The mineral resource estimate was done by Michael Khoudine, M.Sc senior mining engineer for Micon using a resource block model created by Evgeny Kondratiev, M.Sc., MAusIMM (CP), senior exploration geologist for Micon. This estimate was prepared by Micon in accordance with the JORC Code for reporting of Mineral Resources (see Table 1 and Appendix 1 for details).

Table 1. Mineral Resource Statement for the Krasny Gold Deposit, Irkutsk Region, Russia, Micon International, May 23, 2016*  

*Notes:

• Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the Mineral Resources estimated will be converted into Mineral Reserves estimate;
• Resources stated as contained within a potentially economically minable open pit stated above a 0.4g/t Au cut-off for the oxide ore and above 0.3g/t Au cut-off for the primary ore;
• Pit optimization is based on an assumed gold price of $1,200/oz, metallurgical recovery of 90% for primary ore and 79% for oxide ore. Used cost values are $2.36/m3 for waste mining, $1.10/t for ore mining and a processing and G&A cost is $7.95/t;
• Mineral resource tonnage and contained metal have been rounded to reflect the accuracy of the estimate, and numbers may not add due to rounding;
• Mineral resource tonnage and grade are reported as diluted to reflect a potentially minable bench height of 10 m.

As a follow-up to this press release, a detailed JORC-compliant Technical Memorandum on Resources will be prepared by Micon for the Krasny deposit and published on the Company’s website.

This mineral resource estimate is an update of the previous JORC resource estimate of the Krasny deposit that was released on March 26, 2013. Since then, an intense exploration program (Stage 1 and Stage 2) developed by the Company in cooperation with GV Gold during 2014-2015. While the previous resource estimate was based on 15,297 meters of core drilling, 1,362 meters of trench sampling and one mineral processing test; the current estimate is the result of totally 31,195 meters of core drilling, 2,822 meters of trench sampling and 4 mineral processing tests. During the 2015 mineral processing test, it was discovered that the Krasny deposit has two types of ore – oxidized and primary – with different gold recovery ratios, which is now reflected in the new resource estimation. In addition, the previous resource estimate was based on an assumption of a gold price of 1,670 USD/oz, while the current estimate is based on the market price of 1,200 USD/oz.

Earlier this year, Kopy Goldfields also reported mineral resources and reserves in accordance with the Russian GKZ reporting provisions (“GKZ report”) of total ore reserves under the C2 category of 6,317 ktons with an average grade of 1.55 gr/t, that makes 9,767 kg of gold (314 koz). This GKZ report was developed on the exploration data acquired before January 1, 2015 (not including 7,551 meters of core drilling during 2015) and was limited to the Central Upper part of Krasny mineralization. JORC and GKZ reports, although using similar basic geological principals of resource calculation, are drafted under different framework and reporting procedures and therefore usually provide different estimations of resources and particularly reserves, which in turn means that the outcome from the JORC report will not necessarily be the same as from the GKZ report.

Mikhail Damrin, CEO of Kopy Goldfields, commented the results: “We are very pleased with the results reported by Micon as they are in line with our own internal modelling of Krasny. We have always believed that the Lower structure would be minable despite the decrease in gold prices since 2013 and we are now glad to receive another confirmation for that. Although the new estimate shows a total amount of gold resources somewhat lower than the previous one reported in 2013, it is based on more drilling data and reflects the current market conditions that make it more reliable and robust. The new estimate shows increase in quality of gold resources with a higher ratio of Indicated resources than before. Tested by a 30% fall in gold prices since 2013, Krasny proved to be a solid 1 Moz gold deposit and we still see a lot of potential to further resource increase along the strike, to the depth and within parallel mineralized structures, all within the Krasny license boundaries”.

Evgeny Kondratiev of Micon, commented the Krasny resource report: “The quality of the exploration work done on the Krasny project in general follows both Russian and JORC recommendations on QA/QC. We did not reported Measured Resources for Krasny at the current stage for the same reason that we do not usually report Measured gold resources at the exploration stage. This category requires a high level of confidence in, and understanding of, the geological properties and controls of the mineral deposit. Gold mineralization as a rule (and Krasny fills in) has un-uniform gold grade distribution and variable thickness of ore bodies, so the geological and grade continuity of mineralized zones cannot be confidently interpreted. Although we report resources within the minable open pit and we believe that Krasny resources are potentially minable, we cannot report them as Reserves because Ore Reserves can be defined only by studies at Pre-Feasibility or Feasibility level. It is our further task during which additional research on the mineral processing parameters, geotechnical and hydrogeological characteristics is required. We understand that the coming exploration program on Krasny is going to address most of them. Overall, we have a positive view on the Krasny project development and we believe that the project has all possibilities to be taken into production.”

For the complete press release including tables, images and maps see attached document.
För pressmeddelande på svenska se bifogat dokument (Swedish).

The scoping study was performed by Irgiredmet engineering consultancy during January – March 2016 and included all exploration results until and including Stage 2 of the recently finalized exploration program. The study evaluated financial results of gold production from the Upper structure only and did not include any development of the Lower structure thus leaving the upside from gold production of the Lower structure for the future. The scoping study confirmed the feasibility of mine development based on the Upper gold structure only and was used as an external justification for moving the Upper gold structure into Feasibility Studies.

The scoping study was done in parallel with the GKZ-reporting and the JORC-reporting which means that the amount of gold mined in the scoping study is based on an internal calculation rather than the approved GKZ-reserves or the coming JORC-report. Compared to the scoping study released in April 2013, this study is based on only the Upper mineralization and a fixed gold price of 1,100 USD/oz is used instead of 1,670 USD/oz.

Highlights of the scoping study:

• Total gold resources mined: 5,927 ktons
• Average grade: 1.75 g/t
• Total gold mined: 10,351 kg of gold (332 koz)
• Mine and plant capacity: 800 ktons of rock per annum
• Overall recovery: 78%
• Life of mine: 8 years
• Total gold produced: 8,075 kg (260 koz)
• Average annual gold production, LOM: 1,009 kg (32 koz)
• Average gold price: 1,100 USD/oz at fixed Rub/USD rate of 70
• Annual average revenue from gold sales: USD 35 million
• Annual average profit before tax: USD 15 million
• Initial capital costs (no VAT): USD 49 million (plant, open pit, infrastructure, equipment and machinery)
• Total capital costs (incl. resale of equipment and land reclamation, Rub/USD rate of 70): USD 38 million
• Total production costs (mining, processing, royalty and admin): 475 USD/oz
• Undiscounted project value: USD 94 million (USD 119 million pretax)
• Discounted project value (NPV): USD 25 million at 10% discount rate
• IRR: 18%
• Average strip ratio: 2.84 m3/t

The scoping study does not discuss financing options for project development. Financing of the mine and plant will be discussed later this year when the results from Feasibility Studies and the 2016 explorations activities of the Lower structure will be summarized. However, there is a general understanding between the Company and GV Gold that majority of financing should be raised by debt.

Mikhail Damrin, CEO of Kopy Goldfields, commented the results: “We are pleased with the results of the scoping study. There have been several valuations of the Krasny gold production done internally already and there will be many more valuations in the future, however all studies confirm feasibility of mine development on Krasny. The target of this study was to get an external verification of future production and capital costs before commencing the 2016 development program. The results of the study confirm that the Krasny project is profitable even if the mine development is limited to the Upper structure only. We believe that the Lower structure is minable as well at the current conditions and following the 2016 explorations we will update the valuation by adding production from the Lower structure as well. We have now moved into feasibility activities for the Upper structure and further exploration activities for the Lower structure with confidence”.

För pressmeddelande på svenska se bifogat dokument (Swedish).