OJSC Seligdar AUDIT REVIEW OF THE NADEZHDA, VERKHNEE, TRASSOVOE, SMEZHNOE AND KHVOYNOE GOLD DEPOSITS (NIZHNE-YAKOKITSKOYE ORE FIELD) REPUBLIC OF SAKHA (YAKUTIA), RUSSIAN FEDERATION Prepared by Micon International Co Limited Suite 10 Keswick Hall, Norwich, NR4 6TJ, United Kingdom 31st March 2012 TABLE OF CONTENTS 1.0 EXECUTIVE SUMMARY 1 1.1 INTRODUCTION ........................................................................................................ 1 1.2 LICENCES AND PERMITS ....................................................................................... 2 1.3 INFRASTRUCTURE ................................................................................................... 2 1.4 GEOLOGICAL SETTING AND MINERALISATION PECULIARITIES ............... 2 1.5 GEOLOGICAL STUDIES ........................................................................................... 3 1.6 ORE PROCESSING AND METALLURGICAL TEStWORK .................................. 3 1.6.1 Metallurgy ................................................................................................................ 3 1.6.2 Recovery Process ..................................................................................................... 4 1.6.3 Conclusions .............................................................................................................. 5 1.7 ESTIMATION OF RESOURCES AND RESERVES ................................................. 6 1.8 MINING ....................................................................................................................... 6 1.9 ECONOMIC ANALYSIS ............................................................................................ 7 1.10 CONCLUSIONS AND RECOMMENDATIONS ..................................................... 10 2.0 INTRODUCTION AND TERMS OF REFERENCE 11 2.1 AUDIT OBJECTIVES ............................................................................................... 11 2.2 CAPABILITY AND INDEPENDENCE OF CONSULTANTS ............................... 12 2.3 DISCLAIMER ........................................................................................................... 13 2.4 SOURCES OF INFORMATION ............................................................................... 13 2.5 MEASURE UNITS .................................................................................................... 13 3.0 GENERAL BACKGROUND INFORMATION 15 3.1 RUSSIAN GOLD INDUSTRY REGULATORY SYSTEM ..................................... 15 3.1.1 Subsoil Licences .................................................................................................... 15 3.1.2 System of Payments ............................................................................................... 16 3.1.3 Precious Metals Regulation ................................................................................... 16 3.1.4 Other Regulations .................................................................................................. 17 3.2 RUSSIAN SYSTEM OF RESOURCE/RESERVE CLASSIFICATION .................. 17 3.3 JORC CODE RESOURCE/RESERVE CLASSIFICATION .................................... 19 3.3.1 Mineral Resources ................................................................................................. 19 3.3.2 Ore Reserves .......................................................................................................... 20 4.0 DEPOSIT INFORMATION ......................................................................................... 21 4.1 DESCRIPTION OF THE DEPOSIT AND ITS LOCATION ................................... 21 4.2 OWNERSHIP AND TITLE ....................................................................................... 21 4.3 INFRASTRUCTURE ................................................................................................. 23 4.4 PHYSIOGRAPHIC CHARACTERISTICS AND CLIMATE .................................. 23 4.5 LOCAL LABOUR RESOURCES ............................................................................. 23 5.0 GEOLOGICAL SETTING ........................................................................................... 24 6.0 MINERALISATION ..................................................................................................... 29 7.0 DEPOSIT TYPE ............................................................................................................ 31 8.0 GEOLOGICAL STUDIES ............................................................................................ 32 8.1 KNOWLEDGE OF THE DEPOSIT .......................................................................... 32 8.2 DEVELOPMENT OF SURFACE MINE WORKINGS ........................................... 36 OJSC Seligdar ii NYaRP deposits 8.3 DIAMOND DRILLING ............................................................................................. 36 8.3.1 Cable-Tool Drilling ................................................................................................ 36 8.3.2 Diamond Drilling ................................................................................................... 36 9.0 SAMPLING METHODOLOGY AND APPROACH ................................................. 38 9.1 SAMPLING METHODS ........................................................................................... 38 9.1.1 Core Sampling ....................................................................................................... 38 9.1.2 Process Sampling ................................................................................................... 38 9.2 SAMPLE PREPARATION AND ANALYTICAL OPERATIONS ......................... 38 9.3 QUALITY ASSURANCE/QUALITY CONTROL ................................................... 40 9.3.1 Internal Control ...................................................................................................... 41 9.3.2 External Control ..................................................................................................... 46 10.0 PROCESSING................................................................................................................ 53 10.1 OVERVIEW ............................................................................................................... 53 10.1.1 Metallurgical Testwork ...................................................................................... 53 10.1.2 Mineralisation Characterisation ......................................................................... 53 10.1.3 Mineral Composition and Gold Occurrence ...................................................... 53 10.1.4 Mineral Composition ......................................................................................... 55 10.1.5 Gold Deportment ............................................................................................... 56 10.1.6 Laboratory and Pilot Test Results ...................................................................... 57 10.1.7 Coarse Bottle Roll Leach Tests .......................................................................... 57 10.1.8 Agglomeration Tests .......................................................................................... 59 10.1.9 Column Leach Tests .......................................................................................... 60 10.1.10 Pilot Test Results ............................................................................................... 60 10.2 PROCESS FLOWSHEET DEVELOPMENT ........................................................... 61 10.2.1 Production Options ............................................................................................ 61 10.2.2 Design Basis....................................................................................................... 63 10.3 PREDICTED METALLURGICAL RECOVERIES ................................................. 65 10.4 PREDICTED REAGENT CONSUMPTIONS .......................................................... 65 10.5 OPERATING COSTS ................................................................................................ 65 10.6 CONCLUSIONS ........................................................................................................ 65 11.0 ESTIMATION OF RESOURCES AND RESERVES ................................................ 67 11.1 PREVIOUS CALCULATION OF RESERVES ........................................................ 67 11.1.1 Mineral Reserves Calculation Parameters (2008) .............................................. 67 11.1.2 Reserves Calculation Methodology (2008) ....................................................... 67 11.1.3 Mineral Reserves Calculation Results (2008) .................................................... 68 11.2 MINERAL RESOURCES CALCULATED BY MICON ......................................... 69 11.2.1 Databases ........................................................................................................... 70 11.2.2 Ore Zone Wireframes and Topographic Surface Models .................................. 70 11.2.3 Geostatistical Analysis ....................................................................................... 71 11.2.4 Variography ....................................................................................................... 76 11.2.5 Search Ellipsoid and the Number of Samples Used for Grade Interpolation .... 77 11.2.6 Block Models ..................................................................................................... 77 11.2.7 Interpolation of Grades .....................................................................................