APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12
INDEPENDENT TECHNICAL REPORT SITE 12 XIHE ZHONGBAO (FAR WEST) GANSU PROVINCE, CHINA
Timothy A. Ross, P.E., RM-SME Agapito Associates, Inc. Grand Junction and Lakewood, Colorado, USA
William R. Stanley, L.G., RM-SME Scottsdale, Arizona, USA Qinghua “Jason” Jin, P.E., RM-SME SGS North America, Inc. Tucson, Arizona, USA
Carl E. Brechtel, P.E., RM-SME Carl Brechtel Consulting LLC Arvada, Colorado, USA
Report Date:
14 September 2018
Effective Date:
31 March 2018
Prepared for:
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INDEPENDENT TECHNICAL REPORT SITE 12 XIHE ZHONGBAO (FAR WEST) GANSU PROVINCE, CHINA
TABLE OF CONTENTS
Page 1 Summary ...... III12-15 1.1 Introduction ...... III12-15 1.2 Property Description and Ownership ...... III12-16 1.3 Geology and Mineralization ...... III12-17 1.4 Status of Exploration ...... III12-17 1.5 Development and Operations ...... III12-17 1.6 Mineral Resource Estimate ...... III12-18 1.7 Mineral Reserve Estimate ...... III12-19 1.8 Economics ...... III12-23 1.9 Environmental and Permitting ...... III12-23 1.10 Risk Assessment ...... III12-23 1.11 Conclusions and Recommendations ...... III12-23 2 Introduction ...... III12-25 2.1 Information Sources ...... III12-25 2.2 Qualified Persons ...... III12-25 3 Reliance on Other Experts ...... III12-27 4 Property Description and Location ...... III12-27 4.1 Location ...... III12-27 4.2 Mineral Rights ...... III12-27 4.3 Environmental Liabilities, Permits, and Risks for the Property ...... III12-28 5 Accessibility, Climate, Local Resources, Infrastructure and Physiography ...... III12-31 5.1 Topography, Elevation, and Vegetation ...... III12-31 5.2 Accessibility ...... III12-31 5.3 Local Resources and Infrastructure ...... III12-32 5.4 Climate ...... III12-32 6 History ...... III12-32 6.1 Ownership ...... III12-32 6.2 Exploration and Development Work ...... III12-33 6.3 Historical Mineral Resource and Mineral Reserve Estimates ...... III12-33 6.4 Production ...... III12-33 7 Geological Setting and Mineralization ...... III12-34
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7.1 Regional Geologic Setting ...... III12-34 7.2 Gold Mineralization in the Xinyang Group, Qinling Gold Belt ...... III12-34 7.3 Xihe Zhongbao Area Geology ...... III12-35 7.3.1 Siergoumen Mine Geology and Mineralization ...... III12-36 7.3.2 Xiaodonggou General Exploration Area Geology and Mineralization . . . III12-39 8 Deposit Types ...... III12-42 8.1 Gold Deposits of the Qinling Gold Belt ...... III12-42 8.2 Siergoumen and Xiaodonggou Gold Systems ...... III12-43 8.3 Siergoumen Mine and Xiaodonggou General Exploration Area Deposit Types . . III12-44 9 Exploration ...... III12-44 9.1 Siergoumen Mine Site Exploration ...... III12-44 9.2 Xiaodonggou General Exploration Area ...... III12-45 10 Drilling ...... III12-47 10.1 Trenching, Drilling, Exploration Tunnelling, and Channel Sampling ...... III12-47 10.2 Core Drilling—General Procedures, Recovery, and Sampling ...... III12-48 11 Sample Preparation, Analyses, and Security ...... III12-50 11.1 Sample Preparation ...... III12-50 11.2 Assay Laboratories and Assay Procedures ...... III12-50 11.3 Assay Laboratory Analytical Verification ...... III12-51 11.4 Sample Security ...... III12-53 11.5 Density and Moisture Samples ...... III12-53 12 Data Verification ...... III12-54 12.1 Summary ...... III12-54 12.2 Witness Sampling ...... III12-54 12.3 Mine and Surface Infrastructure ...... III12-58 13 Mineral Processing and Metallurgical Testing ...... III12-59 13.1 Sample Selection ...... III12-59 13.2 Mineralogical Analysis ...... III12-60 13.3 Physical Testwork ...... III12-61 13.4 Grinding Fineness Test ...... III12-61 13.5 Cyanidation Leach Testwork ...... III12-61 13.6 Ancillary Testwork ...... III12-62 14 Mineral Resource Estimates ...... III12-62 14.1 Mineral Resource Classification System ...... III12-62 14.2 Conceptual Mining Scenario ...... III12-63
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14.3 Mineral Resource Estimation Methodology under PRC MRL ...... III12-64 14.3.1 Economic Parameters ...... III12-64 14.3.2 Grade Capping ...... III12-65 14.3.3 Polygonal Method ...... III12-66 14.3.4 Tonnage Factor ...... III12-67 14.3.5 Estimation Verification ...... III12-67 14.4 Reconciliation to 2014 CIM Definition Standards by AAI ...... III12-68 14.4.1 Mining Reconciliation Considerations ...... III12-68 14.4.2 Resource Classification ...... III12-69 14.4.3 Geostatistical Mineral Zone Analysis and Variography ...... III12-75 14.4.4 Consideration of Reasonable Prospects for Eventual Economic Extraction ...... III12-82 14.5 Mineral Resource Statement ...... III12-82 15 Mineral Reserve Estimates ...... III12-84 15.1 Estimation Parameters ...... III12-85 15.1.1 Dilution and Mining Recovery Factors ...... III12-86 15.1.2 Reconciliation of Mineral Reserves to Production ...... III12-86 15.1.3 Breakeven Cut-off Grade ...... III12-87 15.2 Reserve Classification ...... III12-88 15.3 Mineral Reserves ...... III12-89 15.4 Factors that May Affect the Mineral Reserve Estimate ...... III12-90 16 Mining Methods ...... III12-90 16.1 Mining Method ...... III12-90 16.2 Production Rates, Dilution and Extraction Ratio ...... III12-92 16.3 Mine Facilities and Equipment ...... III12-92 16.3.1 Hoisting ...... III12-92 16.3.2 Ventilation ...... III12-92 16.3.3 Compressed Air ...... III12-92 16.3.4 Mine Water ...... III12-92 16.3.5 Mine Backfill ...... III12-94 16.4 Mining Schedule ...... III12-94 17 Recovery Methods ...... III12-108 17.1 Crushing Circuit ...... III12-108 17.2 Grinding Circuit ...... III12-108 17.3 Leaching and Carbon-in-Pulp (CIP) Circuit ...... III12-110 17.4 Tailings System ...... III12-110 17.5 Refinery Circuit ...... III12-110
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18 Project Infrastructure ...... III12-111 18.1 Roads ...... III12-111 18.2 Dumps ...... III12-111 18.3 Ore Stockpiles ...... III12-111 18.4 Electric Power ...... III12-111 18.5 Tailings ...... III12-111 19 Market Studies and Contracts ...... III12-112 19.1 Markets ...... III12-112 19.2 Contracts ...... III12-112 20 Environmental Studies, Permitting, and Social or Community Impact ...... III12-113 20.1 Introduction ...... III12-113 20.2 Laws and Regulations ...... III12-113 20.3 Waste and Tailings Disposal Management ...... III12-113 20.4 Water Management ...... III12-113 20.5 Air ...... III12-115 20.6 Permitting Requirements ...... III12-115 20.7 Social and Community ...... III12-117 20.8 Remediation and Reclamation ...... III12-117 21 Capital and Operating Costs ...... III12-118 21.1 Capital Cost Estimate ...... III12-118 21.2 Operating Cost Estimate ...... III12-119 22 Economic Analysis ...... III12-124 22.1 Taxes ...... III12-124 22.2 Economic Projection ...... III12-124 22.3 Sensitivity of Project Economic Performance ...... III12-125 22.4 Sensitivity of Reserves to Gold Price ...... III12-125 23 Adjacent Properties ...... III12-131 24 Other Relevant Data and Information ...... III12-131 24.1 Risk Assessment ...... III12-131 25 Interpretation and Conclusions ...... III12-141 26 Recommendations ...... III12-141 27 References ...... III12-142 28 Date and Signature ...... III12-144 28.1 Statement of Certification by Timothy A. Ross ...... III12-144 28.2 Statement of Certification by William R. Stanley ...... III12-146 28.3 Statement of Certification by Qinghua Jin ...... III12-148 28.4 Statement of Certification by Carl E. Brechtel ...... III12-150 Appendix A—Mining and Exploration Licenses ...... III12-152 Appendix B—3D Oblique View of Vein Upper Surface ...... III12-156
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LIST OF TABLES
Page Table 1-1. Licenses Issued to Xihe Zhongbao ...... III12-16 Table 1-2. Xihe Zhongbao Mineral Resource (effective date 31 March 2018) ...... III12-20 Table 1-3. Economic Parameters for Xihe Zhongbao ...... III12-21 Table 1-4. Xihe Zhongbao Mineral Reserve Summary (effective date 31 March 2018) . III12-22 Table 2-1. QPs, Responsibilities, and Latest Visit ...... III12-25 Table 4-1. Issued Licenses to Xihe Zhongbao ...... III12-28 Table 6-1. Production Statistics for the Siergoumen mine ...... III12-33 Table 9-1. Siergoumen Mine Area Exploration Summary ...... III12-45 Table 9-2. Xiaodonggou General Exploration Area Summary ...... III12-46 Table 10-1. Siergoumen Mine Core Drilling, Trenching, Exploration Tunnelling, and Channel Sampling Summary ...... III12-47 Table 10-2. Xiaodonggou General Exploration Area Trenching, Drilling, and Channel Sample Summary ...... III12-48 Table 12-1. Witness Sample Results ...... III12-55 Table 13-1. Sample Composition ...... III12-60 Table 13-2. Sample Head Assay ...... III12-60 Table 13-3. Comprehensive Process Condition Test ...... III12-62 Table 14-1. Xihe Zhongbao Economic Parameters for Resource Estimation ...... III12-65 Table 14-2. Xihe Zhongbao Tonnage Factors ...... III12-67 Table 14-3 Siergoumen Mine Veins 1-2 and II-2 and Xiaodonggou Project Veins I-3, I-6, and III-24 Basic Statistical Analysis ...... III12-75 Table 14-4. Xihe Zhongbao Mineral Resource (effective date 31 March 2018) ...... III12-83 Table 15-1. Siergoumen Mine Reconciliation ...... III12-87 Table 15-2. Siergoumen Mine Estimated Reserve Cut-off Grade ...... III12-88 Table 15-3. Xiaodonggou General Exploration Area Estimated Cut-off Grades ...... III12-88 Table 15-4. Xihe Zhongbao Mineral Reserve Summary (effective date 31 March 2018) . III12-89 Table 16-1. Xihe Zhongbao Mining Area Production Schedule by License ...... III12-96 Table 20-1. Overview Listing of PRC Laws Relevant to Mines and Mining Projects . . .III12-114 Table 20-2. Environmental Permit ...... III12-116 Table 20-3. Xihe Zhongbao Environmental Related Expenditures ...... III12-118 Table 21-1. Projected CAPEX for the Remaining Mine Reserves ...... III12-119 Table 21-2. Buildup of Property Operating Costs by Cost Objects, Historical and Forecast Prediction ...... III12-119 Table 21-3. Xihe Zhongbao Historical Total Costs/Process Tonne ...... III12-121 Table 21-4. Projected Operating and Capital Costs for Xihe Zhongao, 2018-2037 .....III12-122
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Table 22-1. Xihe Zhongbao Production Forecast and Projected After-Tax Cash Flow . . .III12-126 Table 22-2. Xihe Zhongbao After-Tax NPV Attributable to Shandong Gold ...... III12-127 Table 22-3. Variation of After-Tax NPV (Attributable to Shandong Gold) with OPEX between -25% and +25% of the Forecast Assumptions ...... III12-127 Table 22-4. Variation of After-Tax NPV Attributable to Shandong Gold with CAPEX between -25% and +25% of the Forecast Assumptions...... III12-127 Table 22-5. Sensitivity of Gold Reserves to Gold Price ...... III12-128 Table 22-6. Variation in Xihe Zhongbao After-Tax NPV Attributable to Shandong Gold for Gold Prices Ranging from 923 to 1,539 USD/Au oz...... III12-129 Table 24-1. Overall Risk Assessment Guide...... III12-132 Table 24-2. Project Risk Assessment Table before Mitigation ...... III12-133
LIST OF FIGURES Figure 4-1. Xihe Zhongbao Location Map ...... III12-29 Figure 4-2. Base Map showing Xihe Zhongbao Mining and Exploration License Boundaries ...... III12-30 Figure 7-1. Geology and Gold Ore Deposits of the Qinling Gold Belt, Gansu Province (after Mao et al. 2002) ...... III12-35 Figure 7-2. Siergoumen Mine Geology and Drill-Hole Locations (Shuhong et al. 2011) . III12-36 Figure 7-3. Siergoumen Mine Cross-Section 16 showing Vein 1-2, Looking 45Њ (Shuhong et al. 2011) ...... III12-37 Figure 7-4. Siergoumen Mine Cross-Section 28 showing Vein 2, Looking 270Њ (Shuhong etal.2011)...... III12-38 Figure 7-5. Xiaodonggou General Exploration Area Core showing Folding in Limy Phyllite ...... III12-39 Figure 7-6. Geology and Drill-Hole Location Map of the Xiaodonggou General Exploration Area (Quanwu et al. 2016) ...... III12-40 Figure 7-7. Cross-Section 0, Looking 75Њ and showing Xiaodonggou General Exploration Area Veins I-2, I-3, I-4, I-5, I-6, I-7, I-10, II-1, II-2, II-6, and II-23 (Quanwu et al. 2016) ...... III12-41 Figure 7-8. Cross-Section 0, Looking 75Њ and showing Xiaodonggou General Exploration Area Vein III-24 (Quanwu et al. 2016) ...... III12-42 Figure 8-1. Siergoumen Mine Ore Sample (1 yuan coin for scale) ...... III12-43 Figure 10-1. Example of NQ-Size Core Trays ...... III12-49 Figure 11-1. Sample Preparation Flow Diagram ...... III12-50 Figure 11-2. Internal vs External Laboratory Verification Assays Comparison for the Siergoumen Mine Area ...... III12-52 Figure 11-3. Internal vs External Laboratory Verification Assays Comparison for the Xiaodonggou General Exploration Area ...... III12-53
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Figure 12-1. Siergoumen Mine, 1,710-m Level Cross-Cut through Vein 1-2 with Witness Sample No. 474619 ...... III12-56 Figure 12-2. Xiaodonggou General Exploration Area Diamond Drill-Hole Storage Area . . III12-57 Figure 12-3. Siergoumen Mine Vein 1-2 Stope at the 1,710-m Level ...... III12-58 Figure 12-4. Siergoumen Mine Hoist Control Center ...... III12-58 Figure 12-5. Two-Compartment Shaft at Siergoumen Mine ...... III12-59 Figure 14-1. Siergoumen Mine Grade Polygons—Longitudinal Section ...... III12-66 Figure 14-2. Siergoumen Mine Mineral Resource Classifications—Vertical Projection Vein 2 (longitudinal section) ...... III12-71 Figure 14-3. Siergoumen Mine Mineral Resource Classifications—Vertical Projection Vein 1 (longitudinal section) ...... III12-72 Figure 14-4. Xiaodonggou General Exploration Area Mineral Resource Classifications—Horizontal Projection (plan view) ...... III12-73 Figure 14-5. Drill Hole and Sample Location Map ...... III12-74 Figure 14-6. Siergoumen Mine I-2 Vein, Composite Frequency Histogram ...... III12-76 Figure 14-7. Siergoumen Mine II-2 Vein, Composite Frequency Histogram ...... III12-77 Figure 14-8. Xiaodonggou I-3, I-6, and III-24 Veins, Composite Frequency Histogram . . . III12-77 Figure 14-9. Strike and Dip Variograms for the Siergoumen I-2 Vein ...... III12-79 Figure 14-10. Strike and Dip Variograms for the Siergoumen II-2 Vein ...... III12-80 Figure 14-11. Strike and Dip Variograms for the Xiaodonggou I-3, I-6, and III-24 Veins . . III12-81 Figure 16-1. Thin-Vein Shrinkage Stope Mining Method ...... III12-91 Figure 16-2. Siergoumen Mine Headframe over 2.5-m Shaft ...... III12-93 Figure 16-3. Decline Portal ...... III12-93 Figure 16-4. Xihe Zhongbao Mining Area Location of Reserves by License ...... III12-95 Figure 16-5. Production Schedule for Orebody 1-1 at Siergoumen Gold Mine ...... III12-97 Figure 16-6. Production Schedule for Orebody 1-2 at Siergoumen Gold Mine ...... III12-98 Figure 16-7. Production Schedule for Orebody I-2 at Siergoumen Gold Mine ...... III12-98 Figure 16-8. Production Schedule for Orebody 1-2 at Xiaodonggou Gold Mine ...... III12-99 Figure 16-9. Production Schedule for Orebody 1-3 at Xiaodonggou Gold Mine ...... III12-100 Figure 16-10. Production Schedule for Orebody 1-4 at Xiaodonggou Gold Mine ...... III12-101 Figure 16-11. Production Schedule for Orebody 1-6 at Xiaodonggou Gold Mine ...... III12-102 Figure 16-12. Production Schedule for Orebody II-1 at Xiaodonggou Gold Mine ...... III12-103 Figure 16-13. Production Schedule for Orebody II-2 at Xiaodonggou Gold Mine ...... III12-104 Figure 16-14. Production Schedule for Orebody II-4 at Xiaodonggou Gold Mine ...... III12-105 Figure 16-15. Production Schedule for Orebody II-5 at Xiaodonggou Gold Mine ...... III12-106 Figure 16-16. Production Schedule for Orebody II-6 at Xiaodonggou Gold Mine ...... III12-107 Figure 17-1. Siergoumen Processing Plant Overall Flowsheet ...... III12-109 Figure 19-1. Gold Price History (Source www.kitco.com) ...... III12-112
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Figure 22-1. Variation of NPV for -25% and +25% of Base-Case OPEX Assumptions . . .III12-128
Figure 22-2. Variation of NPV for -25% and +25% of Base-Case CAPEX Assumptions . .III12-129
Figure 22-3. Sensitivity of Xihe Zhongbao NPV to Gold Price between 923 and 1,539 USD/Au oz...... III12-130
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MINE AND PROPERTY ABBREVIATIONS
The abbreviations system listed below is intended to simplify the discussion of the properties reviewed by Agapito Associates, Inc. (AAI) for Shandong Gold Mining Co., Ltd. (Shandong Gold), and the numerous sub-units (mining and exploration rights) associated with them.
Abbreviation License Number Mining or Exploration Right Name
Xihe Zhongbao Xihe Zhongbao (Far West)
Siergoumen Mine C6200002014044110135542 Xihe County Zhongbao Mining Co., Ltd. Xihe County Siergoumen Gold Mine
Xiaodonggou General T62120090202028948 Gansu Province, Xihe County, Exploration Area Xiaodonggou Gold Mine General Exploration
Yuantanzi Multiple Metals T62120090202028947 Gansu Province, Xihe County, General Exploration Area Yuantanzi Gold, Lead, Zinc Multiple Metal Mine General Exploration
CHEMICAL ABBREVIATIONS
Ag silver
Al2O3 aluminium oxide
Au gold
Cu copper mFe magnetic Fe (iron)
MgO magnesium oxide
Mn manganese
Pb lead
S sulfur
SiO2 silicon dioxide
TC technetium
Ti titanium
Zn zinc
ACRONYMS AND ABBREVIATIONS
Њ degree
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% percent
AA Atomic Absorption
AAI Agapito Associates, Inc.
C Celsius
CAPEX capital expenditures
CIM Canadian Institute for Mining, Metallurgy and Petroleum
CIP carbon-in-pulp cm centimeter cm3 cubic centimeter
DLR Department of Land and Resources
EIA Environmental Impact Assessment
EIS Environmental Impact Statement
FS Feasibility Study g local acceleration due to gravity near Earth’s surface g grams g/t grams per tonne
G&A General & Administrative
HKEx The Stock Exchange of Hong Kong Limited
IRR internal rate of return
L liter kg kilogram km kilometer km2 square kilometer kV kilovolt kVA kilovolt-ampere kW kilowatt
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LHD load-haul-dump
M million m meter m3 cubic meters m3/hr cubic meters per hour m3/min cubic meters per minute m3/s cubic meters per second mg milligram mg/L milligrams per liter
MLR Ministry of Land and Resources mm millimeter
Mt million tonnes
NI National Instrument
NPV net present value
OD outside diameter
OPEX operating expenditures oz. ounce p. page pp. pages
P.E. Professional Engineer
P.Eng. Professional Engineer of Saskatchewan
PFS Preliminary Feasibility Study
P.G. Professional Geologist
PRC People’s Republic of China
Q1 Q2 Q3 Q4 Quarter 1, Quarter 2, Quarter 3, Quarter 4
QP qualified person
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Qtr Quarter
R2 coefficient of determination
RM-SME Registered Member, Society for Mining, Mettalurgy, and Exploration, Inc.
RMB renminbi or “Chinese yuan”
ROM run-of-mine s second
SAC Standardization Administration of PRC
SDG Shandong Gold Group Co., Ltd.
SGS-CSTC SGS-CSTC Standards Technical Services (TianJin) Co., Ltd.
Shandong Gold Shandong Gold Mining Co., Ltd.
SME Society of Mining Engineers t tonne (metric ton, 1,000 kg) t/m3 tonnes per cubic meter tpa tonnes per annum tpd tonnes per day tpy tonnes per year
USD United States of America dollars
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IMPORTANT NOTICE
This Independent Technical Report was prepared to Canadian National Instrument 43-101 Technical Report standards by Agapito Associates, Inc. (AAI). The quality of information, conclusions, and estimates contained herein is consistent with the level of effort involved in AAI’s services, based on i) information available at the time of preparation; ii) data supplied by outside sources; and iii) the assumptions, conditions, and qualifications set forth in this report. This report is intended to be used by Shandong Gold Mining Co., Ltd. (the “Company”), subject to the terms and conditions of its contracts with AAI. Those contracts permit the Company to file this Independent Technical Report with The Stock Exchange of Hong Kong Limited (the “HKEx”) in accordance with the requirements of Chapter 18 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “HKEx Listing Rules”), and prepared pursuant to the requirements of the HKEx Listing Rules.
CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS
The following Independent Technical Report includes certain statements and information that contain forward-looking information within the meaning of applicable HKEx Listing Rules. All statements, other than statements of historical facts, including the requirements and potential output of Xihe Zhongbao (Far West), the likelihood of commercial mining, the likelihood of securing a strategic partner, and the ability to fund future mine development are forward-looking statements and include forward-looking information. Such forward-looking statements and forward-looking information specifically include, but are not limited to, statements concerning Company plans at Xihe Zhongbao (Far West), Company ability to fund Xihe Zhongbao (Far West), the timing of granting of key permits; approval of the Environmental Impact Statement, the estimated gold production and the timing thereto, economic analyses, capital and operating costs, mine development programs, future gold prices, cash flow estimates, and economic indicators derived from the foregoing.
Generally, forward-looking information can be identified by the use of forward-looking terminology such as “intends” or “anticipates,” or variations of such words and phrases or statements that certain actions, events or results “may,” “could,” “should,” “would” or “occur.” Forward-looking statements are based on the opinions and estimates set out in this Independent Technical Report as of the date such statements are made and they are subject to known and unknown risks, uncertainties, and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements or forward-looking information, including the receipt of all necessary approvals; the ability to conclude a transaction; uncertainty of future production; capital expenditures and other costs; financing and additional capital requirements; the receipt in a timely fashion of any further permitting for Xihe Zhongbao (Far West); legislative, political, social or economic developments in the jurisdictions in which the Company carries on business; operating or technical difficulties in connection with mining or development activities; and the risks normally involved in the exploration, development, and mining business.
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Although the authors have attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements or forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements and forward-looking information. The Company and the authors of this Independent Technical Report do not undertake to update any forward-looking statements or forward-looking information that are incorporated by reference herein, except in accordance with applicable securities laws.
1 SUMMARY
1.1 Introduction
This Independent Technical Report was prepared for the Xihe Zhongbao (Far West) gold mining area and associated mining and exploration rights, operated by Shandong Gold Mining Co., Ltd. (Shandong Gold), a subsidiary of the Shandong Gold Group Co. Ltd. (SDG). The purpose of this report is to provide detailed information in support of an application for listing on The Stock Exchange of Hong Kong Limited (HKEx). Agapito Associates, Inc. (AAI) is responsible for preparing the report, including AAI employees and Qualified Person (QP) subcontractors. Neither AAI nor any of the authors have any financial interest in SDG, Shandong Gold, or Xihe Zhongbao. AAI’s remuneration from Shandong Gold is independent of the report findings and does not depend on AAI making a specific finding. No contractual indemnities exist between AAI or its subcontractors and SDG, Shandong Gold, or Xihe Zhongbao for the content of this report.
To complete this Independent Technical Report, a team of four QPs was organized, including AAI employees and subcontractors. A mining engineer (Mr. Timothy Ross), geologist (Mr. William Stanley), and processing engineer (Mr. Qinghua “Jason” Jin) conducted on-site visits of the Xihe Xhongbao (Far West) gold mining area. In addition, Mr. Carl Brechtel reviewed the financial data and feasibility study to analyze the economics for the property. Mr. Timothy Ross also provided overall review of the project.
This report presents the results of AAI’s efforts, and are intended to fulfill the Standards of Disclosure for Mineral Projects according to Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects as revised on 9 May 2016 (NI 43-101). This report was prepared in accordance with the requirements and guidelines set forth in Companion Policy 43᎑101CP as amended on 26 February 2016 and Form 43᎑101F1 (June 2011), and the mineral resources and reserves presented herein are classified according to Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards — For Mineral Resources and Mineral Reserves, prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council on 10 May 2014. The mineral resource and mineral reserve estimates reported here are based on all available technical data and information as of 31 March 2018. Neither AAI or the QPs are aware of any adverse material changes to the resource and reserve estimates since the effective date of this report.
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1.2 Property Description and Ownership
This Independent Technical Report was prepared for the Xihe Zhongbao gold mining area. Xihe Zhongbao includes the Siergoumen Gold Mine (Siergoumen Mine), the Xiaodonggou Gold Mine Detail Exploration area (Xiaodonggou General Exploration Area), and the Yuantanzi Gold, Lead, Zinc Multiple Metal Mine Detail Exploration area (Yuantanzi Multiple Metals General Exploration Area). The current exploration licenses were first established in 1994 and have been modified several times since then. The exploration licenses and mining license (for Siergoumen Mine) are all owned (70% ownership) or controlled by Shandong Gold and are currently valid. The Siergoumen Mine is currently operating and the most recent production rate is about 148,500 tonnes per year (tpy). The mine produces both gold and silver. Table 1-1 lists the license certificate numbers.
As part of this report, a site inspection of the Xihe Zhongbao area was conducted from 3 September to 12 September 2017.
Table 1-1. Licenses Issued to Xihe Zhongbao
Shandong Licensed Gold Ore License Number Ownership Production (tpa 104 ן) (%)
Mining Rights Siergoumen Mine C6200002014044110135542 70 14.85 Exploration Rights Xiaodonggou General Exploration Area T62120090202028948 70 Yuantanzi Multiple Metals General Exploration Area T62120090202028947 70
The Siergoumen Mine is located at the western side of the Xicheng lead-zinc mineral area, near Shili Village, Xihe County, Gansu Province. The Siergoumen Mine is located about 12 kilometers (km) east of Xihe and about 10 km north of Yeshuihe Village, where the Xi-Chen Highway can be accessed. The mining area passes through Majiayuan Village. The Xiaodonggou General Exploration Area is located about 6 km east of the Siergoumen Mine and the Yuantanzi Multiple Metals General Exploration Area is about 6 km south of the Siergoumen Mine. The area is located in a predominantly agricultural region with several mines and other industries nearby. The sites are easily accessible via a limited number of rural roads. Local supplies of labor, water and power fully meet Xihe Zhongbao requirements. The climate does not present any significant difficulties.
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1.3 Geology and Mineralization
The mineralization at Xihe Zhongbao is found in the Xinyang Group, a highly deformed sequence of metamorphosed Devonian to Permian limestones, siltstones, and shales generally following an east-west trend.
The gold deposits are structurally controlled and aligned along local to regional ductile-brittle shears and fault zones that are associated with gold-bearing mineralized zones. Gold veins are generally narrow, typically less than 20 centimeters (cm) wide, and often occur as anastomosing veinlet swarms aligned with the structural control features, or as breccia flooding in mines having brittle fault zone fracturing. Sulfide mineralization (pyrite) is always associated with the quartz veining and gold. Gold occurs as electrum, both within fractures in the quartz gangue and around sulfide grains.
The Siergoumen Mine and Xiaodonggou General Exploration Area are located within the upper Devonian Dongshan Formation, a moderately metamorphosed sedimentary sequence. The main host rocks in the Siergoumen Mine are silty limestone and siltstone. At the Xiaodonggou General Exploration Area, the host rocks are dominantly phyllitic shale and siltstone. The gold deposits at the Siergoumen Mine occur in two veins within brittle-ductile fault zones and associated brecciation zones. Both veins are strongly oxidized to depths exceeding 200 meters (m). At the Xiaodonggou General Exploration Area, about 27 quartz-pyrite veins have been identified that occur in shear zones formed within tightly folded phyllite-limestone interbeds.
1.4 Status of Exploration
From 1944 to 2010, 13 geological investigations have been made of the Siergoumen Mine Area, including geologic maps, sampling, reserves calculations, and preparation of reports. A total of 10 geological investigations have been made of the Xiaodonggou General Exploration Area, including reserves calculations. Early work was related to lead-zinc deposits, but has concentrated on gold since 1991.
Most exploration activity is accomplished using diamond core drilling. Typical drilling programs use an XY-series drill rig and NQ (76-millimeter [mm] outside diameter [OD]) core bits. Cores are split, with one half sent to an assay lab and the other half retained on site.
A total of 9,895 m of drilling have been conducted at the Siergoumen Mine and Siergoumen Prospecting Area sites and 38,920 m of drilling have been conducted at the Xiaodonggou General Exploration Area site.
1.5 Development and Operations
The Xihe Zhongbao mining complex consists of one processing plant with a nominal capacity of 450 tonnes per day (tpd) ore. The ore produced to feed the processing plant comes from one underground mine (Siergoumen Mine) located adjacent to the plant. The Siergoumen Mine is an operating mine facility in a mining district with a relatively long history of production.
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Mining is accomplished with an overhand shrinkage stope method; however, it is planned to employ overhand cut-and-fill mining starting around June 2018. The ore vein is typically about 2- to 3-m wide and dips 75 degrees (Њ) to the northwest. Most development is in competent limestone in the hanging wall. Ore in the stope roof is drilled and blasted and either mucked to an ore pass or left in the stope to provide a floor to work from. When a panel is completed, the remaining broken ore is extracted from the bottom of the panel. The ore is hauled in rail cars to the shaft, where the cars are hoisted to the surface and transferred to the nearby mill stockpile.
The ore and host rocks are relatively competent and a moderate amount of ground support is required. The method provides close control over excavation; thus, dilution is generally low. Almost the entire ore body is mined and backfilled, resulting in a high resource extraction ratio.
The ore is fed through a series of crushers and grinders and then to a series of carbon-in-pulp (CIP) leach tanks using an environmental dressing agent as a replacement for cyanide. A refinery circuit recovers the precious metals via high-pressure desorption and electrowinning processes.
1.6 Mineral Resource Estimate
Mr. William R. Stanley, Society of Mining, Metallurgy, and Exploration, Inc. (SME) Registered Member (RM-SME), subcontractor to AAI is responsible for the mineral source estimate presented in this report. Mr. Stanley is a Qualified Person (QP) as defined by NI 43-101 and is independent of Shandong Gold. The mineral resources reported herein are classified as Measured, Indicated and Inferred according to CIM Definition Standards. The mineral resource estimate for Xihe Zhongbao is based on all analytical data obtained as of 31 March 2018. The mineral resource estimate was calculated only for the Siergoumen Mine and the Xiaodonggou General Exploration Area mining licenses described in section 1.2.
Mineral Resources reported using the 2014 CIM Definition Standards have different assumptions and reporting requirements to estimates prepared under Chinese regulations. NI 43-101 requires that Mineral Resources exhibit reasonable prospects for eventual economic extraction in the context of, at least, a base-case mining scenario. Shandong Gold is a mature mining company that already produces gold and other metals using established underground mining and processing methods. The reference base-case mining scenario is reasonably assumed to be the same mining method or methods already in operation on the Siergoumen Gold Mine property. These methods and their economic viability are discussed in Sections 16 through 22. The economic cut-offs associated with base-case mining and applied to delineation of the resource are discussed in Section 14.2 Mineral Resource Estimation Methodology under PRC MLR.
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Shandong Gold utilizes a polygonal method for estimating resources as prescribed by PRC MLR regulations. These estimates were investigated in detail and deemed transparent, valid, and reliable by the QPs of this report. The estimation and classification of resources for Shandong Gold and other gold mines in China is strictly regulated by the PRC MLR, as defined by the Specifications for Hardrock Gold Exploration, effective 1 March 2003 (PRC MLR 2002). In that system, resources were estimated using methods currently applied by Shandong Gold that conform to PRC resource estimation and classification requirements. A polygonal model was developed by Shandong Gold based on drill-hole and channel sample assay measurements which serves as the basis for Shandong Gold’s resources under PRC MLR guidelines.
The geometry of the polygons developed by Shandong Gold were analyzed, checked for accuracy and adopted for use in the Mineral Resource Estimate within this technical report by AAI’s QPs. AAI recalculated the tonnage, grades and contained metal for each polygon and reconciled the estimates to the 2014 CIM Definition Standards, by assigning confidence categories to the defined polygons and determining which polygons met considerations of reasonable prospects for eventual economic extraction for gold. Tonnages and metal content for each polygon were summed to determine the resource for each confidence-level category.
The Mineral Resource estimate for the Xihe Zhongbao area is summarized in Table 1-2 and has an effective date of 31 March 2018. Shandong Gold, either by direct ownership or agreement with SDG, controls 70% of the Mineral Resources stated in Table 1-2. Mineral resources, as stated, are inclusive of Mineral Reserves.
1.7 Mineral Reserve Estimate
Mr. Timothy A. Ross, P.E., RM-SME, of AAI is responsible for the Mineral Reserve estimate presented here. Mr. Ross is a QP as defined by NI 43-101 standards (CIM 2014) and is independent of Shandong Gold. These Mineral Reserve estimations for Shandong Gold’s Xihe Zhongbao mining complex in the Gansu Province, China were completed in accordance with NI 43-101 standards, and based on data and information available as of 31 March 2018. The Mineral Reserve estimate was calculated only for the Siergoumen Mine and the Xiaodonggou General Exploration Area licenses as described in Section 1.2. Ore is processed in the on-site Xihe Zhongbao mill facility, which is capable of processing 450 tpd. The time required to prepare the Mineral Reserve Estimate from the initial site visit, through the data review and economic analysis was 3 months.
The Xihe Zhongbao Mineral Reserves are derived and classified according to the following criteria. Proven Mineral Reserves are the economically mineable part of the Measured Resource for which mining and processing/metallurgy information and other relevant factors demonstrate that economic extraction is feasible. Probable Mineral Reserves are the economically mineable part of the Indicated Resource for which mining and processing/metallurgy information and other relevant factors demonstrate that economic extraction is feasible. The Mineral Reserves are derived from Measured and Indicated Resources after applying the economic parameters in Table 1-3.
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Table 1-2. Xihe Zhongbao Mineral Resource (effective date 31 March 2018)
Contained Tonnes Metals Attributable Attributable Mineral Resource to Shandong Contained to Shandong Category Tonnes Gold 70.0% Grades Metals Gold 70.0% Au Ag (Mt) (Mt) (g/t) (g/t) Au (t) Ag (t) Au (t) Ag (t)
Siergoumen Mine (C6200002014044110135542) Measured None None None None None None None None Indicated 2.00 1.40 4.15 None 8.30 None 5.81 None Subtotal Measured and Indicated 2.00 1.40 4.15 None 8.30 None 5.81 None Inferred 2.43 1.70 2.51 None 6.09 None 4.26 None Xiaodonggou General Exploration Area (T62120090202028948) Measured None None None None None None None None Indicated 4.90 3.43 1.76 None 8.62 None 6.04 None Subtotal Measured and Indicated 4.90 3.43 1.76 None 8.62 None 6.04 None Inferred 4.88 3.42 2.01 None 9.81 None 6.87 None Yuantanzi Multiple Metal General Exploration Area (T62120090202028947) Measured No resource identified Indicated Subtotal Measured and Indicated Inferred Combined Licenses Measured None None None None None None None None Indicated 6.90 4.83 2.45 None 16.92 None 11.85 None Subtotal Measured and Indicated 6.90 4.83 2.45 None 16.92 None 11.85 None Inferred 7.31 5.11 2.18 None 15.90 None 11.13 None
Notes: 1. Mineral Resources were reviewed by Mr. William Stanley, RM-SME, consulting to AAI, who is the Qualified Person for the estimate and independent of Shandong Gold. 2. Mineral Resources are reported inclusive of Mineral Reserves. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. 3. Mineral Resources are reported using polygonal estimation methods. Polygons assume underground mining methods, a minimum thickness of 0.8 m to 1 m depending on the mineralized zone, a 1.0-g/t Au cut-off grade, a gold price of 1,231.03 USD per troy ounce, and a gold metallurgical recoveries of 88.3% for the Siergoumen Mine and 83.0% for the Xiaodonggou General Exploration Area.
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4. Estimates have been rounded as required by reporting guidelines. Totals may not sum due to rounding.
Table 1-3. Economic Parameters for Xihe Zhongbao
Economic Parameter Value Siergoumen Mine Breakeven Au cut-off grade (g/t) 2.15 Minimum mining width (m) 0.8 Ore mining dilution (%) 10.69 Ore mining recovery (%) 93.21 Gold metallurgical recovery (%)* 88.3 Xiaodonggou General Exploration Area Breakeven Au cut-off grade (g/t) 1.29 Minimum mining width (m) 0.8 Ore mining dilution (%) 15 Ore mining recovery (%) 88 Gold metallurgical recovery (%)* 83 Both Gold price (3-year average** London PM Fix USD/oz.) 1,231.03 RMB to USD conversion rate*** 6.571
oz. = ounce; USD = United States of America dollars; RMB = renminbi or “Chinese yuan” Cut-off grade calculation is in line with industry standards. * Throughout the report, metallurgical recovery includes both plant and refinery losses. ** Monthly average from 1 April 2015 through 31 March 2018. *** Quarterly average from the second quarter of 2015 through the first quarter of 2018.
Reserves can only be declared for diluted material above the economic cut-off grade where either underground development is already in place or a feasibility study has been completed to justify the material is economically mineable. Some of the reserve areas do not have all the necessary government approvals to proceed with mining, but AAI believes there are reasonable expectations that these approvals will be received. Currently, reserves are declared only for the Siergoumen Mine license and the Xiaodonggou General Exploration Area. A feasibility report was provided by Shandong Gold for resources reported for the Xiaodonggou General Exploration Area license. This feasibility report (Shandong Gold Group Yantai Design Research Engineering Co. Ltd. 2016) was used as a basis for declaring reserves for the Xiaodonggou General Exploration Area.
The reserve polygons were selected based on the gold content (including ore dilution) from the Measured and Indicated Resource polygons that exceeded the calculated breakeven cut-off grade and have demonstrated economic viability. Inferred Mineral Resources are not considered for the Reserve statement.
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Proven and Probable Mineral Reserves for Xihe Zhongbao as of 31 March 2018 are summarized in Table 1-4. The Mineral Reserves are reported as mined ore delivered to the mill stockpile.
Table 1-4. Xihe Zhongbao Mineral Reserve Summary (effective date 31 March 2018)
Contained Contained Ore Tonnes Shandong Shandong Attributable Gold Gold Ore to Shandong Au Contained Attributable Ag Contained Attributable License Tonnes Gold 70% Grade Au 70% Grade Ag 70% (Mt) (Mt) (g/t) (t) Au (t) (g/t) (t) Ag (t)
Siergoumen Mine (C6200002014044110135542) Proven None None None None None None None None Probable 1.91 1.33 3.94 7.51 5.26 None None None Total Proven and Probable 1.91 1.33 3.94 7.51 5.26 None None None Xiaodonggou General Exploration Area (T62120090202028948) Proven None None None None None None None None Probable 3.97 2.78 1.61 6.40 4.48 None None None Total Proven and Probable 3.97 2.78 1.61 6.40 4.48 None None None Yuantanzi Multiple Metals General Exploration Area (T62120090202028947) License under renewal Proven None None None None None None None None Probable None None None None None None None None Total Proven and Probable None None None None None None None None Combined Licenses Proven None None None None None None None None Probable 5.88 4.11 2.37 13.91 9.74 None None None Total Proven and Probable 5.88 4.11 2.37 13.91 9.74 None None None
Notes:
1. Mineral Reserves were reviewed by Mr. Timothy Ross, RM-SME, of AAI, who is the Qualified Person for the estimate and independent of Shandong Gold. 2. Reserve cut-off grades are based on 2.85-g/t Au for the Siergoumen Mine and 1.29-g/t Au for the Xiaodonggou General Exploration Area. 3. Gold price assumptions is 1,231.03 USD per troy ounce, based on the 3-year monthly average London PM Fix gold price from 1 April 2015 through 31 March 2018. 4. Figures in the table are rounded to reflect estimate precision; small differences generated by rounding are not material to estimates. 5. Reserves are estimated based on delivery to the mill stockpile.
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1.8 Economics
Capital and operating costs for the Xihe Zhongbao Gold Mine have been derived from comprehensive annual production and financial reports supplied by Shandong Gold and from a feasibility study for mining and mineral processing at the Zhongbao Xiadonggou Gold Mine of which 70% is owned by Shandong Gold report (Shandong Gold Group Yantai Design Research Engineering Co. Ltd. 2016). The actual operating costs were normalized to reference process tonnes and then compared to operating costs projected in the feasibility study. Costs from the feasibility study were lower than historical actuals and were used to project future financial performance. The forecast operating cost is 81.82 USD/process tonne (metric ton [t], 1000 kilogram [kg]) until 2022 when Xiaodonggou begins production and drops the operating cost to 62.10 USD/process tonne. Waste development costs are captured in operating costs. Capital costs listed in the feasibility study were assumed to occur in 2018 and totaled 3.9 M USD. The mine is projected to produce an after-tax cash flow of 55.7 M USD (adjusted for attributable portion to Shandong Gold) with an after-tax NPV of 34.8 M USD, 22.5 M USD, and 15.3 M USD at the 5%, 10%, and 15% discount rates, respectively. The remaining life-of-mine based on this reserve is 20+ years.
1.9 Environmental and Permitting
The mining licenses as outlined in Section 4 give the right to carry out full mining and mineral processing operations. The assignment of a mining license requires an approved Environmental Impact Assessment (EIA). The EIA is a comprehensive assessment of the expected environmental impacts (groundwater, surface water, solid waste, etc.) with monitoring and follow-up assessment requirements.
Typical gold mine sources of environmental concern include potential water contamination from dewatering, tailings, process water, and domestic wastewater. Noise pollution is sourced from the production and processing equipment.
The mines operate under PRC laws, regulations, and guidelines. Based on observed operating practices, AAI believes that all necessary PRC government approvals are in place or are reasonably expected to be received for the Xihe Hongbao.
1.10 Risk Assessment
Mining by its nature is a relatively high-risk business when compared to many other industries, except construction. Each mine is hosted in a geologic deposit, the occurrence and mineralized grade of which and the resultant response to mining and processing of which are unique. Section 24 presents the risk assessment for the Xihe Zhongbao property before mitigation. The risk assessment is by nature a subjective and qualitative process. One high risk area identified in this risk assessment relates to compositing of samples. This risk has been identified by Xihe Zhongbao and the company is actively working on mitigation.
1.11 Conclusions and Recommendations
The resource and reserve estimates presented here form the basis for Shandong Gold ongoing mining operations at Xihe Zhongbao. AAI is unaware of any significant technical, legal, environmental or political considerations which would have an adverse effect on the extraction and processing of the resources and reserves located at the mines of Xihe Zhongbao.
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Mineral resources which have not been converted to mineral reserves, and do not demonstrate economic viability shall remain mineral resources. There is no certainty that all or any additional part of the mineral resources estimated will be converted into mineral reserves.
Xihe Zhongbao is an operating mining area with well-known gold bearing vein systems. Ongoing exploration has continued to demonstrate the potential for the discovery of additional resources at the project and within the district surrounding the mine.
Shandong Gold’s operation management teams continue to search for improvements in efficiency, lowering costs and researching and applying low-cost mining techniques.
The mine staff possess considerable experience and knowledge with regard to the nature of the orebodies in and around Xihe Zhongbao.
A major change in ore metallurgy during the life of the current reserves is very unlikely, as nearly all of the ore to be mined will come from veins with historic, recent, or current production.
Areas of uncertainty that may materially impact the Mineral Resources and Reserves and subsequent mine life presented in this report include the following:
• Changes in geotechnical conditions due to increasing depths
• Dilution assumptions
• Variations in commodity price
• Conversion of exploration license into mining license
Following the site visits and literature reviews for Xihe Zhongbao, AAI’s QPs recommend the following:
• At the Siergoumen Mine Area, additional down-plunge underground diamond drilling in the Zone 1 ore zone will rapidly increase data density and convert a significant amount of Inferred Resource to Measured + Indicated confidence levels. This work should allow both short- and long-range mine planning to be completed with a high degree of confidence and extend mine life.
• In Vein 2-2, scheduled to be developed at the Siergoumen Mine, there is a significant amount of Inferred Resources. Additional drilling is recommended to convert these resources to Measured or Indicated in the future, prior to mine development.
• The Xiaodonggou General Exploration Area is complex, with numerous veins and mineralized lenses. Additional drilling will be required to elevate the confidence level of
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the vast amount of Inferred Resources present at the project. Over 50% of the project’s contained ounces are currently in the Inferred category or unclassified, as they are insufficiently drilled to provide the necessary confidence level in the resource estimation on these zones.
2 INTRODUCTION
This Independent Technical Report was prepared for the Xihe Zhongbao gold mining area. Xihe Zhongbao includes the Siergoumen Mine, the Siergoumen Prospecting Area, the Xiaodonggou General Exploration Area, and the Yuantanzi Multiple Metals General Exploration Area. The Siergoumen Mine is currently operating and the most recent production rate is about 148,500 tpy. Xihe Zhongbao is ultimately owned and controlled by Shandong Gold. The purpose of this report is to provide detailed information in support of an application for listing on the HKEx. AAI is responsible for preparing the report, including AAI employees and subcontractors. Neither AAI nor any of the authors have any financial interest in SDG, Shandong Gold, or Xihe Zhongbao. AAI’s remuneration from Shandong Gold is independent of the report findings and does not depend on AAI making a specific finding. No contractual indemnities exist between AAI or its subcontractors and SDG, Shandong Gold, or Xihe Zhongbao for the content of this report.
2.1 Information Sources
The documentation reviewed, and other sources of information, are listed at the end of this report in Section 27.
2.2 Qualified Persons
Table 2-1 lists the Qualified Persons (QPs) for this Independent Technical Report, their responsibilities, and the dates of their most recent visit to Xihe Zhongbao.
The site inspections conducted by Timothy Ross, William Stanley, and Qinghua “Jason” Jin included examination of the following items:
Table 2-1. QPs, Responsibilities, and Latest Visit
QP Sections Most Site Visit Recent Timothy Ross Overall responsibility for this report and 3-5 September 2017 specifically for Sections 1, 2, 3, 4, 5, 6, 15, 16, 18, 20, 23, 24 25, 26, and 27 William Stanley Sections 7, 8, 9, 10, 11, 12, and 14; 3-5 September 2017 contributed to Sections 1, 6, 23, 24, 25, 26, and 27 Jason Jin Sections 13 and 17; contributed to Sections 1, 12 September 2017 25, 26, and 27 Carl Brechtel Sections 19, 21, and 22; contributed to None Sections 1 and 27
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Surface (Timothy Ross and William Stanley)
• Surface office facilities
• Surface air compressor station
• Production shaft/hoisting and surface haulage facilities
• Decline portals and hoisting facilities
• Raw ore overflow stockpile area
• Processing plant
• Exploration core storage area
• Tailings disposal area
Underground (Timothy Ross and William Stanley)
• Main access shaft
• Two of the currently active production levels
• Cross-cuts being developed into the orebody
• One of the active stopes
• Main ventilation fan
• Load-haul-dumps (LHDs)
Additionally, William Stanley inspected the Xiaodonggou General Exploration Area, which included:
• The heavily vegetated hillsides adjacent to the project site buildings where the veins swarm had been trenched
• The graded pad and survey work for the planned shaft to explore/exploit the veins
• The core storage area, which included taking witness samples of the half-core remnants
Qinghua “Jason” Jin only inspected the mineral processing facilities, including the mill and refinery.
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3 RELIANCE ON OTHER EXPERTS
This report has been prepared by AAI for Shandong Gold. The information, conclusions, opinions, and estimates contained herein are based on:
• site visits;
• information available to AAI at the time of preparation of this report;
• assumptions, conditions, and qualifications as set forth in this report; and
• data, reports, and other information supplied by Shandong Gold and other third party sources.
For the purposes of this report, AAI has relied on ownership information provided by Shandong Gold. AAI has not researched property title or mineral rights for Xihe Zhongbao properties and expresses no opinion as to the ownership status of the properties.
AAI has relied on Shandong Gold for guidance on applicable taxes, royalties, and other government levies or interests, and applicable revenue or income from Xihe Zhongbao.
4 PROPERTY DESCRIPTION AND LOCATION
4.1 Location
The Siergoumen Mine is located at the western side of the Xicheng lead-zinc mineral area. Its administrative division falls under Shili Village, Xihe County, Gansu Province. The Siergoumen Mine is located about 12 km east of Xihe and about 10 km north of Yeshuihe Village, where the Xi-Chen Highway can be accessed. The mining area passes through Majiayuan Village. The Xiaodonggou General Exploration Area is located southeast of the Siergoumen Mine. Figure 4-1 shows the general location of Xihe Zhongbao.
4.2 Mineral Rights
Based on the information provided to AAI by Shandong Gold, Table 4-1 summarizes the current, licensed Mining and Exploration Rights. These licenses have been issued by the PRC’s MLR and/or the Gansu Provincial Land and Resource Evaluation Center. Licenses showing an expiration date prior to or on 31 March 2018 have been submitted for renewal with the granting agencies. The legal opinion by the PRC legal advisors to Shandong Gold by King & Wood Mallesons1 states that they do not anticipate material legal impediments to the license renewal if Shandong Gold meets the substantive and procedural conditions stipulated in the PRC laws and regulations. Figure 4-2 shows the locations of the mining and exploration licenses for Xihe Zhongbao.
1 King & Wood Mallesons, 20th Floor, East Tower, World Finance Center, 1 Dongsanhuan Zhonglu, Chaoyang District, Beijing, PRC. [Prospectus 2018 “Business — Our Operations in China — Our Mining and Exploration Permits]
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AAI did not independently verify the mining license information, such as location, area, and status of the licenses. All information that is included in this section was provided by Xihe Zhongbao and Shandong Gold. AAI is unaware of any permits that must be acquired to conduct the work proposed for the property, and if the permits have been obtained.
Royalties in the PRC are considered a tax, which totals 4% of sales/revenue.
Table 4-1. Issued Licenses to Xihe Zhongbao
Shandong Licensed Mining Gold Ore License Number Expiration Date Area Elevation Ownership Production
(tpa 104ן) (%) (km2) (m)
Mining Rights Siergoumen Mine C6200002014044110135542 28 April 2034 1.5992 2154 to 70 14.85 1465 Exploration Rights Xiaodonggou T62120090202028948 11 February 2020 4.18 70 General Exploration Area Yuantanzi Multiple T62120090202028947 12 February 2019 1.36 70 Metals General Exploration Area
4.3 Environmental Liabilities, Permits, and Risks for the Property
Xihe Zhongbao is an advanced property as defined in the NI 43-101 regulations. Consequently, environmental issues and the status of permitting are discussed in Section 20 of this report.
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Figure 4-1. Xihe Zhongbao Location Map
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Figure 4-2. Base Map showing Xihe Zhongbao Mining and Exploration License Boundaries
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5 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY
5.1 Topography, Elevation, and Vegetation
Terrain within the Siergoumen Mine and Xiaodonggou General Exploration Area is moderately hilly to steep, with elevations ranging from 1,600 m to 2,170 m. The elevation is generally lower in the west and a ridge is located in the central part. The area is dissected by strong, V-shaped gullies. Most of the springs occur in valleys. The ridge areas show denudation, while the slopes and valley floors demonstrate erosional deposition-type landforms.
Vegetation within the mining area is relatively dense, with approximately 60% forest coverage. The forests are state-owned, village-owned, or mixed and only a few trees reach full size. Most other areas are covered with farmland.
The primary surface water for the Siergoumen Mine comes from the Siergou stream, tributary to the Western Han and Jialing river systems of the Yangtze River Basin. The Siergou stream is 1,750-m long, drains an area of 2.8 km2, and has a flow rate of 0.016-0.15 cubic meters per second (m3/s).
The primary source of surface water for the Xiaodonggou General Exploration Area is the Xiaodonggou Valley, which is tributary to the Liuxiang River. The Weidonggou branch gully of the Xiaodonggou Valley traverses the deposit from east to west, with the total length of about 4.4 km, and catchment area of about 6.80 km2. Water from the pit is discharged at an elevation of 2,053 m.
Xihe Zhongbao is located at the western subzone of Wudu-Tianshui seismic zone, Ningxia-Longmenshan seismic sub-region, northern Qinghai-Tibet Plateau Seismic Region. Historically, significant earthquakes occur frequently in the area. The available data indicate six earthquakes with intensities between degree 4.7 and 6 (China seismic intensity scale), and one earthquake with an intensity between degree 7 and 10. The Sichuan Wenchuan 8.1-magnitude (Richter scale) earthquake that occurred on 12 May 2008 also affected the Longnan Region. The National Seismic Zoning Map of China (GB18306-2001) (Institute of Geophysics 2001) indicates that the seismic intensity within this area is intensity VIII, while the peak acceleration of ground motion is 0.30 g (local acceleration due to gravity near Earth’s surface).
5.2 Accessibility
Xihe Zhongbao is located about 12 km east of Xihe and about 10 km north of Yeshuihe Village, where the Xi-Chen Highway can be accessed (30 km from Xihe). The mining area passes through Majiayuan Village and is locally accessible by a limited number of rural roads. The Tianshui Station of the Longhai Railway is 121 km away.
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5.3 Local Resources and Infrastructure
Xihe Zhongbao is located in Xihe County, which is a hilly, agricultural area with a weak industrial base, composed mainly of private lead, zinc, and antimony mining and beneficiation, open-pit gold mining with an environmental replacement for cyanide processing, brick and tile manufacturing, and some small-sized civil industries. The labor resources are abundant. The primary crops include wheat, corn, and potatoes and other economic crops, including oil producing plants, fruits, vegetables, and herbs. Coal is the major fuel used by the mining area and is obtained from Huating County in Gansu Province. Fuel oil is supplied by Xihe County Petroleum Company. Surface rivers and springs are developed within the mining area and access to both industrial and domestic water is convenient.
A branch of the Liujiaxia Power Line of the State Grid has been extended to the mining area. The main 110-kilovolt (kV) transmission line extends from Tianshui County to Changdao and feeds a rural kilovolt-ampere (kVA), which supplies power to the 105 ן substation at Shili, having capacity of 1 kVA 104 ן mine site, 10 km away. Additionally, a 35-kV transmission line extends from Xihe to the 1 Luhe substation in Caoguan Village, 5 km west of the mine.
5.4 Climate
Geographically, the mining area is categorized as a warm temperate zone humid climatic region of the northern Longnan region. Data collected in 2009 from the Xihe County Meteorological Station indicate that the temperature ranges from -4.1ЊCelsius (C) in January to 19.8ЊC in July, averaging 8.4ЊC. The relative humidity averages 78%. The frost-free period is about 170 days and the freeze period is from November to March. The maximum freeze depth is 0.50 m. The annual precipitation ranges from 343 millimeters (mm) (1997) to 926 mm (1984), averaging 538 mm. The average annual evaporation is 1,240 mm, which is 2.3 times the annual precipitation. The period from June to September accounts for 73% of the annual precipitation, in the form of heavy rain and rain storms. Heavy rain (more than 25 mm/day) occurs 2.4 times per year.
6 HISTORY
The information discussed in this section was provided by Shandong Gold, and has not been independently verified.
6.1 Ownership
The exploration right for the Xiaodonggou General Exploration Area was established in 1994 by Group No. 2 of Gansu Nonferrous Metal Geology and Exploration Bureau. In 1998, the owner was changed to Tianshui Geology Group of Gansu Nonferrous Metal Geology and Exploration Bureau. In 2007, the owner was changed to Tianshui Tianlong Mineral Co., Ltd. in Gansu Province. In 2012, the
— III12-32 — APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12 owner was changed to Xihe County Zhongbao Mining Co., Ltd., which is a limited liability company controlled by Shandong Gold. The current exploration right owner is Xihe County Zhongbao Mining Co., Ltd. The license certificate is T62120090202028948, the exploration area is 4.18 km2, and the license is valid until February 2020.
6.2 Exploration and Development Work
From 1944 to 2010, 13 geological investigations have been made of the Siergoumen Mine Area, including geologic maps, sampling, reserves calculations, and preparation of reports. The Siergoumen Mine has been producing for several years. A total of 10 geological investigations have been made of the Xiaodonggou General Exploration Area, including reserves calculations.
6.3 Historical Mineral Resource and Mineral Reserve Estimates
Several resource and reserve estimates complying with PRC standards have been developed over the history of the properties. However, the resource estimates discussed in Section 14 and the reserve estimates of Section 15 are in compliance with Canadian NI 43-101 standards, and for the purposes of this report supersede the historical estimates.
6.4 Production
Although the Siergoumen Mine has been in production for several years, limited information was available regarding past production levels. The recent production is shown in Table 6-1.
Table 6-1. Production Statistics for the Siergoumen Mine
Metal (kg) Metal Grade (g/t) Ore Gold Silver Gold Year Mined (t) Sold Sold Produced Gold Silver
2015 — — — — — 2016* — — — — — 2017 134,940 451 — 451 3.34 — Q1 2018 43,600 133 — 133 3.07 —
* Incidental gold production during the capital development period was excluded.
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7 GEOLOGICAL SETTING AND MINERALIZATION
7.1 Regional Geologic Setting
The Xihe Zhongbao properties and the Siergoumen Mine gold deposit are located within an accreted late-Paleozoic arc sequence south of the North China Craton. The northern limit of the gold belt is underlain dominantly by weakly metamorphosed flysch. This sequence is bounded by the Shangdan fault zone, along the north (Figure 7-1), that juxtaposes the late-Paleozoic rocks of the Xinyang Group against the early-Paleozoic oceanic arc lithologies of the Erlangping and Qinling Groups. The southern boundary is defined by the Lixian-Shanyang thrust fault.
The Xinyang Group is a highly deformed sequence of Devonian to Permian limestones, siltstones, and shales displaying weak to moderate regional greenschist metasomatism. The Xinyang Group hosts the vast majority of the orogenic gold deposits in the region; whereas the less metamorphosed late-Proterozoic to Triassic platform sedimentary rocks to the south of the Lixian-Shanyang thrust fault host the Carlin-like gold systems along the northern margin of the Yangtse Craton.
Metamorphism of the Xinyang Group occurred during burial and subsequent accretion to the NCC during late-Carboniferous to early-Permian time. Isoclinal folding and nappe folds are common in the deformed sequence. Evidence of localized accretionary melange are suggested in many areas of the terrane, and may suggest a period of under-thrusting prior to or during accretion.
A limited number of granitoid stocks occur within the Xinyang Group, but have not been systematically studied. They vary in composition between quartz diorite and diorite, and are thought to be the product of partial melting of the lower crust (Hsu et al. 1987, Li et al. 1993). Dikes of lamprophyre and diorite occur sporadically throughout the sequence, but likely do not have a direct relationship with the orogenic gold deposits of the region.
7.2 Gold Mineralization in the Xinyang Group, Qinling Gold Belt
Orogenic gold systems occur over a 250-km-long belt within the Devonian rocks of the Xinyang Group, from Xi’an in the east to beyond Tianshui in the west (Figure 7-1), within the northern portion of the Qinling Gold Belt. All the gold systems display similar characteristics. Each deposit is structurally controlled and aligned along local to regional ductile-brittle shears and fault zones. Ductile shears likely developed early with brittle deformation occurring later; both are associated with gold-bearing mineralized zones. Unlike other orogenic gold systems to the east of the Qinling Gold Belt, large, well-developed quartz veins are the exception rather than the norm. Gold veins in the Qinling Gold Belt are generally narrow, typically less than 20-cm wide, and often occur as anastomosing veinlet swarms aligned along and within the structural control features, and as breccia flooding in the mines displaying brittle fault zone fracturing. Sulfide mineralization is always associated with the quartz veining and gold. The major sulfide mineral is pyrite (4% to 6% of the mineralized zones), with traces of galena, chalcopyrite, and sphalerite. Pyrite occurs as veinlets, masses of fine- to medium-grained crystal aggregates, and disseminations in the quartz veins and the surrounding altered host lithologies. Gold occurs as electrum, both within fractures in the quartz gauge and within and adjacent to sulfide grains. Alteration is generally minor sericite alteration of the siltstone and phyllite, and local silicification in the breccia and limestone.
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In several mines in the region, large breccia bodies have developed along the structural feature controlling the gold system. Grades are typically in the 1.5-3.5 g/t gold range for these breccia zone-hosted deposits, and gold occurs with disseminated pyrite, ankerite, and albitization of the breccia clasts (Mao et al. 2002).
Other types of mineral systems occur within the district, including lead-zinc veins and skarns associated with the small Mesozoic intrusions. The lead-zinc mines also produce gold and silver as by-products. Also associated with the Mesozoic granitic intrusions are numerous vein-hosted uranium prospects.
Figure 7-1. Geology and Gold Ore Deposits of the Qinling Gold Belt, Gansu Province (after Mao et al. 2002)
7.3 Xihe Zhongbao Area Geology
The Siergoumen Mine and Xiaodonggou General Exploration Area are located within the upper Devonian Dongshan Formation sequence of limestone, sandy siltstone, sandstone, and pyllitic to slaty shales. The sedimentary sequence is moderately metamorphosed to lower-greenschist facies, with chlorite developed along foliation planes in the shales and minor recrystallization in the limestone. The main host rocks in the Siergoumen Mine are silty limestone and siltstone. At the neighboring Xiaodonggou General Exploration Area project, the host rocks are dominantly phyllitic shale and siltstone, with local lenses of limestone.
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Structurally, the sediments generally strike northeasterly and dip both to the northwest and northeast from north-easterly trending fold axis. Moderate isoclinal folding is seen in the road cuts and core specimens and thickens the sedimentary section significantly in the mine area, consistent with the accretion of the terrane to the NCC to the north.
7.3.1 Siergoumen Mine Geology and Mineralization
Brittle-ductile fault zones control gold mineralization and broad zones of brecciation are developed along the main fault zone at the Siergoumen Mine (Figure 7-2). Limestones and phyllitic siltstones are cut by two major structures. The dominant fault directions at the mine are north-easterly and easterly trending. Veins 1-1 and 1-2 are hosted by the north-easterly striking fault (45Њ to 65Њ), which dips to the northwest at between 70Њ to 85Њ. The second fault set is host to Vein 2 and strikes nearly east-west (80Њ to 90Њ). The Vein 2 mineralized zone dips almost vertically or south between 75Њ and 80Њ. Figure 7-3 displays a cross-section of Vein 1-2, and Figure 7-4 a cross-section of the Vein 2 mineralized zone.
Vein 1-2
Vein 2
200m
Figure 7-2. Siergoumen Mine Geology and Drill-Hole Locations (Shuhong et al. 2011)
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135º Vein 1-2 315º with fault breccia
1900m 1900m
1800m 1800m
1700m 1700m
Figure 7-3. Siergoumen Mine Cross-Section 16 showing Vein 1-2, (Looking 45؇ (Shuhong et al. 2011
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0º
Vein 2
180º
2000m
1900m
1800m
Figure 7-4. Siergoumen Mine Cross-Section 28 showing Vein 2, Looking 270؇ (Shuhong et al. 2011)
Both veins are strongly oxidized by meteoric waters down to depths in excess of 200 m. Only locally have drill holes pierced primary sulfide mineralization downdip of the current workings.
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7.3.2 Xiaodonggou General Exploration Area Geology and Mineralization
The Xiaodonggou General Exploration Area is underlain dominantly by siltstone and shale, with more localized limestone interbeds than the stratigraphy at the Siergoumen Mine to the west. Rocks in the Xiaodonggou General Exploration Area strike to the northeast and dip variably to the south. Regional metasomatism has altered the original lithologies to phyllites and slate. Limestone lenses are recrystallized and stretched parallel to the rock package foliation. All lithologies are tightly folded, as displayed in the core photography below (Figure 7-5).
Figure 7-5. Xiaodonggou General Exploration Area Core showing Folding in Limy Phyllite
The Xiaodonggou General Exploration Area’s numerous veins occur within the central package of phyllite with limestone interbeds that is overlain by phyllitic calcareous shales, slate, and sandy limestones (Figure 7-6). The central package of phyllite with limestone interbeds that hosts the gold veins represents the core of a large overturned anticline.
Mineralization at the Xiaodonggou General Exploration Area is controlled by a series of moderately to shallowly dipping faults that strike 60Њ to 75Њ and dip southeasterly; and several zones are considered stratabound, following bedding parallel structures and dilatant zones related to the regional deformation. Veins are similar in character to those of the Siergoumen Mine, but generally dip between 45Њ and 30Њ to the southeast. Quartz is the dominant gangue mineral with 3 to 4% pyrite as the dominant ore mineral. Pyrite is disseminated within the veins and the sericitic altered slates and phyllites. Both the sericite altered host rocks and the quartz veining contain ore-grade gold (>1.0 g/t Au). Trace amounts of chalcopyrite, galena and sphalerite have been noted, but do not provide economic value to the mineralized zones.
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200m
Figure 7-6. Geology and Drill-Hole Location Map of the Xiaodonggou General Exploration Area (Quanwu et al. 2016)
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At least 27 discrete veins have been identified in the drilling at the Xiaodonggou General Exploration Area. The veins vary in thickness from less than one meter to greater than 20 meters. All the currently identified veins strike northeasterly and dip 20Њ to 65Њ to the southeast. By far the largest of these is Vein III-24, which contains over 25% of the global gold resource at the project. Vein III-24 is not exposed at the surface, but is characterized as an extensive breccia zone associated with a low-angle structural zone sub-parallel to the hosting phyllite’s foliation. Figures 7-7 and 7-8 show two examples of the stacked veins present at the property.
165º
345º
2100m
2000m 2000m
1900m 1900m
1800m 1800m
1700m 1700m
Figure 7-7. Cross-Section 0, Looking 75؇ and showing Xiaodonggou General Exploration Area Veins I-2, I-3, I-4, I-5, I-6, I-7, I-10, II-1, II-2, II-6, and II-23 (Quanwu et al. 2016)
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165º
345º
2000m
1900m 1900m
1800m 1800m
1700m 1700m
1600m 1600m
1500m
Figure 7-8. Cross-Section 0, Looking 75؇ and showing Xiaodonggou General Exploration Area Vein III-24 (Quanwu et al. 2016)
8 DEPOSIT TYPES
8.1 Gold Deposits of the Qinling Gold Belt
Three main styles of gold systems occur in the Qinling Gold Belt: orogenic quartz vein-ductile shear-hosted, orogenic sedimentary breccia-hosted, and Carlin-type, sediment-hosted gold systems. The Carlin-type systems are spatially separated from the other two styles of gold deposits in the Qinling belt and occur in the less metamorphosed, fine grain calcareous clastic lithologies of Cambrian to Ordovician-age in the southern portion of the Qinling belt. Orogenic deposits, both the quartz vein and breccia hosted systems, are localized in the northern portion of the belt and include both the Siergoumen Mine and Xiaodonggou General Exploration Area gold systems (Figure 7-1 displays the general distribution of these gold deposits in the gold belt).
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8.2 Siergoumen and Xiaodonggou Gold Systems
Mineralization at both the Siergoumen Mine and Xiaodonggou General Exploration Area display characteristics of the two orogenic-type gold deposits found elsewhere in the district. At the Siergoumen Mine, gold is associated with strongly developed ductile-brittle shear zones cutting the Devonian metasedimentary package. Gold is associated both with zones of broad breccia development along the shear and white quartz-pyrite veins and veinlets aligned along the structure. Like several other breccia related systems to the northeast of the Siergoumen Mine, not all of the sedimentary breccia contains ore-grade gold.
Where exposures of the ore zone at the Siergoumen Mine were inspected by the author, mineralization is completely oxidized and masks most of the primary textures and characteristics of the ores. However, some of the brecciated character of the zone is evident in Figure 8-1 that shows a sample of ore from the Siergoumen Mine’s underground development.
Figure 8-1. Siergoumen Mine Ore Sample (1 yuan coin for scale)
In Figure 8-1, the vuggy, limonite-rich portions of the rock are altered and flooded sedimentary rock breccia fragments and near the center of the specimen, white quartz veinlets are present.
Gold mineralization at the Siergoumen Mine has minor associated silver, but no silver bearing minerals, other than electrum, have been observed. The veins at the mine have been drilled to depths in excess of 500 meters and display no change in character other than a decrease in meteoric weathering and oxidation of the primary sulfide minerals with depth. No changes in quartz vein character, trace element content, or minerology have been documented.
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At the Xiaodonggou General Exploration Area, numerous veins have been intercepted in the diamond drilling. The vast majority of these mineralized zones are relatively narrow white quartz veins with associate pyrite. Generally, these veins or vein zones are one to two meters wide occurring both concordant and crosscutting the hosting Devonian phyllites and slates. Veining at the Xiaodonggou General Exploration Area is associated with a broad zone of ductile-brittle shearing of the rock package with veins developed in dilatant zones within the shear. Vein III-24, however, is an exception to this general observation. Vein III-24 is partially hosted by breccia and attains thicknesses in excess of 25 meters (Figure 7-8 displays the III-24 vein). Veins have been intersected to a depth of over 800 meters below surface and show no significant change in mineralogy or geochemistry (except for the gradual decrease in meteoric weathering).
8.3 Siergoumen Mine and Xiaodonggou General Exploration Area Deposit Types
Gold mineralization at both the Siergoumen Mine and Xiaodonggou General Exploration Area sites may be characterized as mesothermal orogenic lode gold deposits. Both exhibit the fundamental characteristics of this class of gold deposits globally as described in detail by Groves et al. (1998). Work elsewhere in the district has demonstrated these systems formed at temperatures of approximately 250ЊC and were deposited by fluids with a low salinity. Additionally, the lack of any documented change in mineralogical or geochemical characteristics in the lodes with increasing vertical depth supports this classification.
The Xihe Zhongbao gold systems are similar to the many examples of orogenic lode gold deposits globally such as those in the Motherlode Gold Belt in California, USA and many of the gold deposits of Ontario and Quebec, Canada.
9 EXPLORATION
Modern regional exploration of the Siergoumen Mine and Xiaodonggou General Exploration Area properties began in the 1960s with regional prospecting by the Northwestern China Metallurgical Geology Bureau Group 2 and regional scale geologic mapping by the Shaanxi Provincial Geological Bureau. Metal mine exploration commence in earnest during the period between 1978 and 1992 where lead-zinc exploration was conducted by the Gansu Nonferrous Metal Geology and Exploration Bureau’s Group 2. This work resulted in the discovery of several medium to large lead-zinc mines in the region, but also pointed to the potential for lode gold systems in the region.
In 1991 through 1995, additional prospecting was conducted by the Gansu Nonferrous Metal Geology and Exploration Bureau’s Group 5. In this effort, regional stream silt sampling was conducted with follow-up on dispersion train gold anomalies and resulted in the discovery of gold mineralization at what is now the Siergoumen Mine and Xiaodonggou General Exploration Area.
9.1 Siergoumen Mine Site Exploration
After the initial stream sediment sampling discovered the Siergoumen Mine site’s gold mineralization, the Gansu Nonferrous Metal Geology and Exploration Bureau conducted trenching, detailed mapping and sampling of the Siergoumen Mine area. This work documented the presence of economic gold grades in the vein zones at the mine property.
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This work was followed in 2003, by the first exploration tunneling and crosscuting into Veins 1-2 and 2. Based upon the positive results of this work the Tianshui Tianlong Mineral Co., Ltd. obtained the exploration rights to the property in 2007 and additional trenching, tunneling, and diamond drilling was conducted by the Gansu Nonferrous Metal Geology and Exploration Bureau. In 2008, the results of this work established the first gold resource on the property and follow-up work followed in 2009-2010. Table 9-1 summarizes the general work conducted at the property prior to commencement of commercial mining.
Table 9-1. Siergoumen Mine Area Exploration Summary
Dates Exploration Activities
1964-1966 Regional geological mapping and stratigraphic studies, lead-zinc mine prospecting.
1966-1992 Local detailed geologic mapping and stratigraphy refinement and additional lead-zinc exploration and lead-zinc deposit discovery.
1992-1994 Regional scale stream sediment sample surveys (primarily for copper, lead, and zinc), but discovery of the presence of gold anomalies as well.
1995-1996 Follow-up stream sediment sampling and prospecting of dispersion train gold anomalies defining the Siergoumen Mine gold site.
1996-2003 Initial trenching and channel sampling of the Siergoumen Mine area.
2003-2005 Detailed mapping and additional trenching and channel sampling. Initiated initial exploration drifting beneath surface vein exposures and surface drilling.
2007-2008 Drilling, additional underground tunnelling and channel sampling.
2009-2010 First gold resource reported justifying additional surface drilling, trenching, tunnelling, mine design, metallurgical, processing, and environmental studies.
9.2 Xiaodonggou General Exploration Area
Exploration in the Xiaodonggou General Exploration Area followed a similar path as that displayed above for the Siergoumen Mine. Early work from the early 1960s through 1990s included regional and district scale geologic mapping and stratigraphy work, followed by stream silt surveys and follow-up prospecting of the dispersion train anomalies to identify sources of the anomalous results.
Trenching during the period 1995 through 2003 by the Tianshui Geology Group of the Gansu Nonferrous Metal Geology and Exploration Bureau identified the first shear hosted gold mineralization in the district and established the fundamental geologic and structural framework for the Xiaodonggou General Exploration Area.
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Detailed follow-up work on the results of the 1995-2003 work was completed in 2009 by the Tianshui Geology Group of the Gansu Nonferrous Metal Geology and Exploration Bureau and included the initial phase of diamond drilling. Tianshui established the initial gold mineral resource at the property as a result of this work.
Success in the 2009 exploration work was followed in 2010-2011 by extensive trenching and additional drilling. Additional definition drilling and trenching work, as follow-up on the 2010-2011 program results, was completed in 2012, 2013, and 2014 which established the current geology, structural understanding and the trenching and drill hole databases for the current resources at the property.
Table 9-2 outlines the exploration work completed at the property.
Table 9-2. Xiaodonggou General Exploration Area Summary
Dates Exploration Activities 1964-1966 Regional geological mapping and stratigraphic studies, lead-zinc mine prospecting. 1966-1992 Local detailed geologic mapping and stratigraphy refinement and additional lead-zinc exploration and lead-zinc deposit discovery. 1992-1994 Regional scale stream sediment sample surveys (primarily for copper, lead, and zinc), but discovery of the presence of gold anomalies as well. 1995-1996 Follow-up stream sediment sampling and prospecting of dispersion train gold anomalies around the Xiaodonggou General Exploration Area. 1996-2003 Initial trenching and channel sampling of the Xiaodonggou General Exploration Area. 2003-2005 Detailed mapping and additional trenching and channel sampling. 2007-2008 Additional surface exploration, mapping, sampling and trenching. 2009 Initial diamond drilling of the property along with establishing the initial gold mineral resource. 2010-2011 Additional drilling and surface trenching with the discovery of multiple new vein zones. 2012-2014 Additional drilling, metallurgical and engineering studies, hydrology and process engineering studies. 2015 Reporting of the current PRC mineral reserve for the property.
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10 DRILLING
10.1 Trenching, Drilling, Exploration Tunnelling, and Channel Sampling
At both the Siergoumen Mine and Xiaodonggou General Exploration Area license areas, numerous phases of drilling, trenching, and underground tunnel exploration (Siergoumen Mine only) have contributed to the current data set utilized in the resource and reserve estimates in this Independent Technical Report. Table 10-1 displays the drilling and trenching completed over the years at the Siergoumen Mine area.
In addition to the over 9,895 m of diamond core drilling, there are 45 surface trenches and 4,554 m of underground tunnelling and cross-cutting at the Siergoumen Mine. The current reserves for the mine are supported by production records and by underground working levels approximately 50-m apart vertically, with horizontal cross-cuts through the ores zone(s) at 20-40-m centers along the strike of the mineralized zone on each level. Cross-cuts are sampled along the rib at approximately 1 m above the sill in 3-cm-wide channels, with samples taken continuously along the rib and sample breaks at 1-m intervals. Raises between levels are also channel sampled in a similar fashion and are utilized to determine average grades of the developed reserve polygons within the mine. Hundreds to thousands of ore control samples have been taken over the life-of-the-mine and are relied upon to estimate and report reserves, and estimate grades from individual stope polygons to the mill.
Table 10-1. Siergoumen Mine Core Drilling, Trenching, Exploration Tunnelling, and Channel Sampling Summary
Number of Holes Meters Drilled or Volume Years Activity or Trenches Tunnelled Excavated (m3)
1995-1996 Trenching — — 823 Channel Sampling 128 — — 2003 Trenching 2 — 596 Tunnelling — 1,318.5 — Channel Sampling not reported — — 2008 Diamond Drilling 3 427.83 — Tunnelling — 2,139.75 — Channel Sampling 144 — — 2009-2010 Diamond Drilling 33 9,467.88 — Tunnelling — 1,096.1 — Trenching 42 4,736 5,781.6 Channel Sampling 909 — — Totals Trenching 44 — 7,200.6 Tunnelling — 4,554.35 — Diamond Drilling 36 9,895.71 — Channel Sampling 1,181 — —
m3 = cubic meters
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At the Xiaodonggou General Exploration Area, initial drilling occurred in 2009, and follow-up core drilling was continued to expand existing mineralized zones and discover new gold zones through 2014. A total of 90 holes and 38,920 m of diamond core drilling has been completed on the exploration license through 2014. Additionally, over 59 trenches have been excavated and 2,611 channel samples taken in the trench walls. Core drilling, sampling, and trenching campaigns are compiled in Table 10-2.
10.2 Core Drilling—General Procedures, Recovery, and Sampling
Diamond core drilling follows standard wireline diamond drilling techniques. Holes are generally collared in rotary bits through the overburden and strongly weathered bedrock. Upon encountering rock capable of being cored, wireline techniques commence and, in most cases, holes are begun in HQ-diameter rods and core barrels. Core recovered is approximately 63.5 mm in diameter utilizing the HQ coring equipment. Deeper holes are commonly reduced in size when drilling, conditions are challenging, or the depth of the hole exceeds 1,000 m. Holes are reduced to NQ diameter with core recovered approximately 47.6 mm in diameter. Collar surveys are completed using Topcon GPS equipment with a sub-centimeter accuracy. Down-hole surveys are completed at 50-m intervals down the hole with a gyroscopic survey tool at the Xiaodonggou General Exploration Area, with some early holes at the Siergoumen Mine area surveyed with non-gyroscopic survey tools.
Table 10-2. Xiaodonggou General Exploration Area Trenching, Drilling, and Channel Sample Summary
Number of Holes Meters Drilled or Volume Years Activity or Trenches Tunnelled Excavated (m3)
1995-2003 Trenching — — 3,630 2009 Trenching — — 2,000 Diamond Drilling 2 479.81 — 2010-2011 Trenching 51 — 9,026.4 Diamond Drilling 46 15,631.9 — Channel Sampling 2,280 — — 2012 Trenching 8 — 532.42 Diamond Drilling 30 17,850 — Channel Sampling 331 — — 2013-2014 Diamond Drilling 12 5,438.7 — Totals Trenching 59 — 15,188.82 Diamond Drilling 90 38,920.6 — Channel Sampling 2,611 — —
Core is recovered from the drill hole via wireline, and the core is emptied into 1.8-m-long open top wooden core trays (or more recently plastic trays), with 7 or 8 slots per tray (Figure 10-1). The end of each drill run is recorded on a tag placed at the end of material extracted from the core barrel. Generally, the tag is a small plastic tag with pre-labeled places to record the drill hole number and the
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Figure 10-1. Example of NQ-Size Core Trays
For the core inspected during the site visit, recoveries through the ore zones were excellent. The mineralized rock is generally relatively competent, with occasional natural fractures along the foliation (fractures displayed in the trays above are commonly mechanically introduced during sampling, core removal from core tubes, and fitting longer core pieces into the trays). Logs indicate that recoveries in the ore zones average in excess of 95% and are commonly 100%. The recorded recoveries were substantiated by the authors’ observations during the site visit and core examinations. Current core condition is poor. All core has been stored exposed to the elements, and both the core itself and the core trays are in very poor condition. The condition of the core made witness sampling of the exploration core challenging.
No systematic sampling bias was identified. Where core was inspected, sampling was conducted routinely across the mineralized intervals, with 50% of the core removed for assay samples and the remainder left in the core tray. Samples were taken throughout the visually mineralized drill-hole interval and on either side of the obviously mineralized structures. Core recovery, as mentioned previously, was excellent nearing 100%, making a systematic drilling technique bias highly unlikely.
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11 SAMPLE PREPARATION, ANALYSES, AND SECURITY
The following is a summary of general sample preparation and analysis procedures for the mine and the exploration drilling at the Siergoumen Mine and surrounding exploration areas.
11.1 Sample Preparation
Drill core, trench samples, and underground channel samples are prepared in a similar manner at the laboratory. Figure 11-1 displays the general sample preparation flow through the preparation facility.
Samples are dried in ovens Dry samples weighed Primary crush to –5 mm
Secondary crush to –1 mm Tertiary crush to –0.15 mm
Sample split into assay sample Assay split pulverised to –0.074 mm and storage sample
Pulp split into an Analysis sample Reject sample split and and a Duplicate sample re-bagged for storage
Pulps splits to analytical laboratory for assay
Figure 11-1. Sample Preparation Flow Diagram
Sample preparation procedures are adequate and are similar to internationally recognized laboratory procedures. AAI believes that no systematic errors have been introduced by poor sample preparation procedures.
11.2 Assay Laboratories and Assay Procedures
The vast majority of assays on underground channel samples, as well as the core drilling samples, were completed by the Testing Center, Gansu Provincial Non-ferrous Metal Geological Exploration Bureau. The analytical facility has the following certifications: Mineral rock analysis B-level Qualification certified by Department of Land and Resources (DLR) of Gansu Province; ISO9001
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International Quality Management System Certification (Beijing Zhongshe Quality System Certification Center); and Gansu Provincial Metrology Accreditation (Gansu Provincial Administration of Quality and Technical Supervision).
The analysis method for gold is standard digestion with aqua-regia, followed by atomic absorption (AA) spectroscopy. Analysis methods are codified in the Chinese government guideline GB/T14352.2-93 standards. The instrument model is UV751GD manufactured by Shanghai Laboratory Instrument Works Co., Ltd. Standard fire assay techniques for gold determinations are uncommon.
11.3 Assay Laboratory Analytical Verification
For in-mine channel sampling, trench sampling and diamond drill hole samples, replicate assays are completed on approximately 10% of the samples submitted. The replicate assays are completed by Testing Center, Gansu Provincial Non-ferrous Metal Geological Exploration Bureau (a China National Accreditation Board for Laboratories (CNAL) accredited laboratory), a third-party laboratory. Verification samples are taken at a rate of 5% of samples assayed, and these samples are delivered to and analyzed by the Xi’an Geological Mineral Institute’s testing center (also with the certifications noted above).
Both the replicate assays and verification re-sampled assays indicate that the initial analytical results may be relied upon for purposes of determining the mineral resources of the mine and the exploration project. AAI’s witness sampling also further supports the validity of the analytical work relied upon within previous reserve and resource reports and this technical report (further described in Section 12 of this report).
Review of the 296 verification samples for the work completed on the Siergoumen Mine area shows that there is a very good correlation between the results of the internal and external laboratories with the coefficient of determination (R2) equal to 0.9756. Figure 11-2 displays the results of the comparison of these assay data pairs.
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Figure 11-2. Internal vs External Laboratory Verification Assays Comparison for the Siergoumen Mine Area
At the Xiaodonggou General Exploration Area, significantly more drilling and verification samples exist. Review of the 1,347 sample data pairs indicates adequate reliability. A few samples are anomalously high or low relative to the original assay, but this may be due to very fine native gold in these samples. The R2 value of 0.9295 indicates there is good correlation between the sample data overall. Figure 11-3 displays the results of the comparison of these assay data pairs.
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Figure 11-3. Internal vs External Laboratory Verification Assays Comparison for the Xiaodonggou General Exploration Area
11.4 Sample Security
While no written protocol for sample security of either underground channel samples or diamond drill-hole samples was seen during the site visit, mine and exploration personnel make significant efforts to insure samples are recorded and described correctly. Additionally, underground channel samples are re-sampled to provide additional verification of the original sample data. The author believes that the mine and exploration sample security protocol is adequate for the purposes of establishing the validity of the samples and their assay results for purposes of resource estimation. Additionally, production results at the Siergoumen Mine also support the assay and resource estimates made in the past, where mining has occurred and reconciliation has been completed.
11.5 Density and Moisture Samples
The determination for the mass and moisture is used in the calculation of resource volume and to provide the basis for estimation of mineral resources and mineral reserves. In the prospecting process, representative mineralized samples are selected from workings of characteristic rock types. The sample size is between 80 and 100 cubic centimeters (cm3) and encased in wax to send to an outside government lab for testing.
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Density determination is reported to be updated continually as the mine or exploration advances and new workings or ore zones are opened underground or drilled in the exploration areas. Density values determined for both the Siergoumen Mine and Xiaodonggou General Exploration Area are considered adequate and may be relied upon for purposes of resource estimation. Furthermore, tonnage measurements through the mill support the values currently being used for the ore density.
No independent density testing was conducted by AAI for use in this technical report. The density values reported by the PRC laboratory for both the Siergoumen Mine and the Xiaodonggou General Exploration Area are consistent with the character of the rock types and alteration styles. In the author’s opinion, the density values utilized by Shandong Gold for its resources and reserves are determined appropriately and may be relied upon for purposes of estimating the resources and reserves within this technical report.
12 DATA VERIFICATION
12.1 Summary
AAI visited the Xihe Zhongbao properties and exploration area on 3 September and 4 September 2017. The two days were focused on the review, with senior mine staff, of technical reports, maps, data summaries and appendices; touring the underground mine and underground facilities, mineralized exposures, stopes, access ramps laterals and cross-cuts. Additionally, a portion of the site visit was spent touring the surface facilities, ore loading areas, tailings impoundment facility, and examining available exploration/development drill core in the storage area.
The Siergoumen Mine and Xioadongguo General Exploration activities are subject to detailed governmental agency review and verification of all aspects of its activities and data collection procedures. These reviews and periodic audits (the Reserve Resources Verification Reports) are set forth in the Specifications for Hardrock Gold Exploration (PRC MLR 2002). These regulations dictate the type of work to be conducted at each phase of exploration, development and production; the required quality of sampling; acceptable analytical methods and quality of the analytical results; and the required use of outside laboratories (noted in Section 11 above) to re-assay samples and verify the results of channel samples and drill-hole samples used to calculate the resource and reserve polygon grades.
12.2 Witness Sampling
AAI’s technical team took a number of witness samples during the site visit and examination of the badly deteriorated remaining core from exploration/development drill holes in the Xiaodonggou General Exploration Area. Samples were taken of run-of-mine (ROM) ore, underground cross-cut ribs, loaded ore cars headed to the surface ore stockpile, and random grab samples from the surface ore stockpiles. Table 12-1 displays the results of the witness sampling. Figure 12-1 shows the underground cross-cut chip channel sample through the Siergoumen Mine Vein 1-2. The witness sampling was conducted to verify the presence of gold in the mineralized zones, ore being hauled and stockpiled, and drilling (when available). The witness sampling completed was adequate, in the author’s opinion, to verify the presence of gold in the rocks being mined and explored, as well as the ore being delivered to the mill complex from the mine.
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Table 12-1. Witness Sample Results
Expected Sample Site Area Material Gold Gold Number Sampled Sampled Sample Description Grade Grade (g/t) (g/t)
474619 Siergoumen Rock 2.5-m horizontal chip channel 16.30 N/A Mine across gossanous quartz vein in 1710-m Level cross-cut access to stope. Abundant goethite, jarosite, and hematite (approx. 90% of sample); quartz vein material approximately 10%. 474620 Siergoumen Rock Random grab from ore drawpoint 5.55 N/A Mine No. 5 on the 1710-m level. Sample is approximately 80 m southwest of sample 474619. Goethite, jarosite dominate (approx. 75% of sample), and white quartz veining (approx. 25%). 474621 Siergoumen Rock Random grab sample from ore cars 2.73 N/A Mine awaiting haulage to surface in a railed-winze. Material sampled is dominantly iron oxides (approx. 80%) and quartz vein material; minor limestone host rock overbreak. 474622 Xiaodonggou Core ZK11-8, 375.8 m to 376.8 m, 2.82 3.35 General random grab from deteriorated Exploration core tray in outside storage pad. Area Quartz-pyrite vein in phyllite host rocks. Vein is approximately 1.5 m wide and contains 8-10% disseminated pyrite. Unknown grade at time of sampling. 474623 Xiaodonggou Core ZK11-7, 163.7 m to 166.7 m, 0.29 0.24 General random sample of remaining NQ Exploration core; 60% of sample is phyllite, Area with silicification and approx. 15% quartz veining with small crystals of pyrite. Overall pyrite content is less than 2%. Unknown grade at time of sampling.
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Expected Sample Site Area Material Gold Gold Number Sampled Sampled Sample Description Grade Grade (g/t) (g/t)
474624 Reference Pulp Standard gold analytical reference 4.09 3.90 Material material; CDN-GS-5M
Witness sampling results compare reasonably with the anticipated gold grades in the areas sampled. Most of the core boxes at the storage area had serious levels of deterioration, evidence of significant core shifting in the boxes during transport to the core storage areas, or were completely chaotic due to the stacks of trays falling over. Additionally, many of the small paper sample interval tags that had been placed in the core boxes during sampling had deteriorated and shifted from their original sites. The author and the mine staff attempted to reconstruct the sampled intervals, but this effort was less than completely successful as the ore intervals pre-selected for sampling could not be identified. The samples taken do indicate, qualitatively, that gold is present in the core and that the recorded values can be relied upon for purposes of resource estimation. Figure 12-2 shows the core and storage area for the Xiaodonggou General Exploration Area.
Figure 12-1. Siergoumen Mine, 1,710-m Level Cross-Cut through Vein 1-2 with Witness Sample No. 474619
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Gold analysis of the witness samples were completed by SGS-CSTC Standards Technical Services (TianJin) Co., Ltd. (SGS-CSTC) in its Tianjin, China facility. Samples were collected and security maintained by the author during the site visits, and delivered by the author to an independent package delivery service in the various cities near the mine sites. The package delivery service delivered the samples directly to SGS-CSTC’s laboratory. Package tracking and receipts were signed for each shipment at each transfer point. Both certified analytical gold standards and certified blank samples were inserted into the sample shipments at a rate of one standard or blank in every 10-15 samples. Analysis of the inserted standards and blanks were within acceptable variance from the expected values and no sample smearing or sample contamination is evident in the blanks or standards. SGS-CSTC analyzed the samples utilizing standard 1-assay ton fire assay procedures with an AA finish (when less than 10 g/t Au) and a gravimetric finish for samples initially returning values in excess of 10 g/t Au. The authors believe the witness sample assays may be relied upon for the purposes of this report and as verification of the presence of gold in the ores and resources at Xihe Zhongbao and exploration areas.
Figure 12-2. Xiaodonggou General Exploration Area Diamond Drill-Hole Storage Area
The conclusion that the Shandong Gold assay values utilized for the resource and reserve estimates are valid is further supported by the underground ore sampling both in ore drawpoints and in ore cars sampled awaiting hoisting to the surface shown in Table 12-1. These samples returned ore grade gold values consistent with average ore grades reported delivered to the milling facility. Figure 12-3 shows the Siergoumen Mine Vein 1-2 ore zone in one of the stopes on the 1,710-m level of the mine.
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Figure 12-3. Siergoumen Mine Vein 1-2 Stope at the 1,710-m Level
Care was taken to collect the witness samples without prior warning to the mine staff, such that any potential tampering with the materials sampled would be minimized or eliminated entirely.
12.3 Mine and Surface Infrastructure
Underground areas of the mine were visited by descending the main shaft and walking the 1,710-m level, secondary access drifts, ramps, and cross-cuts. Stopes on the 1,710-m level of the mine were visited during the underground tour and witness sample collection.
Surface facilities visited included the main administrative offices, surface headframe and hoist house, tailings facilities, mill and crushing facilities were also inspected. Examples of the surface and underground facilities visited are shown in Figures 12-4 and 12-5. Additional details of both the surface and underground facilities may be found in Sections 16, 17, and 18.
Figure 12-4. Siergoumen Mine Hoist Control Center
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Figure 12-5. Two-Compartment Shaft at Siergoumen Mine
13 MINERAL PROCESSING AND METALLURGICAL TESTING
A metallurgical testing report on samples from the Siergoumen Mine gold ore was provided for review. In July 2010, Northwest Institute of Nonferrous Metals Geology (NINMG 2010) completed a metallurgical test study report titled “Gansu Province Xihe County Siergoumen Gold Ore Metallurgical Test Report.” Testwork included:
• Mineralogy
• Whole ore cyanidation leach testwork
13.1 Sample Selection
The NINMG (2010) report indicates that a number of samples from CK1, CK2, CK3, P1, and F1 at the Siergoumen Mine, weighing approximately 1,000 kg, have been used in the testwork programs.
The size of these samples is not detailed, and it is not known if they originate from drill core or bulk material. Table 13-1 shows the sample composition.
The sample assay results are shown in Table 13-2.
The sample head assay revealed that the Cu, Pb, and Zn contents are very low and provide no economic value to the project. The most important valuable element in the sample is Au.
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Table 13-1. Sample Composition
Sample Location ID Grade Proportion (g/t) (%)
CK1 1.28 15 CK2 7.42 50 CK3 0.55 15 P1 0.37 10 F1 0.55 10 Calculated head, Au g/t 4.07 100 Head assay, Au g/t 3.97
Table 13-2. Sample Head Assay
Head Assay Head Assay
(%) (g/t)
Cu Pb Zn MgO Al2O3 SiO2 STCTiMnAu 0.011 0.0044 0.015 0.408 10.54 51.75 0.17 1.18 0.34 0.13 3.97 Ignition
Na2O P As Sb Co Ni K2O Loss TFe CaO Ag 0.123 0.07 0.21 0.0017 0.005 0.006 3.34 6.47 12.00 5.45 3.39
Cu = copper; Pb = lead; Zn = zinc; MgO = magnesium oxide; Al2O3 = aluminium oxide; SiO2 = silicon dioxide; S = sulfur; TC = technetium; Ti = titanium; Mn = manganese; Au = gold
13.2 Mineralogical Analysis
The ore type is an altered, partially oxidized material. The metallic minerals are mainly limonite, followed by pyrite, and chalcopyrite. The major non-metallic minerals are quartz, followed by calcite, and sericite. The predominant precious metal mineral is electrum.
Gold in the ore is mainly granular gold, which accounts for 71.25% of the ore gold content, followed by attached gold, which accounts for 28.75%. The mineralogical results show that the dissemination size of the gold is very coarse, with a particle size in the range of 0.001 by 0.001 ~ 0.064 by 0.043 mm.
The structure of the ore is relatively simple. Gold in the ore is mainly granular gold. A portion of the attached gold associated with limonite is simple to liberate. The exposed and semi-exposed gold content is relatively high; therefore, the ore is suitable for cyanide treatment.
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Because the metallic minerals associated with gold are mainly iron oxides, the gold grade in flotation tailings may be high, which results in difficulty in recovering the gold using flotation. The micro-grain size gold in the ore accounted for 33.23% weight. This situation may result in a high Au grade in gravity separation tailings.
13.3 Physical Testwork
The physical characteristics of the ore outlined in the report are limited to specific gravity. A grindability test was performed and the grindability factor of 1.42 indicates the Siergoumen Mine ore is easier to grind than the standard ore.
No results for comminution test work, such as crusher work index and abrasion index, are included in the provided report. It is believed that limited physical characteristic testwork was performed, due to a large base of knowledge already obtained at the existing processing operations.
13.4 Grinding Fineness Test
The results indicate that the gold extraction increases from 89.17 to 94.46% with the increasing grind fineness from 60% to 95% passing 200 mesh. Cyanide leaching is the most appropriate method of gold extraction.
13.5 Cyanidation Leach Testwork
This testwork included preliminary batch or scoping tests to identify sodium cyanide addition rates, leach retention time, leach pulp density, grinding fineness, carbon loading density, and CIP retention time. The optimum values of these parameters are as following:
• Sodium cyanide: 1.0 kg/t
• Leach retention time: 4 hours
• Leach pulp density: 40% solids
• Grinding fineness: 90% passing 200 mesh
• Carbon loading density: 10-g carbon per liter slurry
• CIP time: 8 hours
A comprehensive process condition parallel test was conducted to verify the reproducibility of the condition test parameters. The test results shown in Table 13-3 indicate that reproducibility results have been achieved.
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13.6 Ancillary Testwork
No ancillary testwork, such as thickening and filtering studies, were included in the report. However, these properties are believed to be well understood relying on experience from existing operations.
Table 13-3. Comprehensive Process Condition Test
Leach Au Barren Au Feed Au Residue Au Extraction Solution Au Adsorption ID Grade Grade Rate Grade Rate Recovery (g/t) (g/t) (%) (mg/L) (%) (%)
1 3.97 0.22 94.46 0.03 98.84 93.36 2 3.97 0.20 94.96 0.04 98.29 93.34 3 3.97 0.17 95.72 0.03 98.74 94.51 Average 3.97 0.20 95.04 0.04 98.62 93.73
mg/L = milligrams per liter
14 MINERAL RESOURCE ESTIMATES
14.1 Mineral Resource Classification System
The National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”), developed by the Canadian Securities Administrators and promulgated under Section 143 of the Canadian Securities Act in 2000, sets out disclosure standards for mineral projects in Canada. NI 43-101 also is an accepted standard for reporting on the HKEx under Chapter 18.29 of the HKEx Main Board Listing Rules and is employed by various Chinese public companies listed on the HKEx for disclosure on mineral projects. In this report, Mineral Resources and Mineral Reserves are stated in accordance with the May 2014 Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definitions Standards for Mineral Resources and Mineral Reserves (the 2014 CIM Definition Standards) and the November 2033 CIM Estimation of Mineral Resources and Mineral Reserves Best Practice Guidelines (2003 CIM Best Practice Guidelines), as incorporated by reference in NI 43-101 Standards of Disclosure for Mineral Projects as revised on 9 May 2016.
Under the 2014 CIM Definition Standards, a Mineral Resource is defined as:
Mineral Resource—a concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade or quality, continuity and other geological characteristics of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling.
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Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated, and Measured classifications. An Inferred Mineral Resource has a lower level of confidence than that applied to an Indicated Mineral Resource. An Indicated Mineral Resource has a higher level of confidence than an Inferred Mineral Resource, but has a lower level of confidence than a Measured Mineral Resource. The resource classifications are defined as follows:
Inferred Mineral Resource — that part of a Mineral Resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply but not verify geological and grade or quality continuity. An Inferred Mineral Resource has a lower level of confidence than that applying to an Indicated Mineral Resource and must not be converted to a Mineral Reserve. It is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continued exploration.
Indicated Mineral Resource — that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation. An Indicated Mineral Resource has a lower level of confidence than that applying to a Measured Mineral Resource and may only be converted to a Probable Mineral Reserve.
Measured Mineral Resource — that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit. Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation. A Measured Mineral Resource has a higher level of confidence than that applying to either an Indicated Mineral Resource or an Inferred Mineral Resource. It may be converted to a Proven Mineral Reserve or to a Probable Mineral Reserve.
A Mineral Resource is not an inventory of all mineralization drilled or sampled, regardless of cut-off grade, likely mining dimensions, location, or continuity. A Mineral Resource is a realistic inventory of mineralization which, under assumed and justifiable technical, economic, and development conditions, might, in whole or in part, become economically extractable.
Measured and Indicated Mineral Resources stated in this report are inclusive of Mineral Reserves.
14.2 Conceptual Mining Scenario
The NI 43-101 2003 CIM Best Practice Guidelines requires that Mineral Resources exhibit reasonable prospects for eventual economic extraction in the context of, at least, a conceptual mining scenario. Shandong Gold is a mature mining company that already produces gold and other metals using established underground mining and processing methods. The reference mining scenario is
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14.3 Mineral Resource Estimation Methodology under PRC MRL
The estimation and classification of resources for Shandong Gold and other gold mines in China is strictly regulated by the PRC MLR, as defined by the Specifications for Hardrock Gold Exploration effective 1 March 2003 (PRC MLR 2002). Resource estimates are based on explicitly prescribed parameters, which include classifications of geologic complexity, minimum grades, minimum minable thicknesses, and assay capping procedures for high grades. Resources are typically estimated by mine geologists and engineers, and/or by third-party PRC entities, including academic, scientific, and government institutions. Resources are typically re-estimated at year-end or other specific times to account for mining depletion and adjustments for new geologic information.
Resources and reserves are required to be reported to and approved by government regulators on an annual or more frequent basis, typically at the provincial or municipal government level. As a consequence, resources and reserves are subject to routine and sometimes rigorous independent audits. Plans for mining of reserves must be approved in advance, typically at the beginning of each calendar year, with planned versus produced metrics reconciled at the end of the period.
Shandong Gold’s resource estimation procedures are standardized across all properties in accordance with the Specifications for Hardrock Gold Exploration (PRC MLR 2002). Resources are quantified using a form of polygonal projection onto either horizontal (plan view) or vertical (longitudinal) projections representing typically tabular, high- or low-angle vein systems. The polygonal method is one of the most widely used methods in China for quantifying tabular deposits.
The salient procedures, parameters, and classifications of the PRC MLR method are described as follows.
14.3.1 Economic Parameters
The primary economic parameters for resource estimation are termed the Industrial Indices in the Specifications for Hardrock Gold Exploration (PRC MLR 2002). Minimum Industrial Indices are codified for various types of deposits, but can be adjusted at an operator’s discretion to improve economy and risk, and for other reasons. Indices include boundary cut-off grades for relevant metals, polygon cut-off grades, deposit cut-off grades, minimum mining widths, and minimum waste dilution dimensions. Indices can be modified and updated with regulatory approval. The current Industrial Indices used to delineate the Mineral Resource polygons are summarized in Table 14-1.
The product of polygon grade and polygon thickness is applied as an alternative cut-off criterion where the mineralized thickness is less than the minimum mining width, but the gold grade is relatively high.
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Cut-off indices are stipulated for associated minerals, although resource qualification is based on gold content. Industrial cut-offs for associated minerals are commonly: Ag: 2.0 g/t, sulfur (S): 2.0%wt, copper (Cu): 0.1%wt, magnetic Fe (mFe) 15.0%wt, lead (Pb): 0.2%wt, and zinc (Zn): 0.2%wt, in accordance with the Specification for Comprehensive Exploration and Evaluation of Mineral Resources (GB/T 25283-2010) (Standardization Administration of the PRC 2010).
14.3.2 Grade Capping
Samples with anomalously high gold or other metal grades (grade outliers) are capped in accordance with the Specifications for Hardrock Gold Exploration (PRC MLR 2002). The outlier threshold is calculated for each mineralized zone as a multiple between six to eight times the average grade of the population of samples from the mineralized zone. A lower multiple is used for more uniform grade populations, while a higher multiple is used for more variable populations. In thick resource polygons, samples exceeding the outlier threshold are replaced by the length-weighted average (composite) grade of the drill hole or channel sample containing the outlier. For thin polygons, outliers are replaced by the average grade of the polygon itself. Polygons are typically considered “thick” if their average thickness is seven times greater than the minimum mining width. This method is considered a reasonable and conservative and has been adopted by AAI for use in its resource estimation.
Table 14-1. Xihe Zhongbao Economic Parameters for Resource Estimation
Minimum Minimum Waste Grade- Minimum Waste Exclusion Boundary Polygon Deposit Thickness Minimum Waste Exclusion Length Cut-off Cut-off Cut-off Cut-off Mining Exclusion Length in between Property Grade Au Grade Au Grade Au Au Width Width the Vein Veins
(g/t) (g/t) (g/t) (g/t-m) (m) (m) (m) (m)
Siergoumen Mine (C6200002014044110135542) 1.00 2.50 NA NA 1.0 2.0 NA NA Xiaodonggou General Exploration Area (T62120090202028948) 1.00 2.00 NA 2.00 1.0 2.0 NA NA
Notes:
1. NA = Not applied. 2. Polygons above the boundary cut-off grade, but below the polygon cut-off grade are designated as “low grade” polygons. “Low grade” polygons are mined where compatible with the mine plan. 3. Minimum Waste Exclusion Width is the minimum separation distance between mineral intercepts for treating intercepts as individual and separate veins. Intercepts must be combined and treated as one vein, and the composite grade of the vein diluted with the intervening waste, for widths below the minimum. 4. Minimum Waste Exclusion Length is the minimum length of waste polygons that can be left between resource polygons either on-strike or downdip within a vein, or between two separate veins. Waste must be combined with the resource polygons, causing dilution, at separation lengths below the minimum.
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14.3.3 Polygonal Method
For resource estimation, the drill-hole intercepts and underground channel samples associated with each specific mineralized vein or system are resolved into either plan view (horizontal) or vertical (longitudinal) projections using MapGIS (Zondy Cyber 2017) software. Vertical projections are preferred for steeply dipping mineralized zones (those zones with dips greater than 45Њ). Horizontal projections are utilized for mineralized zones with shallow dips (those zones with dips shallower than 45Њ).
Each mineralized zone is subdivided into grade polygons defined by sample points (i.e., drill holes or channel samples). Interior to the mineralized zone, polygons are interpolated between sample points where the sample points define the vertices (corners) of the polygon boundary. Interior polygons are typically defined by three or four sample points, producing triangular or quadrilateral polygons.
Polygons on the periphery of the mineralized zone are extrapolated some limited distance outward from the mineralized zone where mineralization is expected to persist beyond the sampling limits. Extrapolation distances vary depending upon the geologic environment, but generally do not exceed 15 to 30 m. Extrapolated polygons are assigned the lowest geologic confidence level (Inferred). Remote drill holes are normally disregarded for polygon construction.
An example of grade polygon construction in MapGIS is shown in Figure 14-1.
Figure 14-1. Siergoumen Mine Grade Polygons—Longitudinal Section
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The polygon volume is calculated by resolving the actual thickness of the sample intersections into the projected thickness in the mineralized body’s projected coordinate system using MapGIS (Zondy Cyber 2017) software. The projected thickness at the vertices of a polygon are averaged and multiplied by the projected area of the polygon to compute volume. Volume is converted to tonnes according to the tonnage factor.
Metal grades are composited on a length-weighted basis for each sampling intercept. Composite grades are averaged on a length-weighted basis using the mineralized zone’s true thickness at each sample location. The average of the composite grades is assigned to the polygon. Grades are calculated for gold and associated minerals (if the deposit has other potentially economic elements being considered).
Resource total tonnes are reported as the sum of individual polygon tonnes. Resource tonnages represent gross, in-place tonnes without adjustments for planned losses or dilution during mining. Resource total grades are reported as tonnage-weighted averages.
14.3.4 Tonnage Factor
Polygon volumes are converted to tonnes on the basis of a tonnage factor (bulk density). Tonnage factors are determined for each major mineralized zone from density measurements performed on a statistically significant number of core, grab, and channel samples. A third-party laboratory is utilized to conduct the density analysis and is generally the same independent laboratory utilized in the analytical assay verification. Typically, a minimum of 30 samples are tested for each mineralized zone. Corrections are ordinarily applied where moisture contents exceed 3.0%wt. Tonnage factors used for resource estimation are summarized in Table 14-2.
Table 14-2. Xihe Zhongbao Tonnage Factors
Tonnage Property Factor (t/m3)
Siergoumen Mine (C6200002014044110135542) 2.51 Xiaodonggou General Exploration Area (T62120090202028948) 2.44-2.53
t/m3 = tonnes per cubic meter
14.3.5 Estimation Verification
Various studied conducted by independent PRC government and academic institutions have concluded that the polygonal method, as specifically applied at Shandong Gold’s mines, complies with the Specifications for Hardrock Gold Exploration (PRC MLR 2002) and that the method’s estimation results are reliable for reporting under the PRC standard.
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14.4 Reconciliation to 2014 CIM Definition Standards by AAI
As discussed in the previous section (14.3 Mineral Resource Estimation Methodology under PRC MLR) the estimation and classification of resources for Shandong Gold and other gold mines in China is strictly regulated by the PRC MLR, as defined by the Specifications for Hardrock Gold Exploration, effective 1 March 2003 (PRC MLR 2002). In that system, resources were estimated using methods currently applied by Shandong Gold that conform to PRC resource estimation and classification requirements. A polygonal model was developed by Shandong Gold based on drill-hole and channel sample assay measurements. Polygons were included or rejected based on Economic Indices as defined by the PRC MLR (such as cutoff grade and vein thickness).
The 2014 CIM Definition Standards require that Mineral Resources exhibit reasonable prospects for eventual economic extraction in the context of, at least, a conceptual mining scenario. Shandong Gold is a mature mining company that already produces gold and other metals using established underground mining and processing methods. The conceptual mining scenario is based on the existing operations on the Siergoumen Gold Mine property. These methods and their economic viability are discussed in Sections 16 through 22. The economic cut-offs associated with conceptual mining and applied to resource estimation are discussed in Section 14.3 Mineral Resource Estimation Methodology under PRC MLR.
AAI’s QPs reconciled the resulting tonnage and grade estimate for each polygon to 2014 CIM Definition Standards. Confidence-level categories were assigned to each polygon based upon multiple criteria (refer to discussion in section Resource Classification) and by reviewing and re-estimating tonnages and grades of the polygons to determine that the polygons to be reported met considerations of reasonable prospects for eventual economic extraction. Tonnages and metal content for each polygon were summed to determine the overall tonnage and grade for each confidence-level category.
14.4.1 Mining Reconciliation Considerations
Although geostatistical and statistical computer modeling methods are currently an industry-norm approach when reporting Mineral Resource estimates, the polygonal method is considered an acceptable method for estimating the Mineral Resources for the Sierguomen Mine and the Xiaodonggou General Exploration site.
Reconciliation between modeled and mined tonnages was used to validate the polygonal method’s tonnage estimates and the reliability of the methodology used by Shandong Gold. A comparison between 1-year production forecasts based on the polygonal modeling and actual end-of-year production at a number of Shandong Gold’s mines supports that the polygonal method is acceptable within practical tolerances. Mined tonnes and gold grades typically match 1-year forecast tonnes and grade within several percent or better, after accounting for planned losses and dilution. The reliability of the 1-year forecasts conveys confidence in the Measured and Indicated classifications.
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14.4.2 Resource Classification
In general, AAI accepted the PRC MLR polygons’ geometry but reviewed each polygon individually to adapt to CIM standards and the areas, thicknesses, tonnages and weighted-average grades were recalculated by AAI. The polygon values were checked against reported assay values, drill hole or channel sample thicknesses, area and tonnages (specific gravity) from multiple sources and checked for consistency. Each site was specified with a minimum reported polygon cutoff for minimum grade and mining width, usually ~1.0 gram/tonne of gold and 0.8 to 1.0 meters thick, the latter depending on the deposit continuity and inclination. The PRC MLR system allows for incorrect compositing in the case where the mineralized zone splits into one or more veins or branches and had waste areas of2morgreater (see 12.3 Data Review). The method allows for summing the grade and thickness of each vein that is above the defined grade without adding the thickness of the material below cut-off. This is not consistent with industry best practice and where this was the case those resources were downgraded by AAI to Inferred or Excluded. This practice was not a common occurrence at the Siergoumen Mine Area.
Confidence category modifying factors which could lead to a confidence classification downgrade or exclusion included:
• Large area polygon with inadequate sample control.
• High aspect-ratio (slender) polygon that had an unequal spacing between sample points.
• Polygon below or beyond enforced mining limits.
• Polygon mined out.
• Polygon that is isolated or remote.
Figures 14-2 through 14-4 are representative examples of the Mineral Resource classifications for grade polygons located within the Siergoumen Mine. Figure 14-4 is a representative example of the Mineral Resource classification for grade polygons located within the Mineral Resource at the Xiaodonggou General Exploration Area. Figure 14-5 displays the drill-hole collar location for exploration and development diamond drilling at the properties.
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14.4.2.1 Siergoumen Mine and Xiaodonggou General Exploration Area Mineral Resource Classification
The following criteria were used to classify the Mineral Resource in the Siergoumen Mine and the Xiaodonggou General Exploration Area:
• There are no Measured Resources.
• Polygons were classified as Indicated Mineral Resources where:
o Mineralized bodies have assumed geological and grade continuity, and
o Polygon is supported by four or more mineralized intercepts in drill holes or underground channel samples and has a polygon area less than 10, 000 m2 (equivalent 100-m grid spacing), or ן to 100-m
o Polygon is supported by three mineralized intercepts in drill holes or underground ן channel samples and has a polygon area less than 5, 000 m2 (equivalent to 100-m 100-m grid spacing).
• Polygons were classified as Inferred Mineral Resources where:
o Mineralized bodies have implied geological and grade continuity, and
o Polygon is supported by four or more mineralized intercepts in drill holes or underground channel samples and has a polygon area greater than 10, 000 m2 100-m grid spacing), or ן equivalent to 100-m)
o Polygon is supported by three mineralized intercepts in drill holes or underground channel samples and has a polygon area greater than 5, 000 m2 (equivalent to 100-m .(100-m grid spacing ן
o Polygon is supported by two mineralized intercepts in drill holes or underground channel samples.
• Polygons were not classified if the polygon was supported by only a single mineralized intercept in drill holes or underground channel samples or was supported by 2 or 3 drill holes in an isolated area.
Confidence category modifying factors which could lead to a confidence level classification upgrade included:
• Presence of exploration drifts or cross-cuts (i.e. had to be one of the polygon vertices).
• Whether the polygons adjoined mine workings.
• Whether one or more intercepts was based on channel samples from cross-cuts.
• Exceptions applied for polygons within stopes that have less than four mineralized intercepts and modest projections (typically 20 m or less), adjacent to stopes or down dip/plunge of mined orebodies
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Figure 14-2. Siergoumen Mine Mineral Resource Classifications— Vertical Projection Vein 2 (longitudinal section) PEDXIICMEETPRO’ EOT—AIRPR IE12 SITE REPORT AAI — REPORT PERSON’S COMPETENT III APPENDIX I1-2— III12-72 —
Figure 14-3. Siergoumen Mine Mineral Resource Classifications— Vertical Projection Vein 1 (longitudinal section) APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12
Figure 14-4. Xiaodonggou General Exploration Area Mineral Resource Classifications— Horizontal Projection (plan view)
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Figure 14-5. Drill Hole and Sample Location Map APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12
14.4.3 Geostatistical Mineral Zone Analysis and Variography
AAI conducted a geostatistical analysis of the three-dimensional (3D) continuity of gold mineralization within the principal mineralized zones at the Siergoumen Mine and the Xiaodonggou exploration area as part of its analysis of the mineral resources described in this Technical Report. Two of the major contributing veins, in terms of contained kilograms gold, were subject to the evaluation at the Siergoumen Mine and three contributing veins at the Xiaodonggou exploration area. The statistical analysis was completed utilizing Geovia’s Surpac version 6.7.3, software statistical analysis module.
14.4.3.1 Basic Univariate Statistics
Basic statistics were completed on 1-m composites of drill hole and underground crosscut channel sample assays for the Siergoumen Mine veins I-2 and II-2 that are the major contributors to the gold resource at the mine. Data for the Xiaodonggou exploration area is limited to only diamond drill-hole samples as there currently are no underground workings that develop these veins. Therefore, the three, sub-parallel veins were evaluated collectively to improve data distribution in the analysis. The summary of the basic statistics for each zone analyzed are shown in Table 14-3.
Table 14-3. Siergoumen Mine Veins I-2 and II-2 and Xiaodonggou Project Veins I-3, I-6, and III-24 Basic Statistical Analysis
Coefficient Number of Standard of Variable Zone Composites Minimum Maximum Mean Deviation Variance Variation
Gold g/t Siergoumen 400 0.04 25.47 3.49 4.47 20.17 1.28 Vein I-2 Gold g/t Siergoumen 208 0.08 19.60 2.81 3.27 10.71 1.16 Vein II-2 Gold g/t Xiaodonggou 477 0.11 64.50 2.04 3.64 13.24 1.79 Veins I-3, I-6 and III-24
Figures 14-6 and 14-7 display the cumulative frequency histograms of the 1-m composites for the Siergoumen Mine’s I-2 and II-2 veins. The shape of the distribution indicates a single normal sample population for the gold grades in each vein. Figure 14-8 displays the cumulative frequency histograms for the 1-m composites for the I-3, I-6, and III-24 veins at the Xiaodonggou exploration area.
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14.4.3.2 Mineralized Zone Variography
Variogram analysis was performed on two veins that are major contributors to the Siergoumen Mine’s Indicated Resource. Veins evaluated were the I-2, currently being mined, and the II-2 vein being developed for the mine’s long-term production. Variograms are summaries of the spatial continuity of data points in two or three dimensions. Most gold deposits and the associated sampling of these deposits or mineralized zones display complex variograms with poor structure even when sufficient data is available to adequately model. The pairwise relative variograms below were constructed on data for each zone based on 1-m composite samples of drill hole, surface trench channel samples, and underground channel sample data (when available) for each zone analyzed. No data was available from the previously mined areas at the Siergoumen mine. Data from the II-2 vein is principally from extensive surface trench channel sampling and diamond drilling. The II-2 vein was mined in the past (by a previous owner, see Figure 14-2), but the crosscut channel sample data for the area of past production was not available for this analysis.
Figure 14-6. Siergoumen Mine I-2 Vein, Composite Frequency Histogram
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Figure 14-7. Siergoumen Mine II-2 Vein, Composite Frequency Histogram
Figure 14-8. Xiaodonggou I-3, I-6, and III-24 Veins, Composite Frequency Histogram
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The ranges identified in the variography for the I-2 are 93 m along strike and 31 m downdip. The downdip range is severely impacted by the closely spaced crosscut channel sampling in the developed portion of the vein and is of limited reliability. Data distribution for the II-2 vein was inadequate for development of reliable variograms, primarily due to the lack of availability of the underground channel data from the area of historical mining. The ranges identified in the variography, when sufficient data is present, assist in identifying the distance between data points, beyond which the two data points have little or no relationship statistically to one another. The analysis presented is to inform the reader of additional analysis completed on the distribution of gold in the veins at the mine, but in the opinion of the author, mining history and strong correlation between planned mining and actual production yields a better indication of the vein’s continuity along strike and dip and the modeled variograms.
Figure 14-9 displays the along strike and downdip variograms for the Siergoumen Mine vein I-2 and Figure 14-10 displays the along strike and downdip variograms for vein II-2.
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Figure 14-9. Strike and Dip Variograms for the Siergoumen I-2 Vein
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Figure 14-10. Strike and Dip Variograms for the Siergoumen II-2 Vein
Figure 14-11 displays the along strike and downdip variograms from the combined I-3, I-6, and III-24 veins at the Xiaodonggou Exploration area. All data points in this area’s evaluation were from diamond drill holes and are more uniformly distributed as no underground workings currently exist in this development area. Variograms indicate a nearly identical range for both strike and dip of 125 m for these veins.
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Figure 14-11. Strike and Dip Variograms for the Xiaodonggou I-3, I-6, and III-24 Veins
Relative variograms smooth an experimental variogram by scaling, using the mean squared of each pair of data points being compared. This smooths the graph, making interpretation both more consistent and easier for the modeler. For the variogram to be meaningful, the number of data points must be sufficient for the spatial dependence to be statistically significant (both in the strike and dip directions).
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14.4.4 Consideration of Reasonable Prospects for Eventual Economic Extraction
Mineral Resources were assumed to be potentially mineable using underground mining methods such as the shrinkage stoping or transverse overhand cut-and-fill or room-and-pillar methods currently utilized by Shandong Gold operations. Consideration of the modifying factors when converting Mineral Resources to Mineral Reserves (see Section 15) indicated a cut-off grades of 2.15-g/t Au for the Siergoumen Mine and 1.29-g/t Au for the Xiaodonggou General Exploration Area were applicable the Mineral Reserve estimate. To ensure that each Mineral Reserve polygon had an equivalent Mineral Resource polygon, and that the Mineral Resource estimate would accommodate future mine planning considerations such as development requirements or dilution, a lower cut-off grade of 1.0-g/t Au was selected for the polygon boundary cut-off grade. The Mineral Resource polygons are considered to have reasonable prospects for eventual economic extraction using underground mining methods f they have a minimum thickness of 0.8 to 1 m (depending upon the mineralized zone) and meet a gold grade cut-off of 1.0-g/t Au. Gold price assumption was 1,231.03 USD/oz. and gold metallurgical recovery is estimated to be 88.3% for the Siergoumen Mine and 83% for the Xiaodonggou General Exploration area.
14.5 Mineral Resource Statement
The Mineral Resource estimate for the Siergoumen Gold Mine and the Xiaodonggou General Exploration Area are summarized in Table 14-5 with an effective date of 31 March 2018. The Mineral Resource is reported in accordance with the 2014 CIM Definition Standards. Shandong Gold, either by direct ownership or agreement with Shandong Gold, controls 70% of the Mineral Resources stated in Table 14-5. The resource was estimated by William R. Stanley, RM-SME, an independent consulting mining geologist. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
Gold is the primary economic metal in the Siergoumen Gold Mine and the Xiaodonggou General Exploration Area. Silver is a minor by-product, but is not estimated in this Mineral Resource statement.
The Mineral Resources exclude polygons that have been mined and accounts for depletion up to the effective date of the estimate (31 March 2018). Depletion has been applied to the Resource to account for the extraction since the date of the verification or annual report that served as the basis to establish the Resource and Reserve. The depletion was provided by Shandong Gold and is the result of internal accounting for the production allocated against the verified resource. Resource depletion is allocated first from Measured, then Indicated and any remainder from Inferred.
Factors that may affect the estimate include changes to the geological or grade interpretations; changes to tonnage factors; minimum mining thicknesses used to define polygons and changes to the cut-off grade input parameters; changes to the selection of the number of samples that can influence the confidence classification assigned to a polygon; additional drilling that would allow inclusion of polygons on the edges of the current estimate; change to assumed mining methods; changes to metallurgical recovery assumptions; and changes to any of the social, political, economic, permitting, and environmental assumptions considered when evaluating reasonable prospects for eventual economic extraction of the Mineral Resources.
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Table 14-4. Xihe Zhongbao Mineral Resource (effective date 31 March 2018)
Contained Tonnes Metals Attributable Attributable Mineral Resource to Shandong Contained to Shandong Category Tonnes Gold 70.0% Grades Metals Gold 70.0% Au Ag (Mt) (Mt) (g/t) (g/t) Au (t) Ag (t) Au (t) Ag (t)
Siergoumen Mine (C6200002014044110135542) Measured None None None None None None None None Indicated 2.00 1.40 4.15 None 8.30 None 5.81 None Subtotal Measured and Indicated 2.00 1.40 4.15 None 8.30 None 5.81 None Inferred 2.43 1.70 2.51 None 6.09 None 4.26 None Xiaodonggou General Exploration Area (T62120090202028948) Measured None None None None None None None None Indicated 4.90 3.43 1.76 None 8.62 None 6.04 None Subtotal Measured and Indicated 4.90 3.43 1.76 None 8.62 None 6.04 None Inferred 4.88 3.42 2.01 None 9.81 None 6.87 None Yuantanzi Multiple Metal General Exploration Area (T62120090202028947) Measured No resource identified Indicated Subtotal Measured and Indicated Inferred Combined Licenses Measured None None None None None None None None Indicated 6.90 4.83 2.45 None 16.92 None 11.85 None Subtotal Measured and Indicated 6.90 4.83 2.45 None 16.92 None 11.85 None Inferred 7.31 5.11 2.18 None 15.90 None 11.13 None
Notes:
1. Mineral Resources were reviewed by Mr. William Stanley, RM-SME, consulting to AAI, who is the Qualified Person for the estimate and independent of Shandong Gold. 2. Mineral Resources are reported inclusive of Mineral Reserves. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. 3. Mineral Resources are reported using polygonal estimation methods. Polygons assume underground mining methods, a minimum thickness of 0.8 m to 1 m depending on the mineralized zone, a 1.0-g/t Au cut-off grade, a gold price of 1,231.03 USD per troy ounce, and a gold metallurgical recoveries of 88.3% for the Siergoumen Mine and 83.0% for the Xiaodonggou General Exploration Area. 4. Estimates have been rounded as required by reporting guidelines. Totals may not sum due to rounding.
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To the extent known, there are no known environmental, permitting, legal, title-related, taxation, socio-political or marketing issues that may materially affect the Mineral Resource estimate.
There is upside potential if mineralization currently classified as Inferred can be converted to higher confidence level Mineral Resource categories and eventually to Mineral Reserves. Historically, Shandong Gold has been able to identify additional mineralization that can support Mineral Resource estimates, and convert some or all of this material to Mineral Reserves.
The reader is cautioned that a Mineral Resource is an estimate only and not a precise and completely accurate calculation of the economically extractable metal, being dependent on the interpretation of limited information on the location, shape, and continuity of the occurrence and on the available sampling results. Actual mineralization can be more or less than estimated depending upon actual geological conditions.
Mineral Resources that are not Mineral Reserves have no demonstrated economic viability. The Mineral Resource statement includes Inferred Mineral Resources. There is a low level of geological confidence associated with Inferred Mineral Resources and there can be no certainty that further exploration work will result in the elevation of the confidence level of the estimated Inferred Resources to Indicated or Measured Mineral Resources.
15 MINERAL RESERVE ESTIMATES
The CIM Definitions Standards (CIM 2014) define a mineral reserve as follows:
A Mineral Reserve is the economically mineable part of a Measured or Indicated Mineral Resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at Pre-Feasibility or Feasibility level as appropriate that include application of Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified.
The CIM Definitions Standards (CIM 2014) further state that:
Mineral Reserves are those parts of Mineral Resources which, after the application of all mining factors, result in an estimated tonnage and grade which, in the opinion of the Qualified Person(s) making the estimates, is the basis of an economically viable project after taking account of all relevant Modifying Factors. Mineral Reserves are inclusive of diluting material that will be mined in conjunction with the Mineral Reserves and delivered to the treatment plant or equivalent facility. The term ‘Mineral Reserve’ need not necessarily signify that extraction facilities are in place or operative or that all governmental approvals have been received. It does signify that there are reasonable expectations of such approvals.
Mr. Timothy A. Ross P.E., RM-SME, of AAI is responsible for the Mineral Reserve estimate presented herein. Mr. Ross is a QP as defined by NI 43-101 and is independent of Shandong Gold. The Mineral Reserve estimation for Shandong Gold’s Xihe Zhongbao in Gansu Province, China was completed in accordance with NI 43-101 standards and based on data and information available as of
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31 March 2018. The Mineral Reserves presented herein are classified according to CIM Definition Standards — For Mineral Resources and Mineral Reserves, prepared by the CIM Standing Committee on Reserve Definitions and adopted by the CIM Council on 10 May 2014. Ore is processed in the on-site Xihe Zhongbao mill facility, which is capable of processing 450 tpd.
15.1 Estimation Parameters
Xihe Zhongbao is made up of four licenses. One is a mining license and three are exploration licenses. The mining license is for the Siergoumen Mine which is an active, developed underground mine. The three exploration licenses include the Siergoumen Prospecting, Xiaodonggou General Exploration, and Yuantanzi Multiple Metals General Exploration Areas. No resources have been declared for the Siergoumen Prospecting and Yuantanzi Multiple Metals General Exploration Areas.
Reserves can only be declared for diluted material above the economic cut-off where either underground development is already in place or a feasibility study has been completed to justify the material is economically mineable. For this report, reserves are declared for the Siergoumen Mine mining license and the Xiaodonggou General Exploration Area.
For the Siergoumen Mine AAI took the resource reported in Section 14 for the Siergoumen Mine and applied the following historically based factors to estimate the reserves:
• Breakeven Cut-off grade: 2.15 Au g/t
• Ore mining dilution: 10.69%
• Ore mining recovery: 93.21%
For the Xiaodonggou General Exploration Area, AAI applied the following mining factors which were taken from the Shandong Gold Group Yantai Design Research Engineering Co. Ltd. (2016) feasibility report.
• Breakeven Cut-off grade: 1.29 Au g/t
• Ore mining dilution: 15%
• Ore mining recovery: 88%
The following additional factors were used for both of the Xihe Zhongbao area licenses for which reserves have been declared.
• Gold metallurgical recovery: 88%
• Gold price: 1,231.03/oz. USD (3-year monthly average from 1 April 2015 through 31 March 2018 London PM Fix gold)
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• RMB to USD conversion rate: 6.571 RMB to 1.00 USD (quarterly average from the second quarter of 2017 through the first quarter of 2018)
The mining method currently in use at the Siergoumen Mine is shrinkage stoping with delayed backfilling. The site personnel reported the mining method will change in June of 2018 to overhand cut-and-fill, utilizing a slusher to remove the ore from the stopes. This will increase the estimated mining cost by 6 USD. The historically based mining factors (with the historical mining cost increase by 6 USD) were applied for evaluating the economics of mining the resources.
For both licenses with reserves, the reserves were estimated based on the gold content (including ore dilution) from the Measured and Indicated Resource polygons that exceeded the calculated breakeven cut-off grade and have demonstrated economic viability. Inferred Mineral Resources are not considered for the Reserve statement.
15.1.1 Dilution and Mining Recovery Factors
For the Siergoumen Mine, dilution is applied to Resource polygons depending on the mining method chosen. For polygons to be exploited using shrinkage stoping with delayed backfilling, and the proposed overhand cut-and-fill methods, the external dilution was applied at the historical average amount of 10.91% dilution at a grade of zero gold content, and is based on the reconciliation data shown in Table 15-1. For the Xiaodonggou General Exploration Area, the 15% dilution rate assumed in the Shandong Gold Group Yantai Design Research Engineering Co. Ltd. (2016) feasibility report was applied.
15.1.2 Reconciliation of Mineral Reserves to Production
Production monitoring and reconciliation of Mineral Reserves is the generally accepted method by which the Mineral Reserve estimate can be calibrated and refined. The most valid confirmation of both the Mineral Resource and Mineral Reserve estimate is through appropriate production monitoring and reconciliation of the estimates with mine and mill production. Proper reconciliation is required to validate the Reserve estimates and allows a check on the effectiveness of both estimation and operating procedures. Reconciliations identify anomalies, which may prompt changes to the mine/processing operating practices and/or to the estimation procedure.
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As part of the ore verification reports that are produced for each property, an ore reconciliation is produced for each active mining area. Table 15-1 shows the relevant portions of the reconciliation tables for the Siergoumen Mine. These historical average mining recovery, dilution and mill recoveries have been used in the reserve calculations for the Siergoumen Mine.
Table 15-1. Siergoumen Mine Reconciliation
Mining Mined Mill Year Dilution Recovery Grade Recovery (%) (%) (g/t) (%)
2016 13.12 92.94 2.48 88.00 2017 9.36 93.35 3.05 88.29 Q1 2018 9.44 93.38 3.07 88.28 2016-Q1 2018 Average 10.69 93.21 2.85 88.19
Note: Listed values are those used to determine breakeven cut-off grade; they are not intended to be a full reconciliation of yearly production.
The Siergoumen Mine is a relatively new mine and, consequently, there is no reconciliation data prior to 2016. AAI believes the average dilution, mining recovery percentages, and metallurgical recoveries in Table 15-1 are reasonable estimates for the mining method and conditions at Xihe Zhongbao.
The Mineral Reserve excludes Polygons that have been mined and accounts for mining depletion up to the effective date of the estimate. Depletion has been applied to the Reserve to account for the extraction since the date of the verification or annual report that served as the basis to establish the Resource and Reserve. The depletion was provided by Shandong Gold and is the result internal accounting for the production allocated against the verified resource. Resource depletion is allocated first from Measured, then Indicated and any remainder from Inferred.
15.1.3 Breakeven Cut-off Grade
The mining breakeven cut-off grade that was used for defining the reserves for the Siergoumen Mine was based on the average of the actual production cost data from 2017 and the first quarter of 2018 (cost data for 2016 is not available), gold pricing based on the 3-year average monthly from 1 April 2015 through 31 March 2018 London PM Fix gold price, and the average historical gold metallurgical recoveries from Table 15-1.
For the Xiaodonggou General Exploration Area, AAI applied the relevant mining factors from the Shandong Gold Group Yantai Design Research Engineering Co. Ltd. (2016) feasibility report.
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The parameters used to estimate the breakeven cut-off grades are presented in Tables 15-2 and 15-3 for Siergoumen Mine and Xiaodonggou General Exploration, respectively.
Table 15-2. Siergoumen Mine Estimated Reserve Cut-off Grades
Unit Cost (USD/process tonne) Weighted Item 2015 2016 2017 Q1 2018 Average
Gold metallurgical recovery 0.0% 0.0% 88.3% 88.3% 88.3% Total cash cost (USD/t) 78.01 64.84 75.02 Gold selling price (USD/oz.-t) 1,231.03 1,231.03 1,231.03 Cut-off grade (Au g/t) 2.23 1.85 2.15
Table 15-3. Xiaodonggou General Exploration Area Estimated Cut-off Grades
Units Cost or Value
Gold metallurgical recovery % 83.0 Total cash cost USD/ore tonne 42.38 Gold selling price USD/oz. 1,231.03 Cut-off grade Au g/t 1.29
15.2 Reserve Classification
Mineral reserves are derived from Measured and Indicated Resources after applying the estimation parameters as stated in Section 15.2. Mineral reserves for Xihe Zhongbao have been derived and classified according to the following criteria:
• Proven Mineral Reserves are the economically mineable part of the Measured Resource for which mining and processing/metallurgy information and other relevant factors demonstrate that economic extraction is feasible.
• Probable Mineral Reserves are the economically mineable part of the Indicated Resource for which mining and processing/metallurgy information and other relevant factors demonstrate that economic extraction is feasible.
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15.3 Mineral Reserves
Proven and Probable Mineral Reserves for Xihe Zhongbao as of 31 March 2018 are summarized in Table 15-4.
Table 15-4. Xihe Zhongbao Mineral Reserve Summary (effective date 31 March 2018)
Contained Contained Ore Tonnes Shandong Shandong Attributable Gold Gold Ore to Shandong Au Contained Attributable Ag Contained Attributable License Tonnes Gold 70% Grade Au 70% Grade Ag 70% (Mt) (Mt) (g/t) (t) Au (t) (g/t) (t) Ag (t)
Siergoumen Mine (C6200002014044110135542) Proven None None None None None None None None Probable 1.91 1.33 3.94 7.51 5.26 None None None Total Proven and Probable 1.91 1.33 3.94 7.51 5.26 None None None Xiaodonggou General Exploration Area (T62120090202028948) Proven None None None None None None None None Probable 3.97 2.78 1.61 6.40 4.48 None None None Total Proven and Probable 3.97 2.78 1.61 6.40 4.48 None None None Yuantanzi Multiple Metals General Exploration Area (T62120090202028947) License under renewal Proven None None None None None None None None Probable None None None None None None None None Total Proven and Probable None None None None None None None None Combined Licenses Proven None None None None None None None None Probable 5.88 4.11 2.37 13.91 9.74 None None None Total Proven and Probable 5.88 4.11 2.37 13.91 9.74 None None None
Notes:
1. Mineral Reserves were reviewed by Mr. Timothy Ross, RM-SME, of AAI, who is the Qualified Person for the estimate and independent of Shandong Gold. 2. Reserve cut-off grades are based on 2.15-g/t Au for the Siergoumen Mine and 1.29-g/t Au for the Xiaodonggou General Exploration Area. 3. Gold price assumptions is 1,231.03 USD per troy ounce, based on the 3-year monthly average London PM Fix gold price from 1 April 2015 through 31 March 2018. 4. Figures in the table are rounded to reflect estimate precision; small differences generated by rounding are not material to estimates. 5. Reserves are estimated based on delivery to the mill stockpile.
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15.4 Factors that May Affect the Mineral Reserve Estimate
Xihe Zhongbao is an operating mine facility in a mining district with a relatively long history of production. The mine staff possess considerable experience and knowledge with regard to the nature of the mineralized zones in and around Xihe Zhongbao. It is unlikely that there will be a major change in ore metallurgy during the life of the current reserves, as nearly all of the ore to be mined will come from veins with historical, recent, or current production.
The process of mineral reserve estimation includes technical information, which requires subsequent calculations or estimates to derive subtotals, totals, and weighted averages. Such calculations or estimations inherently involve a degree of rounding and, consequently, introduce a margin of error. The QP does not consider these errors to be material to the reserve estimate.
Areas of uncertainty that may materially impact the Mineral Reserves presented in this report include the following:
• Changes in geotechnical conditions due to increasing depths
• Dilution assumptions changing with a change in mining conditions or mining method
• Variations in commodity price
16 MINING METHODS
16.1 Mining Method
The No. 1 and No. 2 orebodies of the Siergoumen Mine gold deposit range from 580-1,100 m in length, and from 28-570 m and 50-360 m in depth, respectively. The deposits are irregularly shaped, having stratiform, lenticular, and vein-like forms.
Mining is accomplished with an overhand shrinkage stope method (Figure 16-1); however, it is planned to employ overhand cut-and-fill mining starting around June 2018. The ore vein at the Siergoumen Mine is typically about 2- to 3-m wide and dips 75Њ to the northwest. The minimum mining width is 1 m. Most development is in the hanging wall, which is composed of competent 40-m high and have a raise along one side for access and an ore ן limestone. Panels are 40-m wide pass. Ore in the roof of the stope is drilled with jackleg drills and blasted. Some ore is mucked to the ore pass using a slusher and the remainder is left in the stope to provide a floor to work from. When a panel is complete, the remaining broken ore is extracted from drawpoints at the bottom of the panel using small LHD units. The LHDs load rail cars for haulage to the shaft by either battery- or diesel-powered locomotives. Ore cars are hoisted to the surface and trammed to a nearby ore stockpile adjacent to the mill. About one-third of the waste rock is used underground to backfill completed panels and the remaining volume is hoisted to the surface and stockpiled near the shaft. Ground support is accomplished using split-set and expansion-shell rock bolts, wire mesh with shotcrete, and infrequent use of steel sets. As mining progresses to deeper levels, increased use of arched steel sets may be required. It is anticipated that the Xiaodonggou General Exploration Area will use the same mining methods.
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Figure 16-1. Thin-Vein Shrinkage Stope Mining Method
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16.2 Production Rates, Dilution and Extraction Ratio
The planned production rate is 450 tpd or 148,500 tpy. Historically, ore recovery has been approximately 88% and dilution 10%.
16.3 Mine Facilities and Equipment
16.3.1 Hoisting
There is one 2.5-m-diameter shaft, 300-m deep (Figure 16-2) and two declines (Figure 16-3). The shaft uses a model 2JK-2.5x1.5/20E double-drum hoist manufactured by Jinzhou Mining Machinery Co. Ltd.
16.3.2 Ventilation
One fan, a Zibo Jinhe K-4-NO14 320-kW axial fan, provides ventilation for the mine.
16.3.3 Compressed Air
An Atlas Copco GA160-8.5 air compressor, and two similar BLT200A/10 compressors, are installed near the collar of the main shaft. Piping is routed through the shaft to the working areas. The 160 kilowatt (kW) main compressor supplies 29.1 cubic meters per minute (m3/min) of air at 8.5 bar.
16.3.4 Mine Water
The inflow of water underground is approximately 30 cubic meters per hour (m3/hr), but having (8ןincreases during rainy periods. Three multi-stage centrifugal pumps (Zibo Zhenu D85-45 capacities of 85 m3/hr are available; although, only one pump is typically in operation. Water is pumped to a pond on the surface and treated before use by the mine and mill. The pond base has had an impervious treatment applied. The mine inflow is insufficient to meet mine and milling needs; therefore, additional water is acquired locally. During the rainy season, runoff water is treated before being released.
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Figure 16-2. Siergoumen Mine Headframe over 2.5-m Shaft
Figure 16-3. Decline Portal
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16.3.5 Mine Backfill
The volume of waste rock from development and stope mining exceeds the volume required to backfill the completed stopes; therefore, approximately two-thirds of the volume is hoisted to the surface and stockpiled near the shaft. In the future, it is planned to use tailings for backfill, using the cut-and-fill method, to reduce surface storage requirements.
16.4 Mining Schedule
For the economic analysis discussed in Section 22, AAI developed a life-of-mine (LOM) production schedule for the Proven and Probable Mineral Reserves estimated in Section 15. The location of mining and exploration licenses that contain reserves and the location of the reserves within the licenses, is shown in Figure 16-4.
The objective of the LOM schedule was to provide a reasonably consistent mill feed grade while maximizing the after-tax net present value (NPV). This was done by sequencing the mining in a logical fashion to minimize development costs, mining reserves with similar grades concurrently, or blending ore from reserve areas of dissimilar grade. The sequencing was done on a polygon by polygon basis, generally dividing the reserve into mining levels, and scheduling mining of the highest levels before proceeding to lower levels. It was assumed that the same mining methods as discussed throughout Section 16 would be employed.
The LOM production schedule is shown in Table 16-1. The mining sequence by year is shown in Figures 16-5 through 16-16.
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Figure 16-4. Xihe Zhongbao Mining Area Location of Reserves by License
— III12-95 — Table 16-1. Xihe Zhongbao Mining Area Production Schedule by License 12 SITE REPORT AAI — REPORT PERSON’S COMPETENT III APPENDIX
Years License Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 1—20
Q2-Q4 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 Totals
Siergoumen Gold Mine Mine Development (linear m) 920 1,230 1,230 890 610 610 620 610 610 610 620 610 610 610 620 610 610 610 620 610 14,110 Ore Production (1,000 tonnes) 110 150 150 110 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 1,700 Average Gold Grade (g/t) 3.20 3.05 3.13 3.56 2.84 2.44 3.20 6.06 6.06 6.27 6.34 6.34 4.88 4.08 3.81 3.34 3.10 3.68 3.71 3.99 4.03 Contained Gold (kg) 360 450 460 380 210 180 240 450 450 460 470 470 360 300 280 250 230 270 270 300 6,840 Xiaodonggou Gold Mine Detail Exploration Mine Development (linear m) None None None 390 700 700 700 700 700 700 700 700 700 700 700 700 700 700 700 700 11,640 I1-6— III12-96 — Ore Production (1,000 tonnes) None None None 40 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 70 1,220 Average Gold Grade (g/t) None None None 1.26 1.26 1.31 1.55 1.51 1.36 1.30 1.48 1.61 1.63 1.54 1.42 1.41 1.35 1.35 1.59 1.73 1.45 Contained Gold (kg) None None None 50 90 100 120 110 100 100 110 120 120 110 110 100 100 100 120 130 1,780
Total Mine Development (linear m) 920 1,230 1,230 1,280 1,320 1,320 1,320 1,320 1,320 1,320 1,320 1,320 1,320 1,320 1,320 1,320 1,320 1,320 1,320 1,320 25,750 Total Ore (1,000 tonnes) 110 150 150 150 150 150 150 150 150 150 150 150 150 150 150 150 150 150 150 150 2,920 Average Gold Grade (g/t) 3.20 3.05 3.13 2.92 2.05 1.87 2.38 3.79 3.71 3.78 3.91 3.97 3.25 2.81 2.61 2.37 2.23 2.51 2.65 2.86 2.95 Contained Gold (kg) 360 450 460 430 300 280 350 560 550 560 580 590 480 420 390 350 330 370 390 420 8,620 Contained Gold (koz) 11 15 15 14 10 9 11 18 18 18 19 19 15 13 12 11 11 12 13 14 277
Projected Gold Recovery (%) 88 88 88 88 88 88 88 88 88 88 88 88 88 88 88 88 88 88 88 88 88 Payable Gold (kg) 310 400 410 380 270 240 310 490 480 490 510 520 420 370 340 310 290 330 350 370 7,600 Payable Gold (koz) 10 13 13 12 9 8 10 16 16 16 16 17 14 12 11 10 9 11 11 12 244 APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12
Figure 16-5. Production Schedule for Orebody 1-1 at Siergoumen Gold Mine
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Figure 16-6. Production Schedule for Orebody 1-2 at Siergoumen Gold Mine
Figure 16-7. Production Schedule for Orebody I-2 at Siergoumen Gold Mine
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Figure 16-8. Production Schedule for Orebody 1-2 at Xiaodonggou Gold Mine
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Figure 16-9. Production Schedule for Orebody 1-3 at Xiaodonggou Gold Mine
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Figure 16-10. Production Schedule for Orebody 1-4 at Xiaodonggou Gold Mine
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Figure 16-11. Production Schedule for Orebody 1-6 at Xiaodonggou Gold Mine
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Figure 16-12. Production Schedule for Orebody II-1 at Xiaodonggou Gold Mine
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Figure 16-13. Production Schedule for Orebody II-2 at Xiaodonggou Gold Mine
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Figure 16-14. Production Schedule for Orebody II-4 at Xiaodonggou Gold Mine
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Figure 16-15. Production Schedule for Orebody II-5 at Xiaodonggou Gold Mine
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Figure 16-16. Production Schedule for Orebody II-6 at Xiaodonggou Gold Mine
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17 RECOVERY METHODS
The Siergoumen Processing Plant was designed to treat 1,000 tpd and achieved this throughput during the trial production until the end of 2012. However, due to the impact of the available resource, the current Siergoumen Processing Plant treats 450 tpd in accordance with mining production.
Processing plant labor is scheduled for three 8-hour shifts, 330 days per year. The total number of processing plant employees is 94, consisting of 7 people working in management, 69 people in operations, and 18 maintenance personnel.
The Siergoumen Processing Plant overall flowsheet (schematic flow diagram) is presented in Figure 17-1. The unit operation is described below.
17.1 Crushing Circuit
The crushing plant uses three-stage crushing operating in closed circuit. The crushing plant consists of one primary C80 jaw crusher, one secondary GP100S cone crusher, one tertiary HP200 cone crusher, and one 2YA1848 vibrating screen.
The primary crushed material is transported to a washing screen for washing and screening. Washing screen oversize enters the secondary GP100S cone crusher and the secondary crushed product reports to a 2YA1848 vibrating screen for classification. The screen oversize is transported to a tertiary HP200 cone crusher. The tertiary crushed product is combined with the secondary crushed product and recirculates back to the screen system to provide a closed-circuit screen product. Washing screen undersize is fed to a XLZ-1118 spiral classifier for washing. Classifier return sand is combined with secondary and tertiary crushed product and transported to the vibrating screen for classification. Classifier overflow is pumped to a 9-m diameter deep cone thickener for sedimentation.
Thickener overflow is recycled back to the process water tank, and thickener underflow is fed to a spiral classifier of the primary grinding system.
17.2 Grinding Circuit
Grinding is performed in a single-stage circuit. A primary QSZ2740 grate ball mill operates in closed circuit with a FG-30 spiral classifier. The grinding circuit reduces the crushed ore to a product of 60% passing 0.074 mm (200 mesh). The FG-30 classifier overflow is pumped to cyclones for secondary classification. Cyclone underflow flows by gravity to the primary ball mill. Cyclone overflow at 90% passing 74 microns is screened to remove trash. Trash screen oversize discharges to a collection bin and is periodically removed. Trash screen undersize (15% solids) flows by gravity to an 18-m-diameter thickener prior to leaching circuit.
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Figure 17-1. Siergoumen Processing Plant Overall Flowsheet
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17.3 Leaching and Carbon-in-Pulp (CIP) Circuit
8.5-m-high agitated ן The thickener underflow is pumped to the first of eight 8.0-m-diameter leach tanks. The first two tanks are pre-leaching tanks and the last six tanks are CIP tanks.
An environmental gold dressing agent named “Golden Cicada,” produced by Guangxi Senhe Mining Technology Co., Ltd., is added to the first leach tank in replacement of cyanide, typically used in leaching circuit. Leached pulp flows to the CIP circuit. The carbon is added to the last CIP tank to absorb the dissolved precious metal values from solution. Carbon is transferred in a countercurrent flow arrangement between a series of six tanks, with barren carbon entering the system at Tank No. 8 and loaded carbon existing at Tank No. 3. An air lift to transfer carbon is used in each CIP tank. As carbon moves up the train, the carbon loads to higher and higher concentrations of gold.
The loaded carbon from the first CIP tank is screened using a drum screen. The screen separates the carbon from the slurry, with carbon reporting to the acid wash tank and the slurry returning to the first CIP tank. The final CIP tailings flow over a safety screen before reporting to the tailings system. The safety screen prevents fine carbon from discharging to downstream systems.
17.4 Tailings System
ן The Siergoumen Processing Plant tailings treatment circuit consists of two 5.0-m-diameter 5.6-m-high treatment tanks. Bleach is introduced into treatment tanks. The treated tailings are then pumped to a tailing filter feed tank in the tailings filtration facility. This tailings filtration facility includes three KMZG400/2000 press filters. Tailing filter cake from the filters discharges to a series of conveyor belts to a tailings storage facility.
17.5 Refinery Circuit
Precious metals are stripped from carbon by a high-pressure non-cyanide desorption process. The pregnant solution discharging from the strip vessel is fed to an electrowinning cell to recover the precious metals. The tails solutions from the electrowinning cell circulates back to the strip vessel.
The spent carbon is acid washed and recycled back to the CIP circuit. There is no carbon reactivation process in the plant and the carbon is transported to the carbon supplier for reactivation.
Cathodes are wrapped with stainless steel wool to provide the required surface area for the electrolytic reaction. The cathodes are periodically removed by the end of each month, and the sludge washed from the wool. The gold sludge is filtered and dried. The dried sludge is fluxed with reagents and melted to produce a metal doré bar.
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18 PROJECT INFRASTRUCTURE
Since Xihe Zhongbao is a producing facility, the infrastructure is already in place. AAI believes that the current infrastructure is adequate and appropriate for supporting the anticipated production rate.
No rail, port facility, or pipeline infrastructure is required to operate this facility.
18.1 Roads
Xihe Zhongbao is serviced by a limited rural road system; however, there is nearby access to the national road system. All roads are suitable for the equipment used at the sites and provide adequate access for necessary work.
18.2 Dumps
Mine waste that is not used for backfill underground is hoisted from underground and is stored near the shaft. The waste pile has a capacity of about 90,000 m3 and is constructed with a 35Њ slope and catch benches for stability. AAI did not observe any waste storage issues.
18.3 Ore Stockpiles
Mined ore is hoisted to the surface in ore cars and trammed to an ore stockpile located adjacent to the mill. A small amount of ore is also dumped in the declines and loaded into trucks for transport to the ore stockpile.
18.4 Electric Power
A branch of the Liujiaxia Power Line of the State Grid has been extended to the mining area. The main 110-kV transmission line extends from Tianshui County to Changdao and feeds a rural substation kVA, which supplies power to the mine site, 10 km away. A 105 ן at Shili having capacity of 1 6,300-kVA transformer at the mine site supplies power primarily for the hoist, fan and pumps. kVA Luhe substation in 104 ן Additionally, a 35-kV transmission line extends from Xihe to the 1 Caoguan Village, 5 km west of the mine. There is adequate electrical energy for all of the present and planned work at Xihe Zhongbao.
18.5 Tailings
Tailings disposal uses a dry storage method and the disposal site is located about 1.5 km west of the mill. Tailings are pumped from the mill to a dehydration plant and the dry tailings are then transported by conveyor belt to the disposal site. Water effluent from the dehydration plant is pumped back to the mill for reuse. The tailings storage site is lined with an impermeable geomembrane.
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19 MARKET STUDIES AND CONTRACTS
19.1 Markets
Because gold is a commodity that is highly liquid and widely tracked in the world market, a detailed market study on the potential sale was not completed. The 99.99% pure gold bullion produced by Shandong Gold is currently sold through the Shanghai Gold Exchange.
Figure 19-1 shows the annual London PM Fix price per ounce from 2000 through the first quarter of 2018. For the purposes of this report and as reviewed by QP Carl Brechtel, the resources and reserves are stated at the 3-year monthly average from 1 April 2015 through 31 March 2018 London PM Fix gold price of 1,231.03/oz.
1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500
London for Gold USD/Au-ozFix PM 400 300 200 100 0 2000 2011 2013 2015 2017 2002 2001 2003 2004 2006 2005 2007 2008 2010 2012 2014 2009 2016 Ye a r
Figure 19-1. Gold Price History (Source www.kitco.com)
19.2 Contracts
Shandong Gold has no contracts or agreements for mining, smelting, refining, transportation, handling or sales, that are outside normal or generally accepted practices within the mining industry.
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20 ENVIRONMENTAL STUDIES, PERMITTING, AND SOCIAL OR COMMUNITY IMPACT
20.1 Introduction
The mining licenses as outlined in Section 4 give the right to carry out full mining and mineral processing operations. The assignment of a mining license requires an approved Environmental Impact Assessment (EIA). The EIA is a comprehensive assessment of the expected environmental impacts (groundwater, surface water, solid waste, etc.) with monitoring and follow-up assessment requirements.
Typical gold mine sources of environmental concern include potential water contamination from dewatering and heavy metals, tailings, cyanide process water, and domestic wastewater. Noise pollution is sourced from the production and processing equipment.
The mine operates under PRC laws, regulations and guidelines. Based on observed operating practices, AAI believes that all necessary PRC government approvals are in place or are reasonably expected to be received for the Xihe Zhongbao.
20.2 Laws and Regulations
Shandong Gold mines operate under PRC laws, regulations, and guidelines as briefly outlined in Table 20-1. The listing is not comprehensive, but is representative of the level of oversight.
20.3 Waste and Tailings Disposal Management
Solid waste sources are primarily development waste rock, tailings, and domestic waste. Waste rock will be used first to fill the voids underground to reduce the subsidence potential and then as fill rock in low lying areas during reclamation.
20.4 Water Management
Potential water contaminants generated at Xihe Zhongbao include suspended solids from the water generated in the underground mine drainage process. The tailings wastewater is a source of suspended solids and residual chemicals from ore processing. The domestic wastewater is a potential source of suspended solids, chemical and biological oxygen demand.
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Table 20-1. Overview Listing of PRC Laws Relevant to Mines and Mining Projects
Area of Focus Legislation
Mining Mineral Resource Law of the PRC
Implementation Rules of the Mineral Resources Law
Administrative Measures Concerning the Registration of Mineral Resources Exploitation
Provisions of the Administration of Obtaining Gold Mining Approval
Provisions of the Protection of the Geologic Environment of Mines
Environmental Water Law of the PRC
Water and Soil Conservation Law of China
Water Pollution Prevention and Control Law of China
Detailed Rules for the Implementation of the Water Pollution Prevention and Control Law of China
Regulation on the Implementation of the Water and Soil Conservation Law of China
Regulation on the Administration of the License for Water Drawing and the Levy of Water Resource Fees
Measures for the Administration of Water Use Permit
Notice of the State Council on the Action Plan for the Prevention and Treatment of Water Pollution
Environmental Protection Law of China
Law on Appraising of Environment Impact
Regulation on Environmental Assessment of Planning
Cleaner Production Promotion Law of China
Circular Economy Promotion Law of China
Law on the Prevention and Control of the Environmental Pollution Caused by Solid Waste
Environmental Quality Standard for Surface Water
Quality Standard for Ground Water
Integrated Water Discharge Standard
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Area of Focus Legislation
Prevention and Control of Geological Disasters
Design Regulation for Environmental Protection of Construction Projects
Ambient Air Quality Standards
Environmental Quality Standard for Noise
Emission Standard of Air Pollutants for Boiler
Emission Standards of Industrial Enterprises Noise at Boundary
Identification Standards for Hazardous Wastes-Standards for Extraction Toxicity
Pollution Control Standard for Storage of General Industrial Solid Waste and Disposal Site
20.5 Air
Air contaminants potentially generated at the site include radon, underground and beneficiation dusts. Radon gas will be diluted by ventilation. The underground environment is wet which hampers dust generation. Water sprays are utilized where necessary.
20.6 Permitting Requirements
The permitting process is briefly outlined in Table 20-2. AAI believes that all applicable permits and approvals are in place for Xihe Zhongbao. The existing exploration and mining licenses cover all the active exploration and mining areas. Mining licenses are subject to annual fees and taxes. Renewal of mining licenses and extending mining depth are a normal business process if the mineral resources are defined, the required documentation is submitted, and the government resources royalties are paid.
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Table 20-2. Environmental Permit
Permit Regulatory Body Description
Environmental Impact Ministry of Environmental Evaluations of impacts to the Report (EIA) Protection environment.
Water Permit Ministry of Water Resources Issued separate from mining permits and cover the drainage basin and water consumption. Gold mining projects water permits generally granted at provincial level in alignment with the Catalogue of Investment Projects Subject to Government Confirmation. Water permit sets the tariffs for water use.
Water Discharge Permit Ministry of Water Resources Sets water quality monitoring standards. Includes requirements for recycling water.
Mining Permit/License Ministry of Land Bond payments for mine site rehabilitation are required to obtain a miming license. A company holding a mining license must pay a security deposit for the treatment and restoration of the mines geological environment, based on the relevant state provisions. The deposit and interest will be refunded if the mining company has fulfilled its obligations and has passed inspection by the relevant Ministry of Land representative. Once a mine has ceased operation the mining company will no longer be liable for water contamination.
Tailings and Waste Storage Ministry of Environmental Companies that produce tailings must Pollution Prevention Plan Protection develop a pollution prevention plan and establish a liability system.
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Permit Regulatory Body Description
Mine Closure Application Ministry of Land Mining company must submit a mine closure application as well as a geological report on mine closure for approval to the original issuer of the mine permit. Closure plan must include the basic information of the mine, the current status of the geologic environment of the mine, an analysis and evaluation of the impact on the geologic environment, proposed measures to be take to protect control and restore of the geologic environment, a budgetary estimate of the operating funds for projects and commitment to depositing a security for the protection, control and restoration of geologic environment of the mine.
Mining Approval (Gold National Development and Gold mining projects must be Specific) Reform Commission approved by the National Development and Reform Commission.
20.7 Social and Community
Xihe County where the mining area is located is predominantly agricultural. The primary crops include wheat, corn, and potatoes. The local industry is light and includes private lead, zinc, and antimony mining and beneficiation plants, gold mine open-pit mining, cyanide heap leach, brick and tile manufacturing, and some small civil firms. The labor resources are abundant. No nature reserve, landscape or scenic spot reserves were noted.
20.8 Remediation and Reclamation
Remediation and reclamation plans were developed during the project permitting process. Expenditures for environmental control and restoration for the past 3 years are included in Table 20-3.
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Table 20-3. Xihe Zhongbao Environmental Related Expenditures
Item Unit Q1 2018 2017 2016 2015
Restoration and Yuan 5,600 60,100 Information Information environmental control not available not available in mine area Restoration and Yuan/t 0.11 0.36 environmental control in mine area (per ore ton) Restoration and Yuan/g 0.04 0.13 environmental control in mine area (per gold gram) Ore processed t 49,101 167,261 Gold output kg 132.90 451.01
21 CAPITAL AND OPERATING COSTS
Capital and operating costs (CAPEX and OPEX) for Xihe Zhongbao have been derived from comprehensive annual production and financial reports supplied by Shandong Gold and from a feasibility study report (Shandong Gold Group Yantai Design Research Engineering Co. Ltd. 2016) for expansion into the Zhonbao Xiaodonggou Gold Mine. The mine reports only cover 2017. Detailed costs listed in the report include mining costs, processing costs, administration costs, selling costs, environmental protection costs, production taxes, resource tax, interest on loans, depreciation, amortization and CAPEX.
Ore is processed at Xihe Zhongbao to produce a concentrate, which is shipped to a smelter. Payable products include gold and silver, with the quantity, received price, and revenue listed in the annual reports.
Costs in the reports are in RMB. The costs have been converted into USD, using an exchange rate of 6.571 RMB/USD.
21.1 Capital Cost Estimate
The mine is in its second year of operation and expansion is currently underway; CAPEX is currently modeled in the 2018 period. Waste development costs are assumed captured in OPEX and are expensed. Table 21-1 lists the annual CAPEX for Xihe Zhongbao.
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Table 21-1. Projected CAPEX for the Remaining Mine Reserves
Item Q2-Q4 2018
CAPEX (M-RMB) 25.5 RMB/USD 6.571 CAPEX (M-USD) 3.9
21.2 Operating Cost Estimate
Operating costs are classified by cost objects in Table 21-2 for reported actual production and financial data for 2017 and Q1 2018 and for estimated production and financial data for Q2-Q4 2018, 2019, and 2020. The data are also normalized to actual and estimated process tonnage and payable gold ounces. Unit OPEX are reported for three areas: Mining (direct mining, tunneling, drilling, in-mine transport, surface transport, ventilation, backfilling, hoisting, and water handling); Processing (milling and concentration, and smelting and refining); and G&A, (tax, financing, sales, and amortization and depreciation). Non-cash costs of amortization and depreciation have been removed from the OPEX, but are used in the calculation of projected income tax. Table 21-3 lists the actual costs for January-September 2017. The actual costs are normalized to cost/process tonne, but costs projected for mining of the remaining reserves listed in Table 21-4 were derived from the feasibility study report (Shandong Gold Group Yantai Design Research Engineering Co. Ltd. 2016).
Table 21-2. Buildup of Property Operating Costs by Cost Objects, Historical and Forecast Prediction
Historical (USD/t) Forecast Prediction (USD/t)
Q2-Q4 Cost Object (ore processed) 2015 2016 2017 Q1 2018 2018 2019 2020
Workforce Employment None None 20.68 17.39 19.9 19.9 19.9 Consumables None None 16.76 14.10 16.2 16.2 16.2 Fuel, electricity, water and other services None None 7.18 6.04 6.9 6.9 6.9 On- and Off-site Administration None None 30.04 25.26 29.0 29.0 29.0 Environmental protection and monitoring None None 0.05 0.04 0.1 0.1 0.1 Transportation of workforce None None 0.00 0.00 0.00 0.00 0.00 Product marketing and support None None None None None None None Non-income taxes, royalties and other government charges None None 1.62 1.37 1.6 1.6 1.6 Contingencies None None 8.55 7.19 8.2 8.2 8.2
Cash OPEX Cost None None 84.88 71.38 81.9 81.9 81.9
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Historical (USD/g) Forecast Prediction (USD/g)
Q2-Q4 Cost Object (produced gold) 2015 2016 2017 Q1 2018 2018 2019 2020
Workforce Employment None None 7.67 6.43 7.1 7.4 7.2 Consumables None None 6.22 5.21 5.7 6.0 5.9 Fuel, electricity, water and other services None None 2.66 2.23 2.5 2.6 2.5 On- and Off-site Administration None None 11.14 9.33 10.3 10.8 10.5 Environmental protection and monitoring None None 0.02 0.02 0.02 0.02 0.02 Transportation of workforce None None 0.00 0.00 0.00 0.00 0.00 Product marketing and support None None None None None None None Non-income taxes, royalties and other government charges None None 0.60 0.50 0.6 0.6 0.6 Contingencies None None 3.17 2.66 2.9 3.1 3.0
Cash OPEX Cost None None 31.48 26.37 29.1 30.5 29.7
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Table 21-3. Xihe Zhongbao Historical Total Costs/Process Tonne
2017 Q1 2018
Process tonnes 167,261 49,101 Mining cost (RMB) 36,992,455 12,216,634 RMB 221.17 248.81 USD 33.66 37.87 Processing cost (RMB) 27,738,251 6,249,418 RMB 165.84 127.28 USD 25.24 19.37 Administration cost (RMB) 28,556,758 4,563,752 RMB 170.73 92.95 USD 25.98 14.15 Total Cash OPEX (RMB) 93,287,465 23,029,804 RMB 557.74 469.03 USD 84.88 71.38 Produced gold (g) 451,010 132,900 Cash OPEX cost per Au g (RMB/Au g) 206.84 173.29 Cash OPEX cost per Au g (USD/Au g) 31.48 26.37 Cash OPEX cost per Au oz. (USD/Au oz.) 979.02 820.20 CAPEX cost (RMB) 87,658,425 3,692,602 RMB 524.08 75.20 USD 79.76 11.45 Total cost (RMB) 180,945,890 26,722,406 RMB 1,081.82 544.23 USD 164.65 82.83
Cash OPEX cost per Au g (RMB/Au g) 401.20 201.07 Cash OPEX cost per Au g (USD/Au g) 61.06 30.60 Cash OPEX cost per Au oz. (USD/Au oz.) 1,898.97 951.71
Note: Costs associated with 2016 incidental gold production have been categorized as mine construction capital cost development and are not included as typical operating cost.
AAI is of the opinion that the OPEX and Total cost are reasonable and provide an adequate basis to project the feasibility study report (Shandong Gold Group Yantai Design Research Engineering Co. Ltd. 2016). The total cost per Au oz. provides a very good margin in recent production, and the increase in gold grade for the remaining reserve will further reduce the cost per payable gold oz.
— III12-121 — Table 21-4. Projected Operating and Capital Costs for Xihe Zhongbao, 2018—2037 12 SITE REPORT AAI — REPORT PERSON’S COMPETENT III APPENDIX
Q2—Q4 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Process Tons 110,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 Mining Cost (RMB) 25,200,000 33,600,000 33,700,000 33,600,000 26,800,000 26,800,000 26,900,000 26,800,000 26,800,000 26,800,000 RMB/t 227.40 227.40 227.40 227.40 181.20 181.20 181.20 181.20 181.20 181.20 USD/t 34.60 34.60 34.60 34.60 27.60 27.60 27.60 27.60 27.60 27.60 Processing Cost (RMB) 17,400,000 23,200,000 23,300,000 23,200,000 17,900,000 17,900,000 17,900,000 17,900,000 17,900,000 17,900,000 RMB/t 157.10 157.10 157.10 157.10 120.80 120.80 120.80 120.80 120.80 120.80 USD/t 23.90 23.90 23.90 23.90 18.40 18.40 18.40 18.40 18.40 18.40 Administration Cost (RMB) 17,000,000 22,600,000 22,700,000 22,600,000 15,700,000 15,700,000 15,700,000 15,700,000 15,700,000 15,700,000 RMB/t 153.10 153.10 153.10 153.10 106.00 106.00 106.00 106.00 106.00 106.00 USD/t 23.30 23.30 23.30 23.30 16.10 16.10 16.10 16.10 16.10 16.10
Total Cash Opex (RMB) 59,700,000 79,500,000 79,700,000 79,500,000 60,300,000 60,300,000 60,500,000 60,300,000 60,300,000 60,300,000 I1-2 — III12-122 — RMB/t 537.60 537.60 537.60 537.60 408.00 408.00 408.00 408.00 408.00 408.00 USD/t 81.80 81.80 81.80 81.80 62.10 62.10 62.10 62.10 62.10 62.10
Produced Gold (g) 310,000 400,000 410,000 380,000 270,000 240,000 310,000 490,000 480,000 490,000 Cash Opex Cost/Au G (RMB/Au g) 190.40 199.60 194.60 209.00 225.80 246.90 194.60 122.20 124.70 122.20 Cash Opex Cost/Au G ($US/Au g) 29.00 30.40 29.60 31.80 34.40 37.60 29.60 18.60 19.00 18.60 Cash Opex Cost/Au oz ($US/Au oz) 901.30 944.50 921.30 989.10 1,068.70 1,168.80 921.00 578.40 590.40 578.60
Capex Cost (RMB) 25,500,000 ————————— RMB/t 230.00 ————————— USD/t 35.00 —————————
Total Cost (RMB) 85,200,000 79,500,000 79,700,000 79,500,000 60,300,000 60,300,000 60,500,000 60,300,000 60,300,000 60,300,000 RMB/t 767.60 537.60 537.60 537.60 408.00 408.00 408.00 408.00 408.00 408.00 USD/t 116.80 81.80 81.80 81.80 62.10 62.10 62.10 62.10 62.10 62.10
Total Cost/Au G (RMB/Au g) 271.90 199.60 194.60 209.00 225.80 246.90 194.60 122.20 124.70 122.20 Total Cost/Au G ($US/Au g) 41.40 30.40 29.60 31.80 34.40 37.60 29.60 18.60 19.00 18.60 Total Cost/USD/Au oz 1,287.00 944.50 921.30 989.10 1,068.70 1,168.80 921.00 578.40 590.40 578.60 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 12 SITE REPORT AAI — REPORT PERSON’S COMPETENT III APPENDIX
Process Tons 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 Mining Cost (RMB) 26,900,000 26,800,000 26,800,000 26,800,000 26,900,000 26,800,000 26,800,000 26,800,000 26,900,000 26,800,000 RMB/t 181.20 181.20 181.20 181.20 181.20 181.20 181.20 181.20 181.20 181.20 USD/t 27.60 27.60 27.60 27.60 27.60 27.60 27.60 27.60 27.60 27.60 Processing Cost (RMB) 17,900,000 17,900,000 17,900,000 17,900,000 17,900,000 17,900,000 17,900,000 17,900,000 17,900,000 17,900,000 RMB/t 120.80 120.80 120.80 120.80 120.80 120.80 120.80 120.80 120.80 120.80 USD/t 18.40 18.40 18.40 18.40 18.40 18.40 18.40 18.40 18.40 18.40 Administration Cost (RMB) 15,700,000 15,700,000 15,700,000 15,700,000 15,700,000 15,700,000 15,700,000 15,700,000 15,700,000 15,700,000 RMB/t 106.00 106.00 106.00 106.00 106.00 106.00 106.00 106.00 106.00 106.00 USD/t 16.10 16.10 16.10 16.10 16.10 16.10 16.10 16.10 16.10 16.10
Total Cash Opex (RMB) 60,500,000 60,300,000 60,300,000 60,300,000 60,500,000 60,300,000 60,300,000 60,300,000 60,500,000 60,300,000 RMB/t 408.00 408.00 408.00 408.00 408.00 408.00 408.00 408.00 408.00 408.00 USD/t 62.10 62.10 62.10 62.10 62.10 62.10 62.10 62.10 62.10 62.10
I1-2 — III12-123 — Produced Gold (g) 510,000 520,000 420,000 370,000 340,000 310,000 290,000 330,000 350,000 370,000 Cash Opex Cost/Au G (RMB/Au g) 118.40 116.40 142.20 164.60 177.10 195.00 207.90 184.00 174.50 161.70 Cash Opex Cost/Au G ($US/Au g) 18.00 17.70 21.60 25.10 26.90 29.70 31.60 28.00 26.60 24.60 Cash Opex Cost/Au oz ($US/Au oz) 560.20 551.10 673.00 779.20 838.10 923.00 984.10 871.10 826.10 765.20
Capex Cost (RMB) —————————— RMB/t —————————— USD/t ——————————
Total Cost (RMB) 60,500,000 60,300,000 60,300,000 60,300,000 60,500,000 60,300,000 60,300,000 60,300,000 60,500,000 60,300,000 RMB/t 408.00 408.00 408.00 408.00 408.00 408.00 408.00 408.00 408.00 408.00 USD/t 62.10 62.10 62.10 62.10 62.10 62.10 62.10 62.10 62.10 62.10
Total Cost/Au G (RMB/Au g) 118.40 116.40 142.20 164.60 177.10 195.00 207.90 184.00 174.50 161.70 Total Cost/Au G ($US/Au g) 18.00 17.70 21.60 25.10 26.90 29.70 31.60 28.00 26.60 24.60 Total Cost/USD/Au oz 560.20 551.10 673.00 779.20 838.10 923.00 984.10 871.10 826.10 765.20 APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12
22 ECONOMIC ANALYSIS
An economic analysis of the Xihe Zhongbao operations has been conducted using the mining reserves as adjusted to the beginning of Q2 2018. The annual production schedule used in the economic analysis can be found in Table 16-1. Production and costs have been projected using forecast rates in the feasibility study (Shandong Gold Group Yantai Design Research Engineering Co. Ltd. 2016). Non-cash charges in the mine reporting have been removed, but are used to project future income tax.
Calculations are based on the feasibility study. No inflation or cost escalation is assumed and a flat gold price of 1,231.03 USD/oz., is used in the analysis (3-year monthly average from 1 April 2015 through 31 March 2018 London PM Fix gold and silver price). A currency conversion of 6.571 RMB per 1.00 USD is assumed.
22.1 Taxes
Resource tax and local taxes, plus other government charges, are contained in the mine operating reports. They are accounted for in the forecast OPEX because they are contained in the projected unit cost rates. These costs contain the resource tax, which is currently based on 4% of revenue from the major products before tax.
Income tax is 25% of net operating profit, calculated as revenue less OPEX and depreciation plus amortization. Depreciation and amortization were forecast for the future production years based on the average of the 6-operating months contained in the mine reports.
22.2 Economic Projection
An economic model of the future financial performance of Xihe Zhongbao was developed based on the historical production rates and costs, and the remaining reserves. The average reserve grade was used to estimate the future gold production. The production schedule, costs, and predicted cash flows are listed in Table 22-1.
The production schedule, costs, and revenue indicate an after-tax free cash flow of 56.6 M USD when adjusted for the attributable ownership of Shandong Gold at 70%. Table 22-2 lists the calculated NPV for discount rates of 0% (free cash flow), 5%, 10%, and 15%. The range of discount rates used for NPV estimations are in line with industry standards, and consistent with hurdle rate used for expansion studies of potential Shandong Gold operations. No Internal Rate of Return (IRR) can be determined for the remaining mine life based on this reserve estimate because all of the cash flows are positive. NPV was estimated based on historical or expected gold recovery rates.
— III12-124 — APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12
22.3 Sensitivity of Project Economic Performance
The sensitivity of free cash flow and NPV has been estimated for OPEX and CAPEX assumptions in the range of -25% to +25% around the forecast cost assumptions. The results are listed in Table 22-3 and 22-4, and are shown graphically in Figure 22-1 and 22-2. Contracting fees, utility expenses and transportation costs were captured into the overall OPEX sensitivity of cash flow, but were not individually analyzed for their individual effect on the cash flows.
The sensitivity to gold price assumptions has been investigated for a range of gold prices between 75% and 125% of the forecast price assumption of 1,231.03 USD/Au oz. This resulted in a range of gold prices between 923 and 1,539 USD/Au oz. Table 22-6 lists the free cash flow and NPV at 5%, 10%, and 15% annual discount rates. The sensitivity is also shown graphically in Figure 22-3.
22.4 Sensitivity of Reserves to Gold Price
The reserve’s sensitivity to gold price assumptions has been investigated for a range of gold prices between 80% and 120% of the forecast price assumption of 1,231.03 USD/Au oz. This resulted in a range of gold prices between 984.82 and 1,477.24 USD/Au oz. Table 22-5 lists the associated cut-off grades for the active mining license(s) and corresponding estimated reserves by gold price.
— III12-125 — Table 22-1. Xihe Zhongbao Production Forecast and Projected After-Tax Cash Flow 12 SITE REPORT AAI — REPORT PERSON’S COMPETENT III APPENDIX
Shandong Gold Property Attributable Ore Au Grade Payable After-Tax After-Tax Period Processed ** Au** Revenue* OPEX CAPEX Income Tax Cash Flow Cash Flow (t) (g/t) (oz.) (USD) (USD) (USD) (USD) (USD) (USD)
Q2—Q4 2018 110,000 2.82 10,000 12,400,000 9,100,000 3,900,000 400,000 (1,000,000) (700,000) 2019 150,000 2.69 13,000 15,800,000 12,100,000 — 500,000 3,200,000 2,200,000 2020 150,000 2.76 13,000 16,200,000 12,100,000 — 600,000 3,500,000 2,400,000 2021 150,000 2.57 12,000 15,100,000 12,100,000 — 300,000 2,600,000 1,800,000
I1-2 — III12-126 — 2022 150,000 1.81 9,000 10,600,000 9,200,000 — — 1,400,000 1,000,000 2023 150,000 1.65 8,000 9,700,000 9,200,000 — — 500,000 300,000 2024 150,000 2.10 10,000 12,300,000 9,200,000 — 400,000 2,700,000 1,900,000 2025 150,000 3.34 16,000 19,500,000 9,200,000 — 2,200,000 8,200,000 5,700,000 2026 150,000 3.27 16,000 19,100,000 9,200,000 — 2,100,000 7,900,000 5,500,000 2027 150,000 3.34 16,000 19,500,000 9,200,000 — 2,500,000 7,900,000 5,500,000 2028 150,000 3.45 16,000 20,200,000 9,200,000 — 2,800,000 8,300,000 5,800,000 2029 150,000 3.50 17,000 20,500,000 9,200,000 — 2,800,000 8,500,000 5,900,000 2030 150,000 2.87 14,000 16,800,000 9,200,000 — 1,900,000 5,700,000 4,000,000 2031 150,000 2.48 12,000 14,500,000 9,200,000 — 1,300,000 4,000,000 2,800,000 2032 150,000 2.30 11,000 13,500,000 9,200,000 — 1,100,000 3,200,000 2,300,000 2033 150,000 2.09 10,000 12,200,000 9,200,000 — 800,000 2,300,000 1,600,000 2034 150,000 1.96 9,000 11,500,000 9,200,000 — 600,000 1,700,000 1,200,000 2035 150,000 2.22 11,000 13,000,000 9,200,000 — 900,000 2,800,000 2,000,000 2036 150,000 2.34 11,000 13,700,000 9,200,000 — 1,100,000 3,400,000 2,400,000 2037 150,000 2.52 12,000 14,800,000 9,200,000 — 1,400,000 4,200,000 2,900,000 Total 2,920,000 2.60 244,000 300,900,000 192,400,000 3,900,000 23,700,000 80,900,000 56,600,000
* Does not include payable silver. ** Payable gold grade and gold production based on process assumptions defined in Section 15 Mineral Reserve Estimate. Note: Figures in the table are rounded to reflect estimate precision; small differences generated by rounding are not material to estimates. APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12
Table 22-2. Xihe Zhongbao After-Tax NPV Attributable to Shandong Gold
Quarterly NPV Annual Rate Rate (M USD)
15% 4% 15.3 10% 3% 22.5 5% 1% 34.8 0% 0% 56.6
Table 22-3. Variation of After-Tax NPV (Attributable to Shandong Gold) with OPEX Between -25% and +25% of the Forecast Assumptions
NPV (M USD) % of Base Assumption 0% 5% 10% 15%
25% 51.9 30.3 18.3 11.3 20% 53.1 31.4 19.3 12.3 15% 54.0 32.3 20.2 13.1 10% 54.9 33.1 21.0 13.9 5% 55.8 33.9 21.7 14.6 0% 56.6 34.8 22.5 15.3 Site 57.5 35.6 23.3 16.0 -10% 58.4 36.4 24.1 16.8 -15% 59.3 37.2 24.8 17.5 -20% 60.1 38.0 25.6 18.2 -25% 61.0 38.9 26.4 19.0
Table 22-4. Variation of After-Tax NPV (Attributable to Shandong Gold) with CAPEX Between -25% and +25% of the Forecast Assumptions
NPV (M USD) % of Base Assumption 0% 5% 10% 15%
25% 56.0 34.1 21.8 14.7 20% 56.1 34.2 22.0 14.8 15% 56.2 34.3 22.1 14.9 10% 56.4 34.5 22.2 15.1 5% 56.5 34.6 22.4 15.2 0% 56.6 34.8 22.5 15.3 -5% 56.8 34.9 22.6 15.4 -10% 56.9 35.0 22.8 15.6 -15% 57.1 35.2 22.9 15.7 -20% 57.2 35.3 23.0 15.8 -25% 57.3 35.4 23.2 16.0
— III12-127 — APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12
Table 22-5. Sensitivity of Gold Reserves to Gold Price
Xihezhongbao -20% -10% 0% +10% +20%
Gold metallurgical recovery 88.3% 88.3% 88.3% 88.3% 88.3% Total cash cost (USD/t) 75.02 75.02 75.02 75.02 75.02 Gold selling price (USD/oz.-t) 984.82 1,107.93 1,231.03 1,354.13 1,477.24 Cut-off grade Au (g/t) 2.68 2.39 2.15 1.95 1.79 Proven and Probable Reserves Ore tonnes (million) 3.11 4.86 5.88 6.67 6.84 Grade (g/t) 3.13 2.58 2.37 2.24 2.22 Contained Au (t) 9.73 12.57 13.91 14.96 15.16
70.0
60.0
50.0 ) D S
U 40.0 M ( 30.0 V P N 20.0
10.0
0.0 -30% -20% -10% 0% 10% 20% 30%
Variation of Opex (% of base case assumptions)
NPV 0% NPV 5% NPV 10% NPV 15%
Figure 22-1. Variation of NPV for -25% and +25% of Base-Case OPEX Assumptions
— III12-128 — APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12
70.0
60.0
50.0 ) D S
U 40.0 M ( 30.0 V P N 20.0
10.0
0.0 -30% -20% -10% 0% 10% 20% 30%
Variation of Capex (% of base case assumption)
NPV 0% NPV 5% NPV 10% NPV 15%
Figure 22-2. Variation of NPV for -25% and +25% of Base-Case CAPEX Assumptions
Table 22-6. Variation in Xihe Zhongbao After-Tax NPV Attributable to Shandong Gold for Gold Prices Ranging from 923 to 1,539 USD/Au oz.
NPV (M USD) Gold Price (USD/oz.) 0% 5% 10% 15%
1,539 103.7 67.2 46.8 34.7 1,477 94.1 60.6 41.8 30.6 1,416 84.6 54.0 36.8 26.7 1,354 75.2 47.5 32.0 22.8 1,293 65.9 41.1 27.2 19.0 1,231 56.6 34.8 22.5 15.3 1,169 47.5 28.5 17.9 11.7 1,108 38.0 21.9 13.0 7.8 1,046 28.2 15.1 7.8 3.6 985 18.4 8.3 2.8 -0.4 923 8.8 1.7 -2.2 -4.3
— III12-129 — APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12
120.0
100.0
80.0 ) D S 60.0 U M (
V 40.0 P N 20.0
0.0 70% 80% 90% 100% 110% 120% 130% -20.0 Variation of Gold Price (% of forecast price = 1,231)
NPV 0% NPV 5% NPV 10% NPV 15%
Figure 22-3. Sensitivity of Xihe Zhongbao NPV to Gold Price between 923 and 1,539 USD/Au oz.
23 ADJACENT PROPERTIES
The Xihe Zhongbao mining and prospecting area of the Gansu Province is in a mineralized region with a history of extraction of minerals, especially rare earth elements. There are no immediately adjacent properties which might materially affect the interpretation or evaluation of the mineralization or exploration targets of the Xihe Zhongbao mining area.
24 OTHER RELEVANT DATA AND INFORMATION
Section 24.1 discusses a risk assessment for the Xihe Zhongbao site. No other additional information or explanation is necessary.
24.1 Risk Assessment
Mining by its nature is a relatively high-risk business when compared to many other industries. Each mine is hosted in a geologic deposit, the occurrence and mineralized grade of which and the resultant response to mining and processing of which are unique.
Under PRC mining regulations, periodic verification reports are prepared for each mining and exploration right by external entities. These verification reports include verifications of the mining right and reserve estimates within the integrated mining area, examination of whether surrounding mineral rights overlap, evaluation of the technical conditions of the deposit and a discussion of the main problems that could arise and require mitigation in mining and exploration. This includes a ranking of the complexity of the geologic environment per the requirements of the Provisions of the Protection of the Geologic Environment of Mines.
— III12-130 — APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12
A risk analysis was undertaken in line with Guidance Note 7 (Rule 1.06 of the HKEx Listing Rules). Risk assessments address the likelihood and consequences of possible threats to the success of a particular project and are necessarily subjective and qualitative. Risk is classified from minor to major as follows:
• Major Risk: immediate danger of a failure, which if uncorrected, will have a material effect (>15% to 20%) on the project cash flow and performance and could lead to failure of the project.
• Moderate Risk: the factor, if uncorrected, could have a significant effect (10% to 15%) on the project cash flow and performance.
• Minor Risk: the factor, if uncorrected, will little or no material effect (<10%) on the project cash flow and performance and could lead to failure of the project.
The degree or consequence of a risk and its likelihood are combined into an overall risk assessment as shown in Table 24-1. The likelihood of a risk within a 7-year timeframe is considered as likely, possible or unlikely. A likely risk will probably occur, a possible risk may occur, and an unlikely risk will probably not occur.
Table 24-1. Overall Risk Assessment Guide
Consequence of Risk Likelihood of Risk (within 7 years) Minor Moderate Major
Likely Medium High High Possible Low Medium High Unlikely Low Low Medium
Table 24-2 presents the risk assessment for the Xihe Zhongbao property. The risks are assigned before mitigation is considered. The risk assessment is by nature a subjective and qualitative process. One high risk area identified in this risk assessment relates to compositing of samples. This risk has been identified by Xihe Zhongbao and the company is actively working on mitigation.
— III12-131 — APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12
Table 24-2. Project Risk Assessment Table before Mitigation
Discussion of Hazard/Risk Consequence Hazard/Risk Issue and Mitigation Plans Likelihood Rating Risk
Geological & Resources
Drilling data quality Diamond core drilling serves Possible Moderate Medium as the basis for the vast majority of mineral resources. Great care has been taken by Shandong Gold and its contractors to insure quality samples are obtained for assaying. Risk exists in older, non-gyroscopic down-hole surveys of the drill hole that may create minor shifts in the 3D position of mineralization in the drill holes. Shandong Gold has indicated new drilling with include gyroscopic down-hole surveys to correct this risk.
Drill sample density Drill hole density is regulated Possible Moderate Medium by PRC for this type of gold deposit and may or may not be sufficiently dense to accurately sample the resource.
Sampling techniques Sampling technique has Possible Moderate Medium changed recently from mechanical splitting of core into half-core for sampling to diamond sawing of the core into half-core to obtain the assay samples. This recent change will improve the accuracy and reliability of the core hole assay results.
— III12-132 — APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12
Discussion of Hazard/Risk Consequence Hazard/Risk Issue and Mitigation Plans Likelihood Rating Risk
Compositing methodology The practice of excluding Likely Moderate High below cutoff-grade sample intervals within a vein intercept calculation is not consistent with industry best practices. There is a risk that veins with significant amounts of below cutoff-grade material may not be mineable at a profit. Inclusion of this material in dilution calculations and mine designs mitigates this risk. This methodology is defined by PRC MRL but represents poor and non-standard practice. We have recommended changing this to correct compositing method that includes the interburden grade and thickness.
Gold analysis methodology There is a risk that the Likely Minor Medium resource estimate based on aqua regia gold assays does not accurately represent the mineral resources of the Project. The fire assay method is the international standard for producing total gold analyses for use in resource estimation. Aqua regia digestion gold assays do not necessarily represent the total gold content of the sample under analysis. Shandong Gold reportedly regularly confirms aqua regia gold analyses with fire assay check assays, which mitigates this risk.
— III12-133 — APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12
Discussion of Hazard/Risk Consequence Hazard/Risk Issue and Mitigation Plans Likelihood Rating Risk
Geologic interpretation Quality geologic interpretation Possible Moderate Medium is the foundation for high-quality resource estimation. Shandong Gold uses manually generated plan and sectional maps to interpret the geology and structural setting in its deposits. Consideration should be given to augmenting the manual systems with 3D software interpretation of the geology to reduce geologic risk.
Mineral Resources/Reserves Estimates of tonnes and grade Possible Moderate Medium and expected mining and processing conditions are derived from small samples of the whole. Verified historical data at producing properties may provide a more certain basis for assessing future conditions. Shandong Gold mines have considerable experience with the deposits.
Mining
Surface subsidence Near surface old works that Possible Minor Low have not been backfilled could collapse and cause surface subsidence. This can occur at any underground mine site with near-surface workings.
— III12-134 — APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12
Discussion of Hazard/Risk Consequence Hazard/Risk Issue and Mitigation Plans Likelihood Rating Risk
Mining at greater depth As mining increases in depth, Possible Moderate Medium stresses increase and lead to more difficult mining conditions including the potential for rock bursts. Temperature also increases as mining deepens. Miner working efficiency decreases significantly at temperatures at or above 30ЊC, necessitating increased ventilation and refrigeration of mine air. As mining deepens, the extent of mined out workings increases, which increases the stress transfer to remaining areas and can lead to more difficult mining conditions. Shandong Gold is aware of these issues and has established research centers to look for solutions.
Ore process/handling No significant risks were Unlikely Minor Low detected in evaluation of the mineral recovery processes.
Tailings storage facility Storage of tailings are subject Possible Moderate Medium to risk associated with failure. Tailings are dry stacked to mitigate this risk.
— III12-135 — APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12
Discussion of Hazard/Risk Consequence Hazard/Risk Issue and Mitigation Plans Likelihood Rating Risk
Environmental Liability
Ground or surface water Water released to the Likely Minor Medium quality deterioration environment has the potential to contaminate surface and ground water. Water from ore processing is treated and recycled to minimize potential risk associated with disposal.
Economic
Capital and Operating Costs As China develops, labor and Possible Moderate Medium equipment costs will tend to rise. Significant cost history is available for estimating future costs; however emphasis should remain focused on recent costs.
Commodity pricing, interest Commodity prices, exchange Possible Moderate Medium rates, exchange rates rates and interest rates are subject to change with the world markets. A sensitivity analysis of the project indicates profitability over a wide range of product prices.
Seismic damage to surface According to the Seismic Possible Moderate Medium structures Intensity Zoning Map of China issued in 2001 by the China Seismological Bureau, the seismic intensity of the mine areas is classified as Grade VIII. Building design must be performed in accordance with the “Code for Seismic Design of Buildings” (GB50011-2001).
— III12-136 — APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 12
Discussion of Hazard/Risk Consequence Hazard/Risk Issue and Mitigation Plans Likelihood Rating Risk
Occupational health and An occupational health and Possible Moderate Medium safety safety program is in place to monitor and minimize risk of exposure to workers. Compliance is monitored by external agencies.
High-risk items are noted even if current practices result in a lower risk, because, if, in the next 7 years, Shandong Gold fails to continue the current mitigation, the impact on the Property could be significant.
Other Risks:
In addition to the specific and general risks assessed in the Table 24-2, AAI sought input from Shandong Gold and other sources to provide additional disclosure where relevant and material to Shandong Gold’s business operations, in line with Rule 18.05(6) of the Listing Rule:
1. Project risks arising from environmental, social, and health and safety issues:
Mining projects may be affected by a variety of risks and issues, including environment as well as health and safety risks.
Environmental risks may occur as a result of human negligence such as mishandling of explosive or other dangerous articles in the operations, or force majeure such as flood, earthquake, fire and other natural disasters. The occurrence of any environmental hazards may delay production, increase production costs, cause personal injuries or property damage, result in liabilities and damage reputations. According to Shandong Gold, it has implemented certain measures to address environmental issues arising from the operations and to reduce the impact of operations on the environment. See “Business — Environmental Protection” of this prospectus for details. As advised by Shandong Gold’s Legal Advisors (King & Wood Mallesons 2018), during the Track Record Period, Shandong Gold did not have any material incidents of non-compliance with PRC environmental laws and regulations at its PRC Mines that resulted in material penalties.
According to Shandong Gold, it has implemented a comprehensive occupational health and safety system, which includes operational manuals with respect to its mining and production safety operations, procedures for handling hazardous chemicals and explosive materials, emergency plans, reporting and accident handling, among other things, based on national requirements or policies. It seeks continued improvement in its implementation and standards. See “Business — Occupational Health and Safety” of this prospectus for details. As advised by Shandong Gold’s Legal Advisors (King & Wood Mallesons 2018), during the Track Record Period, Shandong Gold had been in compliance with applicable PRC laws and regulations in respect of occupational health and safety in all material respects.
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Mining projects may be subject to actions by local communities or other interested parties who object to the actual or perceived environmental impact of the projects. These actions may delay or halt the mining projects or create negative publicity related to the mining projects. Shandong Gold has confirmed that there has been no material environmental concern from the local community, and Shangdong Gold has established a good relationship with the local community.
Mining projects are also subject to extensive laws, rules, and regulations imposed by the PRC government regarding production safety, in particular, when the mining projects involve the handling and storage of explosives and other dangerous articles.
2. Any non-governmental organization impact on sustainability of mineral and/or other exploration projects:
Shandong Gold confirmed that, as of the date of this report, there was no non-governmental organization impact on the sustainability of Shandong Gold’s mining and/or exploration activities.
3. Compliance with host country laws, regulations and permits, and payments made to host country governments in respect of tax, royalties, and other significant payment on a country-by-country basis:
As the amount of the PRC tax penalties received by Shandong Gold during the Track Record Period accounts for an insignificant portion of the latest audited net assets of Shandong Gold and has been fully paid, the PRC Legal Advisers of Shandong Gold (King & Wood Mallesons 2018) have advised that the PRC tax penalties received by Shandong Gold during the Track Record Period will not have a material adverse impact on the operations of Shandong Gold. The Directors of Shandong Gold confirmed that, with the support of the legal opinion of its PRC Legal Advisers, during the Track Record Period and as of the Latest Practicable Date, Shandong Gold have complied with the relevant PRC laws and regulations in all material respects.
4. Sufficient funding plans for remediation, rehabilitation, and closure and removal of facilities in a sustainable manner as well as environmental liabilities of its projects or properties:
Mining projects are subject to extensive laws, rules, and regulations imposed by the PRC government regarding environmental matters, such as the treatment of wastes and environmental rehabilitation. In particular, mining companies are required to establish a plan on the protection, control, and restorage of the geologic environment of a mine.
Shandong Gold has prepared a rehabilitation plan and stating that it seeks to adhere to its rehabilitation plan. Shandong Gold has made security deposits for restoration provisions and environmental governance. Please see the Shandong Gold’s accountant report for details.
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5. Its historical experience in dealing with host country laws and practices, including management of differences between national and local practice:
Shandong Gold confirmed that, as of the date of this report, it had not experienced any material impediment in complying with PRC laws and practices or dealing with the differences between national and local practice in the PRC.
6. Its historical experience of dealing with concerns of local governments and communities on the sites of its mines, exploration properties, and relevant management arrangements:
The Directors of Shandong Gold confirmed that, with the support of the legal opinion of its PRC Legal Advisers, during the Track Record Period and as of the Latest Practicable Date, Shandong Gold have complied with the relevant PRC laws and regulations in all material respects. Shandong Gold believes it has built up trust between itself and local governments and communities. Shandong Gold has certain personnel to deal with local governments and communities in order to ensure effective and timely responses to any unforeseen issues that may arise between Shandong Gold and other parties.
Shandong Gold confirmed that, as of the date of this report, it had not experienced any material conflict with local governments and communities on the sites of its mines and exploration properties.
7. Any claims that may exist over the land on which exploration or mining activities are being carried out, including any ancestral or native claims:
Shandong Gold is required to obtain various licenses, permits, and certifications for its PRC operations. As advised by Shandong Gold’s PRC Legal Advisors (King & Wood Mallesons 2018), as of the Latest Practicable Date, other than the mining permits and exploration permits being renewed, Shandong Gold has obtained the requisite licenses, permits and certificates required by PRC laws and regulations for its current operations in material aspects. See the section headed “Business — Licenses and Permits” in the prospectus for more details.
As of the Latest Practicable Date, according to Shandong Gold, based on its knowledge, it is not aware of any pending or threatened litigation, arbitration, or administrative proceedings which it or its subsidiaries involved in and may have material adverse impacts on Shandong Gold’s financial condition or results of operation. Based on the material provided by Shandong Gold and after the proper verification by the PRC Legal Advisers of Shandong Gold, as of March 31, 2018, Shandong Gold was not involved in any unresolved litigation or arbitration in PRC, each of which had a disputed amount exceeding RMB 1 million. As the amount of the PRC administrative penalties received by Shandong Gold during the Track Record Period accounts for an insignificant portion of the latest audited net assets of Shandong Gold and has been fully paid, the PRC Legal Advisers of Shandong Gold have advised that the PRC administrative penalties received by Shandong Gold during the Track Record Period will not have a material adverse impact on the operations of Shandong Gold. The Directors of Shandong Gold confirmed that, with the support of the legal opinion of its PRC Legal Advisers, during the Track Record Period and as of the Latest Practicable Date, Shandong Gold have complied with the relevant PRC laws and regulations in all material respects.
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25 INTERPRETATION AND CONCLUSIONS
The resource and reserve estimates presented here form the basis for Shandong Gold ongoing mining operations at Xihe Zhongbao. AAI is unaware of any significant technical, legal, environmental or political considerations which would have an adverse effect on the extraction and processing of the resources and reserves located at the mines of Xihe Zhongbao.
Mineral resources which have not been converted to mineral reserves, and do not demonstrate economic viability shall remain mineral resources. There is no certainty that all or any additional part of the mineral resources estimated will be converted into mineral reserves.
Xihe Zhongbao is an active mining operation with well-known gold bearing vein systems. Ongoing exploration has continued to demonstrate the potential for the discovery of additional resources at the project and within the district surrounding the mine.
Shandong Gold’s operation management teams continue to search for improvements in efficiency, lowering costs and researching and applying low-cost mining techniques.
The mine staff possess considerable experience and knowledge with regard to the nature of the orebodies in and around Xihe Zhongbao.
A major change in ore metallurgy during the life of the current reserves is very unlikely, as nearly all of the ore to be mined will come from veins with historic, recent, or current production.
Areas of uncertainty that may materially impact the Mineral Resources and Reserves and subsequent mine life presented in this report include the following:
• Changes in geotechnical conditions due to increasing depths
• Changes in dilution compared to assumptions
• Variations in commodity price
• Timely conversion of exploration license into mining license
26 RECOMMENDATIONS
• Because of the transition between oxidized and unoxidized ores anticipated at the mine, the staff should consider assaying both for total gold and cyanide soluble gold on any new drilling. This work will provide a proxy for the amenability of the ores to either direct cyanidation or floatation and allow for the separation of these types of ores in the resource calculations.
• At the Siergoumen Mine Area, additional down-plunge underground diamond drilling in the Zone 1 ore zone will rapidly increase data density and convert a significant amount of Inferred Resource to Measured + Indicated confidence levels. This work should allow both short- and long-range mine planning to be completed with a high degree of confidence and extend mine life.
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• In Vein 2-2, scheduled to be developed at the Siergoumen Mine, there is a significant amount of Inferred Resources. Additional drilling is recommended to convert these resources to Measured or Indicated in the future, prior to mine development.
• The Xiaodonggou General Exploration Area is complex, with numerous veins and ore lenses. Additional drilling will be required to elevate the confidence level of the vast amount of Inferred Resources present at the project. Over 50% of the project’s contained ounces are currently in the Inferred category or unclassified, as they are insufficiently drilled to provide the necessary confidence level in the resource estimation on these zones.
• Consideration should be given to 3D modeling of the mineral system’s geology and mineralization, utilizing one of the commercial mining software packages. Block modeling, including geostatistical evaluation, of the mineral zones may provide additional insight to the company’s technical staff regarding mine design, ore zone extensions, and continuity of the mineralized zones, thereby reducing overall risk during development and deeper exploration.
• A comprehensive drill-hole and channel sample database should be developed and maintained for each license area to facilitate independent review of resources and reserves.
27 REFERENCES
Canadian Institute for Mining, Metallurgy and Petroleum (CIM) (2014), CIM Definition Standards — For Mineral Resources and Mineral Reserves, CIM, Montreal, May 10, 10 p. available at
Groves, D., R. Goldfarb, M. Gebre-Mariam, S. Hagemann, and F. Robert (1998), “Orogenic Gold Deposits: Proposed Classification in the Context of Their Crustal Distribution and Relationship to the Other Gold Deposit Types,’ Ore Geology Reviews, Vol. 13, pp. 7-27.
Hsu, K., Q. Wang, J. Li, D. Zhou, and Y. Sun (1987), “Tectonic Evolution of the Qinling Mountains, China,” Eclogae Geology Helvetiae, Vol. 83, pp. 735-752.
Institute of Geophysics (2001), “National Seismic Zoning Map of China (GB-18306-2001),” Institute of Geophysics China Seismological Bureau, Beijing 100081, China.
King & Wood Mallesons (2018), “北京市金杜律師事務所關於山東黃金礦業股份有限公司首次 公開發行境外上市外資股並上市的法律意見書,” PRC Legal Opinion, September. (in Chinese).
Li, W., Y. Fang, Z. Shi, S. Fan, and X. Wu (1993), “Metallogenic Conditions of Micrograined Gold Deposits in Eastern Qinling,” Geological Publishing House, Beijing (in Chinese).
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Mao, J., Y. Qiu, R. Goldfarb, Z. Zhang, S. Garwin, and R. Fengshou (2002), “Geology, Distribution, and Classification of Gold Deposits in the Western Qinling Belt, Central China,’ Mineralium Deposita, Vol. 37, pp. 352-377.
Northwest Institute of Nonferrous Metals Geology (2010), “甘肅省西和縣四兒溝門金礦石選冶 試驗報告,” [Gansu Province Xihe County Siergoumen Gold Ore Metallurgical Test Report.], July, pp. 1-34.
People’s Republic of China, Ministry of Land and Resources (2002), “Industrial Stand on Geology and Minerals of the People’s Republic of China — Specifications for Hard-rock Gold Exploration,” DZ/T 0205-2002, ICS 73.020;73.060.99 D 12.
Quanwu, S., L. Judong, Z. Shenggui, Y. Deyi, P. Fangcheng, L. Yihang, L. Lulu, W. Qi, S. Liang, L. Yongsheng, L. Fei, M. Haixia, X. Yaowu, Z. Wanjun, Z. Fulai, D. Qiang, Z. Hui, Z. Xiaoxi, W. Longhui, Z. Ziqing, and G. Kun (2016), “甘肅省西和縣小東溝金礦8-31線補充詳查報告,” [Supplementary General Exploration Report of Line 8-31 of the Xiaodonggou Gold Deposit in Xihe County, Gansu Province], Prepared by Tianshui Mineral Exploration Institute of Gansu Nonferrous Metal Geology and Exploration Bureau for Xihe Zhongbao Mining Co., Ltd., January, 132 pp., translated.
Shandong Gold Group Yantai Design Research Engineering Co. Ltd. (2016), “工程甘肅省西和縣 中寶礦業有限公司小東溝金礦450t/d採選工程可行性研究報告” [Gansu Province Xihe County Zhongbao Mining Company Ltd. Xiaodonggou Gold Mine 450 t/d Mining and Processing, Project Feasibility Study], September, translated.
Shuhong, Z., Z. Dongxu, L. Yuluo, S. Anqing, Z. Shenggui, L. Wenzhong, Z. Shuangfu, L. Huijin, Z. Jun, Z. Hui, Z. Wanjun, and Z. Fulai (2011), “甘肅省西和縣四兒溝門金礦床1、2號礦體地 質詳查報告,” [Geological General Exploration Report of Orebody No. 1 and No. 2 of the Siergoumen Mine in Xihe County, Gansu Province], Prepared by Tianshui Geology Group of the Gansu Nonferrous Metal Geology and Exploration Bureau for Tianshu Tianlong Mineral Co., Ltd., January, 151 pp. plus appendices and figures, translated. (12-3)
Standardization Administration of the People’s Republic of China (2010), “Specification for Comprehensive Exploration and Evaluation of Mineral Resources,” GB/T 25283-2010, issued November 10, 47 pp. (in Chinese).
Zondy Cyber (2017), “MapGIS K9 Professional,” available at http://www.mapgis.com/.
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28 DATE AND SIGNATURE
28.1 Statement of Certification by Timothy A. Ross
I, Timothy A. Ross, P.E., RM-SME, do hereby certify that:
1. I am a Mining Engineer and Vice President and Principal of Agapito Associates, Inc. at its office located at 1536 Cole Boulevard, Building 4, Suite 220, Lakewood, Colorado, USA and co-author of the report “Independent Technical Report, Site 12 Xihe Zhongbao (Far West), Gansu Province, China” dated 14 September 2018 and effective as of 31 March 2018 (the “Independent Technical Report”). I assume overall responsibility for this report and specifically for Sections 1, 2, 3, 4, 5, 6, 15, 16, 18, and 20 and am jointly responsible for Sections 23, 24, 25, 26, and 27 of this Independent Technical Report and I have reviewed and jointly edited all sections of this Independent Technical Report, except for Sections 7 through 12. Additionally, I have relied on the Qualified Persons for which Statements of Certification are also included in this Section 28. Each of those Qualified Person’s Statement of Certification specifies the report sections for which they are accepting responsibility.
2. I am licensed as a Professional Engineer in the states of Alabama (28419-E), Colorado (33117), Georgia (PE038920), Idaho (16397), Illinois (062.066368), Kentucky (22923), New Mexico (15973), Nevada (22061), Pennsylvania (P085961), Utah (363545-2202), Virginia (0402038410), West Virginia (9242), and Wyoming (9757).
3. I have practiced my profession as a Mining Engineer since 1977 and as a Consulting Mining Engineer since 1997.
4. I am a graduate of Virginia Polytechnic Institute and State University, Virginia, USA and earned my Bachelor of Science in Mining Engineering in 1977.
5. I am a Registered Member of the Society for Mining, Metallurgy, and Exploration, Inc. (Member Number 2768550RM) since 2006. I also serve on the Mining PE Exam Committee.
6. As a consulting engineer, I have been involved from 1997 to present with evaluation of resources and reserves and/or design of mines and other underground facilities in aggregates, industrial salts, coal, potash, gold, silver, copper and other trace minerals in the USA and Mexico, Columbia, Peru, Canada, China, Thailand, Australia, India, Germany, United Kingdom, and Russia.
7. As a result of my experience and qualifications, I am a Qualified Person as defined in National Instrument 43-101 and have five years’ experience which is relevant to the style of mineralization and type of deposit described in this report, and to the activities for which I am accepting responsibility.
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8. I have no involvement with Xihe Zhongbao or Shandong Gold Mining Co., Ltd. beyond my involvement with the preparation and writing of this Independent Technical Report. I am independent of the issuer according to the definition of independence presented in Section 1.5 of National Instrument 43-101.
9. I visited the Xihe Zhongbao 3-5 September 2017 and inspected the surface infrastructure and the active underground mine.
10. As of the effective date of this Independent Technical Report, to the best of my knowledge, information, and belief, those sections or parts of the Independent Technical Report for which I was responsible contain all scientific and technical information that is required to be disclosed to make those sections or parts of the Independent Technical Report not misleading.
11. I have read National Instrument 43-101 and Form 43-101 F1. This report has been prepared in compliance with these documents to the best of my understanding.
12. I consent to the filing of the Independent Technical Report with any stock exchange and other regulatory authority and any publication by them for regulatory purposes, including electronic publication in the public company files on their web sites accessible by the public, of the Independent Technical Report.
Dated this 14 September 2018.
SIGNED AND SEALED
PROFESSIONAL SEAL Timothy A. Ross, P.E. (Colorado)
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28.2 Statement of Certification by William R. Stanley
I, William R. Stanley, P.G., RM-SME do hereby certify that:
1. I am an Independent Consulting Geologist and Senior Outside Consultant working for Agapito Associates, Inc. at its office located at 1536 Cole Blvd., Building 4, Suite 220, Lakewood, CO 80401, USA and co-author of the report “Independent Technical Report, Site 12 Xihe Zhongbao (Far West), Gansu Province, China” dated 14 September 2018 and effective as of 31 March 2018 (the “Independent Technical Report”). I am solely responsible for Sections 7, 8, 9, 10, 12, and 14 and jointly responsible for Sections 1, 6, 23, 24, 25, 26, and 27 of this Independent Technical Report.
2. I am a member in good standing of the Society for Mining, Metallurgy, and Exploration (SME), being a Registered Member (member number, RM033069054).
3. I am also licensed as a Professional Geologist in the state of Washington.
4. I have practiced my profession as a mining geologist since 1977.
5. I am a graduate of Central Washington University and earned a Bachelor of Science in Geology in June 1977. I am also a graduate of Arizona State University and earned a Master of Business Administration in December 2002. I am a Registered Member of the Society for Mining, Metallurgy and Exploration, a Fellow of the Society of Economic Geologists, and a Member of the Geologic Society of Nevada.
7. As a consulting geologist, I have been involved from 1977 to 2017 with evaluation of open pit and underground resources and reserves and exploration and geology in gold, silver, copper, lead, zinc, and chrysotile in the states of Alaska, Idaho, Washington, Oregon, California, Nevada, Arizona, New Mexico, Colorado, Montana, Wyoming, North Carolina, and South Carolina in the United States of America. I have also evaluated projects and mines in Chile, Mexico, Columbia, New Zealand, and Canada during my career.
8. As a result of my experience and qualifications, I am a Qualified Person as defined in National Instrument 43-101 and have five years’ experience which is relevant to the style of mineralization and type of deposit described in this report, and to the activities for which I am accepting responsibility.
9. I have no involvement with the Xihe Zhongbao and associated mining or exploration rights or Shandong Gold Mining Co., Ltd. beyond my involvement with the site visit, resource evaluation, and preparation and writing of the Independent Technical Reports. I am independent of the issuer according to the definition of independence presented in Section 1.5 of National Instrument 43-101.
10. I visited the site on 3-5 September 2017, and inspected the drill core from the Shandong Gold Mining Co., Ltd. diamond drill holes at the Siergoumen mine facilities and the Xaiodonggou Exploration area facilities. Additionally, the underground mineralized exposures were examined and witness samples taken. Surface facilities were visited including the haulage shaft, mill, and tailings impoundment area.
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11. As of the effective date of the Independent Technical Report, to the best of my knowledge, information, and belief, those sections or parts of the Independent Technical Report for which I was responsible contain all scientific and technical information that is required to be disclosed to make those sections or parts of the Independent Technical Report not misleading.
12. I have read National Instrument 43-101 and Form 43-101 F1. This report has been prepared in compliance with these documents to the best of my understanding.
13. I consent to the filing of the Independent Technical Report with any stock exchange and other regulatory authority and any publication by them for regulatory purposes, including electronic publication in the public company files on their web sites accessible by the public, of the Independent Technical Report.
Dated this 14 September 2018.
SIGNED AND SEALED
PROFESSIONAL SEAL William R. Stanley (RM-SME 3069054; L.G. No. 1938, Washington, USA)
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28.3 Statement of Certification by Qinghua Jin
I, Qinghua “Jason” Jin, P.E., RM-SME, do hereby certify that:
1. I am currently employed as a Senior Process Engineer with SGS North America Inc. with an office at 3845 N. Business Center Drive, Suite 111, Tucson, Arizona 85705 USA and a co-author of the report “NI 43-101 Technical Report, Site 12 Xihe Zhongbao (Far West), Gansu Province, China” dated 14 September 2018 and effective as of 31 March 2018 (the “Independent Technical Report”). I am solely responsible for Sections 13 and 17, and jointly responsible for Sections 1, 25, 26, and 27 of this Independent Technical Report.
2. I am a member in good standing of Association of Arizona State Board of Technical Registration, being registered as a Professional Engineer (License No. 53463).
3. I have practiced mineral processing for 26 years. I have worked on scoping, prefeasibility, and feasibility studies for mining projects in North America, South America, Europe, and Asia as well as worked on the design phases of some of these projects.
4. I am a graduate of Northeastern University in Shenyang, China, and earned a Bachelor of Engineering degree in Mineral Processing Engineering in 1990. I obtained two Master of Science degrees in Mining Engineering and Statistics, both from West Virginia University, USA, in 2002 and 2006, respectively.
5. I am a registered member of the Society for Mining, Metallurgy & Exploration (04138753RM).
6. As a result of my experience and qualifications, I am a Qualified Person as defined in National Instrument 43-101 and have five years’ experience which is relevant to the style of mineralization and type of deposit described in this report, and to the activities for which I am accepting responsibility.
7. I have no involvement with the Chifengchai Mine (Inner Mongolia) and associated mining and exploration rights or Shandong Gold Mining Co., Ltd. I am independent of the issuer according to the definition of independence presented in Section 1.5 of National Instrument 43-101.
8. I visited the site on 12 September 2017 and inspected the Siergoumen Processing plant.
9. As at the effective date of the Independent Technical Report, to the best of my knowledge, information, and belief, those sections or parts of the Independent Technical Report for which I was responsible contain all scientific and technical information that is required to be disclosed to make those sections or parts of the Independent Technical Report not misleading.
10. I have read National Instrument 43-101 and Form 43-101 F1. This report has been prepared in compliance with these documents to the best of my understanding.
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11. I consent to the filing of the Independent Technical Report with any stock exchange and other regulatory authority and any publication by them for regulatory purposes, including electronic publication in the public company files on their web sites accessible by the public, of the Independent Technical Report.
Dated this 14 September 2018.
SIGNED AND SEALED
PROFESSIONAL SEAL Qinghua Jin, P.E. (RM-SME Arizona 53463)
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28.4 Statement of Certification by Carl E. Brechtel
I, Carl E. Brechtel, P.E., RM-SME, do hereby certify that:
1. I am a Mining Engineer for Carl Brechtel Consultkng LLC and Consultant to Agapito Associates, Inc. at its office located at 1536 Cole Boulevard Building 4, Suite 220, Golden, CO 80401, USA and co-author of the report “Independent Technical Report, Site 12 Xihe Zhongbao (Far West), Gansu Province, China” dated 14 September 2018 and effective as of 31 March 2018 (the “Independent Technical Report”). I am solely responsible for Sections 19, 21 and 22, and jointly responsible for Sections 1 through 27 of this Independent Technical Report and I have reviewed and jointly edited all sections of this Independent Technical Report.
2. I am a Registered Member in good standing of the Society for Mining, Metallurgy and Exploration (SME), Registered Member No. 0035300.
3. I am also licensed as a Professional Engineer in the states of Colorado (No. 23212) and Nevada (No. 8744).
4. I have practiced my profession as a Mining Engineer since 1975.
5. I am a graduate of the University of Utah, and earned a Bachelor of Science in Geologic Engineering in May of 1973, and a Master of Science in Mining Engineering in May of 1978.
6. I am a Registered Member of the Society of Mining, Metallurgy and Exploration (SME) USA and a Member of the AusIMM (Australia).
7. As a Mining Engineer, I have been involved from 1979 to 2017 with evaluation of resources and reserves and design of mines and other underground facilities in gold, coal, trona, and oil shale in the USA, Honduras, Colombia, Guyana, Brazil, Argentina, Morocco, Ghana, Tanzania, Namibia, Russia, and Australia.
8. As a result of my experience and qualifications, I am a Qualified Person as defined in National Instrument 43-101 and have five years’ experience which is relevant to the style of mineralization and type of deposit described in this report, and to the activities for which I am accepting responsibility.
9. I have no involvement with the Xihe Zhongbao or Shandong Gold Mining Co., Ltd. beyond my involvement with the preparation and writing of the Independent Technical Reports. I am independent of the issuer according to the definition of independence presented in Section 1.5 of National Instrument 43-101.
10. I have not visited the mine site.
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11. As of the effective date of the Independent Technical Report, to the best of my knowledge, information, and belief, those sections or parts of the Independent Technical Report for which I was responsible contain all scientific and technical information that is required to be disclosed to make those sections or parts of the Independent Technical Report not misleading.
12. I have read National Instrument 43-101 and Form 43-101 F1. This report has been prepared in compliance with these documents to the best of my understanding.
13. I consent to the filing of the Independent Technical Report with any stock exchange and other regulatory authority and any publication by them for regulatory purposes, including electronic publication in the public company files on their web sites accessible by the public, of the Independent Technical Report.
Dated this 14 September 2018.
SIGNED AND SEALED
PROFESSIONAL SEAL Carl Brechtel, P.E. (Colorado and Nevada USA)
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APPENDIX A
MINING AND EXPLORATION LICENSES
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APPENDIX B
3D OBLIQUE VIEW OF VEIN UPPER SURFACE
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Figure B-1. Siergoumen Mine 3D Oblique View of Upper Surface—Vein I-2 PEDXIICMEETPRO’ EOT—AIRPR IE12 SITE REPORT AAI — REPORT PERSON’S COMPETENT III APPENDIX I1-5 — III12-157 —
Figure B-2. Siergoumen Mine 3D Oblique View of Upper Surface—Vein II-2 PEDXIICMEETPRO’ EOT—AIRPR IE12 SITE REPORT AAI — REPORT PERSON’S COMPETENT III APPENDIX I1-5 — III12-158 —
Figure B-3. Xiaodonggou Project 3D Oblique View of Upper Surface—Veins III-24 and I-6 SHANDONG GOLD MINING CO., LTD. 山東黃金礦業股份有限公司 PROSPECTUS PART 2 OF 3
This is Part 2 of 3 of the Prospectus. Prospective investors should note this Prospectus is printed in three parts that together form the Prospectus. You should read each part of the Prospectus in conjunction with the other parts in order to understand the matters to which the Prospectus relates, particularly the Hong Kong Public Offering. Prospective investors should read each part of the Prospectus before making any application in response to the Hong Kong Public Offering. Copies of the three parts of the Prospectus are available at the locations set out in the section headed “How to Apply for Hong Kong Offer Shares – 3. Applying for Hong Kong Offer Shares” in this Prospectus. In addition, the complete Prospectus is available at www.hkexnews.hk and www.sdhjgf.com.cn.