APPENDIX III COMPETENT PERSON'S REPORT - White ...

Figure 16-5. Linglong Mining Area Location of Reserves by License — West

APPENDIX III COMPETENT PERSON’S REPORT — AAI REPORT SITE 3

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Table 16-4. Linglong Mine Area Production Schedule by License

License

Year 1Q2-Q42018

Year 22019

Year 32020

Year 42021

Years 1-4Totals

Linglong Mining Area

Mine Development (linear m) 8,240 10,970 14,090 10,620 43,920

Ore Production (1,000 tonnes) 270 370 470 350 1,460

Average Gold Grade (g/t) 2.35 4.50 5.07 5.94 4.63

Contained Gold (kg) 640 1,640 2,370 2,100 6,750

Lingshan Mining Area

Mine Development (linear m) 1,710 2,600 1,950 — 6,260

Ore Production (1,000 tonnes) 80 120 90 — 290

Average Gold Grade (g/t) 2.62 2.92 3.05 — 2.88

Contained Gold (kg) 200 350 270 — 820

Dongfeng Mining Area

Mine Development (linear m) 7,840 9,000 — — 16,840

Ore Production (1,000 tonnes) 1,100 1,260 — — 2,360

Average Gold Grade (g/t) 2.92 1.99 — — 2.42

Contained Gold (kg) 3,200 2,510 — — 5,710

Lingshangou Mining Area

Mine Development (linear m) — — 1,340 2,180 3,520

Ore Production (1,000 tonnes) — — 110 180 290

Average Gold Grade (g/t) — — 4.92 4.28 4.52

Contained Gold (kg) — — 530 760 1,290

Dongfeng Exploration Area

Mine Development (linear m) — 2,030 8,300 — 10,330

Ore Production (1,000 tonnes) — 200 820 — 1,020

Average Gold Grade (g/t) — 1.89 2.31 — 2.23

Contained Gold (kg) — 380 1,900 — 2,280

Linglong Deep Exploration Area

Mine Development (linear m) — — — 4,940 4,940

Ore Production (1,000 tonnes) — — — 120 120

Average Gold Grade (g/t) — — — 2.42 2.42

Contained Gold (kg) — — — 300 300

Total Mine Development (linear m) 17,780 24,610 25,690 17,730 85,810

Total Ore (1,000 tonnes) 1,450 1,940 1,490 650 5,530

Average Gold Grade (g/t) 2.80 2.51 3.41 4.83 3.10

Contained Gold (kg) 4,050 4,880 5,080 3,150 17,160

Contained Gold (koz) 130 157 163 101 551

Projected Gold Recovery (%) 95 95 95 95 95

Payable Gold (kg) 3,860 4,650 4,840 3,000 16,350

Payable Gold (koz) 124 149 156 96 526


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Figure 16-8. Production Schedule for Orebody 5-2 at Linglong Gold Mine


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Figure 16-11. Production Schedule for Orebody 10 at Linglong Gold Mine


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Figure 16-15. Production Schedule for Branch Orebody 9 at Linglong Gold Mine


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— III3-151 —

17 RECOVERY METHODS

The Linglong Gold Mine includes two processing plants: the Linglong Ore Processing Plant and

the Lingshan Ore Processing Plant.

Overall, both processing plants are well-designed. No significant problems have been identified

during the review. The use of the latest high-quality equipment from highly respected manufacturers

in the mining industry such as Metso was observed.

Processing plant labor is scheduled for three 8-hour shifts, 360 days per year. The total number

of processing plant employees at the Linglong plant is 144, consisting of 7 people working in

management, 8 technicians, 107 people in operations, and 22 maintenance personnel. The total number

of processing plant employees at the Lingshan plant is 60, consisting of 3 people working in

management, 3 technicians, 44 people in operations, and 10 maintenance personnel.

17.1 Linglong Processing Plant

The processing plant is designed to treat 4,000 tpd.

The current Linglong Ore Processing Plant includes three stages of closed-circuit crushing, one

stage of grinding operated in a closed circuit with cyclone classification, and a flotation circuit

consisting of rougher flotation, single-stage cleaner flotation, and two-stage scavenger flotation.

Flotation concentrate is thickened, filtered, and shipped to the refinery plant at Jiaojia.

17.1.1 Crushing Circuit

The crushing plant uses three-stage closed-circuit crushing. The crushing plant consists of one

primary C120 jaw crusher, one secondary PYH-3CC cone crusher, two tertiary HP400 cone crushers,

one YAH1848 vibrating screen for pre-screening, and two vibrating screens for screening (one

2YAH2048 and one 2YAH2448). The final crushed product size is 14~0 mm.

17.1.2 Grinding Circuit

Grinding is performed in a single-stage circuit. A ball mill MQG4361 operates in a closed circuit

with a cyclone cluster. The grinding circuit reduces the crushed ore from -14 mm top size to a product

of 55% passing 0.074 mm (200 mesh).

17.1.3 Flotation Circuit

The flotation circuit consists of rougher flotation, single-stage cleaner flotation, and two-stage

scavenger flotation. The flotation cells for rougher and scavenger flotation are 30 m3; 16-m3 flotation

cells are used as cleaners.

17.1.4 Concentrate Dewatering

Gold concentrate from the flotation circuit is thickened using a 12-m-diameter high-rate

thickener and filtered in two 150-m2 filter presses. Filter cake with a moisture content of

approximately 20% is stored in the concentrate bin and shipped to the refinery plant at Jiojia in a

timely manner.


— III3-152 —

The Linglong Processing Plant overall flowsheet is shown in Figure 17-1.

17.2 Lingshan Processing Plant

The processing plant is designed to treat 450 tpd.

The current Lingshan Processing Plant includes two-stage closed-circuit crushing, single-stage

grinding in a closed circuit with a spiral classifier, and the flotation circuit, consisting of rougher

flotation, two-stage cleaner flotation, and three-stage scavenger flotation. Final concentrate is

thickened, filtered, and shipped to refinery plant at Jiaojia.

17.2.1 Crushing Circuit

The crushing plant uses two-stage crushing in a closed circuit. In addition, the plant employs a

washing process and the washing stage is positioned after primary crushing.

The crushing plant consists of one primary C80 jaw crusher, one secondary HP200 cone crusher,

one YAH1536 vibrating screen for the washing process, and one 2YAH2148 vibrating screen for

crushing plant product sizing. The final crushed product size is 12~0 mm.

Figure 17-1. Linglong Processing Plant Overall Flowsheet


— III3-153 —

17.2.2 Grinding Circuit

Grinding is performed in a single-stage grinding circuit operating in a closed circuit. The ballmill (MQG2436) operates in a closed circuit with a model FG-30 spiral classifier. The grinding circuitreduces the crushed ore from -12-mm top size to a product of 52% passing 0.074 mm (200 mesh).

17.2.3 Flotation Circuit

The flotation circuit consists of rougher flotation, two-stage cleaner flotation, and three-stagescavenger flotation. The flotation cells for rougher and scavenger flotation include nine 8-m3 flotationcells and one 4-m3 flotation cell for each cleaner stage.

17.2.4 Concentrate Dewatering

Gold concentrate from the flotation circuit is thickened in a 9-m-diameter high-rate thickener andfiltered using a 100-m2 filter press. Filter cake with a moisture content of approximately 20% is storedin the concentrate bin and shipped to the refinery plant at Jiaojia in a timely manner.

The Lingshan Processing Plant overall flowsheet is shown in Figure 17-2.

17.3 Refinery Plant at Jiaojia

Both the concentrate from Linglong and Lingshan Processing Plants are transported to therefinery plant at Jiaojia for refining. The Jiaojia refinery employs the regrinding, classification,flotation-cyanidation-flotation process unit operations described below.

Figure 17-2. Lingshan Processing Plant Overall Flowsheet


— III3-154 —

The refining process consists of regrinding the gold flotation concentrate, followed by

classification. Classifier underflow is recycled to regrinding. Classifier overflow is fed to bulk

flotation to recover copper and lead. Flotation concentrate is subjected to three stages of cyanide

leaching and three stages of washing. Flotation tailings are treated by two stages of cyanide leaching

and two stages of washing. Pregnant solution from cyanidation concentrate is processed by

electrowinning and electrolysis to produce copper and anode sludge. Leached residue is processed by

differential flotation to produce separate lead and copper concentrates. Pregnant solution from

flotation tailings cyanidation is processed by a de-aeration and zinc dust precipitation process. Both

the gold sludge and anode sludge together, report to the refining room. Leached residue from flotation

tailings cyanidation is dewatered to produce a sulfur concentrate for sale.

Trace amounts of hydrogen-cyanide gas generated in the copper and lead separation flotation

process due to acid addition are absorbed using a caustic solution. The caustic effluent solution from

cyanide adsorption contains a sufficiently high cyanide strength so that it is recycled back to the leach

circuit with barren solution. After electrolysis of the pregnant solution from flotation concentrate

cyanidation, the electrolyte reports to the zinc precipitation process of the flotation tailings

cyanidation unit operation. The barren solution from zinc precipitation is used as the makeup wash

water for flotation concentrate cyanidation. Process water containing cyanide is recycled internal to

the cyanidation system to achieve a closed-process loop.

18 PROJECT INFRASTRUCTURE

As the Linglong Gold Mine is a producing facility, the infrastructure is in place and in AAI’s

opinion, is adequate and appropriate for current and future operations.

18.1 Roads

The Linglong Gold Mine (Linglong, Dongfeng, and Lingshan Mining Areas) is serviced by

paved, all-weather roads that form part of the national road system. Site roads are also paved, with

secondary gravel roads. All roads are suitable for the equipment used at the sites and provide adequate

access for necessary work.

18.2 Mine Waste Dumps

Mine waste that is not used for backfilling operations underground, is hoisted from underground

and dumped to a pocket in the various mines’ headframes. The waste is then loaded from the pocket

to surface dump trucks that haul the waste to designated waste dumps. Some of the waste rock is sold

at a nominal price for use as aggregate. AAI did not observe any waste storage issues.

18.3 Mine Ore Stockpiles

Mined ore is hoisted to the surface in skips from underground loading pockets and in 2.5-t

side-dump ore cars in the mine cages. The ore from the skips is dumped into bins in the headframes

from which it is loaded by chutes into surface dump trucks and hauled to designated ore stockpiles.

Ore in the side-dump ore cars is dumped into stockpiles. At the Jiuqu ore section of the Linglong


— III3-155 —

Mining Area, ore is hoisted by skip in an inclined shaft and dumped to the ground at the top. This

broken ore is loaded by front-end loaders into surface haul trucks for transport to the stockpiles. All

stockpiles are located near the Linglong and Lingshan Processing plants. Stockpiles are covered with

geotextile to prevent loss from wind, rain, and snowmelt.

18.4 Electrical Energy

The Linglong Mining Area has one 35/6-kilovolt (kV) main step-down substation and dual power

supplies from different areas. The main power supply is fed on 35-kV transmission lines from the

newly constructed Jindu 220/35-kV transformer substation which is 3.4 km from the mine. A reserve

power supply is available from the Dongjiang 110/35-kV transformer substation which is 22 km from

the mine. Both supplies are reliable. Two transformers are located in the 35/6-kV main step-down

substation of the Linglong Mining Area.

The Lingshan Mining Area is fed from the Longkou power station, located 40 km away, and has

a step-down transformer at the mine to provide distribution at mine voltages.

The Dongfeng Mining Area is fed by two 35-kV transmission lines: the primary supply from the

220-kV/35-kV Jundu Substation about 11 km away from the mine and the backup supply from the

110-kV/35-kV Chunyu Substation about 2 km away from the mine. A 35/6-kV general step-down

substation at the mine distributes power to different parts of the Linglong Gold Mine properties.

Substations at each site step down the voltage for distribution around the site. There is adequate

electrical energy for all of the present and planned work at the Linglong Gold Mine properties.

18.5 Tailings Impoundments

The tailings produced by the Linglong mill (Linglong Mining Area) amounts to 789.3-thousand

cubic meters per annum (m3/a) (or 2,390 m3/d), of which 513-thousand m3/a is sent underground as

backfill and 276.3-thousand m3/a (or 837 m3/d) is sent to the tailings impoundments. The tailings are

pumped as a slurry at 25% by weight. The dam consists of roller-compacted soil and rock armored with

riprap. When necessary, the dam is raised by the upstream method in 2-m increments. Sub-dams are

built each year in advance of flood season to provide additional storage for flood regulation. The life

of the tailings area is approximately 20 years.


— III3-156 —

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 London PM Fix gold price of 1,231.03/oz. USD,

from 1 April 2015 through 31 March 2018.

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.

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.


— III3-157 —

Typical gold mine sources of environmental concern include potential water contamination from

dewatering, tailings, cyanide process water, and domestic wastewater. Noise pollution is sourced from

the production and processing equipment.

The mines operate under PRC laws, regulations, and guidelines. The relevant permits and

approvals have been obtained for the Linglong Gold Mine.

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

The coarse portion of tailings are combined with cement and used as backfill underground. The

fine tailings fraction is deposited in the tailings impoundment in the Jiangjiayang Valley.

Table 20-1. Overview Listing of PRC Laws Relevant to Mines and Mining Projects

Area of Focus Legislation

Mining Mineral Resource Law of People’s Republic of China

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 People’s Republic of China

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


— III3-158 —

Area of Focus Legislation

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

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

20.4 Water Management

Potential water contaminants generated at the Linglong Gold Mine include suspended solids from

the water generated in the underground mine drainage process and industrial wastewater. The tailings

wastewater is a source of suspended solids and residual chemicals from ore processing.

Mine water produced from the adit can be applied directly to farm land or treated for drinking

water at the Linglong Mining Area. Plant wastewater is not discharged from the site, but instead is

treated and recycled. The water is discharged to the tailings pond for treatment and is then recycled

by returning it to the plant.

20.5 Air

Underground dust generation is managed with water sprays, diluted, and exhausted by

mechanical ventilation and collected using scrubbers as needed to meet workplace requirements.

20.6 Permitting Requirements

The permitting process is briefly outlined in Table 20-2. 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 Linglong Gold Mine. 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.


— III3-159 —

20.7 Social and Community

The surrounding land use in the mining area is predominantly farming, including sea farming.

No ecological sites or strict land control zones were noted.

20.8 Remediation and Reclamation

Remediation and reclamation plans were developed during the project permitting process. The

Lingshan Mining Area is an old mine and had surface expressions of subsidence from mining prior to

1962. These impacted areas were successfully reclaimed in 2012 (Shandong Zhengyuan Resources

Geological Exploration Co., Ltd. 2016). Backfilling of the underground openings minimizes the

potential for subsidence. Expenditures for environmental control and restoration for the past 3 years

and 1st Quarter (Q) 2018 are included in Table 20-3.

Table 20-2. Environmental Permit

Permit Regulatory Body Description

EIA Report Ministry of

Environmental

Protection

Evaluations of impacts to the environment.

Water Permit Ministry of Water

Resources

Issued separate from mining permits and covers

the drainage basin and water consumption. Gold

mining projects water permits are generally

granted at the provincial level in alignment with

the Catalogue of Investment Projects Subject to

Government Confirmation. The 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 and

Resources

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 MLR representative. Once a mine

has ceased operations, the mining company will

no longer be liable for water contamination.


— III3-160 —

Permit Regulatory Body Description

Tailings and Waste

Storage Pollution

Prevention Plan

Ministry of

Environmental

Protection

Companies that produce tailings must develop a

pollution prevention plan and establish a liability

system.

Mine Closure

Application

Ministry of Land and

Resources

Mining companies 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. The 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

taken to protect, control, and restore the geologic

environment; and 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

Specific)

National Development

and Reform

Commission

Gold mining projects must be approved by the

National Development and Reform Commission.

Table 20-3. Linglong Gold Mine Environmental Related Expenditures

Item Unit Q1 2018 2017 2016 2015

Restoration and environmental control in

mine area

yuan 3,702 284,798 345,970 167,591


mine area (per ore tonne)

yuan/t 0.01 0.14 0.17 0.09


mine area (per gold gram)

yuan/g 0.00 0.07 0.08 0.04

Ore processed t 433,377 2,008,952 2,003,576 1,943,921

Gold output kg 1,074 4,063 4,186 4,000.02


— III3-161 —

21 CAPITAL AND OPERATING COSTS

Capital and operating costs (CAPEX and OPEX) for Linglong Gold Mine have been derived from

comprehensive annual production and financial reports supplied by Shandong Gold and from a

feasibility study for Boundary and Capacity Expansion Engineering of the Dongfeng Mining Area in

2016. The mine reports cover the periods 2015, 2016, 2017 and Q1 2018. Detailed costs listed in the

reports include mining costs, processing costs, administration costs, selling costs, environmental

protection costs, production taxes, resource tax, interest on loan, depreciation, amortization, and

CAPEX.

Ore is processed at the Linglong Gold Mine to produce a concentrate, which is shipped to a

Shandong Gold-owned smelter. Payable products include gold, silver, and sulfur, with the quantity,

received price, and revenue listed 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

No mine expansion is currently underway, and no CAPEX are projected to occur over the over

the period 2018-2021. Waste development costs are captured in OPEX and are expensed.

AAI is of the opinion that the lack of capital budgeted is reasonable for the short reserve life.

21.2 Operating Cost Estimate

Operating costs are classified by cost objects in Table 21-1 for reported actual production and

financial data for the periods 2015, 2016, 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

Administration (G&A), tax, financing, sales, and amortization and depreciation). Non-cash costs of

amortization and depreciation have been removed from the OPEX. Table 21-2 lists the actual costs for

2015, 2016, 2017 and Q1 2018. The projected capital and operating costs for the period Q2-Q4 2018

to 2021 are listed in Table 21-3.

AAI is of the opinion that the OPEX and Total cost are reasonable and provide an adequate basis

to project the future operations costs. The total cost per gold ounce 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 ounce.


— III3-162 —

Table 21-1. Buildup of Property Operating Costs by Cost Objects,

Historical and Forecast Prediction

Cost Object (ore processed)

Historical(USD/t)

Forecast Prediction(USD/t)

2015 2016 2017Q1

2018Q2-Q42018 2019 2020

Workforce Employment 21.71 23.04 21.55 23.43 22.2 22.2 22.2

Consumables 9.46 8.87 7.76 8.61 8.7 8.7 8.7

Fuel, electricity, water and other

services 5.83 5.23 5.09 6.09 5.4 5.4 5.4

On- and Off-site Administration 11.80 12.60 12.39 14.53 12.4 12.4 12.4

Environmental protection and

monitoring 0.01 0.03 0.02 0.00 0.0 0.0 0.0

Transportation of workforce (0.07) 0.13 0.14 0.12 0.1 0.1 0.1

Product marketing and support None None None None None None None

Non-income taxes, royalties and

other government charges 3.94 2.63 2.31 1.95 2.9 2.9 2.9

Contingencies (0.29) 0.06 0.02 (0.08) (0.1) (0.1) (0.1)

Cash OPEX Cost 52.39 52.58 49.29 54.64 51.6 51.6 51.6

Cost Object (produced gold)

Historical(USD/g)

Forecast Prediction(USD/g)

2015 2016 2017Q1

2018Q2-Q42018 2019 2020

Workforce Employment 10.49 10.96 10.66 9.45 8.3 9.3 6.8

Consumables 4.57 4.22 3.84 3.47 3.3 3.6 2.7

Fuel, electricity, water and other

services 2.82 2.49 2.52 2.45 2.0 2.3 1.7

On- and Off-site Administration 5.70 5.99 6.12 5.86 4.7 5.2 3.8

Environmental protection and

monitoring 0.01 0.01 0.01 0.00 0.0 0.0 0.0

Transportation of workforce (0.03) 0.06 0.07 0.05 0.0 0.0 0.0

Product marketing and support None None None None None None None

Non-income taxes, royalties and

other government charges 1.90 1.25 1.14 0.79 1.1 1.2 0.9

Contingencies (0.14) 0.03 0.01 (0.03) (0.0) (0.0) (0.0)

Cash OPEX Cost 25.32 25.00 24.38 22.04 19.4 21.6 15.9


— III3-163 —

Table 21-2. Linglong Gold Mine Historical Total Costs/Process Tonne

2015 2016 2017 Q1 2018

Process Tonnes 1,943,921 2,003,576 2,008,952 433,377

Mining Cost (RMB) 465,948,647 477,264,136 435,270,291 102,749,808

RMB/t 239.70 238.21 216.67 237.09

USD/t 36.48 36.25 32.97 36.08

Processing Cost (RMB) 82,684,808 76,673,677 77,315,859 19,887,281

RMB/t 42.54 38.27 38.49 45.89

USD/t 6.47 5.82 5.86 6.98

Administration cost (RMB) 120,518,985 138,306,494 138,093,565 32,945,088

RMB/t 62.00 69.03 68.74 76.02

USD/t 9.44 10.51 10.46 11.57

Cash OPEX costs (RMB) 669,152,440 692,244,307 650,679,715 155,582,177

RMB/t 344.23 345.50 323.89 359.00

USD/t 52.39 52.58 49.29 54.64

Produced Gold (g) 4,021,952 4,213,732 4,062,500 1,074,440

OPEX cost per Au g (RMB/Au g) 166.38 164.28 160.17 144.80

OPEX cost per Au g (USD/Au g) 25.32 25.00 24.38 22.04

OPEX cost per Au oz (USD/Au oz) 787.49 777.58 758.10 685.38

CAPEX cost (RMB) None None None None

RMB/t None None None None

USD/t None None None None

Total cost (RMB) 669,152,440 692,244,307 650,679,715 155,582,177

RMB/t 344.23 345.50 323.89 359.00

USD/t 52.39 52.58 49.29 54.64



OPEX cost per Au oz. (USD/Au oz) 787.49 777.58 758.10 685.38


— III3-164 —

Table 21-3. Projected Operating and Capital Costs for the Linglong Gold Mine, 2018-2021

Q2-Q4 2018 2019 2020 2021

Process Tonnes 1,448,090 1,943,725 1,488,618 651,755

Mining Cost (RMB) 335,683,401 450,577,058 345,078,239 151,084,128

RMB/t 231.81 231.81 231.81 231.81

USD/t 35.28 35.28 35.28 35.28

Processing Cost (RMB) 58,143,105 78,043,624 59,770,368 26,169,004

RMB/t 40.15 40.15 40.15 40.15

USD/t 6.11 6.11 6.11 6.11

Administration cost (RMB) 97,417,669 130,760,610 100,144,116 43,845,670

RMB/t 67.27 67.27 67.27 67.27

USD/t 10.24 10.24 10.24 10.24

Cash OPEX costs (RMB) 491,244,174 659,381,292 504,992,722 221,098,802

RMB/t 339 339 339 339

USD/t 51.63 51.63 51.63 51.63

Produced Gold (g) 3,858,681 4,649,817 4,839,547 3,000,862



OPEX cost per Au oz (USD/Au oz) 602.58 671.21 493.90 348.74

CAPEX cost (RMB) None None None None

RMB/t None None None None

USD/t None None None None

Total cost (RMB) 491,244,174 659,381,292 504,992,722 221,098,802

RMB/t 339.24 339.24 339.24 339.24

USD/t 51.63 51.63 51.63 51.63



OPEX cost per Au oz. (USD/Au oz) 602.58 671.21 493.90 348.74

Note: Figures in the table are rounded to reflect estimate precision; small differences generated by rounding are not material

to estimates.


— III3-165 —

22 ECONOMIC ANALYSIS

An economic analysis of the Linglong Gold Mine operations has been conducted using themining reserves as adjusted to the end of March 2018. The annual production schedule used in theeconomic analysis can be found in Table 16-4. Methodology for forecasting production and cost rateshave been explained in section 21. Non-cash charges in the mine reporting have been removed.

Calculations are based on RMB. No inflation or cost escalation is assumed and a flat gold priceof 1,231.03 USD is used in the analysis (3-year monthly average, from 1 April 2015 through 31 March2018, London PM Fix gold 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 operatingreports. They are accounted for in the forecast OPEX because they are contained in the projected unitcost rates. These costs contain the resource tax, which is currently based on 4% of revenue from themajor products before tax.

Income tax is 25% of net operating profit, calculated as revenue less OPEX and depreciation plusamortization.

22.2 Economic Projection

An economic model of the future financial performance of the Linglong Gold Mine wasdeveloped based on the feasibility study production rates and costs, and the remaining reserves. Theaverage reserve grade was used to estimate future gold production. Silver grades have been definedin historic production, but have not been included into reserves and therefore have not been includedin revenue. Historical reporting of silver production indicates silver contributes minimal revenue(approximately 0.2%) compared to gold. The production schedule and costs are listed in Table 22-1.

Table 22-1. Linglong Gold Mine Production Forecast and Projected After-Tax Cash Flow

PeriodOre

Processed***Au Grade

**Payable

Au** Revenue* OPEX CAPEX Income TaxAfter-TaxCash Flow

(t) (g/t) (oz.) (USD) (USD) (USD) (USD) (USD)

Q2-Q4 2018 1,450,000 2.66 124,000 152,700,000 74,800,000 — 17,300,000 60,700,000

2019 1,940,000 2.39 149,000 184,100,000 100,400,000 — 18,000,000 65,700,000

2020 1,490,000 3.25 156,000 191,600,000 76,900,000 — 26,400,000 88,300,000

2021 650,000 4.60 96,000 118,800,000 33,600,000 — 20,300,000 64,800,000

Total 5,530,000 2.95 526,000 647,100,000 285,600,000 — 81,900,000 279,600,000

* Does not include payable silver.

** Payable gold grade and gold production based on process assumptions defined in Section 15 Mineral Reserve Estimate.

*** Production schedule is located in Table 16-4.

Note: Figures in the table are rounded to reflect estimate precision; small differences generated by rounding are not material

to estimates.


— III3-166 —

22.3 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 22-2 lists the associated

cut-off grades for the active mining license(s) and corresponding estimated reserves by gold price.

Table 22-2. Sensitivity of Gold Reserves to Gold Price

Linglong Gold Mine -20% -10% 0% +10% +20%

Gold metallurgical

recovery 95.4% 95.4% 95.4% 95.4% 95.4%

Total cash cost (USD/t) 51.63 51.63 51.63 51.63 51.63

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) 1.71 1.52 1.37 1.24 1.14

Proven and ProbableReserves

Ore tonnes 4.59 5.36 5.53 6.32 6.32

Grade (g/t) 3.42 3.16 3.10 2.94 2.94

Contained Au (t) 15.68 16.92 17.15 18.58 18.58

23 ADJACENT PROPERTIES

The Linglong Gold Mine properties are located within the Shandong Peninsula, which hosts a

number of world-class gold deposits and productive mines. There are no immediately adjacent

properties which might materially affect the interpretation or evaluation of the mineralization or

exploration targets for the Linglong Gold Mine.

24 OTHER RELEVANT DATA AND INFORMATION

24.1 Risk Assessment

Mining by its nature is a relatively high-risk business when compared to 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.

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.


— III3-167 —

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

Likelihood of Risk (within 7 years)

Consequence of Risk

Minor Moderate Major

Likely Medium High High

Possible Low Medium High

Unlikely Low Low Medium

Table 24-2 presents the risk assessment for the Linglong Gold Mine property. The risks are

assigned before mitigation is taken into account. Mining projects are highly regulated in the PRC.

Interruptions to production can occur if Linglong is not diligent in complying with the requirements

of the various agencies. If the agencies are in conflict, Linglong may experience delays or nonrenewal

of licenses that is not within their immediate control. One high-risk area identified in this risk

assessment relates to the conditions impacting mining productivity as the depth of mining increases.

An additional high-risk area identified is sample compositing. These two risk have been identified by

Linglong and the company is actively working on mitigation as part of the normal mining process.


— III3-168 —

Table 24-2. Project Risk Assessment Table before Mitigation

Hazard/Risk IssueDiscussion of Hazard/Risk and

Mitigation Plans

Consequence

Likelihood Rating Risk

Geological & Resources

Drilling data quality Diamond core drilling serves 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.

Unlikely Moderate Low

Drill sample density Drill-hole density is regulated by

PRC for this type of gold deposit

and may or may not be sufficiently

dense to accurately sample the

resource.

Possible Moderate Medium

Sampling techniques Sampling technique has 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.



— III3-169 —


Mitigation Plans

Consequence


Compositing

methodology

The practice of excluding 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.

Likely Moderate High

Gold analysis

methodology

There is a risk that the 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.

Likely Minor Medium

Geologic interpretation Quality geologic interpretation is

the foundation for high-quality

resource estimation. Shandong

Gold uses principally 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.



— III3-170 —


Mitigation Plans

Consequence


Mineral Resources/

Reserves

Estimates of tonnes and grade 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 have

not been backfilled could collapse

and cause surface subsidence. This

can occur at any underground mine

site with near-surface workings.

Possible Minor Low

Mining at greater depth As mining increases in depth,

stresses increase and lead to more

difficult mining conditions,

including the potential for rock

bursts.

Likely Moderate High

Temperature also increases as

mining deepens. Miner working

efficiency descreases significantly

at temperatures at or above 30�C,

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 quite aware of

these issues and has established

research centers to look for

solutions.

Ore process/handling No significant risks were detected

in evaluation of the mineral

recovery processes.

Unlikely Minor Low


— III3-171 —


Mitigation Plans

Consequence


Tailings storage facility Storage of tailings are subject to

risk associated with dam failure.

The dam is constructed of waste

rock and tailings. An evaluation of

the dam safety shows it is stable.

Approximately10% of the tailings

are used in the production of raw

materials for concrete blocks, 60%

for underground filling, and 30%

deposited in the tailings facility.

The goal is to minimize surface

storage of tailings.


EnvironmentalLiability

Ground or surface

water quality

deterioration

Waste waters are discharged to the

tailings pond for sedimentation

with the clarified water recycled

back to the site for use in the

plant.

Likely Minor Medium

Economic

Capital and Operating

Costs

As China develops, labor and

equipment costs will tend to rise.

Significant cost history is available

for estimating future costs;

however, emphasis must be on

recent costs


Commodity pricing,

interest rates,

exchange rates

Commodity prices, exchange rates

and interest rates are subject to

change with the world markets.

Metals are typically priced in USD

so the RMB to USD exchange rate

is an important variable.



— III3-172 —


Mitigation Plans

Consequence


Seismic damage to

surface structures

According to the Seismic Intensity

Zoning Map of China issued in

2001 by the China Seismological

Bureau, the seismic intensity of

the mine areas is classified as

Grade VII. Earthquakes in the area

are infrequent, but shallow so that

building design must be performed

in accordance with the “Code for

Seismic Design of Buildings”

(GB50011-2001).


Occupational health

and safety

An occupational health and 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.


— III3-173 —

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.

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 otherexploration 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 hostcountry governments in respect of tax, royalties, and other significant payment on acountry-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 offacilities in a sustainable manner as well as environmental liabilities of its projects orproperties:

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


— III3-174 —

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.

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


— III3-175 —

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.

25 INTERPRETATION AND CONCLUSIONS

The resource and reserve estimates presented here form the basis for Shandong Gold’s ongoing

mining operations at the Linglong Gold Mine. 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 Linglong Gold Mine properties.

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.

The Linglong Gold Mine contains operating gold mines and exploration areas. From its site visits

and data review, AAI concludes the following:

• The mines are effectively operated by experienced workers and management.

• In the mines sited in quartz, rock bursts are not currently a problem; however, as these

mines extend deeper, the potential for rock bursts may increase. In anticipation of this

condition, the mines have begun to backfill using cemented waste rock and tailings.

• As the mines extend deeper, temperatures can be expected to increase due to the geothermal

gradient. As the temperature increases, worker productivity may be impacted.

• Besides costs, profitability also depends on income, which depends on the price received

for production. Thus there is a risk due to commodity price changes, which has two

considerations: the market price and trend for gold in USD and the RMB to USD exchange

rate.

The processing flowsheet for the Linglong and Lingshan Processing Plants is a standard

flowsheet that is commonly used in the mining industry where flotation recovery methods are

employed.

The Linglong and Lingshan Processing Plants include three stages of closed-circuit crushing and

two stages of closed-circuit crushing, respectively. The size reduction of run-of-mine ore by the

crushing plant reduces the ore to a 100% passing 14 mm and 12 mm for the Linglong and Lingshan

Processing Plants, respectively. The crushed material is reduced in size in a single stage closed-circuit

grinding. The target grind sizes are 55% and 52% passing 200 mesh for Linglong and Lingshan,

respectively. The ground material is then processed by multi-stage flotation and filtration to produce


— III3-176 —

a high-grade gold concentrate. The gold concentrate from the Linglong and Lingshan Processing

Plants is then transported by road to a central processing facility in Jiaojia County. Gold recoveries

of 95.54% and 95.30% have been achieved during recent Linglong and Lingshan operations,

respectively.

26 RECOMMENDATIONS

AAI’s and consultant QP’s have several recommendations related to geological, mining, and

metallurgical and processing disciplines:

AAI recommends the following work to mitigate identified mining issues:

• In-depth evaluation of strategies for backfilling with the possibility of using cemented

hydraulic tailings and paste backfills.

• Detailed engineering of deep mining issues, including areas such as rock bursts, elevated

temperature, effective refrigeration systems, and worker hygiene and physiological

conditions.

• The following recommendations are made by QP Jason Jin regarding metallurgical testing

and mineral processing:

o With different underground mining operation level, it is recommended that further

testwork be carried out on the flotation performance to further optimize plant

operations.

o Considering the grinding operating cost combined with actual production experience,

a grinding product size of 60% passing 200 mesh is recommended.

o The use of a rougher, single-stage cleaner, and two-stage scavenger in the Linglong

metallurgical plant is recommended.

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

<http://www.cim.ca>.

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33(6):1181-1196 (in Chinese with English abstract).

General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ),

Standardization Administration of PRC, (SAC) (2006), “Safety Regulations for Metal and Nonmetal

Mines,” Standard GB 16423-2006.


— III3-177 —

General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), (2010),

“Code for Seismic Design of Buildings,” Standard GB 50011-2010.

Gilder, S. A., P. H. Leloup, V. Courtillot, Y. Chen, R. S. Coe, X. Zhao, W. Xiao, N. Halim, J. P.

Cogné, and R. Zhu (1999), “Tectonic Evolution of the Tancheng-Lujiang (Tan-Lu) Fault via Middle

Triassic to Early Cenozoic Paleomagnetic Data,” J. Geophys. Res., 104(B7):15365-15390,

doi:10.1029/1999JB900123.

Goldfarb, R. J., C. J. R. Hart, G. Davis, D. I. Groves (2007), “East Asian Gold-Deciphering the

Anomaly of Phanerozoic Gold in Precambrian Cratons, Econ. Geol., 102, pp. 341-346.

Groves, D. I., R. J. Goldfarb, M. Gebre-Mariam, S. G. Hagemann and F. Robert (1998),

“Orogenic Gold Deposits: a Proposed Classification in the Context of their Crustal Distribution and

Relationship to Other Gold Deposit Types,” Ore Geol. Rev., 13, pp. 7-27.

Guo, Z. Y., H. Z. Song, X. P. He. and Y. L. Zha1 (1989), “The Ore-Controlling Structures,

Geochemical Characteristics and Exploration Prospective in Jiaodong Region,” unpublished research

report (in Chinese) in the Institute of Geology of Shandong Province, p. 238.

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).

Kong, Q. C. (1989), “Geology of Linglong Goldfield,” Geology of Gold Deposits within

Zhaoyuan Region, Gong. R. T. and Y. W. Wang. (Eds), Changchun City: Press of Industrial University

of Jilin Province, pp. 48-82 (in Chinese).

Li, G. X. and Q. C. Kong (1993), “The Geology of Linglong- and Jiaojia-Type Gold Deposits

within Jiaodong Region,” Science Press, Beijing, 253 pp. (in Chinese with English abstract).

Li, S. R., M. Santosh, H. F. Zhang, J. F. Shen, G. C. Dong, J. Z. Wang and J. Q. Zhang (2013a),

“Inhomogeneous Lithospheric Thinning in the Central North China Craton: Zircon U-Pb and S-He-Ar

Isotopic Record from Magmatism and Metallogeny in the Taihang Mountains,” Gondwana Res. 23, pp.

141-160.

Li, Q., M. Santosh and S. R. Li (2013b), “Stable Isotopes and Noble Gases in the Xishimen Gold

Deposit, Central North China Craton: Metallogeny Associated with Lithospheric Thinning and

Crust-mantle Interaction,” Int. Geol. Rev. 55(14):1728-1743.

Li, S. R. and M. Santosh (2014), “Metallogeny and Craton Destruction: Records from the North

China Craton,” Ore Geol. Rev. 56, pp. 376-414.

Li, S. R., M. Santosh, H. F. Zhang, J. Y. Luo, J. Q. Zhang, C. L. Li, J. Y. Song and X. B. Zhang

(2014), “Metallogeny in Response to Lithospheric Thinning and Craton Destruction: Geochemistry

and U-Pb Zircon Chronology of the Yixingzhai Gold Deposit, Central North China Craton,” Ore Geol.

Rev. 56, pp. 457-471.


— III3-178 —

Li, L., M. Santosh, Sheng-Rong Li (2015), “The Jiaodong Type Gold Deposits: Characteristics,

Origin and Prospecting,” Ore Geology Reviews, 65(3):589-611.

Li-Qiang Yang, Jun Deng, Zhong-Liang Wang, Lin-Nan Guo, Rui-Hong Li, David I. Groves,

Leonid V. Danyushevsky, Chao Zhang, Xiao-Li Zheng and Hai Zhao (2016), “Relationships between

Gold and Pyrite at the Xincheng Gold Deposit, Jiaodong Peninsula, China: Implications for Gold

Source and Deposition in a Brittle Epizonal Environment,” Economic Geology, 111(1):105-126.

Lu, G. X. and Q. C. Kong (1993), The Geology of Linglong- and Jiaojia-Type Gold Deposits

within Jiaodong Region, Beijing: Science Press, 253 pp. (in Chinese with English abstract).

Lu, Huan-zhang, Guy Archambault, Li Yuansheng, Wei Jiaxue (2007), “Structural Geochemistry

of Gold Mineralization in the Linglong-Jiaojia District, Shandong Province, China,” Chinese Journal

of Geochemistry, August, 26(3):215-234.

People’s Republic of China, Ministry of Land and Resources (2015), “The Procedure on the

Physical and Mechanical Property Testing for Rocks,” China Standard Press, 1st Edition, DY-94

(standard has been replaced by DZ/T 0276.20-2015), 1 April.

People’s Republic of China, Ministry of Land and Resources (1994), “Ore and Mineral Quality

Requirements and Test Method,” Chinese National Standard DZ0130.3-94), implemented from 1

October.

People’s Republic of China, Ministry of Land and Resources (2015), “The Procedure on the

Physical and Mechanical Property Testing for Rocks,” China Standard Press, 1st Edition, DY-94

(standard has been replaced by DZ/T 0276.20-2015), 1 April.

People’s Republic of China, Ministry of Geology and Mineral Resources (1994), “The Procedure

on the Gold and Silver Ore Analysis,” DZG93-09.

Rock Mineral Analysis Editorial Board (2011), The Mineral Analysis for Rocks, 4th Edition,

DZG20-01, Geological Publishing House, 1 June.

Shandong Gold Group Co., Ltd. (2011a), “山東省玲瓏金礦田玲瓏礦區175號脈群深部金礦詳查報告” [Shandong Linglong Gold Mine, Linglong Mining Area, a Detailed Report on the Deep Gold

Deposits of the 175 Series], November, 153 pp., translated.

Shandong Gold Group Co., Ltd. (2011b), “山東省玲瓏金礦田東風礦床171號脈金礦資源儲量核實報告” [The Report for Resource Reserve, Verification of Gold Ores in No. 171 Vein of Dongfeng

Deposit, Linglong Gold Ore-Field, Shandong Province], April, 133 pp., translated.

Shandong Gold Group Yantai Design Research Engineering Co., Ltd. (2008), “山東黃金集團有限公司東風礦區選礦試驗研究報告” [Mineral Processing Test Report of Dongfeng Deposit of

Shandong Gold Mining Co., Ltd,], March, pp. 1-26 (in Chinese).


— III3-179 —

Shandong Gold Group Yantai Design Research Engineering Co., Ltd (2014), “山東黃金集團有限公司東風礦區擴界擴能工程可行性研究報告” [Shandong Gold Mining (Linglong) Limited, Feasibility

Study Report on Deep Mining Project in Linglong Mining Area], August, 276 pp., translated.

Shandong Gold Group Yantai Design Research Engineering Co., Ltd (2016), “山東黃金礦業（玲瓏）有限公司玲瓏礦區深部開採工程可行性研究報告” [Shandong Gold Group Co., Ltd., Boundary

and Capacity Expansion Engineering of Dongfeng Mining Area, Feasibility Study Report], December,

361 pp., translated.

Shandong Gold Mining (Linglong) Co., Ltd. (2014), “山東省招遠市靈山溝礦區深部金礦補充詳查報告” [Supplementary General Exploration Report of Deep Gold Ore in Lingshangou Mine in

Zhaoyuan, Shandong Province], September, 259 pp., translated.

Shandong Gold Mining (Linglong) Co., Ltd. (2015), “山東省招遠市玲瓏金礦田玲瓏礦區金礦資源儲量核實報告” [Verified Report of Gold Ore Reserve in Linglong Mine of Linglong Gold Ore-Field

in Zhaoyuan, Shandong Provine], July, 227 pp., translated.

Shandong Gold Mining (Linglong) Co., Ltd. (2016), “山東省招遠市靈山礦區金礦資源儲量核實報告” [Shandong Zhaoyuan Lingshan Mining Area Gold Deposit, Resource Reserve Verification

Report], May, 196 pp., translated.

Shandong Zhengyuan Geological Resources Exploration Co., Ltd. (2016), “山東省招遠市玲瓏金礦田玲瓏礦區金礦, 資源儲量簡易年度報告” [Shandong Province Zhaoyuan Linglong Gold Mine,

Linglong Mining Area Gold Mine, Simple Annual Report on Resources Reserves], report to Shandong

Gold Mining (Linglong) Co., Ltd., 25 December, 19 pp., translated.

Shandong Zhengyuan Resources Geological Exploration Co., Ltd. (2016), “山東省招遠市靈山礦區金礦, 資源儲量核實報告” [Shandong Zhaoyuan Lingshan Mining Area Gold Deposit, Resource

Reserve Verification Report], report to Shandong Gold Mining (Linglong) Co., Ltd., 31 December, 196

pp., translated.

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 2003,” DZ/T 0205-2002, ICS 73.020;73.060.99 D 12.

Schmidt, A., S. Weyer, K. Mezger, E. Scherer, Y. Xiao, G. Brey (2008), “Rapid Eclogitisation of

the Dabie-Sulu UHP Terrane: Constraints from Lu-Hf Garnet Geochronology,” Elsevier Earth and

Planetary Science Letters, 273(102):203-213.

Yang, J. H., X. H. Zhou and L. H. Chen (2000), “Dating of Gold Mineralization for Super-large

Altered Tectonite-type Gold Deposits in Northwestern Jiaodong Peninsula and its Implications for

Gold Metallogeny,” Acta Petrologica Sinica, 16(3):454-458 (in Chinese with English abstract).

Yang, J. H., F. Y. Wu and S. A. Wilde (2003), “A Review of the Geodynamic Setting of

Large-scale Late-Mesozoic Gold Mineralization in the North China Craton: an Association with

Lithospheric Thinning,” Ore Geol. Rev. 23.


— III3-180 —

Yang, L., J. Deng, Z. Wang, L. Guo, R. Li, D. Groves, L. Danyushevsky, C. Zhang, X. Zheng and

H. Zhao (2016), “Relationships between Gold and Pyrite at the Xincheng Gold Deposit, Jiaodong

Peninsula, China: Implications for Gold Source and Deposition in a Brittle Epizonal Environment,”

Economic Geology, 111(1):105-126.

Yao, F. L., L. D. Liu, Q. C. Kong and R. T. Gong (1990), The Lode-gold Deposits in the

Northwestern Jiaodong Region, Changchun: Jilin Science and Technology Press, pp. 125-152 (in

Chinese with English abstract).

Zhang, Xiao’ou (2002), “Setting and Timing of Gold Mineralization in the Jiaodong and

Liaodong Peninsulas, North China Craton,” PhD. Thesis, Curtin University of Technology.

Zheng, Yong-Fei, Wenjiao Xiao and Guochun Zhao (2013), “Introduction to Tectonics of China,”

Gondwana Research, 23, pp. 1189-1206, 10.1016/j.gr.2012.10.001.

Zondy Cyber (2017), “MapGIS K9 Professional,” available at http://www.mapgis.com/.

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 3 Linglong Gold Mine,

Shandong 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, 20, 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.


— III3-181 —

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.

8. I have no involvement with the Linglong Gold Mine 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 did not visit the Linglong Gold Mine or any if its mining or exploration properties.

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)


— III3-182 —

28.2 Statement of Certification by Douglas F. Hambley

I, Douglas F. Hambley, Ph.D., P.E., P.Eng., P.G., RM-SME do hereby certify that:

1. I am a mining engineer and geologist and Senior Associate of Agapito Associates, Inc. at

its office located at 1536 Cole Blvd., Suite 220, Lakewood, Colorado, USA and co-author

of the report “Independent Technical Report, Site 3 Linglong Gold Mine, Shandong

Province, Peoples Republic of China” dated 14 September 2018 and effective as of 31

March 2018 (the “Independent Technical Report”). I am solely responsible for Sections 6,

15, 16, 18, 19, 20, and 23 and jointly responsible for Sections 1, 2, 3, 4, 5, 10, 12, 14, 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 13 and 17.

2. I am a member in good standing of the Association of Professional Engineers and

Geoscientists of Saskatchewan, being registered as a Professional Engineer (No. 16124)

since January 2009 and of Professional Engineers Ontario, being registered as a

Professional Engineer (No. 18026013) since July 1975.

3. I am also licensed as a Professional Engineer in the states of Colorado, Illinois, Michigan,

Nebraska, Pennsylvania and Wisconsin and as a Professional Geologist in Illinois and

Indiana. I served on the Board of Licensing for Professional Geologists of Illinois during

its initial four years (1996 to 2000).

4. I have practiced my profession as a mining engineer and geologist since 1972.

5. I graduated from the Faculty of Applied Science at Queen’s University at Kingston, Ontario

with a Bachelor of Science with Honours degree in Mining Engineering in May 1972. I

earned a Doctor of Philosophy in Earth Sciences from the University of Waterloo in May

1991.

6. I am a Life Member of the Canadian Institute of Mining, Metallurgy, and Petroleum (CIM)

and a Registered Member (No. 1299100RM) of the Society for Mining, Metallurgy, and

Exploration (SME). I am a member of the Potash Subcommittee of the CIM Committee on

Mineral Resources and Mineral Reserves, the SME Resources and Reserves Committee and

the SME Registered Member Admissions Committee.

7. As an engineer and geologist with mining companies from 1972 to 1980 and as a consulting

mining engineer and geologist since 1980, I have been involved with evaluation of

resources and reserves and design of mines and other underground facilities in iron ore,

base and precious metals, uranium, salt and potash and industrial minerals in Canada, the

United States, Germany, Brazil, Kazakhstan, Russia, Congo (Brazzaville), South Korea,

Ethiopia and China.






— III3-183 —

9. I have no involvement with the Linglong Mining Area or Shandong Gold Mining Co., Ltd.

beyond my involvement with the due diligence for and preparation and writing of the

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.

10. I visited the site on 28-30 August 2017, and inspected the drill core from the Shandong

Gold Mining Co., Ltd. wells at the client’s core warehouse near Laizhou, China on 30

August 2017.

11. As at the effective date of the Independent Technical Report, to the best of my knowledge,




misleading.








SIGNED AND SEALED

PROFESSIONAL SEAL

Douglas F. Hambley, Ph.D., P.E. (Colorado), P.Eng. (Saskatchewan), P.G. (Illinois), RM-SME


— III3-184 —

28.3 Statement of Certification by Leonard J. Karr

I, Leonard J. Karr, CPG, do hereby certify that:

1. I am a Certified Professional Geologist and Qualified Person under Canadian Independent

and a self-employed consultant located at 173 White Ash Drive, Golden, Colorado, USA

and co-author of the report “Independent Technical Report, Site 3 Linglong Gold Mine,

Shandong 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, 11,

12, and 14 and jointly responsible for Sections 1, 6, 23, 25, 26, and 27 of this Independent

Technical Report.

2. I am a member in good standing of the American Institute of Professional Geologists

(11072) and a Certified Professional Geologist, being registered as a Certified Professional

Geologist (CPG-11072) since June 2006.

3. I have practiced my profession as a Geologist since 1980.

4. I am a graduate of Michigan Technological University, and earned a Bachelor of Science

in Geologic Engineering in February 1980. I am a graduate of Colorado State University

and earned a Master of Science in Geology in June of 1984.

5. I am a member of the Society of Economic Geologists, the Rocky Mountain Association of

Geologists, and the Denver Regional Exploration Geologists.

6. As a consulting geologist, I have been involved from 1980 to 2017 with evaluation of

resources and reserves, in base and precious metals, coal, industrial minerals, and

petroleum in the United States, Papua New Guinea, Mexico, Honduras, El Salvador,

Guatemala, Nicaragua, Colombia, Ecuador, Peru, Bolivia, Brazil, Egypt, China, Australia,

and Turkmenistan.





8. I have no involvement with the Linglong Gold Mine or Shandong Gold Mining Co. 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.

9. I visited the site on 28-30 August 2017, and inspected the drill core from the Shandong

Gold Mining Co. diamond drill holes at the client’s core warehouse near Laizhou, China on

30 August 2017.


— III3-185 —

10. As at the effective date of the Independent Technical Report, to the best of my knowledge,




misleading.








SIGNED AND SEALED

PROFESSIONAL SEAL

Leonard J. Karr, CPG (CPG-11072)


— III3-186 —

28.4 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 3 Linglong Gold Mine, Shandong

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 the 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 Process 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).





7. I have no involvement with the Linglong Gold Mine 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 3 September 2017 and inspected the Linglong and Lingshan Ore

Processing Plants.

9. As of the effective date of this Independent Technical Report, to the best of my knowledge,




misleading.




— III3-187 —






SIGNED AND SEALED

PROFESSIONAL SEAL

Qinghua Jin, P.E. (RM-SME Arizona 53463)


— III3-188 —

28.5 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 and Consultant for 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 3 Linglong Gold Mine, Shandong 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..





9. I have no involvement with the Linglong Gold Mine 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.

11. As of the effective date of the Independent Technical Report, to the best of my knowledge,




misleading.


— III3-189 —








SIGNED AND SEALED

PROFESSIONAL SEAL

Carl Brechtel, P.E. (Colorado and Nevada USA)


— III3-190 —

APPENDIX A

MINING AND EXPLORATION LICENSES


— III3-191 —


— III3-192 —


— III3-193 —


— III3-194 —

APPENDIX B

3D OBLIQUE VIEW OF VEIN UPPER SURFACE


— III3-195 —

Fig

ure

B-1

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eng

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1-1


— III3-196 —

INDEPENDENT TECHNICAL REPORTSITE 4 XINCHENG GOLD MINESHANDONG 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:


— III4-1 —

INDEPENDENT TECHNICAL REPORTSITE 4 XINCHENG GOLD MINESHANDONG PROVINCE, CHINA

TABLE OF CONTENTS

Page

1 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-15

1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-15

1.2 Property Description and Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-16

1.3 Geology and Mineralization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-16

1.4 Status of Exploration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-17

1.5 Development and Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-17

1.6 Mineral Resource Estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-17

1.7 Mineral Reserve Estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-18

1.8 Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-20

1.9 Processing Plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-22

1.10 Environmental and Permitting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-22

1.11 Risk Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-22

1.12 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-22

2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-23

2.1 Information Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-23

2.2 Qualified Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-23

3 Reliance on Other Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-25

4 Property Description and Location . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-25

4.1 Location . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-25

4.2 Mineral Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-26

4.3 Environmental Liabilities, Permits, and Risks for the Property . . . . . . . . . . . . . III4-29

5 Accessibility, Climate, Local Resources, Infrastructure and Physiography . . . . . . III4-29

5.1 Topography, Elevation, and Vegetation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-29

5.2 Accessibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-30

5.3 Local Resources and Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-30

5.4 Climate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-30

6 History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-30

6.1 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-31

6.2 Exploration and Development Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-31

6.2.1 Xincheng Mining Area Exploration . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-31

6.2.2 Qujia Exploration Area Exploration . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-32


— III4-2 —

6.2.3 Xincheng Mining Area Development . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-32

6.3 Historical Mineral Resource and Mineral Reserve Estimates . . . . . . . . . . . . . . . III4-32

6.4 Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-32

7 Geological Setting and Mineralization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-33

7.1 Regional Geologic Setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-33

7.1.1 Geology of the Jiaobei Terrane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-33

7.1.2 Geology of the Sulu Terrane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-34

8 Deposit Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-35

8.1 Gold Deposits of the Shandong Peninsula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-35

8.2 Xincheng Gold Mine Geology and Mineralization . . . . . . . . . . . . . . . . . . . . . . . III4-36

8.3 Deposit Type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-42

9 Exploration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-42

10 Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-43

10.1 Core Drilling—General Procedures, Recovery, and Sampling . . . . . . . . . . . . . . III4-44

11 Sample Preparation, Analyses, and Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-45

11.1 Sample Preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-45

11.2 Assay Laboratories and Assay Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-46

11.3 Assay Laboratory Analytical Verification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-47

11.4 Sample Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-48

11.5 Density and Moisture Samples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-49

12 Data Verification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-49

12.1 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-49

12.2 Witness Sampling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-50

12.3 Mine and Surface Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-56

13 Mineral Processing and Metallurgical Testing . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-59

13.1 Sample Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-59

13.2 Flotation Testwork . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-59

13.3 Ancillary Testwork . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-60

14 Mineral Resource Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-60

14.1 Mineral Resource Classification System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-60

14.2 Conceptual Mining Scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-62

14.3 Mineral Resource Estimation Methodology under PRC MLR . . . . . . . . . . . . . . . III4-62

14.3.1 Economic Parameters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-63

14.3.2 Grade Capping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-64

14.3.3 Polygonal Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-64

14.3.4 Tonnage Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-66

14.3.5 Estimation Verification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-66

14.4 Reconciliation to 2014 CIM Definition Standards by AAI . . . . . . . . . . . . . . . . . III4-66


— III4-3 —

14.4.1 Mining Reconciliation Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . III4-67

14.4.2 Geostatistical Mineral Zone Analysis and Variography . . . . . . . . . . . . . III4-67

14.4.3 Resource Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-76

14.4.4 Consideration of Reasonable Prospects for Eventual Economic

Extraction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-83

14.5 Mineral Resource Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-86

15 Mineral Reserve Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-89

15.1 Estimation Parameters and Modifying Factors . . . . . . . . . . . . . . . . . . . . . . . . . . III4-89

15.1.1 Dilution and Mining Recovery Factors (Xincheng Mining Area and

Xincheng Periphery and Deep Exploration Area) . . . . . . . . . . . . . . . . III4-91

15.1.2 Reconciliation of Mineral Reserves to Production . . . . . . . . . . . . . . . . . III4-91

15.1.3 Breakeven Cut-off Grade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-91

15.2 Reserve Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-93

15.3 Mineral Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-93

15.4 Factors that May Affect the Mineral Reserve Estimate . . . . . . . . . . . . . . . . . . . III4-94

16 Mining Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-95

16.1 Mining Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-95

16.1.1 Transverse Cut-and-Fill Mining Method . . . . . . . . . . . . . . . . . . . . . . . . III4-96

16.1.2 Longitudinal Cut-and-Fill Mining Method . . . . . . . . . . . . . . . . . . . . . . . III4-96

16.2 Production Rates, Dilution and Extraction Ratio . . . . . . . . . . . . . . . . . . . . . . . . III4-99

16.3 Mine Facilities and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-99

16.3.1 Hoisting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-99

16.3.2 Ventilation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-99

16.3.3 Compressed Air . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-100

16.3.4 Mine Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-100

16.3.5 Mine Backfill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-100

16.3.6 Other Mining Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-100

16.4 Mining Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-101

17 Recovery Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-112

17.1 Crushing Circuit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-112

17.2 Grinding Circuit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-112

17.3 Concentrate Dewatering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-113

17.4 Refinery Plant at Jiaojia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-113

18 Project Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-115

18.1 Roads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-115

18.2 Mine Waste Dumps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-115

18.3 Mine Ore Stockpiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-115

18.4 Electrical Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-115


— III4-4 —

18.5 Tailings Impoundments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-117

19 Market Studies and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-117

19.1 Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-117

19.2 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-118

20 Environmental Studies, Permitting, and Social or Community Impact . . . . . . . . . III4-118

20.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-118

20.2 Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-118

20.3 Waste and Tailings Disposal Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-118

20.4 Water Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-120

20.5 Air . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-121

20.6 Permitting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-121

20.7 Social and Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-121

20.8 Remediation and Reclamation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-122

21 Capital and Operating Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-124

21.1 Capital Cost Estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-124

21.2 Operating Cost Estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-125

22 Economic Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-128

22.1 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-128

22.2 Economic Projection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-128

22.3 Sensitivity of Project Economic Performance . . . . . . . . . . . . . . . . . . . . . . . . . . III4-129

22.4 Sensitivity of Reserves to Gold Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-133

23 Adjacent Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-133

24 Other Relevant Data and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-133

24.1 Risk Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-133

25 Interpretation and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-142

26 Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-143

27 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-144

28 Date and Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-146

28.1 Statement of Certification by Timothy A. Ross . . . . . . . . . . . . . . . . . . . . . . . . . III4-146

28.2 Statement of Certification by William R. Stanley . . . . . . . . . . . . . . . . . . . . . . . III4-148

28.3 Statement of Certification by Qinghua Jin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-150

28.4 Statement of Certification by Carl E. Brechtel . . . . . . . . . . . . . . . . . . . . . . . . . III4-152

Appendix A—Mining and Exploration Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .III4-154

Appendix B—3D Oblique View of Vein Upper Surface . . . . . . . . . . . . . . . . . . . . . . . . . .III4-157


— III4-5 —

LIST OF TABLES

Page

Table 1-1. Xincheng Gold Mine Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-16

Table 1-2. Xincheng Gold Mine Mineral Resource (effective date 31 March 2018) . . . . III4-18

Table 1-3a. Xincheng Mining Area and Planned for the Xincheng Periphery and Deep

Exploration Area Reserve Cut-off Grades . . . . . . . . . . . . . . . . . . . . . . . . . III4-19

Table 1-3b. Qujia Exploration Area Cut-off Grades . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-20

Table 1-4. Xincheng Gold Mine Mineral Reserve Summary (effective date 31 March

2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-21

Table 2-1. QPs, Responsibilities, and Latest Visit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-24

Table 4-1. Issued Licenses to Xincheng Gold Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-29

Table 6-1. Production History for Xincheng Gold Mine . . . . . . . . . . . . . . . . . . . . . . . . III4-32

Table 10-1. Core Drilling Summary, Xincheng Mining Area and Xincheng Periphery and

Deep Exploration Area (Deep Zones 2008—2010) . . . . . . . . . . . . . . . . . . III4-43

Table 10-2. Core Drilling Summary, Qujia and Tengjia Ore Deposits . . . . . . . . . . . . . . . III4-44

Table 12-1. Witness Sample Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-51

Table 13-1. Flotation Results—Xincheng Mining Area Ore . . . . . . . . . . . . . . . . . . . . . . . III4-60

Table 14-1. Xincheng Gold Mine Economic Parameters for Resource Estimation . . . . . . III4-63

Table 14-2. Xincheng Gold Mine Tonnage Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-65

Table 14-3. Xincheng Gold Mine Basic Statistical Analysis . . . . . . . . . . . . . . . . . . . . . . III4-67

Table 14-4. Xincheng Mining Area and Qujia Variogram Summary . . . . . . . . . . . . . . . . III4-76

Table 14-5. Xincheng Gold Mine Mineral Resource (effective date 31 March 2018) . . . . III4-88

Table 15-1. Xincheng Mining Area Reconciliations . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-92

Table 15-2. Xincheng Mining Area and Planned Xincheng Periphery and Deep

Exploration Area Estimated Reserve Cut-off Grades . . . . . . . . . . . . . . . . . III4-92

Table 15-3. Qujia Exploration Area Estimated Cut-off Grades . . . . . . . . . . . . . . . . . . . . III4-92

Table 15-4. Xincheng Gold Mine Mineral Reserve Summary (effective date 31 March

2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-93

Table 16-1. Xincheng Mining Area Production Schedule by License . . . . . . . . . . . . . . . . III4-102

Table 20-1. Overview Listing of PRC Laws Relevant to Mines and Mining Projects . . . III4-119

Table 20-2. Environmental Permit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-122

Table 20-3. Xincheng Gold Mine Environmental Related Expenditures . . . . . . . . . . . . . . III4-123

Table 21-1. Xincheng Gold Mine Projected CAPEX for the Remaining Mine Reserves . . III4-124

Table 21-2. Buildup of Property Operating Costs by Cost Objects, Historical and

Forecast Prediction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-125

Table 21-3. Xincheng Gold Mine Historical Total Costs/Process Tonne . . . . . . . . . . . . . III4-126

Table 21-4. Projected Operating and Capital Costs for Mining of the Defined Reserves . III4-127

Table 22-1. Xincheng Gold Mine Production Forecast and Projected After-Tax

Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-128


— III4-6 —

Table 22-2. Xincheng Gold Mine After-Tax NPV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-129

Table 22-3. Variation of Xincheng Gold Mine NPV with OPEX between -25% and

+25% of the Forecast Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-130

Table 22-4. Variation of NPV with CAPEX between -25% and +25% of the Forecast

Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-130

Table 22-5. Variation in Xincheng Gold Mine NPV for Gold Prices Ranging from 923

to 1,539 USD/Au oz. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-132

Table 22-6. Sensitivity of Gold Reserves to Gold Price . . . . . . . . . . . . . . . . . . . . . . . . . III4-133

Table 24-1. Overall Risk Assessment Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-134

Table 24-2. Project Risk Assessment Table before Mitigation . . . . . . . . . . . . . . . . . . . . . III4-135

LIST OF FIGURES

Figure 4-1. Xincheng Gold Mine Location Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-27

Figure 4-2. Base Map showing Xincheng Gold Mine Mining and Exploration License

Boundaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-28

Figure 7-1. Simplified Tectonic Map of China (from Zheng et al. 2013) . . . . . . . . . . . . III4-34

Figure 7-2. Tectonic Subdivision of Precambrian Basement of the North China Craton

(from Zheng et al. 2013) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-35

Figure 8-1. Gold Deposits of the Xincheng Gold Mine (after L. Yang et al. 2016) . . . . . III4-37

Figure 8-2. Xincheng Mining Area and Xincheng Periphery and Deep Exploration Area

Geologic Map (Shaoying et al. 2016) . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-38

Figure 8-3. Cross Section 179 of Xincheng Mining Area and Xincheng Periphery and

Deep Exploration Area showing Ore Zones I and V (looking 30�)

(Shaoying et al. 2016) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-39

Figure 8-4. Geology of Qujia Exploration Area showing License Outline and Drill Hole

Locations (Junwu et al. 2013) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-40

Figure 8-5. Qujia Exploration Area Ore Zones I and II (Junwu et al. 2013) . . . . . . . . . . III4-41

Figure 10-1. NQ-size Core Trays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-45

Figure 11-1. Sample Preparation Flow Diagram . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-46

Figure 11-2. Internal vs External Laboratory Verification Assays on Drill Core Samples . III4-48

Figure 12-1. Diamond Drill Hole ZK-3-8, showing Sample Interval and Hand-split NQ

Core . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-53


Core . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-54


Core . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-54

Figure 12-4. Xincheng Mining Area Surface Ore Stockpiles . . . . . . . . . . . . . . . . . . . . . . . III4-55

Figure 12-5. Xincheng Mining Area, Level -510 Stope Draw Point Ore, showing Quartz

Veining and Associated Pyrite . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-56

Figure 12-6. Underground Bolter on the -510 Level of the Xincheng Mining Area in Ore

Cross-cut . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-57


— III4-7 —

Figure 12-7. Xincheng Mining Area, -380 Level, Main Shaft Ore Hoist Station . . . . . . . . III4-57

Figure 12-8. Xincheng Mining Area Underground Main Ventilation Fan . . . . . . . . . . . . . . III4-58

Figure 12-9. Xincheng Mining Area Surface Headframe . . . . . . . . . . . . . . . . . . . . . . . . . . III4-58

Figure 12-10. Xincheng Mining Area Tailings Impoundment Site . . . . . . . . . . . . . . . . . . . . III4-59

Figure 14-1. Xincheng Mining Area Grade Polygons—Longitudinal Section . . . . . . . . . . III4-65

Figure 14-2. Xincheng Mining Area—Deep Vein V Composite Cumulative Frequency

Histogram . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-68

Figure 14-3. Qujia Exploration Area—Zone I Composite Cumulative Frequency

Histogram . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-68

Figure 14-4. Qujia Exploration Area—Zone II Composite Cumulative Frequency

Histogram . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-69

Figure 14-5. Xincheng Mining Area—Deep Vein V Sample Composite Log Probability

Plot for Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-70

Figure 14-6. Qujia Exploration Area—Zone I Sample Composite Cumulative Log

Probability Plot for Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-71

Figure 14-7. Qujia Exploration Area—Zone II Sample Composite Cumulative Log

Probability Plot for Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-72

Figure 14-8. Xincheng Mining Area’s Deep Vein V—3D Pairwise Relative Variogram for

Gold (g/t) Composite Samples along Apparent Strike . . . . . . . . . . . . . . . . III4-73

Figure 14-9. Xincheng Mining Area’s Deep Vein V—3D Pairwise Relative Variogram for

Gold (g/t) Composite Samples along Apparent Dip . . . . . . . . . . . . . . . . . . III4-73

Figure 14-10. Qujia Exploration Area’s Zone I—3D Pairwise Relative Variogram for Gold

(g/t) Composite Samples along Apparent Strike . . . . . . . . . . . . . . . . . . . . III4-74

Figure 14-11. Qujia Exploration Area’s Zone I—3D Pairwise Relative Variogram for Gold

(g/t) Composite Samples down Apparent Dip . . . . . . . . . . . . . . . . . . . . . . III4-74

Figure 14-12. Qujia Exploration Area’s Zone II—3D Pairwise Relative Variogram for

Gold (g/t) Composite Samples along Apparent Strike . . . . . . . . . . . . . . . . III4-75

Figure 14-13. Qujia Exploration Area’s Zone II—3D Pairwise Relative Variogram for

Gold (g/t) Composite Samples down Apparent Dip . . . . . . . . . . . . . . . . . . III4-75

Figure 14-14. Xincheng Mining Area Mineral Resource Classifications—Vertical

Projection (longitudinal section) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-79

Figure 14-15. Xincheng Periphery and Deep Exploration Area Resource

Polygons—Horizontal Projection (longitudinal section) . . . . . . . . . . . . . . III4-80

Figure 14-16. Qujia Exploration Area Zone I Resource Polygons (plan map) . . . . . . . . . . . III4-83

Figure 14-17. Qujia Exploration Area Zone II Resource Polygons—Horizontal Projection

(plan map) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-84

Figure 14-18. Drill Hole and Channel Sample Location Map . . . . . . . . . . . . . . . . . . . . . . . III4-85

Figure 16-1. Plan and Sections for the Transverse Cut-and-Fill Mining Method . . . . . . . . III4-97

Figure 16-2. Plan and Sections for the Longitudinal Cut-and-Fill Mining Method . . . . . . III4-98

Figure 16-3. Xincheng Mining Area Location of Reserves by License . . . . . . . . . . . . . . . III4-103


— III4-8 —

Figure 16-4. Production Schedule for Orebodies XI-2, XI-6, XI-8, XI-9, XI-10, XII-1,

and XII-4 at Xincheng Gold Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-104

Figure 16-5. Production Schedule for Orebodies Vertical 1 and 5 at Xincheng Mining

Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-105

Figure 16-6. Production Schedule for Orebodies V-1 and V-1’ at Xincheng Mining Area . III4-106

Figure 16-7. Production Schedule for Orebodies V-3, V-6, and V-8 at Xincheng Mining

Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-107

Figure 16-8. Production Schedule for Orebodies I, I’, I-1, V-2, and V-11 at Xincheng

Mining Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-108

Figure 16-9. Production Schedule for Orebody Zone-II at Tenjia Gold Mine . . . . . . . . . . III4-109

Figure 16-10. Production Schedule for Orebody Zone-I at Xicaopo-Qujia Mining Area . . . III4-110

Figure 16-11. Production Schedule for Orebodies II, III, IV, V, and VI at Xicaopo-Qujia

Mining Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-111

Figure 17-1. Xincheng Processing Plant Overall Flowsheet . . . . . . . . . . . . . . . . . . . . . . . III4-114

Figure 18-1. Xincheng Gold Mine Tailings Disposal Area with Waste Rock Containment

Dam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-116

Figure 18-2. Xincheng Gold Mine Surface Stockpiles near Main Shaft . . . . . . . . . . . . . . III4-116

Figure 19-1. Gold Price History (Source www.kitco.com) . . . . . . . . . . . . . . . . . . . . . . . . III4-117

Figure 22-1. Variation of Xincheng Gold Mine NPV for -25% and +25% of Base-Case

OPEX Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-131

Figure 22-2. Variation of Xincheng Gold Mine NPV for -25% and +25% of Base-Case

CAPEX Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-131

Figure 22-3. Sensitivity of Xincheng Gold Mine NPV to Gold Price between 923 and

1,539 USD/Au oz. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III4-132


— III4-9 —

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

Xincheng Gold Mine Xincheng Gold Mine

Xincheng Mining Area C1000002011054140119485 Shandong Gold Mining Co., Ltd.,

Xincheng Gold Mine

Qujia Exploration Area T37120080302003818 Shandong Province, Laizhou City,

Qujia Area Gold Mine Exploration

Xincheng Periphery and

Deep Exploration Area

T37120090302025628 Shandong Province, Laizhou City,

Periphery and Deep Gold Exploration

in Xincheng Mining Area

CHEMICAL ABBREVIATIONS

Au gold

Cu copper

HCN hydrogen cyanide

mFe magnetic iron

Na2S2O3�H2O sodium thiosulphate

Na2S2O4 sodium dithionite

NOx nitrogen oxide

Pb lead

S sulfur

SO2 sulfur dioxide

Zn zinc


— III4-10 —

ACRONYMS AND ABBREVIATIONS

� degree

% percent

3D three-dimensional

6th Team Sixth Geological Team of the Shandong Provincial Bureau of

Geology & Mineral Resources

AAI Agapito Associates, Inc.

aka also known as

CIM Canadian Institute for Mining, Metallurgy and Petroleum

C Celsius

CAPEX capital expenditures

cm centimeter

cm3 cubic centimeters

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

Ga billion years (annum)

g/t grams per tonne

ha hectare

HKEx The Stock Exchange of Hong Kong Limited

IRR internal rate of return

kb kilobar

kg kilogram

km kilometer


— III4-11 —

km2 square kilometer

kV kilovolt

kW kilowatt

kWh kilowatt-hour

LHD load-haul-dump

�m microns

m meter

m3 cubic meters

m3/d cubic meters per day

m3/hr cubic meters per hour

m3/min cubic meters per minute

m3/s cubic meters per second

m/s meters per second

Ma million years (annum)

ml milliliter

MLR Ministry of Land and Resources

mm millimeter

Mt million tonnes

Mtpy million tonnes per year

NI National Instrument

NPV net present value

OD outside diameter

OPEX operating expenditures

p. page

pp. pages

P.E. Professional Engineer


— III4-12 —

P.Eng. Professional Engineer of Saskatchewan

P.G. Professional Geologist

PFS Preliminary Feasibility Study

PRC People’s Republic of China

QP qualified person

RM-SME Registered Member, Society for Mining, Metallurgy, and

Exploration, Inc.

RMB renminbi or “Chinese yuan”

ROM run-of-mine

s second

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 for Mining, Metallurgy, and Exploration, Inc.

t tonne (metric ton, 1000 kg)

t/m3 tonnes per cubic meter

TD Total Depth

tpd tonnes per day

tpy tonnes per year

UHP ultrahigh pressure


— III4-13 —

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 the Xincheng Gold Mine, 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 the

Xincheng Gold Mine, Company ability to fund the Xincheng Gold Mine, 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 the Xincheng Gold Mine; 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.

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


— III4-14 —

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 Xincheng Gold Mine and associated

mining and exploration rights, an independent and fully funded company of 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 the Xincheng Gold Mine. 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 the Xincheng Gold Mine 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 Xincheng

Gold Mine. 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.

The Xincheng Gold Mine includes two adjacent areas: the Xincheng Gold Mine (Xincheng

Mining Area), including a deeper extension to the existing mine (Xincheng Periphery and Deep

Exploration Area), and the Qujia Area Gold Mine Exploration (Qujia Exploration Area), which

includes the Tengjia mineralized zone and the Xiacopo-Quija mineralized zone.

This report was prepared in compliance with Canadian National Instrument 43�101 (“NI

43�101”) and the requirements and guidelines set forth in Form 43�101F1 (June 2011), 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 (2014 CIM Definition Standards). 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 nor the QPs are aware of any adverse material changes to the resource and

reserve estimates since the effective date of this report.


— III4-15 —

1.2 Property Description and Ownership

The Xincheng Gold Mine is located in the town of Jincheng, 35 kilometers (km) northeast of the

city of Laizhou, on the north coast of the Shandong Peninsula1 and on the south shore of the Bohai

Sea in the Shandong Province, China. The overall property involves two adjacent areas: the Xincheng

Mining Area, including the Xincheng Periphery and Deep Exploration Area, and the Qujia Exploration

Area. The deposits are located about 3 km apart within the well-explored Zhaoyuan-Laizhou Gold

Belt.

The Xincheng Gold Mine is made up of three licenses issued by the People’s Republic of China

(PRC’s) Ministry of Land and Resources (MLR) and/or the Shandong Provincial Department of Land

and Resources (DLR). One license is for mining and two are exploration licenses. The Xincheng Gold

Mine and its associated mining and exploration rights are owned by Shandong Gold, a subsidiary of

SDG, one of the largest gold producers in China, integrating exploration, mining, and smelting. The

licenses are listed in Table 1-1. Copies of the licenses are included in Appendix A.

1.3 Geology and Mineralization

The Xincheng Gold Mine is located along the regional Jiaojia fault, which cuts Late-Jurassic to

Early-Cretaceous granitic rocks. Several phases of granitoids are present in the mine and surrounding

exploration area and range from quartz monzonite to granite. Gold mineralized zones are distributed

principally along the northwest-dipping Jiaojia fault and numerous splays associated with this regional

structural zone.

Table 1-1. Xincheng Gold Mine Licenses

Property License Number

ShandongGold

OwnershipLicensed

Production

(%) (� 104 tpy)

Mining Rights

Xincheng Mining Area C1000002011054140119485 100 41.25

Exploration Rights

Qujia Exploration Area T37120080302003818 100

Xincheng Periphery and Deep

Exploration Area T37120090302025628 100*

* In process of transferring ownership to Shandong Gold Mining Co., Ltd.

Gold mainly occurs in association with quartz filled fractures or within pyrite grains, particularly

fine-grained pyrite. Coarser pyrite grains appear to correlate with lower gold values. Native gold,

electrum, native silver, pyrite, chalcopyrite, sphalerite, galena, and pyrrhotite have been observed.

Trace amounts of marcasite, hematite, magnetite, sulfosalts, and barite have been reported.

1 In the literature, the peninsula hosting the mining areas is known interchangeably as the Jiaodong Peninsula or the

Shandong Peninsula. For consistency, AAI used “Shandong” throughout this report.


— III4-16 —

1.4 Status of Exploration

The primary support for the assignment of exploration and mining licenses is the establishment

of a mineral resource based on work carried out under a prospecting license. Mineral Resource in the

Chinese classification system is primarily supported by exploration drilling. Drilling information is

replaced by underground drift and cross-cut channel sampling, as the properties move from

prospecting to the more detailed phases of general to exploration license, to mining license. Mining

licenses are assigned to a depth range. To continue to extract minerals beyond the mining license

requires the assignment of an exploration license that, if proven, converts to a mining license.

1.5 Development and Operations

The shape of the mineralized zones correspond to a very irregular vein-type deposit of variable

thickness having a variable dip averaging approximately 30 degrees (�). The orebody is accessed by

a network of shafts, ramps, and access galleries excavated primarily in the footwall. The mine

currently has eight mining levels, which are used for extraction of ore above the -600 meter (m) level.

Two variations of the cut-and-fill method are utilized: transverse mining, which accounts for 55% of

production, is used when the apparent thickness (horizontal distance through the orebody) is more than

8 m; and longitudinal mining, which is used when the apparent thickness is less than 8 m. Ore is

processed in the on-site mill facility, which is capable of processing 6,500 tonnes per day (tpd).

1.6 Mineral Resource Estimate

Mr. William R. Stanley, Society for Mining, Metallurgy, and Exploration, Inc. Registered

Member (RM-SME), an AAI subcontractor is responsible for the Mineral Resource 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 (CIM 2014). The Mineral Resource Estimate for the

Xincheng Gold Mine has an effective date of 31 March 2018.

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 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 reasonably assumed to be the same mining method or methods already in operation

on the Xincheng 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.

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


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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 Xincheng Gold Mine and adjacent property is summarized

in Table 1-2. Shandong Gold, either by direct ownership or agreement with SDG, controls 100% 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 in this report. Mr. Ross is a QP as defined by NI 43-101 and is independent of Shandong

Gold. The Mineral Reserve estimate for the Xincheng Gold Mine has an effective date of 31 March

2018. The Mineral Reserve estimate includes the mining license and exploration licenses as described

in Section 1.2. The time required to prepare the Mineral Reserve Estimate from the initial site visit,

through the data review and economic analysis was 3.5 months.

Table 1-2. Xincheng Gold Mine Mineral Resource(effective date 31 March 2018)

Mineral ResourceCategory Tonnes

TonnesAttributableto Shandong

Gold100.0% Grades

ContainedMetals

ContainedMetals

Attributableto ShandongGold 100.0%

(Mt) (Mt)

Au

(g/t)

Ag

(g/t) Au (t) Ag (t) Au (t) Ag (t)

Xincheng Mining Area (C1000002011054140119485)Measured None None None None None None None NoneIndicated 2.45 2.45 2.84 None 6.96 None 6.96 None

Subtotal Measured and

Indicated 2.45 2.45 2.84 None 6.96 None 6.96 NoneInferred 0.13 0.13 2.85 None 0.37 None 0.37 None

Qujia Exploration Area (T37120080302003818)


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Mineral ResourceCategory Tonnes

TonnesAttributableto Shandong

Gold100.0% Grades

ContainedMetals

ContainedMetals

Attributableto ShandongGold 100.0%

(Mt) (Mt)

Au

(g/t)

Ag

(g/t) Au (t) Ag (t) Au (t) Ag (t)

Measured None None None None None None None NoneIndicated 24.30 24.30 3.10 None 75.34 None 75.34 None



Xincheng Periphery and Deep Exploration Area (T37120090302025628)Measured None None None None None None None NoneIndicated 3.91 3.91 3.42 None 13.39 None 13.39 None



Combined LicensesMeasured None None None None None None None NoneIndicated 30.66 30.66 3.12 None 95.69 None 95.69 None

Subtotal Measured andIndicated 30.66 30.66 3.12 None 95.69 None 95.69 None

Inferred 44.75 44.75 2.92 None 130.57 None 130.57 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, on a 100% basis. 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 recovery of 95.0%.

4. Estimates have been rounded as required by reporting guidelines. Totals may not sum due to rounding.

The Mineral Reserves are derived from Measured and Indicated Resources after applying the

economic parameters as shown in Tables 1-3a and 1-3b.


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Table 1-3a. Xincheng Mining Area and Planned for the Xincheng Periphery and DeepExploration Area Reserve Cut-off Grades

Mine Area Units Cost or Value

Gold metallurgical recovery* % 95.0

Total cash cost USD/ore tonne 38.11

Gold selling price USD/oz. 1,231.03

Cut-off grade Au g/t 1.01

Cut-off grade calculation is in line with industry standards.

* Throughout this report, metallurgical recovery includes both plant and refinery losses.

Table 1-3b. Qujia Exploration Area Cut-off Grades

Mine Area Units Cost or Value

Gold metallurgical recovery % 95.0

Total cash cost USD/ore tonne 75.25

Gold selling price USD/oz. 1,231.03

Cut-off grade Au g/t 2.00

Cut-off grade calculation is in line with industry standards.

* Throughout this report, metallurgical recovery includes both plant and refinery losses.

The reserve polygons were selected based on the gold content (including ore dilution) from the

Measured and Indicated Resource polygons that exceeded the calculated cut-off grade and have

demonstrated economic viability. Inferred Mineral Resources are not considered for the Reserve

statement.

The estimated Proven and Probable Mineral Reserves for the Xincheng Gold Mine, as of 31

March 2018, are summarized in Table 1-4. The Mineral Reserves as stated are mined ore delivered to

the mill stockpile.

1.8 Economics

Capital and operating costs (CAPEX and OPEX) for the Xincheng Gold Mine have been derived

from 1) comprehensive annual production and financial reports supplied by Shandong Gold and 2) the

China Nerin Engineering Co., Ltd. (2015) feasibility report for Qujia and Tengjia Exploration Area.

The OPEX were normalized to reference process tonnes and then compared to calculated OPEX from

the feasibility report. The feasibility report OPEX costs were higher at 68.20 USD/per process tonne

and were used for the mining period 2018 to 2028.Waste development and major equipment rebuild

costs are captured in OPEX. CAPEX was derived from the feasibility report and totaled 372 M USD

over the period 2018 to 2024. The remaining life-of-mine based on this reserve estimate is 11 years.


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An economic model of the future financial performance of the Xincheng Gold Mine was

developed based on the feasibility report 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 revenue indicate the Net Present Value (NPV) for discount rates of 0 percent (%) (free cash flow)

and 10% are 600 million (M) USD and 300 M USD, respectively.

Table 1-4. Xincheng Gold Mine Mineral Reserve Summary

(effective date 31 March 2018)

License

Ore

Tonnes

Ore Tonnes

Attributable to

Shandong Gold

100% Au Grade

Contained

Au

Contained

Shandong Gold

Attributable

100% Ag Grade

Contained

Ag

Contained

Shandong Gold

Attributable

100%

(Mt) (Mt) (g/t) (t) Au (t) (g/t) (t) Ag (t)

Xincheng Mining Area (C1000002011054140119485)

Proven None None None None None None None None

Probable 2.45 2.45 2.71 6.63 6.63 None None None

Total Proven and


Qujia Exploration Area (T37120080302003818)



Total Proven and


Xincheng Periphery and Deep Exploration Area (T37120090302025628)



Total Proven and


Combined Licenses



Total Proven

and Probable 26.14 26.14 3.13 81.82 81.82 None None None

Notes:

1. Mineral Reserves were reviewed by Mr. Timothy Ross, P.E., RM-SME, of AAI, who is the Qualified Person for the

estimate and independent of Shandong Gold.

2. Reserves were based on a cut-off grade of 1.01-g/t Au for the Xincheng Mining Area and the Xincheng Periphery and

Deep Exploration Area, and 2.00-g/t Au for the Qujia 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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1.9 Processing Plant

The processing flowsheet for the Xincheng Gold Mine is a standard flowsheet that is commonly

used in the mining industry, including flotation recovery methods. Overall the Xincheng Processing

Plant is very well-designed and utilizes some of the best-available new technology to achieve a very

efficient operation. No significant problems have been identified during the review. The use of the

latest high-quality equipment from highly respected manufacturers in the mining industry, such as

Metso were observed. The processing plant is designed to treat 6,500 tpd.

1.10 Environmental and Permitting

The mines operate under PRC laws, regulations, and guidelines. AAI believes that all relevant

and applicable permits and approvals are in place or are reasonably expected to be received for the

Xincheng Gold Mine.

1.11 Risk Assessment

Mining by its nature is a relatively high-risk business when compared to other industries. Each

mine is hosted in a geologic deposit and the occurrence and mineralized grade of the ore and the

response to mining and processing is unique. Section 24 presents the risk assessment for the Xincheng

property before mitigation. The risk assessment is by nature a subjective and qualitative process.

There are no high-risk areas identified for Xincheng Gold Mine.

1.12 Conclusions and Recommendations

The Xincheng Gold Mine contains operating gold mines and exploration areas. From the site

visits and data review, AAI concludes the following:

• The mines are effectively operated by experienced workers and management.

• As the mines extend deeper, temperatures can be expected to increase due to the geothermal

gradient which may impact productivity and ground stresses will increase which may

impact mining conditions.

Besides costs, profitability also depends on income, which depends on the price received for

production. Thus there is a risk due to commodity price changes, which has two considerations: the

market price for gold in USD and its trend, and the RMB to USD exchange rate. In recent months the

RMB has been strengthening against the USD, which partially offsets increases in the gold price.

The resource and reserve estimates presented here form the basis for Shandong Gold’s ongoing

mining operations at the Xincheng Gold Mine. 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 Xincheng Gold Mine complex.

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.


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