Masbate Gold Project

Introduction

CGA Mining has acquired Thistle Mining Incorporated’s (THT:AIM) (“Thistle”) interest in the Masbate Gold Project in the Philippines on 19 March 2007.

Project highlights include:

The Masbate Project is an extensively studied, advanced stage development project with 55, 686m of reverse circulation drilling and 58, 757m of diamond drilling.

The project has considerable scale with indicated resources of 3.3 million ounces and inferred resources of 1.77 million ounces, including a probable mining reserve of 1.984 million ounces of gold (cut-off 0.7g/t).

CGA believes that the project has very good exploration potential, both from the further conversion of existing resource ounces to reserves, and the potential to further expand the existing 5 million ounce resource base of the project.

The Philippines is rich in natural resources, with large scale gold, copper and nickel deposits attracting investment from a number of major international mining companies including Anglo American, BHP Billiton, Xstrata, Sumitomo and Anglo Gold.

The Philippines Government has been very supportive of the development of natural resources within the country and offer many attractive incentives including an initial 6 year income tax holiday for projects of this nature. The excise tax rate is 2% on gross revenue.

Location

The Masbate Project is located on the island of Masbate approximately 350 kilometres south of the State capital, Manila. The project can be accessed by a daily commercial airline service to Masbate city (population of 350,000) and a 70 kilometre drive on partially sealed road to the project site. Alternate access to site from Masbate city is via a 1 hour boat ride. The site is equipped with a barge loading jetty where heavy equipment during construction and consumables during operations can be delivered and offloaded.

Previous Operation

The Masbate Project was originally operated for 14 years (1980 – 1994) by Atlas. The previous operations included open pit and underground mining of oxide, transition and fresh material with subsequent processing using CIL and heap leach processing. A total of 17.4 million tonnes were processed at a grade of 2.12g/t resulting in gold production of 1,078,326 ounces of gold and 944,474 ounces of silver. Overall plant recovery of 86% was achieved during the operating period. It is evident from the records of past production that CIL metallurgical recovery was closely related to the grade of ore mined i.e. increase in grade resulted in increased recovery. The operation reportedly closed due to the forced closure of the Atlas group operations as a result of falling commodity prices, and the inability of Masbate to cover group overheads from other operations of the company at the time.

The Masbate Project is a brownfield site with established infrastructure including an airstrip, dedicated jetty, roads, accommodation, offices, clubhouse, workshops, assay laboratory, bunker fuel tanks and general reticulation. The mine is readily accessible by sea, and materials and supplies can be barged in via Manila or other large ports. The existing infrastructure will allow construction to start relatively quickly and has reduced capital expenditure requirements relative to those of a greenfield site.
The Philippines is a source of highly skilled and cost effective labour.

Planned Development

The resources and reserves at the Masbate Project are located within two prominent topographic features (hills) and are largely above sea level. The ocean is within 0.5km of the project site. The Bankable Feasibilty Study (“BFS”) contemplates large scale mining of 4mtpa at a stripping ratio of 1:3.4 (ore:waste) and all mining to be carried out by a specialist mining contractor. In this regard, Leighton Contractors has been working closely with project management to provide detailed mine planning and costings.

All mined ore will be delivered to a run of mine stockpile from where it will be fed to a primary crusher and subsequently processed in a conventional CIL plant. Process plant tailings will be discharged into a large tailings dam designed by Knight Pièsold. Decant water from the tailings dam will be returned to the process plant, any water discharged to the environment will be subjected to cyanide detoxification.

The project will be staffed using expatriate experts in management positions in the formative years so as to effectively commission and optimise the project. These experts will have the responsibility to train Philippine nationals to assume supervisory and management roles.

Management of CGA, using its extensive experience in mine development in remote, offshore locations, has identified areas of the forecast development which may be optimised.

Geology

Gold mineralisation is located within quartz veining in the form of fracture filling and silification of the host rock. Sulphides are not abundant but are found within the veins and selvidges. Gold can be associated with the sulphides. The gold is finely distributed (grain size 5 micron to 20 micron).

The depth of weathering is dependant on the lithology and varies from zone to zone e.g. 20m - 40m in the main vein zone, 50m - 60m in the Colorado zone. The massive quartz veins are not subject to weathering other than in areas of brecciation.

Reserves and Resources

A full geological review and resource and reserve estimate was completed on the Masbate Project by International Mining Consultants (“IMC”), who prepared a 43 – 101 Report for Thistle in April 2006.

Resources(1)
Indicated 59.3mt @ 1.55 g/t for 2.940m ounces.
Inferred 33.7mt @ 1.63 g/t for 1.766m ounces.
Low Grade (Indicated) 18.65mt @ 0.61 g/t for 0.365m ounces.
Reserves(2)
Probable 37.4mt @ 1.65 g/t for 1.984m ounces

Notes

  1. (1) The reported resources assume a 0.7 g/t cut-off grade and gold price of US$450/ounce (except with respect to low grade dump material from past mining operations, which were reported assuming a zero cut-off grade). The resource estimate is based on all available data from Thistle’s 2005 drill programme on the project. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
  2. (2) Calculated accepting an economic 0.7g/t cut-off grade, gold price of US$450/ounce and an oil price of US$50/barrel. The reserves are current as of March 31, 2006 and are included in the indicated resources above.

Exploration Potential

The known resources at Masbate extend over a strike length of 3.5 kilometres trending in a north westerly direction. The exploration effort will not only be to add to the existing resources base, but to locate additional high grade zones so as to extend the forecast high grading period of operations.

The area immediately south of the Main Vein pit contains underground workings from past operations. The mineralisation surrounding these previous workings has not been tested and is considered a highly prospective source of additional resources.

The topographic features hosting the Masbate resources are repeated along strike to the south east where artisinal miners are exploiting the near surface material. These areas are contained within a 5.25 million hectare (approximately 8 kilometres x 7 kilometres) Exploration Permit Application submitted in 2004 (EXPA – 0039 – V) by FRC. The topographic highs will be the target of an immediate resource generation program by the Company geologists.

The current resource estimate includes 1.8m ounces of the inferred material, a large percentage of which is amenable to be upgraded to reportable status by additional drilling.

Ownership of the Project

Thistle’s interest in the Masbate Project is held through a number of local Filipino companies, with Filminera owning title to the project and Philippine Gold Processing and Refining Corporation (“PGPRC”), responsible for constructing, owning and operating the key components of the plant. Filminera will sell the ore to PGPRC on a cost plus basis. In accordance with Philippine Law, 60% of Filminera is owned by a Philippine company, Open Pit Holding Limited (“OPH“) which in turn is held as to 60% by a local Filipino partner and 40% by the Thistle group (with Thistle having an option over the 60% interest in OPH in accordance with Philippine Law). PGPRC is wholly owned by the Thistle group and there are significant intercompany loans which would be acquired by CGA in connection with the transaction. The loans would need to be repaid by Filminera before any dividends can be declared. It is planned that there will be a reconstruction of OPH prior to closing of the acquisition such that its assets will be transferred to a new company (“Newco”) with the same ownership structure.

Corporate Structure

corporate structure

Click to enlarge

The Original BFS Key Parameters and Optimisation Opportunities

The key results of the original BFS, (before any CGA re-engineering and optimisation) are set out below.

Total ounces produced 1.623m oz
Capital Costs US$ 92.8m
Recovery 82%
Annual Production 171,000 oz
Cash operating costs/oz (assuming US$50/barrel oil) US$339
L.O.M 9.5 years

Total capital costs were estimated at US$92.8 million (and updated in January 2007 by Leighton Contractors to approximately US$95 million). The scope of the estimate covers engineering, procurement services, construction and commissioning of the proposed 4.0 mtpa project. The base date for the costs is December 2005. The cost estimates of the study reflect a +/-10-15% feasibility study level of engineering accuracy.

Initial CGA due diligence has suggested that the parameters as set out above can be improved. A number of optimisation initiatives are currently being undertaken by CGA, including increasing the cut-off grade to 1.0g/t and a recalculation of the mineable reserves at a gold price of greater than the assumed US$450, and increasing metallurgical recoveries with the objective of delivering a project capable of an annual production rate of in excess of 200,000 ounces, at cash costs of around the US$300/ounce level.

Key Acquisition Terms

The aggregate acquisition cost for the Masbate Project is US$51 million, representing approximately US$10.06/resource ounce. The acquisition is governed by the Share Purchase Agreement (“SPA”) executed among the Company, Central Asia Gold Limited (a wholly-owned Bahamian subsidiary of CGA) and Thistle. The key terms of the SPA are as set out below: