Kalsaka Feasibility Study - 2006 Update

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KALSAKA GOLD PROJECT

Independent Update of the2003 Feasibility Study

Prepared by RSG Global Consulting Pty Ltd on behalf of:

Cluff Gold PLC


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P:\Projects\Cluff Gold\PKAL02_Kalsaka Gold_Rev. Feasibility Study\Report\pr_PKAL02_IndependentUpdate_Sept2006_Final.doc

KALSAKA PROJECT

Independent Update of the 2003 Feasibility Study

Prepared by RSG Global Consult ing Pty Ltd on behalf of :

Cluff Gold PLC

Author(s): Mick McMullen Manager AuditsBSc MAusIMM

Richard Hyde Senior Consultant Audits BSc MAusIMM

Julian Verbeek Principal Consultant - Resources B Sc. (Hons), PhD. (Geol.), MAusIMM

Barry Cloutt Metallurgy Manager BSc MSAGA

Peter Rooke Associate - Capital Costs B Eng MAusIMM

Harry Warries Principal Consultant - Mining Engineering BAppSc MAusIMM

Date: September 2006

Job Number: PKAL02

Copies: Cluff Gold PLC (2)RSG Global Perth (1)

Primary AuthorRichard Hyde

Supervising PrincipalLinton Kirk

This document has been prepared for the exclusive use of Cluff Gold PLC (Client) on the basis of instructions,information and data supplied by them. No warranty or guarantee, whether express or implied, is made byRSG Global with respect to the completeness or accuracy of any aspect of this document and no party, other thanthe Client, is authorised to or should place any reliance whatsoever on the whole or any part or parts of thedocument. RSG Global does not undertake or accept any responsibility or liability in any way whatsoever to anyperson or entity in respect of the whole or any part or parts of this document, or any errors in or omissions from it,

whether arising from negligence or any other basis in law whatsoever.


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Kalsaka ProjectUpdate of 2003 Feasibility Study September 2006

Table of Contents

EXECUTIVE SUMMARY ............................................................................................................................... i

1 Introduction.......................................................................................................................................1 1.1 Scope of Work ................................................................................................................................. 1 1.2 Participants ...................................................................................................................................... 1 1.3 Data Acquired .................................................................................................................................. 2 1.4 Abbreviations ................................................................................................................................... 2 1.5 Project Location and Access............................................................................................................3 1.6 Physiography and Climate...............................................................................................................3 1.7 Project History and Current Status ..................................................................................................4

2 Geology..............................................................................................................................................5 2.1 Regional Setting...............................................................................................................................5 2.2 Project Geology ............................................................................................................................... 5

2.2.1 Geology ..................................................... ....................................................... ........................ 5 2.2.2 Structure ............................................... ....................................................... ............................. 5 2.2.3 Mineralisation and Alteration ................................................... ................................................. 5 2.2.4 Weathering ................................................. ....................................................... ....................... 6

3 Mineral Resource Estimation .......................................................................................................... 7 3.1 Previous Resource Estimates..........................................................................................................7 3.2 Quantity and Quality of Data............................................................................................................7

3.2.1 Introduction............ ....................................................... ............................................................ 7 3.2.2 Drill Sampling Method........................................... ....................................................... ............. 8 3.2.3 Analytical Method ................................................ ........................................................ ............. 9 3.2.4 Density Determination ............................................. .................................................... ............. 9

3.3 Geological Modelling......................................................................................................................10 3.3.1 Weathering and Oxidation Interpretation ................................................. ................................10 3.3.2 Mineralisation Models .............................................. .................................................... ............11

3.4 Statistical........................................................................................................................................13 3.4.1 Compositing.............................................................................................................................13 3.4.3 Descriptive Statistics................................................................................................................13 3.4.4 Indicator Statistics ................................................. .................................................... ..............14

3.5 Variography ................................................................................................................................... 14 3.5.1 Kalsaka Deposit Variography...................................................................................................15 3.5.2 Summary ..................................................... .................................................... ........................15

3.6 Grade and Tonnage Estimation.....................................................................................................15 3.6.1 Block Model Development ................................................ .................................................... ...15 3.6.2 Grade Estimation.....................................................................................................................16

3.7 Reporting and Classification ..........................................................................................................16 3.7.1 Introduction..............................................................................................................................16 3.7.2 Criteria for Resource Categorisation........................................................................................16 3.7.3 Categorised Resources .................................................... .................................................... ...18

4 Mine Design and Ore Reserve Assessment.................................................................................19 4.1 Resources......................................................................................................................................19 4.2 Mining Approach............................................................................................................................19 4.3 Geotechnical Mine Design Criteria ................................................................................................19 4.4 Pit Optimisation..............................................................................................................................20

4.4.1

Introduction..............................................................................................................................20 4.4.2 Whittle Pit Optimisation Model Construction............................................................................20

4.4.3 Dilution and Mining Recovery Factors ................................................. ....................................21


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4.4.4 Whittle Four-X Input Parameters ............................................... ..............................................21 4.4.5 Commodity Price ................................................. ....................................................... .............21 4.4.6 Mining Costs............................................................................................................................21 4.4.7 Processing Costs.....................................................................................................................21 4.4.8 Processing Recoveries ..................................................... .......................................................22 4.4.9 General and Administration Costs ................................................ ...........................................22 4.4.10 Royalty.....................................................................................................................................22 4.4.11 Slope Parameters....................................................................................................................22 4.4.12 Whittle Four-X Input Parameters Summary ....................................................... ......................22 4.4.13 Cutoff Calculation ................................................... .................................................... .............23 4.4.14 Pit Optimisation Setup ................................................... .................................................... ......23 4.4.15 Pit Optimisation Results...........................................................................................................24 4.4.16 Sensitivity Analysis .................................................. ....................................................... .........24

4.5 Contract Mining..............................................................................................................................24 4.5.1 Introduction..............................................................................................................................24 4.5.2 Contractor Mining Costs ................................................. ..................................................... ....24

4.6 Mine Design...................................................................................................................................25 4.6.1 Slope Design Parameters........................................................................................................25 4.6.2 Ramp and Road Parameters ........................................................ ...........................................25 4.6.3 Minimum Mining Width ..................................................... .................................................... ...26 4.6.4 Pit Staging .................................................... .................................................... .......................26 4.6.5 Pit Designs ................................................... .................................................... .......................26 4.6.6 Final Design versus Pit Optimisation ....................................................... ................................27 4.6.7 Ore Reserves ...................................................... ........................................................ ............27

4.7 Waste Dumps ................................................................................................................................ 29 4.8 ROM Ore Stockpile........................................................................................................................29 4.9 Grade Control and Blending .......................................................................................................... 29 4.10 Mine Production Scheduling ..........................................................................................................29

4.10.1 Introduction..............................................................................................................................29 4.10.2 Scheduling Approach and Assumptions .................................................. ................................30 4.10.3 Scheduling Results ....................................................... ...........................................................30

5 Process Testwork ........................................................................................................................... 32 5.1 Introduction .................................................................................................................................... 32 5.2 Bottle Roll Testwork.......................................................................................................................32 5.3 Flowsheet Recovery Testwork.......................................................................................................33 5.4 Summary ....................................................................................................................................... 33

6 Plant Design .................................................................................................................................... 35 6.1 Introduction .................................................................................................................................... 35 6.2 Crushing Circuit ............................................................................................................................. 35

6.3 Reagent Handling and Addition .....................................................................................................35 7 Power Supply .................................................................................................................................. 36

8 Water Supply................................................................................................................................... 37 8.1 2003 SRK Report...........................................................................................................................37 8.2 Possible Paleochannel Water Source............................................................................................37

9 Labour.............................................................................................................................................. 39 9.1 2003 SRK Report...........................................................................................................................39 9.2 RSG Global Comments .................................................................................................................39

10 Infrastructure .................................................................................................................................. 40

11 Environment....................................................................................................................................43 11.1 2003 SRK Report...........................................................................................................................43


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11.2 Update ........................................................................................................................................... 43

12 Project Implementation .................................................................................................................. 44 12.1 Project Management......................................................................................................................44 12.2 Project Planning.............................................................................................................................45 12.3 Project Implementation and Critical Program Drivers....................................................................45

12.3.1 Pre-finance Period Phase........................................................................................................45 12.3.2 Contract Finalisation and Definitive Budget Estimate Phase ................................................. ..45 12.3.3 Detailed Design Phase ..................................................... .................................................... ...47 12.3.4 Site Construction Phase ............................................... ....................................................... ....47

13 Capital Costs ................................................................................................................................... 49 13.1 Introduction .................................................................................................................................... 49 13.2 Geology ......................................................................................................................................... 50 13.3 Mining ............................................................................................................................................ 50

13.3.1 Mining Establishment...............................................................................................................50 13.3.2 Pre-Production Mining Cost.....................................................................................................51 13.3.3 Haul Road Construction...........................................................................................................51 13.3.4 Light Vehicles ............................................... ........................................................ ...................51 13.3.5 Software and Hardware ................................................... .................................................... ....51 13.3.6 Contractor Mobilisation and De-Mobilisation Cost ..................................................... ..............51 13.3.7 Contingency.............................................................................................................................51

13.4 Processing ..................................................................................................................................... 52 13.5 Services ......................................................................................................................................... 52 13.6 Infrastructure..................................................................................................................................52 13.7 Owners Costs ................................................................................................................................ 53 13.8 Deferred and Replacement Capital................................................................................................53 13.9 Rehabilitation and Crop Compensation Expenses ........................................................................ 53 13.10 Contingency...................................................................................................................................53

14 Operating Costs.............................................................................................................................. 54 14.1 Introduction .................................................................................................................................... 54 14.2 Mining ............................................................................................................................................ 54

14.2.1 Mining Manpower ................................................... .................................................... .............54 14.2.2 Mining Operating Costs .................................................. ..................................................... ....54

14.3 Processing ..................................................................................................................................... 54 14.4 Power Supply.................................................................................................................................55 14.5 Labour............................................................................................................................................55 14.6 Administration and Overheads.......................................................................................................55 14.7 Contingency...................................................................................................................................55 14.8 Taxation ......................................................................................................................................... 56

15 Economic Analysis ......................................................................................................................... 57 15.1 Derivation of the Technical-Economic Model.................................................................................57 15.2 Economic Analysis.........................................................................................................................57 15.3 Base Case CFM Results................................................................................................................57

16 Concluding Remarks...................................................................................................................... 59


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List of Tables

Table 1.4_1 List of Abbreviations 3

Table 1.7_1 Exploration Statistics 4

Table 3.1_1 Summary of Previous Resource Estimations 7

Table 3.2.4_1 Bulk Density Data 10

Table 3.4.3_1 Descriptive Statistics Grouped by Domain 14

Table 3.6.1_1 Block Model Construction Parameters 16

Table 3.7.2_1 Confidence Levels of Key Criteria 17

Table 3.7.2_2 Kalsaka Resource Classification Summary of the Block Model Coding Criteria 17

Table 3.7.3_1 Grade Tonnage Report - Combined Estimate 18

Table 4.3_1 Final Mine Design Slope Parameters 20

Table 4.4.4_1 Summary Source of Main Input Parameters 21

Table 4.4.12_1 Summary Whittle Four-X Input Parameters 22

Table 4.5.2_1 Summary Mining Contractors Tender Submissions 25

Table 4.6.5_1 Summary Material Breakdown by Pit Design 26

Table 4.6.7_1 Ore Reserve Summary 29

Table 4.10.3_1 Summary Mine Production Schedule 30

Table 13.1_1 Capital Cost Summary 50

Table 13.4_1 Plant Duties, Taxes and Charges 52

Table 14.2.2_1 Summary Contract Mining Operating Costs 54

Table 15.2_1 Base Case Model Economic Assumptions 57

Table 15.3_1CFM Post Tax NPV Summary US$M 57

List of Figures

Figure 3.2.2.1_1 Analytical Flowsheet 8

Figure 3.3.2_1 3D Perspective of the Interpreted Mineralisation Domains 12

Figure 3.3.2_2 Section 20,230N Displaying Mineralisation and Weathering Interpretation 12

Figure 3.3.2_3 Section 20,330N Displaying Mineralisation and Weathering Interpretation 13

Figure 4.4.14_1 Au Price vs Mill Feed : Based on Measured and Indicated Resource 23

Figure 4.6.5_1 Kalsaka Gold Project Site Plan 27

Figure 4.6.5_2 Kalsaka Gold Project Site Plan 28

Figure 4.10.3_1 Summary Mine Production Schedule 31

Figure 12.1_1 Organisational Chart 46

Figure 15.3_1 Project Sensitivity Chart 58


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List of Appendices

Appendix 3.1 Indicator Statistics

Appendix 3.2 Variography

Appendix 3.3 Multiple Indicator Kriging

Appendix 4.1 Pit Optimisation Model Development

Appendix 4.2 Pit Optimisation Mining Costs

Appendix 4.3 Detailed Final Pit Optimisation Results

Appendix 4.4: Pit Design Figures

Appendix 4.5: Mine Production Schedule Bench Movement Rates


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Kalsaka Project Page: iUpdate of 2003 Feasibility Study September 2006

EXECUTIVE SUMMARY

RSG Global Consulting Pty Ltd (RSG Global) was retained by Cluff Gold Limited (Cluff) to undertakean update of the 2003 Kalsaka Feasibility Study (KFS) completed by SRK Consulting (SRK) for theKalsaka Gold Project (KGP) located in Burkina Faso, West Africa. This report should be read in

conjunction with the SRK report.

Work completed on the KGP since 1997 has included geological mapping, airborne geophysics,stream sediment sampling, trenching, and some 18,500m of RAB drilling, 72,000m of RC drilling(1061 holes) and 2,400m (17 holes) of core drilling.

Geology and Mineral Resources

Outcropping gold mineralisation has been identified at several locations and the KFS is based on theexploitation of the Kalsaka Hill deposit (Kalsaka Hill) and the K-Zone deposit (K-Zone), whichrepresents the most continuous along strike and down-dip mineralisation. Kalsaka Hill, the main

deposit, comprises steeply dipping east-west striking shear zones, hosted by basalts and andesites(chlorite schists). The host rocks have been weathered and lateritised to a considerable depth, andweathering and oxidation of both deposits extends to depths of over 100m.

The Mineral Resource estimate was based on an interpreted mineralisation outline drawn aroundzones of quartz veining and kaolinitic alteration. Separate interpretations and wireframe solidmodels were produced for the quartz vein zones and kaolin/sericite alteration haloes.

As part of this study, RSG Global updated the Mineral Resources for the KGP based on theavailable hard copy and digital data. Resource estimation for the Kalsaka Project was completedusing multiple indicator kriging (MIK) constrained by the domain interpretation.

Categorisation of the MIK gold grade estimates was undertaken on the basis of assessment criteriaset out in the Australasian Code for Reporting of Identified Mineral Resources and Ore Reservespublished by the Joint Ore Reserves Committee (JORC) of the Australasian Institute of Mining andMetallurgy, the Australian Institute of Geoscientists and Minerals Council of Australia,December 2004.

The classified Mineral Resource for the Kalsaka deposit is provided below.

Mining and Whittle Optimisation

The KGP will involve a conventional open pit, selective mining exploitation method, employing amining contractor.

Drilling and blasting will be performed on 5m high benches, with blasted material excavated in twodiscrete flitches, each nominally of 2.5m height. SRK Consulting estimated that approximately 24%of material will require blasting.

The mining equipment that is considered to be suitable would include 80t to 100t backhoeexcavators and off-highway haul trucks with a payload capacity of between 50t to 60t.

RSG Global has adopted SRKs final recommendations for pit slope parameters.


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Kalsaka Project Page: iiUpdate of 2003 Feasibility Study September 2006

Kalsaka Gold Project

Mineral Resources

Lower Cutoff Grade Mt Au g/t kozs

Measured Resource

0.5 6.221 1.7 3460.8 4.464 2.2 3111.0 3.709 2.4 2891.2 3.134 2.7 269

Indicated Resource 0.5 5.929 1.5 2870.8 3.873 2.0 2461.0 3.080 2.3 2231.2 2.463 2.5 202

Inferred Resource 0.5 3.339 1.5 1570.8 2.167 1.9 134

1.0 1.713 2.2 1211.2 1.328 2.5 107

Total Resource 0.5 15.489 1.6 7910.8 10.503 2.0 6911.0 8.502 2.3 6331.2 6.924 2.6 578

Pit optimisations were carried out using the Whittle Four-X pit optimisation software package, usingMeasured and Indicated Resources only. It was assumed that only oxidised material will beamenable to heap leaching hence fresh material was not considered for the pit optimisation.

The contract mining costs used in the optimisation were derived from the initial tender submissionsthat were received from the mining contractors.

During late 2005 Cluff obtained contract mining tenders from four mining contractors. RSG Globalcarried out a review of these tender submissions. The average contract mining cost that wasdetermined for this study was $1.99/t mined, which includes an increased estimate for de-watering,ore rehandle and dayworks.

The processing costs were determined by SRK and reviewed by RSG Global, which resulted in anincrease in processing costs from $2.87/t to $3.71/t, irrespective of material type.

The metallurgical recoveries were determined by Kappes Cassiday & Associates (KCA) andreviewed by RSG Global. The processing recoveries were estimated at 89% and 84% for stronglyoxidised and moderately oxidised material respectively.

Mine Design and Ore Reserves

Detailed pit design work was carried out based on the optimum pit shell. The KGP comprises3 distinct deposits, namely West deposit, East deposit and the K-Zone deposit. Both the West andEast deposits comprise 2 separate pit designs each. The K-Zone deposit comprises 4 pit designs.Two pits were considered to be large enough to warrant a starter pit, namely West 1 and East 1 pit

designs.


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Kalsaka Project Page: iiiUpdate of 2003 Feasibility Study September 2006

Ore reserves were determined as per the JORC code and the following table provides a summary ofthe ore reserves, based on a cutoff grade of 0.6g/t Au.


Ore Reserve Summary

Proved Probable Total Recd MetalTonnes

[Mt]Grade

[g/t]Tonnes

[Mt]Grade

[g/t]Tonnes

[Mt]Grade

[g/t]Au

[koz]3.7 2.0 1.4 1.9 5.1 2.0 284

The figure below shows the final pit design and associated roads, waste dump and other siteinfrastructure.

Kalsaka Gold Project Site Plan

K-Zone

Waste Dump

Kalsaka East

Kalsaka West

Waste Dump

Waste Dump

KalsakaVillage

Camp

SolutionCorridor

ProcessPonds

Limit of habitiation

WaterPipeline

Power Line

Road

The mine production schedule was based on the above Ore Reserves and the scheduling periodsare months for pre-production and Year 1 and quarterly thereafter. Pre-production has beenestimated at approximately 2 months.

The average total material movement is approximately 5.0Mtpa, with a maximum mining rate of6.6Mtpa in Year 4 and a minimum annualised mining rate of 3.0Mtpa in Year 1.

The mine production schedule is presented graphically in the figure below.


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Kalsaka Project Page: ivUpdate of 2003 Feasibility Study September 2006

Summary Mine Production Schedule

0.0

4.0

8.0

Pre-Prod 1 2 3 4 5 6

Year

T o

t a l M a t e r

i a l [ t ]

0

40

80

G o

l d P r o

d u c e

d [ k o z ]

Total Material Gold Recovered

Metallurgy and Processing

No further metallurgical testwork has been completed since the 2003 KFS. Testwork has beencarried out on samples in two phases. Phase one was completed in 1998 by KCA on compositesfrom 5 different locations within the Kalsaka ore body. The second phase of the testwork wascompleted in 2001 by KCA on another 5 composites from various locations within the Kalsaka and Kzone ore bodies.

RSG Global has reviewed the previous work by KCA and the material used for testwork appears tobe reasonably representative of the material expected to be mined.

Bottle roll testwork was carried out on over 850 samples to show the amenability of cyanideleaching. Only 1.5% of the tests resulted in recoveries less than 90% showing that the ore issuitable to various cyanide leach methods.

The column tests carried out on the composites representing the upper section of the ore bodyshowed acceptable heap leach recoveries in the range of 82 97% with an average of 90% goldrecovery. The column tests carried out on the deeper section of the ore bodies resulted in goldrecoveries ranging from 68 86% with an average of 78.9%.

Agglomeration and compacted permeability tests were carried out to evaluate stack heights, cementusage, permeability rates and gold recovery. All of the completed tests showed that the ore washighly reliant on sufficient cement addition and curing to allow suitable strengths to be establishedthat would allow efficient heap leach operation to occur. Cement usage in the range of 8 to 12kg/tresulted in acceptable pellet breakdown and permeability levels.

Improvements in reagent usage and heap stability may be achieved in blending the upper and lowersections of the ore bodies. The lower zones of the ore body will also be positively affected bycrushing to less than 12.5mm.


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Kalsaka Project Page: vUpdate of 2003 Feasibility Study September 2006

The average cyanide consumption in the surface column tests was 0.37kg/t whereas the usage forthe three lower core column tests was 1.04kg/t. KCA state the actual operational consumption ofcyanide usage would be only 25% of the testwork results. Whilst this may be correct, it results insignificant operational risk if the operation is not sufficiently optimised to reduce cyanide usage whilststill maintaining the budgeted gold recoveries.

Design of the plant facilities was made using a combination of services from Scott Wilson Mining forthe heap leach pads and ponds and Senet Projects for the plant design. A review of the plantdesign carried out previously by SRK and later by Knight Pisold has been deemed to beappropriate. The plant has been designed to primarily treat a range of near surface weathered andlateritised ore types at the rate of 1.2 million tpa, although the mining rate is more like 1Mtpa,providing upside should additional Mineral Resources be identified.

Services

LCE, specialist power engineering consultants, has estimated the electrical power requirements of

the project and the capital and operating costs of providing this power. In total, LCE has estimatedthe average demand to be 583kW, the maximum demand to be 1,078kW, the minimum capacityrequired to be 1,245kW and the annual electrical energy consumption to be 5,105,300kWh fortreating 1.0Mtpa.

LCE recommends the installation of a five 450kVA generator set power station with an associatedmedium voltage (6.6kV) overhead line. This system will allow the plant to run on three sets at 80%of maximum demand. A 200 kVA standby facility has also been budgeted for the housing area.

The make-up water requirements of the mine will vary and will be controlled largely by the seasonalvariations on the water balance on the leach pads. The maximum monthly make-up requirement isexpected to be about 48m3/h, of which 10m3/h is for dust suppression. A continuous supply ofabout 2m3/h of potable water will also be required.

Although rainfall is moderate at around 619mm per annum, the high evapotranspiration, the long dryseason with no rain and the flat topography will make water resource development difficult andcritical.

There are currently no identified aquifers in the area that will be able to provide sustained yields atthe rate required by Kalsaka. Surface drainage in the area of the mine comprises sheet runoff intogenerally poorly defined channels. The site topography is not suited to constructing storage damswithout major evaporation losses.

The Kanazoe dam, completed in 1994 on the Kanambe River, is the only dam in the region thatappears to contain water all year round. This dam is privately owned and provides the most secureoption for supply of the mine requirements in the region. Preliminary negotiations with the ownershave confirmed the availability and costs of water from the dam.

RSG Global recommends possible water supplies from known paleochannels, identified fromradiometric work, be tested.


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Kalsaka Project Page: viUpdate of 2003 Feasibility Study September 2006

Labour

The project will employ approximately 160 permanent employees and, on average, 75 dailylabourers, in addition to contractors for mining and security, about another 130 personnel.

Since the mining industry in Burkina Faso is relatively new, no collective bargaining agreement ormining labour union exists as yet. Cluff, in conjunction with the GPMB, will develop a collectivebargaining agreement with existing labour unions.

Preference will be given to the recruitment of local labour, particular skills being sourced from withinthe whole of Burkina Faso as necessary.

Infrastructure

The existing office will initially serve as the site administration facility. This will be replaced byinterim camp offices and, once construction is complete, by a new permanent mine office building.

Also by month 4, the plant contractor will have established site offices at the plant site for theduration of construction. After completion, these offices will function as the plant office. The miningcontractor will provide its own facilities during the establishment phase.

A simple on-site mine laboratory will be constructed to facilitate bottle roll tests and AA analysis.More complicated assays, such as carbon and bullion and master checks assays, will be carried outby a commercial laboratory in Ghana.

The single status mine accommodation and messing facilities will cover the construction andoperating phases and include a 3-bedroom mine managers house and three 4-unit self-containedstudios. One block will be allocated to the mining contactor. Two fully furnished rented houses havebeen budgeted for in Ouagadougou for married management Staff.

The vast majority of the Junior Staff will be drawn from the surrounding five villages. Noaccommodation facilities for these staff will be provided by the mine. Junior Staff showers andtoilets will be provided near the mine site. The mine will construct a Junior Staff mess and provide akitchen for servicing this facility.

Communication links will be provided by means of a mobile satellite phone with fax and datacapability. A routine shuttle service will transport mail, goods and staff. A high frequency (HF) radiolink to Ouagadougou will act as a back up and for day-to-day communications. This system has

been already in operation.The main plant workshop will be located in the plant stores building. The main stores shed will belocated in the plant area and include reagent stores, a secure general stock holding area, a separateflammable liquid storage area and a fenced compound area.

There will be a basic clinic on site for the treatment of the staff and their families.

Mine security will be provided under a separate security contract. Provision for 20 security guardsand 8 Gendarmerie has been made.


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Road access to the Kalsaka project site from Ouagadougou is via a well maintained tarred road tothe town of Yako, a good quality all weather lateritic road to Dourou on the southern edge ofKanazoes barrage on the Nakambe River, then via a poor quality road to Bema and the project site.The bulk of the improvement work required to be done will be concentrated on the 11km sectionbetween the Kanazoe dam and Bema, which includes the crossing of the Nakambe River.

Bulk fuel supplies will be delivered into supplier owned on-site storage and distribution facilities. Themining contractor will be responsible for its own fuel supply facilities.

Environmental

The development of the KGP will take into account the environmental requirements of the BurkinaFaso Government, the Project owners and the financing institutions.

Cluff engaged SGS to co-ordinate the preparation and implementation of Baseline Studies whichwere completed by a local associate consulting company, in June 1998.

SGS completed the Environmental Impact Assessment (EIA) in 2005, prior to the granting of theKalsaka Mining Permit. This study covered the areas of air quality, groundwater, ecology, soil andland use, socioeconomic development and waste management. It also included a preliminaryEnvironmental Conservation and Management Plan, and the preliminary Mine Rehabilitation Plan.

RSG Global has not reviewed the environmental aspects of the project.

Project Implementation

Cluff has updated the project implementation plan since the 2003 KFS. Cluff has undertaken anumber of key initiatives to assist in a rapid project development with appropriate cost controls,including:-

Contract mining proposals received and draft mining contract.

Completion of the geotechnical drilling and analysis.

Completion of initial process plant design and the identification of a specialist heap leachequipment supplier currently working in Burkina Faso.

Proposals for project engineering, procurement and construction management (EPCM)received.

Completion of site investigations and initial designs of the heap leach pads and ponds.

Completion of initial accommodation designs.

Completion of a draft road upgrade contract.

Negotiations for water supply complete.

The project program will be driven by the critical factors of finance approval, high worldwide demandfor engineering supply and fabrication companies, and the onset of rains in May. Additionally, thelow availability in-country of construction equipment and skilled construction labour must be takeninto account. Project water supply is a key issue in the arid climate and will be a constructionpriority.


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Kalsaka Project Page: viiiUpdate of 2003 Feasibility Study September 2006

From mobilisation to site work on-site is planned to be completed in 12 months.

Capital Costs

RSG Global reviewed capital costs provided in GBMs Project Report (Feasibility Study CostReduction Exercise) for the KGP. Capital costs are summarised in the table below.


Capital Cost Summary

Area US$MMining 0.15Processing 9.15Services 2.38Infrastructure 2.08Owners Costs 3.14Sub-total 16.91Mining Contractor 1.80Total Initial CAPEX 18.71

Insufficient back-up documentation was provided for RSG Global to be able to comment with anyconfidence on the capital cost estimate for the processing, services and infrastructure disciplines. Anumber of cost items appear to be low, including:-

Process plant costs are basically unchanged from the previous 2003 KFS and have not beenescalated.

Contingency allowances of 7% appears low for a predominantly earthworks project.

There does not appear to be any allowance for overall project or owners contingency. Preliminary and General allowances included in net cost appear low against current African

experience.

Engineering and procurement allowance of approximately 10%, or 6.7% excluding processplant, appears low.

Plastic pipe transport calculations appear to be based on mass not volume.

Cluff requested RSG Global to assume the capital cost numbers from the GBM review for the CFM. A 10% increase in the capital costs results in a 10% reduction in the post tax NPV, for example.

Estimates for pre-shipment inspections, import duties and local taxes total 8.5% and have beenincluded in the capital estimates.

Operating Costs

The operating cost estimates are based on the following:-

Quotes from contractors

Consultant estimates

Estimates derived from previous/similar operations in the region

Local estimates from Cluffs in-country personnel


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Kalsaka Project Page: xUpdate of 2003 Feasibility Study September 2006

Economic Analysis

The Base Case Cash Flow Model (CFM) is expressed in United States Dollars from construction tomine closure and both a pre and post tax basis. The model excludes sunk capital. The model isbased on the economic assumptions as set out in the following table.


Base Case Model Economic Assumptions

Item Unit NumberGold Price US$/oz 550Exchange Rate CFA:US$ 550Discount Rate % 12Plant Capacity Mtpa 1.2Plant residual value $M 1.72Diesel price $/l 0.78Working Capital $M 0.99Corporate Tax % 25Royalties % 4

The NPV of the KGP derived using the above assumptions at various discount rates is set out in thetable below.


CFM Post Tax NPV Summary

Discount Rate 0 % 5% 10% 12% 15% 20%

NPV US$M ($525/oz) 27.3 20.6 15.6 13.9 11.6 8.6

NPV US$M ($550/oz)33.0 25.3 19.5

17.515.0 11.5

The internal rate of return (IRR) for the project is 48% after tax.


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Kalsaka Project Page: 1Update of 2003 Feasibility Study September 2006

1 INTRODUCTION

1.1 Scope of Work

RSG Global Consulting Pty Ltd (RSG Global) was retained by Cluff Gold Limited (Cluff) toundertake an update the 2003 Kalsaka Feasibility Study (KFS) completed by SRK for the

Kalsaka Gold Project (KGP) located in Burkina Faso, West Africa. There are five maincomponents to the scope of work for the KGP included in correspondence with Cluff:-

Review and comment of the KFS.

Review in detail and provide updated costs and prices for resources, mining andeconomic evaluation.

Review Cluffs updated CAPEX and OPEX estimates.

Recalculate ore reserves based on the project resources.

Derive a new technical-economic model.

Investigate the potential to maximise returns in the early years of the project throughselective mining.

Based on the review of resource model, RSG Global recommended the resource model beupdated, principally due to the SRK mineralisation constraints which were consideredinconsistent with the known controls on mineralisation and the planned mining approach.The Mineral Resource was re-estimated by RSG Global as part of this study.

For completeness summaries derived from the 2003 KFS have been included in eachsection, however where no updates have been required/requested, readers are directed to

the 2003 KFS for detailed information.

All costs quoted in this study are in United States Dollars (US$) unless otherwise stated.

1.2 Participants

RSG Global compiled a team of independent industry professionals to carry out theindependent technical audit.

A list of participants in the RSG Global technical review team is given below:-

Richard Hyde, RSG Global Senior Consultant AuditsProject coordination, quality control analysis, report preparation

Mick McMullen, RSG Global Manager of AuditsCash flow model, report preparation

Nigel Spicer, RSG Global Principal Consultant Mining EngineeringMining peer review.

Brett Gossage, RSG Global Partner and Manager Resources:Project coordination, grade estimation, reporting and peer review.


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Brian Wolfe, RSG Global Consultant Resources:Database development and validation, geological modelling, statistical analyses,variography, block model development, grade estimation, resource categorisationand report preparation.

Harry Warries, RSG Global Principal Consultant Mining EngineeringMine design work.

Barry Cloutt, RSG Global Metallurgy ManagerProcess testwork, process design, operating cost review

Jodi Morgan, RSG Global Manager DatabasesData compilation, database development, database validation.

Peter Rooke, RSG Global AssociateCapital cost estimates, construction schedules.

None of the above has been to site, although other RSG Global personnel have been tosite previously.

1.3 Data Acquired

The principal source of information used in this study was the KFS and associatedappendices, completed in December 2003. The KFS was managed by SRK Consulting(Cardiff), with specialist expertise provided by the following:-

Scott Wilson Mining (SWM) for heap leach pads and ponds design.

Senet for plant design.

SGS Environment was responsible for environmental investigations.

Metallurgical testwork was carried out by Kappes Cassiday & Associates (KCA).

Lord Consulting Engineers (LCE) was responsible for power supply issues.

RSG 1999 Resource Estimation and Mine Planning Study.

SRK 2004 Mineral Resource Estimation.

2005 Contract mining tender submissions.

2006 GBM Capital Cost Reduction Exercise.

Additional data were acquired from individual consultant groups as required. In depthdiscussions were held at various times with Cluff and its consultants.

1.4 Abbreviations

Abbreviations used in this report are listed in Table 1.4_1.


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Table 1.4_1


Typical Abbreviations

Abbreviation Description Abbreviation Description

Au Gold mRL metres Relative LeveloC degrees Celsius mg milligramCV Coefficient of Variation mm millimetreDTM digital terrain model MIK multiple indicator krigingDDH Diamond drillhole OK ordinary krigingg Gram oz ounce (Troy)g/t grams per tonne % percentageJORC Joint Ore Reserves Committee (The AusIMM) QAQC quality assurance quality controlkg Kilogram RAB rotary air blastkm Kilometre RC reverse circulationm Metre SMU selective mining unitM Millions t/m 3 tonnes per cubic metreMIK Multiple Indicator Kriging TM trademarkMt Million tonnes WB water bore

m2 square metre 2D two dimensionalmE metres East 3D three dimensionalmN metres North

1.5 Project Location and Access

The Kalska Gold Project (KGP) is located in the Yatenga Province of Burkina Faso,approximately 150km northwest of the capital Ouagadougou. Access to the Kalsakaproject from Ouagadougou is via 100km of sealed road and a further 80km of gravel road.

1.6 Physiography and Climate

Burkina Faso is a landlocked sahelian country, situated some 700km from the Atlanticcoast. Covering almost 274,000km, its neighbours are Mali to the north and west, Niger tothe east, and Ivory Coast, Ghana, Togo and Benin to the south. Its population of some13 million is predominantly rural, with agriculture being by far the largest part (31%) of thegross domestic product (GDP). Ouagadougou, the capital, has some 750,000 inhabitants,while Bobo-Dioulasso, the second largest town and situated some 350km to the west ofOuagadougou, has of the order of 350,000 inhabitants.

The climate is typical of Sahel areas with sharply contrasting wet and dry seasons. Theaverage rainfall is 619 millimetres (mm), the wettest months are July to September and thewettest individual month is August with an average of 189mm of rain. Monthly averagemaximum temperatures vary between 22C and 35.8C.


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1.7 Project History and Current Status

Work completed on the KGP since 1997 has included geological mapping, airbornegeophysics, stream sediment sampling, trenching, rotary air-blast (RAB) drilling, reversecirculation drilling (RC) and diamond drilling (DC) drilling. In addition, Cluff has undertakenor commissioned all the technical work required to produce the Pre-Feasibility Study (PFS)in 1999 and the KFS in 2003. For the entire project, Cluff has completed some 18,500m ofRAB drilling, 72,000m of RC drilling (1061 holes) and 2,400m (17 holes) of core drilling.The majority of the drilling was planned, implemented, supervised, compiled andinterpreted by Cluff and RSG Global formally Resource Service Group Pty Ltd (RSG),between February 1998 and March 1999. The drilling was initially undertaken on 50m linespacing and at 20m centres along these lines. Much of the deposit, however, has sincebeen infilled with intermediate lines and in some areas with 10m spaced drill holes alongthese. Table 1.7_1 below summarises the exploration work done at Kalsaka between 1997and 2001.

Table 1.7_1


Exploration Statistics

Location StreamSamplesSoil

SamplesTrenching

(m)RC Drilling

(m)RAB Drilling

(m)Core Drilling

(m)

Kalsaka Permit 194 - - - - -Kalsaka Hill - 608 5,825 54,625 5,018 2,394K-Zone - - 1,375 10,372 2,779 -Zoungwa - - 210 3,874 4,320 -Zindingo - 222 - - 160 -Kalsaka East - 180 190 - 40 -

Goungr - 369 - 215 4,605 -Rondo - 469 173 - - -P-2000 - - - 2,090 98 -Espoir - - - 849 1,529 -Bouga - 136 - - - -Total 194 1,984 7,772 72,025 18,549 2,394


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2 GEOLOGY

2.1 Regional Setting

The Kalsaka licence area straddles a northeast trending arcuate belt of Birimiansupracrustal rocks of Lower Proterozoic age. Rocks in the project area are comprised of a

sequence of felsic, ultramafic, tholeiitic and andesitic lavas, with some interbeddedsedimentary and have been isoclinally folded into a large, shallow west southwest plungingsyncline. Regional metamorphism has formed chloritic schists and talc carbonateassemblages and is believed to pre-date the gold mineralisation.

2.2 Project Geology

2.2.1 Geology

Outcropping gold mineralisation has been identified at several locations within the leasearea and drilling has been undertaken to test these targets. The KFS mine plan is basedon the exploitation of only two of these targets, the Kalsaka Hill deposit (Kalsaka Hill) andthe K-Zone deposit (K-Zone), which to date represent the most continuous along strike anddown-dip mineralisation. Kalsaka Hill, the main deposit identified to date, comprisessteeply dipping east-west striking shear zones, hosted by basalts and andesites (chloriteschists).

2.2.2 Structure

The shear zones broadly conform to the regional fabric, may possibly be associated withthrusting and have a dextral strike slip with a minor southerly thrust component. Eachshear zone is typically 3-10m wide and dips at 50-60 to the south in the east of the licence,becoming sub-vertical to the west. Shearing is accompanied by conformable sheetedquartz veining, sericite-kaolin development and silicification, which increases in intensity asthe axis of deformation is approached. More brittle stockwork style quartz veining isfrequently associated with larger quartz veins or marginal to shear zones where morecompetent rocks have been preserved.

2.2.3 Mineralisation and Alteration

K-Zone outcrops some 300m to the north of Kalsaka Hill, strikes east-west roughly parallelto Kalsaka Hill and dips steeply to the north. The mineralisation here is developed alongthe sheared contact between talc-carbonate schists and the volcano sedimentary sequencealong the northern limb of the syncline. Mineralisation is associated with carbonate-

fuchsite alteration and is likely to have developed in response to differential movementacross the contact between two rheologically distinct rock types.

The Mineral Resource estimate was based on an interpreted mineralisation outline drawnaround zones of quartz veining and kaolinitic alteration. Separate interpretations andwireframe solid models were produced for the quartz vein zones and kaolin/sericitealteration haloes, and the final wireframes were based on these constraints and a notional0.1g/t gold (Au) lower cutoff.


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2.2.4 Weathering

The host rocks have been weathered and lateritised to a considerable depth, andweathering and oxidation of both deposits extends to depths of over 100m. In addition tothe above modelling, the overall interpretation has been overlaid by a vertical oxidationprofile which delineates highly oxidised, slightly oxidised and fresh material respectively.


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3 MINERAL RESOURCE ESTIMATION

As part of this study, RSG Global updated the Mineral Resources for the KGP based on theavailable hard copy and digital data. SRK (2002 and 2004) and RSG (1999) havepreviously reported Mineral Resource estimates for KGP.

3.1 Previous Resource Estimates

A number of resource estimates have been generated for KGP.

RSG produced a resource estimate in August 1999 as part of a pre-feasibility studycommissioned and managed by Cluff. Multiple Indicator Kriging (MIK) was the estimationmethod used and results are tabulated below. Resource categorisation is consistent withthe JORC Code (1996).

More recently, a resource estimate was generated by SRK Consulting in February 2002 forinclusion in the KFS. The SRK study was based on additional drill data and revisedmineralisation interpretation. The estimation method applied by SRK was Ordinary Krigingand results are tabulated below.

Table 3.1.4_1


Summary of Previous Resource Estimations

Company Lower Cutoff MT Grade Au g/t Koz

SRK 2002 Total Resource - 11.5 1.5 5600.6 9.5 1.5 471

RSG 1999 (Whole Block Grades) Total Resource0.8 8.4 1.8 424

RSG Global reviewed the SRK mineralisation constraints and considered the interpretationto be inconsistent with the known controls on mineralisation. In particular, zones of highertenor were separated from the broader mineralised packages based on lower cutoff gradeand not geology. These zones are considered by RSG Global to be of low confidence andinherently part of the overall mineralised package and, as such, should not be modelledseparately. Based on this review RSG Global recommended to Cluff the resource estimatefor KGP should be updated.

3.2 Quantity and Quality of Data

3.2.1 IntroductionThe Kalsaka deposit resource estimate is based on trenching, RC and diamond drilling withthe database comprising 1,169 drillholes and trenches for 81,763m. This is subdivided intoa total of 92 trenches for 7,339.5m, 12 diamond drillholes for 1718.5m and 1065 RCdrillholes for 72,705m.


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3.2.2 Drill Sampling Method

3.2.2.1 RC Sampling

RC drilling was undertaken without water injection, however ground water was encounteredin several holes to the top of the fresh rock (SRK, 2003). Drill cuttings were produced from

a face sampling hammer to maximize the sample quality. The entire sample passedthrough a cyclone which was designed to minimize sample loss and was delivered to aclearly marked plastic bag underneath. The cyclone was routinely blown between each 1msample and each rod change to minimize sample loss or contamination.

All the samples were systematically weighed and weights recorded to monitor the samplerecovery on an ongoing basis. Overall, the RC sample recovery exceeded 90% over the5 drilling campaigns.

All samples were treated as per analytical flowsheet depicted in Figure 3.2.2.1_1 to obtaina 4 to 5kg sample for dispatch to the laboratory. Duplicate samples (1/10) and triplicate

samples (1/20) were routinely collected and dispatched for quality control.

Figure 3.2.2.1_1Analytical Flowsheet


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3.2.2.2 Core Sampling

The diamond core was reoriented in core trays for logging, sample interval mark up andsampling. The sampling of the core was subject to the discretion of the geologistcompleting the geological logging. After the marking out of the required interval, the corewas cut in half by the electric diamond blade core saw. The cut is made along theorientation line with a consistent half core portion retained as a reference.

3.2.3 Analytical Method

Samples were analysed by ITS in Ouagadougou, SGS Laboratory Services (Ghana) Ltd(SGS) in Kumasi and TransWorld Laboratories in Tarkwa. (SRK, 2003).

Initially fire assaying was used as the analytical method of choice, but high levels ofvariability were noted in the check assay results. This high level of variability wasinterpreted to be due to the presence of particulate gold. Bottle roll assays, with a 24 hourleach and a 0.5kg charge, were completed by ITS to investigate the lack of reproducibility

of assaying. However, poor levels of precision were also noted. Subsequent bottle rollassays completed by SGS using a 2kg charge resulted in an acceptable level of assayprecision, and therefore a 2kg charge bottle roll was deemed an appropriate assay method.

The submitted drilling and trenching sub-samples were dried before being transferred toLM5 mills where they were reduced to a nominal 80% passing 75 microns. The 4 to 5kgsample weights frequently required the necessity for split pulverising using two mills. Theresulting homogenised oxide samples are extremely fine (estimated to be 90% passing65 microns). A limited number of fresher samples were found to be coarser than thespecification.

The prepared and homogenised samples were then riffle split using a laboratory rifflesplitter and a 2kg charge weighed prior to bottle rolling. Samples were placed in a 4.5litrebottle at a ratio of 30% solids to 30% solution to 40% air, with the addition of lime tomaintain pH balance. The samples were rolled for 24 hours. The gold in solution wasdetermined by Atomic Absorption Spectroscopy methods (AAS).

Residue assaying was completed for 10% of the samples throughout each batch todetermine recovery. The residue was vacuum filtered and pressed without washing. Theresidue is dried, rolled and split to produce a 30g charge for aqua regia digestion and AASfinish. An average metallurgical recovery of 98.6% was determined from tail grades in

mineralised oxide zones.

3.2.4 Density Determination

A total of 537 density measurements have been determined for the Kalsaka deposit byCluff personnel (SRK, 2004). A total of 275 bulk density determinations and 217 wetdensity determinations were carried out from Kalsaka Hill samples derived from diamonddrilling and shallow pitting. A further 45 samples from shallow pits at K-Zone werecollected for bulk density determination. Density determinations at Kalsaka were carriedout by using the following procedures:-


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Cut representative diamond core billets.

Measure with venier caliper and calculate volumes.

Weigh (to +/-1g) on laboratory scales.

Calculate wet bulk density.

Dry in laboratory oven overnight.

Weigh on laboratory scales.

Calculate dry bulk density and moisture content (%).

Density data is defined for specific horizons within the weathered and oxidised sequencesat Kalsaka Hill and K-Zone as shown in Table 3.2.4_1, and has been coded to the blockmodel based on the average dry bulk density for each weathering/oxidation subdivision.

Table 3.2.4_1

Kalsaka Gold ProjectBulk Density Data

Horizon Dry Bulk Density

Laterite 1.80 Strongly Weathered 1.95 Weakly Weathered 2.15 Transitional 2.70 Primary/Fresh 2.75

3.3 Geological Modelling

The Kalsaka deposit was modelled using the 3D software package Vulcan.

Wireframe surfaces were generated for the topography and weathering/oxidation horizons.No separate lithological model has been generated for this study. Closed solids(wireframes) were generated by RSG Global for 12 separate mineralised domains at theKGP.

3.3.1 Weathering and Oxidation Interpretation

Based on the geological logging, a sectional interpretation was completed defining acombination of weathering and oxidation surfaces representing the base of saprolite, baseof transitional and top of fresh rock.

The saprolite material is defined as the strongly weathered rock (weathering code H) andwas modelled with the base of saprolite wireframe. The base of saprolite wireframe islocated approximately 40 to 60m from the surface.

The transitional wireframe is located between 60m and 90m below the topographywireframe, and is defined as the base of moderately oxidised rock (weathering code M).

Fresh rock is defined as the base of slightly weathered rock and is denoted in the databaseby the weathering code S. The top of the fresh rock is located approximately 20m to 30mbelow the transitional interface to a maximum depth of around 150m.


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3.3.2 Mineralisation Models

The current mineralisation model is based on sectional interpretations developed by Cluffand RSG Global geologists. The sections considered lithology, quartz veining andalteration, deemed critical to the spatial distribution of the gold mineralisation, inconjunction with gold grades in determining appropriate mineralisation constraints.

The geological controls on the distribution of gold mineralisation at Kalsaka include kaolin-sericite alteration and quartz veining. The distribution of gold mineralisation is wellunderstood at a gross scale but less well understood on a local scale. Geological data wasplotted on section to assist the development of individual models for alteration and quartzveining. The development of these models was completed largely independent of gradeand hence more clearly reflects geological rather than grade envelopes.

The interpreted boundaries were then loaded into Vulcan and reviewed in 3D. Quartzveining and mineralisation broadly display a high degree of consistency and continuity, and

represent a reasonable level of confidence in the mineralised zone morphology. Alteration,while still representing coherent envelopes, demonstrates a lower degree of consistencywith mineralisation.

At the completion of the geological interpretation, conditional statistics were derived fromthe in situ database to determine the relationship between geology and anomalous goldgrades. Conditional statistics indicate that logged geological features were relatively poorindicators of economic gold grades; however, quartz veining provides the best indication ofmineralisation, although significant gold intercepts were identified outside of the loggedquartz vein intervals.

Mineralisation zone definition was completed using both the interpreted geological modelstrings and a notional lower grade threshold of 0.10g/t. The mineralisation zones weredeveloped to best represent areas of quartz veining which could be correlated withanomalous gold mineralisation, rather than a sharp lower cutoff based on grade. Theemphasis in mineralisation zone interpretation was placed on honouring the interpretedgeological controls. The development of the mineralisation zone envelopes in this mannerwill result in the grouping of like anomalous material for the purpose of statistical analysisand subsequent grade estimation. The use of geological criteria in conjunction with anotional lower grade cutoff will also ensure that sufficient lower grade material is included toprovide appropriate gradational grade changes and hence dilution. The use of geological

controls and a lower grade threshold resulted in significant sub-grade material beingcaptured within the finalised wireframes. Capturing the sub-grade material with highergrades will help ensure estimated grades are adequately diluted or represent theappropriate mining support (mining unit volume).

A total of 12 mineralisation domains or zones were interpreted and used to constrain thegrade estimation. Domain 1, 5, 6 and 11 capture the majority of the mineralisation atKalsaka with the K-zone mineralisation represented by domains 7 and 9 (Figure 3.3.2_1).

Representative cross sections displaying the interpreted weathering and mineralisationmodel and gold grades are provided as Figures 3.3.2_2 and 3.3.2_3.


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Figure 3.3.2_1Kalsaka Deposit

3D Perspective of the Interpreted Mineralisation Domains


Section 20,320 Displays Mineralisation and Base of Oxidation Interpretation,and Drillholes Coloured by Gold Displayed Domain 2, 3 and 4


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Section 21,110mN Displays Mineralisation , Base of Oxidation Interpretation,and Drillholes Coloured by Gold Displayed Domain 5, 6, 11, 13

3.4 StatisticalStatistical analysis of the Kalsaka deposit composite dataset was completed, grouped byinterpreted mineralisation constraints.

3.4.1 Compositing

The drillhole databases coded with the weathering and mineralisation zone interpretationwere composited as a means of achieving a uniform sample support. Sample data wascomposited to regular intervals of 3m within the domain interpretations to replicate theproposed mining selectivity and an approximate 2.5m mining bench height. Residues ofless than 1m were excluded from the 3m composite files.

The majority of the sampling (~92.8%) has been collected using a 1m sample interval.

3.4.3 Descriptive Statistics

Detailed descriptive statistical analysis has been completed based on the composite datagrouped by interpreted mineralisation zones. Table 3.4.3_1 presents the descriptivestatistics.

Domain 7 composites show the highest mean grade (1.00g/t Au) and this is followed byDomain 51 (0.87g/t Au). The mean grades calculated for the remaining domains rangebetween 0.50 and 1.00g/t Au with the exception of domain 13 which is substantially lowertenor. Moderate to high coefficient of variations (CV) around 2 have been calculated for allDomains.


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Table 3.4.3_1


Uncut CompositesDescriptive Statistics - Gold (g/t)

Domain 1 2 3 4 51 52 6 7 9 10 11 13

Number 1,647 371 577 430 2,812 117 1,992 732 67 300 1,086 93Minimum 0.003 0.003 0.001 0.001 0.003 0.003 0.001 0.005 0.001 0.005 0.001 0.005Maximum 27.22 11.54 31.94 13.24 52.98 8.57 16.61 64.533 10.96 16.53 41.37 3.59Mean 0.84 0.72 0.57 0.84 0.869 0.71 0.51 1.00 0.52 0.60 0.73 0.30Median 0.15 0.18 0.02 0.07 0.06 0.04 0.08 0.21 0.17 0.05 0.09 0.05Std Dev 1.94 1.36 2.05 1.74 2.317 1.64 1.26 3.47 1.38 1.63 2.05 0.67Variance 3.75 1.85 4.19 3.04 5.369 2.69 1.60 12.02 1.90 2.64 4.19 0.45Coeff Var 2.29 1.93 3.57 2.08 2.667 2.31 2.49 3.46 2.67 2.70 2.82 2.23

Note: 3 metre composites used for statistics and estimates

The grade distribution noted for the domain subsets are strongly positively skewed, andtypical of similar gold deposits elsewhere in the world. Based on a detailed assessment ofthe composite data, extreme values that required adjustment were identified in the sampledistributions, and are particularly evident in Domains 3, 7, 11 and 51. The approach takento the assessment of the high-grade composites and outliers is summarised as:-

Detailed review of histograms and probability plots with significant breaks inpopulations interpreted as possible outliers.

Investigation of clustering of the higher grade data. High-grade data that clusteredwere considered real while high grade composites not clustered with other high gradedata were considered to be a possible outlier and requiring further considerationeither through cutting and/or search restriction.

The ranking of the composite data and the investigation of the influence of individualcomposites on the mean and standard deviation plots.

Based on the above mentioned assessment, a global high grade cut of 21g/t Au has beendetermined and applied to resource estimation.

3.4.4 Indicator Statistics

A detailed explanation of Indicator Statistics is included as Appendix 3.1.

3.5 Variography

Variography is used to describe the spatial variability or correlation of an attribute (gold,silver etc). The spatial variability is traditionally measured by means of a variogram, whichis generated by determining the averaged squared difference of data points at a nominateddistance (h), or lag (Srivastava and Isaacs, 1989). The averaged squared difference

(variogram or (h)) for each lag distance is plotted on a bivariate plot, where the X-axis is

the lag distance and the Y-axis represents the average squared differences ( (h)) for thenominated lag distance.


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For the Kalsaka study, correlograms were calculated and modelled. Correlograms arecalculated by dividing the covariance by the variance calculated from the lag pairs andtherefore can be considered as a standardised variogram.

The variograms were calculated and modelled in the geostatistical software, Isatis. The

rotations are tabulated as input into Isatis, with X representing rotation around Z axis,Y representing rotation around Y` axis and Z representing rotation around X``. Dip and dipdirection of major, semi-major and minor axes of continuity are also referred to in the text.

3.5.1 Kalsaka Deposit Variography

Variography was calculated for the Kalsaka based on domain groupings. The followingdomains were grouped:-

Group 1 - Domains 1, 2, 3 and 4

Group 2 - Domains 51 and 52

Group -3 Domains 6, 10, 11 and 13

Group 4 - Domains 7 and 9

The details of this are included as Appendix 3.2.

3.5.2 Summary

The variography generated for the KGP is characterised by moderate to high relativenugget effects which are in the range of 30% to 65%. In addition, the close rangestructures generally dominate the non-nugget variance and generally reflect the current drillspacing of 20 to 40m. The implication of the high nugget and dominant short scalevariability is that significant smoothing can be expected in estimation. Based on thevariography, the estimation of small blocks is considered inappropriate, and selectivemining at elevated cutoff grades is likely to be problematic.

3.6 Grade and Tonnage Estimation

3.6.1 Block Model Development

A three dimensional block model was constructed for the resource region, covering all theinterpreted mineralisation zones and including suitable additional waste material to allow pitoptimisation studies.

A sub-block model was used to construct the Kalsaka mineralisation and backgroundmodels (Table 3.6.1_1). Block coding was completed on the basis of the block centroid,wherein a centroid falling within any wireframe was coded with the wireframe solid attribute.

The parent block size was selected on the basis of the average drill spacing (20m sectionspacing) and the variogram models, which indicate estimation of blocks smaller than thedata spacing is not practical. A parent block size of 20mE x 10mN x 5mRL was selected asappropriate. Sub-blocking to a 5mE x 2.5mN x 1.25mRL size was completed to ensureadequate volume representation.


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Table 3.6.1_1


Block Model Construction Parameters

Min(m)

Max(m)

Extent(m)

Parent/Sub BlockSize

Easting 19,250 22,050 2,800 20/5Northing 19,550 21,150 1,600 10/2.5Elevation 160 500 340 5/1.25

The attributes coded into the block models included the weathering and the interpretedmineralisation zone. A visual review of the wireframe solids and the block model indicatesrobust flagging of the block model.

Bulk density has been coded to the block model based on the oxidation/weatheringsubdivisions. The average bulk density for each subdivision, as presented inTable 3.2.4_1, was coded via a block model script.

3.6.2 Grade Estimation

Resource estimation for the Kalsaka Project was completed using MIK constrained by thedomain interpretation. Grade estimation was carried out using the Vulcan implementationof the GSLIB kriging algorithms. Calculation of selective mining unit estimates wasundertaken using the RSG Global developed applications. A description of the MIKestimation methodology is provided as Appendix 3.3.

3.7 Reporting and Classification

3.7.1 Introduction

Categorisation of the MIK gold grade estimates was undertaken on the basis ofassessment criteria set out in the Australasian Code for Reporting of Identified MineralResources and Ore Reserves published by the Joint Ore Reserves Committee (JORC) ofthe Australasian Institute of Mining and Metallurgy, the Australian Institute of Geoscientistsand Minerals Council of Australia, December 2004. Measured, Indicated and InferredResources are determined using definitive criteria during validation of the grade estimates,with detailed consideration of the JORC categorisation guidelines.

The resource categorisation has been based on the robustness of the various data sourcesavailable, confidence of the geological interpretation, variography and various estimationservice variables (e.g. distance to data, etc). Based on the review of this information aseries of wireframe solids were generated to enable coding of the block models using bothblock model scripts and wireframes.

3.7.2 Criteria for Resource Categorisation

The resource estimate has been classified as a combination of Measured, Indicated, andInferred Mineral Resource based on the criteria set out in Table 3.7.2_1.


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Table 3.7.2_1


Confidence Levels of Key Criteria

Items Discussion Confidence

Drilling Techniques RC/Diamond - Industry Standard approach HighLogging Standard nomenclature and apparent high quality HighDrill Sample Recovery 1m bulk samples weighed for RC drilling, recovery for

diamond core >90%High

Sub-sampling Techniquesand Sample Preparation

Industry standard for both RC and Diamond High

Quality of Assay Data Available data is of industry standard quality ModerateVerification of Samplingand Assaying

No drillhole twinning to globally reproduce original drillintercept. Dedicated twin drilling is recommended

Low

Location of SamplingPoints

Survey of all collars with considerable downhole survey.Investigation of available downhole survey indicates littlesubstantial deviation.

High

Data Density andDistribution

Majority of regions defined on a notional 40mE x 40mN drillspacing. Infill in pit area to 20mE x 20mN. Down dip/plunge

extensions are more broadly spaced reflecting a lowerconfidence.

High for global resource.Moderate locally

Audits or Reviews SRK completed independent resource and mining studies. NADatabase Integrity Minor errors identified and rectified. HighGeological Interpretation The broad mineralisation constraints are considered robust

and moderate to high confidence.Moderate

Estimation and ModellingTechniques

Multiple Indicator Kriging High

Cutoff Grades Range of cutoff grades reported. A maximum cutoff grade of1.0g/t recommended.

NA

Mining Factors or Assumptions

A 10mE x 5mN x 5mRL SMU replicated for SMU. SMU basedon the availability of close spaced grade control.

Moderate

Applying the above assessment of exploration data, geological understanding and gradeestimation confidence a block model coding scheme was developed, as summarised inTable 3.7.2_2, to code the block model as a combination of Measured, Indicated, andInferred Mineral Resource. A combination of service variables data, such as estimationpass and distance to data were used to code the block model.

Table 3.7.2_2


Resource Classification - Summary of Block Model Coding Criteria

Zone ResourceCategoryResource

Code Criteria

Measured 1

Estimated as pass 1Within 20mE x 20mN drill spacing

Average distance to samples < 40mWithin measured wireframes

Indicated 2Not Measured ResourceWithin 40mE x 40mN drill spacing

Average distance to samples


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3.7.3 Categorised Resources

The classified Mineral Resource reported for the Kalsaka deposit is provided below asTable 3.7.3_1

Table 3.7.3_1


Grade Tonnage Report - Combined Estimate

Multiple Indicator Kriging5mE x 10mN x 2.5mRL SMU

Lower Cutoff Grade Mt Au g/t kozs

Measured Resource 0.5 6.221 1.7 3460.8 4.464 2.2 3111.0 3.709 2.4 2891.2 3.134 2.7 269

Indicated Resource 0.5 5.929 1.5 2870.8 3.873 2.0 2461.0 3.080 2.3 2231.2 2.463 2.5 202

Inferred Resource 0.5 3.339 1.5 1570.8 2.167 1.9 1341.0 1.713 2.2 1211.2 1.328 2.5 107

Total Resource 0.5 15.489 1.6 791

0.8 10.503 2.0 6911.0 8.502 2.3 6331.2 6.924 2.6 578


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4 MINE DESIGN AND ORE RESERVE ASSESSMENT

4.1 Resources

The mine design and ore reserve assessment was based on the resources as described inSection 3.

The resource estimate was based on the Multiple Indicator Kriging (MIK) grade estimationtechnique. The MIK grade estimation technique inherently incorporates dilution and, assuch, no additional dilution was added for mine design purposes. However, a 97% miningrecovery was applied to allow for ore loss due to ore misclassification etc.

4.2 Mining Approach

The Kalsaka Gold Project will involve a conventional open pit, selective mining exploitationmethod, employing a mining contractor.

Drilling and blasting will be performed on 5m high benches, with blasted material excavatedin two discrete flitches, each nominally of 2.5m height.

SRK Consulting estimated that approximately 24% of material will require blasting andRSG Global has used this estimate for cost estimation.

The mining equipment that is considered to be suitable would include 80t to 100t backhoeexcavators and off-highway haul trucks with a payload capacity of between 50t to 60t.

4.3 Geotechnical Mine Design Criteria

Although no additional geotechnical work has been carried out on the Project since 1999,the slope design parameters were reviewed by SRK following completion of their reserveupdate in December 2003.

SRK stated that, in order to minimise waste stripping, the pits were optimised using 50shell angles. The slope angles that were used in the December 2003 detailed design wasincreased such that they satisfied a reduced Factor of Safety Criterion of 1.1.

The final slope angles that were used by SRK for design work are tabulated in theTable 4.3_1 below. RSG Global has adopted SRKs final recommendations for slopeparameters.

However, SRK did state that the overall reduction in the factor of safety results in someincrease in the risk of slope instability and, as such, advised that appropriate measures beimplemented during mining such as the installation of slope monitoring pegs and regularwalk over surveys, to monitor and manage the risk of instability.


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Table 4.3_1


Final Mine Design Slope Parameters

Kalsaka Hill West / K-Zone

Wall Inter-Ramp SlopeAngle () Bench Height(m) Berm Width(m) ApproximateBatter Angle () All Walls 61 12 5 75Slope Design CriteriaFactor of Safety = 1.1Pore Pressure Coefficient = 0.15

Average Rock Mass Strength Values

Kalsaka Hill-East, West of 21,000mE North Wall above 390mRL 45 12 10.5 75North Wall below 390mRL 52 12 7 75South Wall 56 12 6 75Slope Design CriteriaFactor of Safety = 1.1Pore Pressure Coefficient = 0.1


Kalsaka Hill-East, East of 21,000mE All Walls 56 12 6 75Slope Design CriteriaFactor of Safety = 1.1Pore Pressure Coefficient = 0.0


4.4 Pit Optimisation

4.4.1 Introduction

Pit optimisations were carried out using the Whittle Four-X pit optimisation softwarepackage.

The pit optimisation was carried out using Measured and Indicated Resources only.

The Kalsaka Gold Project is based on a heap leach gold extraction method and it wasassumed that only oxidised material will be amenable to heap leach. Fresh material wasnot considered for the pit optimisation.

4.4.2 Whittle Pit Optimisation Model Construction

The Whittle Four-X model development was carried out in Vulcan.

Whittle Four-X deals with the amount of metal in a block, not grade. Knowing the tonnageand the metal in a block, Whittle Four-X can calculate the grade of a block. To that end themetal content of a block was calculated using the grade estimate derived from the MIKresource estimate.

The 0.7g/t cutoff indicator was used for the calculation of the metal content in a block. Additionally, the incremental metal content between the 0.5g/t and 0.7g/t indicators wasalso calculated in order to capture the low grade material.

Appendix 4.1 provides a detailed summary of the Whittle Four-X process and modeldevelopment.


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4.4.3

Kalsaka Feasibility Study - 2006 Update

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