mining Contractor Mobilisation 3.0 Total Initial Mining Capital Cost 20.9 Note: Excluding project studies and development costs 21.1.3 PROCESS PLANT The process plant flow sheet was developed for the Unkur project with a plant feed rate of 3 Mt/a. The direct capital costs were estimated by generating an equipment list from the flow sheet and estimating the capital cost using the latest edition of Infomine’s Mine and Mill Equipment Cost Guide. Where appropriate, these costs were adjusted to suit the location, by using recent vendor quotes from other similar projects, and by using Tetra Tech’s internal cost database. This is appropriate for PEA purposes, where the cost estimate is typically within the range of ±50% using top down cost estimation techniques. The installed motor sizes were also estimated using the same method. Where relevant data was not available from the manual, other estimates such as vendor packages or budget prices provided by equipment suppliers were used. Once the basic equipment cost was calculated, factors were applied to estimate the direct construction capital costs and other indirect costs, these factors being derived from similar projects. With the change in the anticipated plant feed rate, the cost estimate was adjusted accordingly using industry standard scaling factors. The estimated initial capital cost for the process plant is US$100.5 million. Table 21.3 shows the initial process plant capital cost breakdown. Table 21.3 Initial Process Plant Capital Cost Summary Cost Area (US$ million) Direct Capital Equipment Cost Crushing 1.8 Grinding 14.5 Mill Thickener 0.8 Leach Circuit 4.0 CCD Washing 3.3 SART Process and Concentrate Handling 3.1 Reagent Preparation and Distribution 0.4 Plant Supply and Utilities 1.3 Total Direct Capital Equipment Cost 29.2 table continues… Azarga Metals Corp. 21-2 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation Cost Area (US$ million) Indirect Capital Costs Civils 8.7 Structural Steel 5.8 Piping & Valves 11.7 Electrical & Instrumentation 11.7 Transport 5.8 Erection of Items 4.4 Vendor Services 0.9 First Fills 0.9 Total Indirect Capital Costs 49.9 Total Installed Plant Capital Cost 79.1 Site Preparation and Construction Management 11.9 Plant Mobile Equipment Cost 3.6 Coarse ore Stockpile Construction 5.9 Total Initial Process Plant Capital Cost 100.5 21.1.4 INFRASTRUCTURE AND TAILINGS The initial infrastructure capital cost reflects the need to develop the site but where possible has assumed that services can be sourced from the local community. Initial construction of the TMF will also need to be completed. However, to reduce the initial capital costs it has been assumed that a starter tailings dam will be constructed initially and will be developed throughout the LOM. Based on the infrastructure requirements outlined in Section 18.0, the initial capital costs were estimated using a combination of unit rates and direct costs developed from other similar projects. The initial infrastructure and tailings capital cost is US$17.9 million. Table 21.4 shows the initial infrastructure and tailings capital cost breakdown. Table 21.4 Initial Infrastructure and Tailing Capital Cost Summary Cost Area (US$ million) Access Road 2.6 Power Line 4.6 Water Supply 1.5 Offices and Workshops 2.3 TMF 6.6 Miscellaneous 0.3 Total Initial Infrastructure and Tailings Capital Cost 17.9 Note: Excluding project studies and development costs It is assumed that the TMF will be constructed using waste rock from the pre-striping mining operation. The mining costs include an average cost of waste mining, transport, and storage of US$1.79/t. If it is not possible to use the waste rock for dam construction, then the TMF costs may increase. Azarga Metals Corp. 21-3 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 21.1.5 OTHER CAPITAL COSTS OWNER’S COSTS The Project Owner’s costs during the construction period have been estimated at US$5 million. This cost excludes project studies and development costs. PRELIMINARIES AND GENERAL An allowance of US$5 million has been made for construction transportation and other project costs. CONTINGENCY At this stage of the project, with the level of uncertainty regarding the site investigations, layout, TMF, and process design, it is considered appropriate to allow a 25% contingency, which equates to US$37.3 million. CLOSURE COSTS A detailed closure plan will be considered as part of the next study phase; however, for this stage of the evaluation it has been assumed that there will be some plant salvage value which will offset some of the closure costs. An additional allowance of 3% of the initial capital cost (US$3.5 million) will be spent on the remaining closure costs and will be spread over a two-year period at the end of mining activities. 21.1.6 WORKING CAPITAL The working capital requirement is reduced by using a mining contractor; however, a working capital allowance has been estimated, equivalent to one month of operating costs. This is a rolling assumption and the working capital requirement will increase with increasing production. It is assumed that there will need to be an initial working capital funding requirement of approximately US$6.0 million, rising to US$7.6 million in Year 1. 21.1.7 SUSTAINING CAPITAL COSTS A number of areas will require additional development costs during the LOM that can be classed as sustain capital expenditures. It should be noted that maintenance and replacement of the mining fleet will be the responsibility of the mining contractor and is included in the contract mining costs; therefore, no additional allowance for mining sustaining capital is required. An allowance of 1% of the total process plant cost (3.4% of the process plant equipment cost) has been made every year for capital replacement items. A further allowance of 2.4% of the infrastructure costs has been made every year for capital replacement and maintenance requirements associated with the fixed infrastructure supporting the mining and processing operations. The TMF will require expansion and development over the LOM and an allowance has been made for periodic development of the TMF at different stages of the LOM. Azarga Metals Corp. 21-4 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation The sustaining capital cost for the Project is US$1.8 million. Table 21.5 shows the sustaining capital cost breakdown. Table 21.5 Sustaining Capital Cost Summary Average Annual Cost Area (US$ million) Mining -* Process Plant 1.00 Infrastructure 0.53 TMF 0.27 Total Sustaining Capital Cost 1.80 Note: *included in mining cost 21.2 OPERATING COST ESTIMATE 21.2.1 SUMMARY The average operating cost over the LOM is US$40.76 and is summarised in Table 21.6. Table 21.6 Operating Cost Summary Cost (US$/t Area processed) Mining 18.88 Processing 16.89 TMF 0.60 G&A 1.50 Off-site Charges 2.89 Total Operating Cost 40.76 21.2.2 MINING The contract mining costs were calculated based on the overall costs of an Owner mining operation over the LOM with an additional 10% profit margin. This results in the following all in mining cost per tonne moved, including capital depreciation, maintenance, fuel, labour, explosives, etc.: • mineralised material US$2.12/t • waste US$1.79/t. In addition to the contract mining costs, an Owner’s mining team will plan and monitor mining activities, direct drilling and blasting, manage the grade control, and manage the mining contractor. Azarga Metals Corp. 21-5 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation The average mining cost over the LOM is US$18.88/t processed, as presented in Table 21.7. Table 21.7 Mine Operating Cost Summary Cost (US$/t Area processed) Mineralised Material 2.12 Waste 16.38 Owner’s Mining 0.38 Total 18.88 21.2.3 PROCESSING The process operating cost includes: • labour (operations and maintenance) • reagents and consumables (plant) • maintenance spares • power. Labour was estimated using an assumed annual labour cost of US$1.5 million, including plant operations and maintenance labour. Reagent consumptions were estimated based on SGS Vostok test work results whenever available. Other reagents were estimated by assuming a 120% stochiometric consumption and from experience in similar projects, as well as using industry standard assumptions. An allowance of 95% cyanide recycle efficiency was assumed in estimating the net cyanide consumption. Maintenance spares were calculated assuming 5% of the cost of the mechanical equipment. Power costs were calculated based on an estimate of absorbed power requirements and an assumed power cost of US$0.06/kWh, which assumes main grid power. The total plant operating cost for the proposed flowsheet is estimated at US$16.89/t processed. The process plant operating cost over the LOM is US$16.89/t process, as presented in Table 21.8. Table 21.8 Process Plant Operating Cost Summary Cost (US$/t Area processed) Consumables 1.42 Reagents 11.21 Azarga Metals Corp. 21-6 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation Power 2.91 Labour 0.68 Maintenance and Spares 0.67 Total Process Operating Cost 16.89 21.2.4 TAILINGS MANAGEMENT FACILITY An allowance of US$0.60/t of tailings has been made for the TMF operation. 21.2.5 GENERAL AND ADMINISTRATIVE An allowance of US$1.50/t of mineralised material processed has been made for the general operational management, sales, and administration costs for the mine and process plant. 21.2.6 OFF-SITE CHARGES At this stage there have been no discussions with potential customers. However, three potential general market areas have been identified: • within Russia (Krasnoyarsk and other smelters) • within China via the rail land-port of Zabaykalsk • customer accessible via sea route from the Russian Pacific ports of Vanino and Sovetskaya Gavan. Transport costs to these markets have been estimated at approximately US$100 /t concentrate (wet). In the absence of any specific smelter terms, typical terms have been assumed for the PEA economic analysis based upon similar projects. Table 21.9 summarises the average off-site charges expressed in costs per tonne of mineralised material processed. Table 21.9 Off-site Charges Summary Cost (US$/t Area processed) Off-site Charges - Product Transport 0.89 Smelter Charge 2.00 Total Off-site Charges 2.89 Azarga Metals Corp. 21-7 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 22.0 ECONOMIC ANALYSIS Tetra Tech prepared an economic evaluation of the Project based on a pre-tax financial model. Table 22.1 shows the pre-tax financial parameters for the eight-year LOM, with 16.9 Mt selected open pit tonnage, contract mining, and nominal 2 Mt/a of feed to the process plant. The PEA is preliminary in nature and includes Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorised as mineral reserves. Furthermore, there is no certainty that the conclusions or results as reported in the PEA will be realized. Mineral resources that are not Mineral Reserves do not have demonstrated economic viability. Table 22.1 Pre-tax Analysis Summary Base Case Area Unit (2 Mt/a) IRR % 28.9 NPV (8% discount rate) US$ million 203.0 Payback years 3.0 Initial Capital Cost US$ million 187.0 An alternative throughput scenario using 3 Mt/a was initially evaluated as the base case, but it was found that the reduced 2 Mt/a gave improved economic results. Therefore, the PEA base case was adjusted accordingly using standard cost engineering practices. Azarga appointed Russian legal and accounting firm NSPLaw to prepare the Project post-tax analysis on the basis of the Tetra Tech pre-tax economic model. NSPLaw assessed that the Project should be eligible to be considered as a RIP, which will allow the Project tax to be assessed under the RIP tax regime. NSPLaw has considered the RIP scheme as the post-tax base case for the PEA. However, at this stage, the eligibility of the Project has not been formally confirmed and so a second alternative post-tax analysis was prepared under the general taxation system. Table 22.2 shows the base case post-tax analysis for the project under the RIP tax regime, as well as the alternative post-tax analysis under the general tax scheme. Azarga Metals Corp. 22-1 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation Table 22.2 Post-Tax Analysis Summary Base Case Alternative Case RIP Tax General Tax Area Unit Scheme Scheme IRR % 28.9 16.9 NPV (8% discount rate) US$ million 203.0 76.0 Payback years 3.0 3.9 Initial Capital US$ million 187.0 187.0 22.1 PRINCIPLE ASSUMPTIONS 22.1.1 METAL PRICES The following metals price assumptions were used as the basis of the PEA at the request of Azarga: • copper price: US$3.25/lb (US$7,165/t) • silver price: US$20.00/t oz. Azarga issued a clarification statement regarding silver price stating: A silver price of US$20 per ounce was used in the PEA and while it may appear high relative to the current spot price of less than US$15 per ounce, the forecast price is justified on the basis that: (i) the forward curve for silver, permanently in contango, only dropped below US$20 per ounce for the 2020-2021 period (matching potential development timeframe for Unkur) in June 2018 and has been above that for most of the last three years; and (ii) the average long-term silver price forecast of a number of independent analysts referenced (including Macquarie Bank, UBS, Credit Suisse, BMO, ABN Amro and TD Economics) remains at approximately US$20 per ounce. It should also be noted that copper is the primary revenue metal in the PEA (Azarga 2018). 22.1.2 SALES ASSUMPTIONS AND OFF-SITE CHARGES The PEA revenue estimate is based on the production of a high-grade copper concentrate containing silver credits. The SART process will produce a synthetic mineral precipitate largely consisting of chalcocite (Cu2S) and acanthite (Ag2S), which will result in a high-grade copper concentrate of approximately 75.0% copper and 6,500 g/t silver. This compares favourably with standard copper concentrates that are typically 22 to 24% copper which should make this product very attractive to smelters. There is also the possibility that this material may be accepted directly at custom refiners. At this stage there have been no discussions with potential smelters or refineries. Therefore, standard smelter terms have been used for the PEA, which should be relatively conservative. Azarga Metals Corp. 22-2 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 22.1.3 CONTRACT MINING To reduce the initial capital costs for the PEA, it was assumed that a suitable contract mining company will be appointed to conduct mining activities and manage the development of the WRDs. With a contract mining strategy, where the contract miner is paid on tonnes of material moved, there is a risk of additional mining dilution and the potential for a lower mining recovery of mineralised material. To minimise this risk, Azarga will have their own mine management team to supervise the mining and grade control activities. To allow for this risk at this stage, Tetra Tech assumed an additional 10% mining dilution and an additional 5% loss of mineralised material in the financial model. This represents a significant future upside opportunity if suitable terms can be agreed upon to minimise mining dilution and maximise recovery. 22.2 PRE-TAX ANALYSIS 22.2.1 FINANCIAL MODEL The production schedule was incorporated into the 100% equity pre-tax financial model to develop annual recovered metal production from the relationships of tonnage processed, head grades, and recoveries. Market prices for copper and silver were adjusted to realised price levels by applying refining and transportation charges from mine site to refinery in order to determine the net revenue contributions for each metal. Unit operating costs for mining, processing, and G&A areas were applied to annual milled tonnages to determine the overall mine site operating cost, which was deducted from the net revenue to derive the operating cash flow. The initial capital costs and allowances for sustaining capital were incorporated on a year-by-year basis over the LOM and deducted from the operating cash flow to determine the net cash flow before taxes. Initial capital costs include costs accumulated prior to first production of copper-silver concentrate and sustaining capital costs include expenditures for infrastructure and processing additions, replacement of equipment, and tailings embankment construction. Working capital costs are estimated at one month of the first year on-site operating cost and applied to the final year of construction. The working capital is recovered at the end of the LOM. 22.2.2 OFF-SITE CHARGES In the absence of letters of intent, the following off-site charges were assumed for the copper-silver concentrate produced: • payable copper: 98% • payable silver: 97% • copper treatment charge $20.41/dmt concentrate (based upon high-grade concentrate) Azarga Metals Corp. 22-3 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation • copper refining charge US$0.07/lb payable copper • silver refining charge US$0.50/t oz payable silver • concentrate transport charge US$100/t concentrate (wet). 22.2.3 CASH FLOW Figure 22.1 shows the base case undiscounted annual and cumulative pre-tax cash flow. Figure 22.1 Base Case Undiscounted Annual and Cumulative Pre-tax Cash Flow Cash Flow Cumulative Discounted Cash Flow Source: Tetra Tech 22.2.4 NPV, IRR AND PAYBACK PERIOD Table 22.3 shows the results of the pre-tax financial analysis over the eight-year mine life, processing 16.9 Mt at a nominal 2 Mt/a of plant feed. Table 22.3 Pre-tax Analysis Summary Base Case Area Unit (2 Mt/a) IRR % 28.9 NPV (8% discount rate) US$ million 203.0 Payback years 3.0 Initial Capital Cost US$ million 187.0 Azarga Metals Corp. 22-4 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 22.2.5 PRE-TAX SENSITIVITY Sensitivity analyses were carried out on the following pre-tax parameters: • revenue (copper and silver prices) • initial capital cost • on-site operating costs. The analyses are presented graphically as financial outcomes in terms of NPV and IRR. The Project NPV, at an 8% discount rate, is most sensitive to the changes in metals prices affecting the Project revenue. In decreasing order, the Project is most sensitive to operating costs and least sensitive to initial capital cost (Figure 22.2). As copper and silver account for approximately 56% and 44% of revenue, respectively, the Project is slightly more sensitive to changes in the copper price. Figure 22.2 Pre-tax NPV Sensitivity Initial Capital Cost Operating Cost Revenue Source: Tetra Tech The IRR is also most sensitive to the revenue and metals prices. However, the Project IRR is marginally more sensitive to increases in initial capital cost than the operating cost. (Figure 22.3). Azarga Metals Corp. 22-5 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation Figure 22.3 Pre-tax IRR Sensitivity Initial Capital Cost Operating Cost Revenue Source: Tetra Tech. 22.3 POST-TAX ANALYSIS Azarga appointed Russian legal and accounting firm NSPLaw to prepare the Project post-tax analysis on the basis of the Tetra Tech pre-tax economic model. 22.3.1 TAXES AND ROYALTIES According to NSPLaw, the Russian tax system includes the following direct taxes on corporate profits and corporate property that have a significant effect on corporate financial statements: • corporate income taxes (CIT) • mineral extraction tax (MET) • corporate property tax (CPT). NSPLaw has assessed that the Project should be eligible to be considered as a RIP, which will allow the Project tax to be assessed under the RIP tax regime and significantly reduce the tax payable by the Project. NSPLaw recommended considering the RIP scheme as the base case for the PEA. At this stage, the eligibility of the Project has not been formally confirmed; therefore, a second alternative post-tax analysis was prepared under the general taxation system. Azarga Metals Corp. 22-6 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 22.3.2 CASH FLOW Figure 22.4 shows the undiscounted annual and cumulative post-tax cash flow. Figure 22.4 Base Case Undiscounted Annual and Cumulative Post-tax Cash Flow Post-tax Cash Flow (Base Case) Post-tax Cash Flow (Alternate Case) Cumulative Discounted Cash Flow (Base Case) Cumulative Discounted Cash Flow (Alternate Case) Source: Tetra Tech 22.3.3 NPV, IRR AND PAYBACK PERIOD Table 22.4 shows the results of the post-tax financial analysis over the eight-year LOM, processing 16.9 Mt at a nominal 2 Mt/a of plant feed. Table 22.4 Post-Tax Analysis Summary Base Case Alternative Case RIP Tax General Tax Area Unit Scheme Scheme IRR % 28.9 16.9 NPV (8% discount rate) US$ million 203.0 76.0 Payback years 3.0 3.9 Initial Capital Cost US$ million 187.0 187.0 22.3.4 POST-TAX SENSITIVITY Sensitivity analyses were carried out on the following post-tax parameters: • revenue (copper and silver prices) • initial capital cost Azarga Metals Corp. 22-7 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation • on-site operating cost. The analyses are presented graphically as financial outcomes in terms of NPV and IRR for both the base case and the alternative case. For both cases the Project NPV at an 8% discount is most sensitive to the changes in the metals prices affecting the Project revenue. In decreasing order, the Project is next most sensitive to operating cost and least sensitive to initial capital cost (Figure 22.5 and Figure 22.6). As copper and silver account for approximately 56% and 44% of the Project revenue, respectively, the Project is slightly more sensitive to changes in the copper price. Figure 22.5 Base Case Post-tax NPV Sensitivity Initial Capital Cost Operating Cost Revenue Source: Tetra Tech Azarga Metals Corp. 22-8 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation Figure 22.6 Alternate Case Post-tax NPV Sensitivity Initial Capital Cost Operating Cost Revenue Source: Tetra Tech. The IRR is most sensitive to the revenue and metals prices; however, the Project IRR is marginally more sensitive to increases in initial capital cost than the operating cost. (Figure 22.7 and Figure 22.8). Figure 22.7 Base Case Post-tax IRR Sensitivity Initial Capital Cost Operating Cost Revenue Source: Tetra Tech Azarga Metals Corp. 22-9 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation Figure 22.8 Base Case Post-tax IRR Sensitivity Initial Capital Cost Operating Cost Revenue Source: Tetra Tech Azarga Metals Corp. 22-10 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 23.0 ADJACENT PROPERTIES The Udokan copper deposit is located 25 km south of the Property license. Like Unkur, the Udokan deposit copper mineralization is confined to sediments of the Sakukanskaya Formation. However, the mineralisation for Udokan is located in the Upper subformation, whereas the Unkur mineralization is located in the Lower subformation. Information regarding Udokan is publicly available on the Baikal Mining Company (Baikal) website (http://www.bgk-udokan.ru/en/). A Feasibility Study for Udokan was completed in February 2014, and, according to the project execution dates presented by Baikal, mining will commence in 2021. The current Udokan Australasian Joint Ore Reserves Committee (JORC) compliant Mineral Resources and Ore Reserves are shown in Table 23.1. The results and Mineral Resources reported for Udokan are not necessarily indicative of mineralisation on the Unkur Property and the QP has not been able to verify the information. Table 23.1 Udokan Mineral Resources as of March 2014 Ag Metal Tonnes Cu Grade Ag Grade Cu Metal (million Resource Category (Mt) (%) (g/t) (Mt) t oz) Measured 339 1.03 8.9 3.5 97 Indicated 1,483 1.01 11.1 14.9 531 Measured + Indicated 1,822 1.01 10.7 18.4 628 Inferred 932 0.89 14.3 8.3 428 Total 2,754 0.97 11.9 26.7 1,056 Source: Compiled from figures publicly reported on the Baikal website: https://www.bgk-udokan.ru/en/ Azarga Metals Corp. 23-1 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 24.0 OTHER RELEVANT DATA AND INFORMATION There is no other relevant data or information pertaining to the Project. Azarga Metals Corp. 24-1 782-SWIN 032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 25.0 INTERPRETATIONS AND CONCLUSIONS 25.1 GEOLOGY During the 2016 and 2017 field seasons, Azarga explored the Unkur deposit through drilling and trench sample collection methods and confirmed the presence of significant copper-silver mineralisation. This work, plus the updated Mineral Resource estimate, helped to confirm the historical work completed at the Project site. The quality and quantity of data collected by Azarga is a sufficient basis for reporting an updated Mineral Resource for the Project. The update is based on revisiting the model parameters and grade distributions. The mineralised domain supported by drilling and trenching was reinterpreted slightly based on discussions with Azarga’s geologist. The strike was interpreted to be 3.5 km long and open to at least 540 m down dip. There are currently interpreted to be two mineralised structures that have both been modelled. They are both understood to be continuous from surface exploration but have been limited in the estimate by the search parameters so as not to overstate the tonnage. The areas that have been modelled, but not estimated, represent the target for further exploration. It has also been considered that there are additional structures, within the broader mineralised zone, which may be discovered by further drilling in the future. The northern part of the domain is Quaternary moraine material, which increases to a thickness of approximately 100 m at the northern limit of the Mineral Resource. The Project data is considered accurate to support an Inferred Mineral Resource classification, although there are considerations to upgrade the Mineral Resource through further exploration campaigns and Mineral Resource updates. The main consideration is the drillhole spacing and the limit of confidence of the spatial continuity. Currently the drill sections are 300 to 400 m apart, which is not sufficient data quantity or spacing to model a reliable semi-variogram to reliably estimate the grade continuity. With the current data spacing there is likely to be local structural complexity, which will complicate the interpretation as the deposit is further drilled. 25.2 METALLURGY AND PROCESS The economic metals of the Unkur deposit are copper and silver and the dominant oxide copper minerals are malachite and azurite, with inclusions of native silver and silver sulphide. Azarga Metals Corp. 25-1 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation The diagnostic leach investigations indicate that the mineralised material is a free milling, non-refractory type, with less than 5% of copper locked in sulphides and silicates at a grind size of approximately P80 = 75 µm. Copper and silver are reasonably uniformly distributed among the size fractions with a slight increase in the finer (–53 µm) fraction. This indicates that separation methods based on particle size distribution will not be effective in making copper/silver concentrates. Copper and silver recoveries from gravity concentration are extremely low (copper is less than 1.25%, silver is less than 3.50%). The relevant concentrate grades are also relatively low (copper is less than 2.4%, silver is less than 133 g/t). This is a clear indication that gravity concentration is not effective as a pre-concentration step for this Project. The flotation test results indicate that saleable flotation concentrates cannot be produced at acceptable recoveries. The ROM acid leach results indicate that approximately 95% copper extraction could be achieved by acid leaching; however, the H2SO4 consumption was very high for the acid leaching (90 kg/t) The cyanide leach of the acid leach residue results indicates that higher silver extractions (of up to 95%) could be achieved at relatively lower cyanide consumptions (0.8 kg/t). The concentrate leaching has shown significantly lower overall extractions for both copper and silver compared to the ROM leach. Based on the process options trade-off study, Tetra Tech concludes that a process flowsheet that incorporates cyanide leach followed by a SART process would provide better economic returns to the Project. 25.3 MINING By selecting the smaller pit, it is possible to obtain a mineral inventory of at least 15 Mt, which is sufficient to achieve a LOM of at least 8 years at a feed rate of 2 Mt/a. A sensitivity study of the Project value (NPV) and mineral inventory demonstrated that the key parameter is copper price. Parameters such as mining cost, processing cost, process recovery, and dilution do not have a significant impact within the selected ranges. The expected mining recovery and waste dilution for this style of mineralisation is set at 95% and 15%, respectively. It may be possible to improve upon this with smaller equipment that is more selective; however, this will increase mining costs and reduce mining rate when selectively mining. With the smaller pit, the peak mining rate is kept to less than 27 Mt/a of total rock movement. This translates into a fleet of 17, 136 t haul trucks and three excavators. Azarga Metals Corp. 25-2 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation The larger pit could sustain a higher mining rate of 3 Mt/a of mineral inventory, but would require a substantially higher peak mining rate of in excess of 45 Mt/a. This would significantly increase the initial capital and introduce issues with the vertical advance rate due to the configuration of the pit. There is no reason why the smaller pit could not be expanded later to encompass the larger pit outline. This would be especially true if the Mineral Resource can be expanded by further drilling. The mine plan presented in this PEA assumes that contract mining will be used to reduce capital. The size of the smaller pit is well suited to the type of mine equipment that is typically offered by the mine contractors. 25.4 PROJECT INFRASTRUCTURE The Project location has good established infrastructure. The towns of Chara and Novaya Chara should be able to provide facilities for worker accommodation, as well as airport and rail connections. The Project is approximately 2.6 km away from the main high-voltage power line, which is understood to have a capacity of 100 MW. There are existing roads which pass within 12 km of site. The Project will need to upgrade 8 km of existing tracks and construct a new 3.5 km access road. The proposed pit area runs parallel to the east of the river and it is proposed to place the WRD close to the pit on the west to reduce any potential impacts. A potentially suitable valley for the TMF has been identified to south of the pit, however further site investigations and a TMF trade off study is required to determine the most appropriate tailing management facility design and cost. The ROM pad will be located close to the pit exit, south of the pit. ROM mineralised material will be crushed and conveyed to the plant via a covered stockpile. The process plant will be located in a compact building to minimise costs. The mining contractor’s facilities will be located adjacent to the process plant. The mining contractor will provide their own offices and workshop facilities. 25.5 ENVIRONMENTAL The high-level environmental review and identification of potential impacts were based on desktop research and review of publicly available information and Project reports (i.e., field visits were not carried out to ground-truth findings). It is likely that site-specific impacts will be identified during the course of an ESIA, but the current review is adequate for the PEA. In terms of infrastructure, the proposed mine will benefit from existing roads, rail, and airport, as well as the investments that have recently been made by other companies. The region has a history of mining which is beneficial as communities and authorities are familiar with the sector. Azarga Metals Corp. 25-3 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation There is some existing information and data that will provide historical context for baselines, however, site-specific baseline studies will need to be completed for the Project. Next steps for the Project should include commencing the ESIA process. International-standard ESIAs comprise three main phases (scoping, baseline, and impact assessment/ESMP), which are summarised in Figure 25.1. Public consultation and disclosure (stakeholder engagement) is a separate but parallel process to the EISA and ecosystem services are studies that are integrated with the biological, physical and social environments, as shown in Figure 25.1. Figure 25.1 ESIA Process 25.6 CAPITAL AND OPERATING COSTS The initial capital cost estimate has been prepared based on the use of contract mining. The contract mining company will also be used for pre-stripping activities and to assist with the earthworks for construction of the process plant, TMF, and other infrastructure. Table 25.1 shows the Project initial capital cost estimate. Azarga Metals Corp. 25-4 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation Table 25.1 Initial Capital Cost Summary Cost Area (US$ million) Mining Pre-strip 17.9 Mining Contractor Mobilisation 3.0 Process Plant 100.5 Infrastructure and Tailings 17.9 Owners Costs 5.0 Preliminaries and General 5.0 Contingency 37.3 Total Initial Capital Cost 186.6 Note: Excluding project studies and development costs The average operating cost over the LOM is US$40.76 and is summarised in Table 25.2. Table 25.2 Operating Cost Summary Cost (US$/t Area processed) Mining 18.88 Processing 16.89 TMF 0.60 G&A 1.50 Off-site Charges 2.89 Total Operating Cost 40.76 25.7 ECONOMIC ANALYSIS Tetra Tech prepared an economic evaluation of the Project based on a pre-tax financial model. Table 25.3 shows the pre-tax financial parameters for the eight-year LOM, with 16.9 Mt selected open tonnage, contract mining operation and nominal 2 Mt/a of feed to the process plant. The following metals price assumptions were used as the basis of the PEA at the request of Azarga: • copper price: US$3.25/lb (US$7,165/t) • silver price: US$20.00/t oz. The PEA is preliminary in nature and includes Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorised as mineral reserves. Furthermore, there is no certainty that the conclusions or results as reported in the PEA will be realized. Mineral resources that are not Mineral Reserves do not have demonstrated economic viability. Azarga Metals Corp. 25-5 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation Table 25.3 Pre-tax Analysis Summary Base Case Area Unit (2 Mt/a) IRR % 28.9 NPV (8% discount rate) US$ million 203.0 Payback years 3.0 Initial Capital Cost US$ million 187.0 Sensitivity analyses were carried out on the pre-tax model. The Project NPV, at an 8% discount rate, is most sensitive to the changes in metals prices affecting the Project revenue. As copper and silver account for approximately 56% and 44% of revenue, respectively, the Project is slightly more sensitive to changes in the copper price. Azarga appointed Russian legal and accounting firm NSPLaw to prepare the Project post-tax analysis on the basis of the Tetra Tech pre-tax economic model. NSPLaw assessed that the Project should be eligible to be considered as a RIP, which will allow the Project tax to be assessed under the RIP tax regime. NSPLaw has considered the RIP scheme as the post-tax base case for the PEA. However, at this stage, the eligibility of the Project has not been formally confirmed and so a second alternative post-tax analysis was prepared under the general taxation system. Table 25.4 shows the base case post-tax analysis for the project under the RIP tax regime, as well as the alternative post-tax analysis under the general tax scheme. Table 25.4 Post-Tax Analysis Summary Base Case Alternative Case RIP Tax General Tax Area Unit Scheme Scheme IRR % 28.9 16.9 NPV (8% discount rate) US$ million 203.0 76.0 Payback years 3.0 3.9 Initial Capital US$ million 187.0 187.0 Sensitivity analyses were carried out on the following post-tax model. For both cases, the Project NPV at an 8% discount is most sensitive to the changes in the metals prices affecting the Project revenue. Azarga Metals Corp. 25-6 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 26.0 RECOMMENDATIONS The PEA results indicate that the Project has the potential to be economic and could be enhanced by the better definition and expansion of the Mineral Resource. However, there are a number of uncertainties that need to be investigated to better define the Project, reduce risks, and improve confidence. 26.1 GEOLOGY Tetra Tech believes that the Project potential is sufficient, based on the early exploration work and recommends further exploration work over two phases. 26.1.1 GEOLOGY PHASE 1 Based on the results of the PEA, and in particular the pit optimisation work, a campaign of infill drilling is recommended to increase the data density along strike by drilling between the current fences. This drilling will also give further clarity to the interpretation of the mineralised structures across strike and may encounter additional mineralised structures in the hanging wall and footwall of the currently identified mineralised structures. Focussing on improving the understanding of geological and spatial continuity in the optimised pit area could lead to upgrading the Mineral Resource classification for some of the mineralised material at the next Mineral Resource update phase. Additionally, Tetra Tech considers that it will be possible to include new Inferred Mineral Resources from the second, less drilled structure, in to the pit area. Discovery of further mineralised structure, as well as upgrading the known mineralisation will be favourable to the Project economics in terms of strip ratio and possible sink rates. Based on an all-in cost of US$300/m drilled (including assay, mobilisation/demobilisation, etc.), a programme of 2,000 m of drilling will approximately double the amount of data available for the Project at cost of approximately US$600,000. The estimated budget for Phase 1 work is US$650,000. 26.1.2 GEOLOGY PHASE 2 Tetra Tech recommends continued wider exploration of the Unkur license area to collect data in preparation for further work. As well as additional drilling to continue to explore the extensive known strike length of the Unkur mineralisation, there are a number of additional exploration requirements to advance the Project. Additionally, data such as an accurate survey of the Project area will be required for a later phase; therefore, Tetra Tech recommends an aerial or satellite survey of the Project, which can cover an extensive area to a high Azarga Metals Corp. 26-1 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation degree of accuracy for approximately US$20,000, which will be adequate for the mid- term needs of the Project. A full ground survey can be completed ahead of design and engineering in the future. Exploration of the strike of the deposit, based on historical data, and building on the results of Phase 1 should target adding additional new Mineral Resource into the Inferred category, and upgrading existing Inferred material to the Indicated category ahead of a Prefeasibility Study. A budget estimate of US$800,000 would cover drilling of an additional 2,500 m, and additional data collection. 26.2 METALLURGY AND PROCESS Tetra Tech recommends additional metallurgical test work as a path forward, and should include, but not be limited to: • comminution test work, including: Abrasion Index JKDropWeight test SAG Mill Comminution test Bond Ball Work Index and Crushability Index • mineralogy analysis including, but not limited to, Quantitative Analysis of Minerals by Scanning (QEMSCAN) • cyanide leach optimisation tests for the extraction of copper and silver • comprehensive SART test work program. Tetra Tech anticipates the estimated cost of this test work program to be approximately US$400,000 to US$800,000. Tetra Tech also recommends updating the process flowsheet option trade-off study following completion of the test work program. 26.3 MINING Tetra Tech makes the following mining recommendations: • In order to minimise initial capital costs the smaller pit should be selected and a mining contractor should be used. • The production rate for the smaller pit should be set at 2 Mt/a of mineral inventory. • Further updates to the Mineral Resource model, along with reclassification to Measured and/or Indicated Mineral Resources, will improve the confidence in the grade estimates and possibly extend the LOM. • Further work is required to confirm the geotechnical parameters controlling the slope angles, particularly the RECENT material. • Potential contact mining companies should be identified, and initial discussions held to determine terms and costs. Azarga Metals Corp. 26-2 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 26.4 PROJECT INFRASTRUCTURE Tetra Tech makes the following recommendations for additional investigations at the next stage of the study: • The following site investigations should be completed: mine geotechnical assessment infrastructure geotechnical assessment for the site infrastructure, building, TMF and WRD areas hydrology study hydrogeology study site-specific climatic data site-seismic study mineralized material and waste geochemistry testing, as well as ARD test work road condition survey • A TMF trade-off study should be completed. • Discussions should be held with the power authority to determine the capacity of the high-voltage line crossing the licence area and the potential for this line to support the Project. • Discussions should be held with the rail operator to determine supply costs and the costs of transporting product to customers. • Discussions should be held with the Novaya Chara railway station operator to determine if the station has capacity to unload equipment during construction; to unload reagents, consumables, and spare parts during operation; and to load product for export. • An investigation should be undertaken on the potential to house employees in the towns of Novaya Chara and Chara. • A detailed digital terrain map (DTM) of the area in electronic form should be obtained. The DTM should have a scale of at least 1 m contours initially for the next stage of study. Tetra Tech anticipates that many of the site investigations can be co-ordinated with the drill exploration programme, which can be used to collect geotechnical and hydrogeology data. This drilling programme can also be used to collect rock samples for the metallurgical test work and the ARD test work. The estimated additional cost of the recommended studies is approximately of US$500,000 to US$700,000. 26.5 ENVIRONMENTAL Tetra Tech presents the following recommendations regarding environmental and social considerations: • The ESIA and OVOS for the Project should begin as soon as possible due to the length of time taken to complete studies and submit documents. The scope for international-standard ESIAs are summarised in Section 25.5. Azarga Metals Corp. 26-3 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation • A scoping phase comprises desktop studies, site visit, and identifying potential impacts and key issues. Terms of reference for the baseline studies are included in the scoping report. It is important that the OVOS and ESIA teams collaborate at this stage so that they are aligned, albeit the OVOS and ESIA report will serve somewhat different purposes. • Baseline studies for the biophysical and social environments should begin whilst exploration continues. This will enable a minimum of one year’s seasonal data to be collected, in line with IFC PS, and will avoid project delays. • Public consultation should also begin alongside baseline studies so that information about the Project is accurate and a true reflection of the proposed development. Key messages should be developed and delivered to stakeholders and personnel involved in exploration and mine development. • It will benefit the Project if the company appoints and trains a community liaison officer as soon as possible. This will facilitate communication between the company and other parties and have the added advantage of avoiding inaccurate information about the Project circulating. • An ESMS should be developed for the Project, as is required by IFC PS1. If Azarga has an existing ESMS then it can be adapted/extended for the Project. • Social baseline studies should follow Russian guidelines and IFC PS7 to address specific issues relating to the Evenk indigenous population. • There are numerous sources that could lead to potential impacts on water quality and quantity (surface and groundwater). It is therefore, recommended that source-pathway-receptor modelling is undertaken as part of the EISA. The method is effective and assists in developing measures to mitigate impacts. The source-pathway-receptor modelling should be done in collaboration with the design engineers. • It is probable that the development of Unkur and other deposits (e.g., Udokan, Chinea, and Apsat) will lead to a phase of in-migration into the Region and District. It is recommended that an influx management plan is developed for Unkur. Although Azarga cannot control overall movement of people, policies that can be put in place that will dissuade job-seekers from coming directly to site (e.g., have an office in town which is the only place where job applications are processed). • There are a number of existing, proposed and “reasonably foreseeable” mine projects in the region. Cumulative impacts are standard sections in ESIA reports albeit high-level and brief. For the Project, it is recommended that every effort is made to acquire information that would enable a defensible assessment to be made (e.g., through desktop studies, reviewing ESIA reports for other projects, and consulting with authorities and other companies). • The engineering and environmental/social team should work in close collaboration so that gaps in data/information and duplication of effort is avoided. This is particularly so for water aspects as studies are costly and information is vital for both parties (e.g., the water balance). Azarga Metals Corp. 26-4 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation Based on the recommendations for environmental and social studies, an estimated budget is provided for the scoping phase (Phase 1) and the baseline studies, impact assessment, and compilation of the ESMP and ESIA report (Phase 2). 26.5.1 ENVIRONMENTAL PHASE 1 The scoping phase would comprise desktop studies, site visit, analysis of findings, developing terms of reference for the baseline studies, and completing the ESIA. Typically, for the scoping phase, a core team of up to three experienced ESIA specialists undertake the site visit and develop the TOR for the biological, physical and social components. The budget for a scoping phase would be in the range of US$15,000 to US$25,000. 26.5.2 ENVIRONMENTAL PHASE 2 The budget for the baseline and impact assessment phase through to completing the ESIA report, is highly dependent on the results of the scoping phase. The extent and depth of specialist studies depends on the existing (receiving) environment and the activities of the proposed project. Unkur will be a Category A project so, for guideline purposes, the estimated budget would be in the range of US$125,000 to US$1,000,000. Tetra Tech acknowledges this is a wide range of costs but in our experience of mine ESIAs, it is a reasonable range for this PEA phase; the costs for Phase 2 can only be determined when the scoping phase (Phase 1) has been completed. 26.6 MARKET STUDIES Tetra Tech makes the following recommendations with regard to market studies: • A product transport and logistics study should be completed during the next stage of the Project to determine the relative transport costs to move the product to the different market options. • Initial discussions should also be held with smelters to confirm their interest in buying the product and to confirm smelter terms that they would offer. • Azarga should also approach refineries to determine if they would be interested in purchasing either the combined concentrate product or the separate products of synthetic chalcocite (Cu2S) and acanthite (Ag2S) and on what terms. • A market trade-off study should be completed to determine the most appropriate customer. The resulting customer should be approached to form a memorandum of understanding for the future sale of product. The estimated budget to complete this work is US$50,000. Azarga Metals Corp. 26-5 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation 27.0 REFERENCES Azarga Metals Corp. (2018a). Investor Presentation – Copper-Silver Discovery of Global Significance. April 2018. Azarga Metals Corp. (2018b). Corporate Website – https://www.azargametals.com/. Berezin, G. (1979). Results of Exploration Undertaken by the Lukturskaya Expedition Team at the Unkur Copper Project and Klyukvennoye Deposit in 1975-1978. Vols.1, 2 and 3. CIM (2014). Canadian Mineral Resource and Mineral Reserve Definitions. https://mrmr.cim.org/en/standards/canadian-mineral-resource-and-mineral- reserve-definitions/. 10 May 2014. Equator Principles (2013). Equator Principles III. June 2013. Henley, S., 2004. The Russian Reserves and Resources reporting system – discussion and comparison with international standards. Available online at http://www.imcinvest.com/pdf/Russian_reserves_8.pdf IFC (2012). Environmental and Social Performance Standards. 1st January 2012. IUCN (2006). IUCN Red List Categories and Criteria. IUCN (2015). IUCN Red List of Threatened Species. License ЧИ02522БР (geological study, exploration and production of copper, silver, and associated components for the Unkur Project). Mulnichenko, V. (1972). Results of Exploration Undertaken by the Naminginskaya Expedition Team at the Unkur Copper Project in 1969-1971. Vols.1 and 2. Norton Fullbright (Central Europe) LLP. (2013). Russian Mining Guide. SGS Vostok Limited (2015). Metallurgical Testwork on Oxide Ore Sample of the Unkur Deposit. Project No. SA-1175-MIN-HT-14. February 2015. SRK (2010). Udokan Project Environmental and Social Scoping Study. Report prepared for the Baikal Mining Company Limited. December 2010. SRK (2016). Technical Report for the Unkur Copper-Silver Deposit, Kodar-Udokan Area, Russian Federation. Prepared for European Uranium Resources Ltd., Azarga Metals Ltd., and LLC Tuva-Cobalt. Effective date March 1, 2016. SRK. (2017). Technical Report for Unkur Copper-Silver Deposit, Kodar-Udokan Area, Russian Federation. Effective date March 31, 2017. Azarga Metals Corp. 27-1 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation Tetra Tech (2018). Technical Report and Mineral Resource Estimate for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation. Document No. 782- SWIN03024AA_R_002B. Effective Date 27th March 2018. Volchkov, A.G., and Nikeshin, U.V. (2014). Conclusions drawn by the Working Team of the FSUE (Federal State Unitary Enterprise) Central Geological Research Institute (TsNIGRI) based on the approbation of the prognostic copper resources of the Unkur deposit, the Zabaikalsky Region. Zientek, M.L, Chechetkin, V.S, Parks, H.L., Box, S.E., Briggs, D.A., Cossette, P.M., Dolgopolova, A., Hayes, T.S., Seltmann, R., Syusyura, B., Taylor, C.D., and Wintzer, N.E., 2014, Assessment of undiscovered sandstone copper deposits of the Kodar-Udokan Area, Russia: U.S. Geological Survey Scientific Investigations Report 2010-5090-M, 129 p. and spatial data. Also available online at http://dx.doi.org/10.3133/sir20105090M. Azarga Metals Corp. 27-2 782-SWIN032024AA_R_001B Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation EUR ING ANDREW CARTER, BSC, CENG, BSC, MIMMM, MSAIMM, SME I, Eur Ing Andrew Carter, CEng, MIMMM, MSAIMM, SME, of Swindon, Wiltshire, United Kingdom, do hereby certify: • I am a General Manager, UK with Coffey Geotechnics Ltd. Trading as Tetra Tech Mining and Minerals with a business address at Ground Floor, Unit 2, Apple Walk, Kembrey Park, Swindon, SN2 8BL, United Kingdom. • This certificate applies to the technical report entitled “Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation” dated 30th August 2018 (the “Technical Report”). • I am a graduate of the University of Leeds (B.Sc. Mineral Processing, 1980). I am a member in good standing of the Institute of Materials, Minerals and Mining (IMO3) (#46421), the Society for Mining, Metallurgy and Exploration (SME) (#4112502) and am registered as both a Chartered Engineer (C.Eng.) with the Engineering Council UK (#378467) and a European Engineer (Eur.Ing) with the European Federation of National Engineering Associations (#c2960GB). My relevant experience comprises over 30 years in operations, engineering and consulting practise in relation to the extractive metallurgy of gold, precious and base metal ores. I am a “Qualified Person” for purposes of National Instrument 43-101 (the “Instrument”). • I have not completed a personal inspection of the Property. • I am responsible for Sections 1.1, 1.11, 1.14 to 1.19, 2.0, 3.0, 13.0, 17.0, 18.0, 19.0, 20.0, 21.1 (except 21.1.2), 21.2 (except 21.2.2), 22.0, 24.0, 25.2, 25.4 to 25.7, 26.2, 26.4 to 26.6, and 27.0 • I am independent of Azarga Metals Corp. as defined by Section 1.5 of the Instrument. • I have no prior involvement with the Property that is the subject of this Technical Report. • I have read the Instrument and the sections of the Technical Report that I am responsible for have been prepared in compliance with the Instrument. • As of the date of this certificate, to the best of my knowledge, information, and belief, the sections of Technical Report that I am responsible for contain all scientific and technical information that is required to be disclosed to make the Technical Report not misleading. Signed and dated this 12th day of October 2018 at Swindon, United Kingdom. “Original document signed by Eur Ing Andrew Carter, CEng, BSc, MIMMM, MSAIMM, SME” Eur Ing Andrew Carter, CEng, BSc, MIMMM, MSAIMM, SME General Manager, UK Coffey Geotechnics Ltd. trading as Tetra Tech Mining and Minerals JOSEPH HIRST, BSC (HONS), MSC, CGEOL, EURGEOL, FGS I, Joseph Hirst, BSc (Hons), MSc, CGeol, EurGeol, of Swindon, Wiltshire, United Kingdom, do hereby certify: • I am a Geologist with Coffey Geotechnics Ltd. Trading as Tetra Tech Mining and Minerals with a business address at Ground Floor, Unit 2, Apple Walk, Kembrey Park, Swindon, SN2 8BL, United Kingdom. • This certificate applies to the technical report entitled “Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation” dated 30th August 2018 (the “Technical Report”). • I am a graduate of the University of Manchester, England (BSc (Hons.) Geology, 2001. I am a member in good standing and Chartered Geologist (CGeol) with the Geological Society of London (#1007756). My relevant experience includes 15 years of professional practice. I have been directly involved in mineral resource estimations for eleven years, which recently includes, but it not limited to Silver Bear Resource’s Mangazeisky Property deposits. I am a “Qualified Person” for purposes of National Instrument 43- 101 (the “Instrument”). • I have not completed a personal inspection of the Property. • I am responsible for Sections 1.2 to 1.6, 1.12, 4.0 to 8.0, 14.0, 23.0, 25.1, 26.1, and 27.0 the Technical Report. • I am independent of Azarga Metals Corp. as defined by Section 1.5 of the Instrument. • I have prior involvement with the Property as so author of the Technical Report dated 27th March 2018. • I have read the Instrument and the sections of the Technical Report that I am responsible for have been prepared in compliance with the Instrument. • As of the date of this certificate, to the best of my knowledge, information, and belief, the sections of Technical Report that I am responsible for contain all scientific and technical information that is required to be disclosed to make the Technical Report not misleading. Signed and dated this 12th day of October 2018 at Swindon, United Kingdom. “Original document signed by Joseph Hirst, BSc (Hons), CGeol, EurGeol, FGS” Joseph Hirst, BSc (Hons) CGeol, EurGeol, FGS Geologist Coffey Geotechnics Ltd. trading as Tetra Tech Mining and Minerals MATTHEW RANDALL, BSC (HONS), PHD, CENG, MIMMM I, Matthew Randall, BSc (Hons), PhD, CEng, MIMMM, of Axbridge, United Kingdom, do hereby certify: • I am a Director with Axe Valley Mining Consultants Ltd. located at 47 West Street, Axbridge, Somerset, BS26 2AA, United Kingdom. • This certificate applies to the technical report entitled “Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation” dated 30th August 2018 (the “Technical Report”). • I am a graduate of the Camborne School of Mines, United Kingdom (BSc (Hons) Mining Engineering, 1978; PhD Mining Engineering, 1989). I am a Chartered Engineer registered and in good standing of the Engineering Council (Registration No. 45134) and the Institute of Materials, Minerals and Mining (Membership ID 458442). My relevant experience includes 35+ years in mining engineering in many aspects of open pit mine development, construction, and operations across several continents. My experience covers a wide variety of commodities including, gold, copper, platinum, zinc, iron ore, industrial minerals, diamonds, and coal. I have consulted on strategic evaluation and concept studies for mines, as well the preparation of Prefeasibility and Feasibility study reports. I am a “Qualified Person” for purposes of National Instrument 43-101 (the “Instrument”). • I have not completed a personal inspection of the Property. • I am responsible for Sections 1.13, 15.0, 16.0, 21.1.2, 21.2.2, 25.3, 26.3, and 27.0 the Technical Report. • I am independent of Azarga Metals Corp. as defined by Section 1.5 of the Instrument. • I have no prior involvement with the Property that is the subject of this Technical Report. • I have read the Instrument and the sections of the Technical Report that I am responsible for have been prepared in compliance with the Instrument. • As of the date of this certificate, to the best of my knowledge, information, and belief, the sections of Technical Report that I am responsible for contain all scientific and technical information that is required to be disclosed to make the Technical Report not misleading. Signed and dated this 12th day of October 2018 at Axebridge, United Kingdom. “Original document signed by Matthew Randall, BSc (Hons), PhD, CEng, MIMMM” Matthew Randall BSc (Hons), PhD, CEng, MIMMM Director Axe Valley Mining Consultants Ltd. ROBIN SIMPSON, MAIG I, Robin Simpson, MAIG, of Moscow, Russia, do hereby certify: • I am a Principal Resource Geologist with SRK Consulting (Russia) Ltd. with a business address at 4/3 Kuznetsky Most, Building 1, 125009, Moscow, Russia. • This certificate applies to the technical report entitled “Technical Report and Preliminary Economic Assessment for the Unkur Copper-Silver Project, Kodar-Udokan, Russian Federation” dated 30th August 2018 (the “Technical Report”). • I am a graduate of the University of Canterbury, New Zealand (BSc (Hons) Geology, 1996) and Leeds University (MSc Geostatistics, 2004). I am a member in good standing of the Australian Institute of Geoscientists (No. 3156). I have practiced my profession continuously since 1996. I worked as a mine and exploration geologist at gold and copper mines in Australia for seven years, and then joined SRK Consulting Ltd. In 2005 as a resource geologist. During my employment in SRK’s Perth, Cardiff, and Moscow offices I have frequently authored or reviewed mineral resource estimates for a variety of commodities, including copper. I am a “Qualified Person” for purposes of National Instrument 43-101 (the “Instrument”). • I am a Member of the Australian Institute of Geoscientists, membership number 3156. • I personally inspected the Property that is the subject of this Technical Report on December 10, 2014 and October 13, 2016. • I am responsible for Sections 1.7 to 1.10, and 9.0 to 12.0 the Technical Report. • I am independent of Azarga Metals Corp. as defined by Section 1.5 of the Instrument. • I have had prior involvement with the Property that is the subject of this Technical Report having authored the previous two Technical Reports dated 1st March 2016 and 31st March 2017 and as co-author on the Technical Report dated 27th March 2018. • I have read the Instrument and the sections of the Technical Report that I am responsible for have been prepared in compliance with the Instrument. • As of the date of this certificate, to the best of my knowledge, information, and belief, the sections of Technical Report that I am responsible for contain all scientific and technical information that is required to be disclosed to make the Technical Report not misleading. Signed and dated this 12th day of October 2018 at Moscow, Russia. “Original document signed by Robin Simpson, MAIG” Robin Simpson, MAIG Principal Resource Geologist SRK Consulting (Russia) Ltd.