Overview

About the Sergeevskoe Licence Area

The Sergeevskoe licence covers an area of 7.6 km2 and is located approximately 40 km to the southwest of the town of Mogocha, Zabaikal’skiy Region of the Russian Federation. Mogocha is an administrative centre of the Mogocha District and hosts a large railway station on the Trans-Siberian Railway which runs within approximately 35 km of the licence area. The newly built Chita-Khabarovsk motorway (M58) is approximately 8 km to the south of the licence area. The distance to the Sergeevskoe Project area from the city of Chita, an administrative centre of the Zabaikal’skiy Regionin eastern Siberia, is approximately 650 km.

The Sergeevskoe licence area is located immediately west of the Klyuchevskoe gold deposit (see image below), which is owned by Sun Gold Ltd (“Sun Gold”). According to Dr BI Benevolskiy, who published detailed accounts of historical production of gold in a monograph “Gold of Russia” (Benevolskiy, 2002; see footnote 3), the Klyuchevskoe deposit has historically produced over 1.3 million ounces of gold from an open pit, whose western wall is located 300 metres from the eastern margin of the Sergeevskoe license area. According to public information published by Vestnik Zolotopromyshlennika (Gold Miner Bulletin) on August 31, 2016 (see footnote 4), the Klyuchevskoe deposit has estimated mineral resources containing 47.8 tonnes of gold in Russian style A+B+C1 categories, 26.6 tonnes of gold in Russian style C2 category and 4 tonnes of gold in ‘out of balance’ category, complying with Russian Code for the Public Reporting of Exploration Results, Mineral Resources and Mineral Reserves, all grading up to 2 grammes of gold per tonne. According to the Russian Federal Antimonopoly Agency, the Klyuchevskoe mine is in the advanced stages of being sold to China National Gold Group (see footnote 4).

The nearby Alexandrovskoe gold mine, which was commissioned in September 2013, lies to the west of the Sergeevskoe license area (see image below). Alexandrovskoe Gold Mining Limited has disclosed on its website that in the end of 2012, the Russian style reserves were approved by Protocol No.2853 of the Russian State Reserves Committee, amounting to 7.898 million tonnes in Russian-style С1+ С2 categories (balance + off-balance) with 23.894 tonnes (715 381 ounces) of gold grading 2.9 grammes of gold per tonne. Alexandrovskoe Gold Mining Limited also reported Russian-style resources at Alexandrovskoye ore field estimated to be more than 2 million ounces of gold (see footnote 4).

Orsu conducted a site visit in July 2016 and, based on this and a review of the technical information made available, believes that the geology of the Sergeevskoe Project area is principally similar to the Klyuchevskoe deposit area. Some orebodies from the Klyuchevskoe deposit extend into the Sergeevskoe license area. Granitoid intrusions are a principal host for 150 million years old mineralization.

The Sergeevskoe Project area hosts numerous gold occurrences, discovered and partially drill tested in the 1950s and 1960s, with geophysical and geochemical works performed in the 1970s. No field exploration activity was undertaken from the mid-1980s until 2013, when the sellers acquired the Sergeevskoe Project via public auction from the Government of the Russian Federation. No approved historical Soviet-style mineral resources exist for mineral prospects within the Sergeevskoe Project area. However, several reports estimated potential resources of the Sergeevskoe Project area in Russian-style “P” category. These historical estimates, combined for several prospects within the license area, range from 2 to 4 million ounces of gold grading 1.67 to 1.77 grammes of gold per tonne, which is not compliant to the standards of the Canadian National Instrument 43-101, but can be possibly treated as an indication of exploration potential.

On July 7, 2016 the Technical Board for the Department of Subsoil Usage, Zabaikal’skiy Subsection, Central Siberian Region, Russian Federation has approved Protocol N81 with the Russian-style P1 to P3 categories, containing a total of 29.736 million tonnes of mineralization in several prospects within the Sergeevskoe license area with a total of 59.31 tonnes approximately 1.91 million ounces) of gold, calculated to a depth of 100 metres. The mineralized system in all prospects remains open to depth. All potential quantities and grades referred to in this narrative are conceptual in nature; there has been insufficient exploration to define a mineral resource and it is uncertain if further exploration will result in the target being delineated as a mineral resource. The results referred to are primarily based on historical data prepared between 40 and 60 years ago, and as such their relevance and reliability may be uncertain. Further analysis will be required, including confirmatory drilling and/or trenching and assays of the core plus updated analysis and assessment of the historical data in order to verify the historical estimates as current mineral resources or reserves.

A qualified person has not done sufficient work to classify the historical estimate as current mineral resources or reserves. The Company is not treating the historical estimate as current mineral resources or reserves.

Historical works included soil-geochemistry sampling at 1:10 000 scale as well as different ground and airborne geophysical surveys resulting in the delineation of a number of gold, copper and molybdenum anomalous areas. The most advanced occurrences include Zone 23, Koziy, Vodorazdelnoe (Peak Klyuchi) and Karamaevskoe (see image above). Gold mineralization is arranged along the 5 km long west-east trending quartz vein-veinlet system, which is often accompanied by alteration (tourmalinization, sericitization) together with primary sulphide mineralization. Judging from a visit to the nearby Klyuchevskoe open pit, primary sulphides are oxidized down to 180 meters, with drilling confirmed vertical extent of gold mineralization at the Klyuchevskoe deposit to 600 meters.

Numerous trenches (totaling more than 16,200 metres at the Zone 23, Koziy and Vodorazdelnoe (Peak Klyuchi) occurrences) intercepted wide gold-mineralized intervals within a 1 000 x 600 metres westeast trending area in the eastern part of the Sergeevskoe license area, including Zone 23, Kozie and Vodorazdelnoe occurrences. The historically identified mineralized intervals range in width from 2 to 48 metres with grade variations from 1 to 5 grammes per tonne of gold. The 850 metres long historical trench K-679, cross-cutting both the Zone 23 and Kozie occurrences, intercepted several intervals separated by low grade or unmineralized material (from south to the north).

In the south, over 325 metres across Zone 23 occurrence:

  • 2 metres grading 1.0 gramme of gold per tonne, and
  • 24 metres grading 1.4 grammes of gold per tonne, and
  • 2 metres grading 3.2 grammes of gold per tonne, and
  • 2 metres grading 1.6 grammes of gold per tonne, and
  • 48 meters grading 1.7 grammes of gold per tonne, and
  • 7 metres grading 1.3 grammes of gold per tonne, and
  • 8 metres grading 1.7 grammes of gold per tonne, and
  • 16 metres grading 1.8 grammes of gold per tonne, and
  • 6 metres grading 3.1 grammes of gold per tonne, and
  • 4 metres grading 2.0 grammes of gold per tonne, and
  • 4 metres grading 2.1 grammes of gold per tonne.

This was followed by approximately 200 metres of unmineralized interval before reaching the Kozie occurrence, where the same trench intercepted the following intervals over 200 metres across the latter:

  • 3 metres grading 1.8 grammes of gold per tonne, and
  • 9 metres grading 2.3 grammes of gold per tonne, and
  • 1 metre grading 3.0 grammes of gold per tonne, and
  • 2 metres grading 2.0 grammes of gold per tonne, and
  • 38 metres grading 2.1 grammes of gold per tonne, and
  • 1 metre grading 3.2 grammes of gold per tonne, and
  • 40 metres grading 3.8 grammes of gold per tonne, and
  • 2 metres grading 1.4 grammes of gold per tonne.

Approximately 8 500 meters of drilling was historically completed at the Sergeevskoe Prospect in the 1950s and 1960s, with approximately 4900 metres drilled at Zone 23, Koziy and Vodorazdelnoe (Peak Klyuchi) occurrences and remaining balance drilled at the Karamaevskoe and other occurrences. No drill core from the historical holes is preserved. The reported historical core recoveries were approximately 50 percent. There were also some limited underground developments (shallow shafts and one adit with cross-cuts).

Historical drillholes at Zone 23 returned wide intercepts of gold mineralization. In particular, hole C-222 was drilled in the southern direction at 75 degrees to a depth of 160 metres and intercepted mineralized intervals (greater than 2 metres in thickness at a cut-off of 0.5 grammes of gold per tonne) of:

  • 3 metres grading 0.63 grammes of gold per tonne (from 46 metres);
  • 5 metres grading 1.56 grammes of gold per tonne (from 51 metres);
  • 38 metres grading 1.48 grammes of gold per tonne (from 58 metres),
  • Including
  • 6.5 m grading 2.23 grammes of gold per tonne (from 62 metres),
  • 3.0 m grading 2.97 grammes of gold per tonne (from 84 metres).

Hole C-215, which was drilled to a depth of 200 metres in the southwestern direction at approximately 74 degrees to the surface. This hole intercepted five mineralized intervals (greater than 2 metres in thickness and above 0.5 grammes of gold per tonne cut-off):

  • 3.5 metres grading 0.86 grammes of gold per tonne (from 16.5 metres);
  • 3.5 metres grading 1.11 grammes of gold per tonne (from 23.5 metres);
  • 31.6 metres grading 1.2 grammes of gold per tonne (from 54.1 metres),
  • including:
  • 2.1 m grading 2.20 grammes of gold per tonne (from 59 metres),
  • 5.5 m grading 2.13 grammes of gold per tonne (from 63.1 metres),
  • 2.0 m grading 1.30 grammes of gold per tonne (from 70.6 metres); and44.8 metres grading 0.82 grammes of gold per tonne (from 95 metres),
  • including:
  • 4.0 m grading 1.73 grammes of gold per tonne (from 101.2 metres),
  • 6.8 m grading 1.08 grammes of gold per tonne (from 107.2 metres),
  • 3.8 m grading 1.30 grammes of gold per tonne (from 135 metres); and
  • 27.5 metres grading 0.71 grammes of gold per tonne (from 167.5 metres),
  • including:
  • 5.0 m grading 1.26 grammes of gold per tonne (from 176.5 metres).

The combined width of the mineralized intervals in hole C-215 is 102.4 metres, indicating that more than 50% of the total length of this hole is mineralized above the 0.5 grammes of gold per tonne cutoff.

Historical drill holes at the Kozie occurrence, located some 350 metres north from Zone 23, are also reported to intercept gold mineralization (at a cut-off of 0.5 grammes of gold per tonne). In particular, historical hole C-140, which was drilled to a depth of 110 metres in the southern direction at approximately 75 degrees to the surface, intercepted 7.5 metres (from 65 metres) grading 2.59 grammes of gold per tonne. Historical hole C-141, which was drilled to a depth of 170 metres in the southern direction at approximately 70 degrees to the surface, intercepted 7.5 metres (from 125 metres) grading 1.53 grammes of gold per tonne. The 15.8 metres deep shallow vertical shaft (N28) intercepted mineralization grading between 0.4 and 4.3 grammes of gold per tonne. Another 25 metres deep shaft (N29) intercepted mineralization grading between 2.4 and 15.2 grammes of gold per tonne.

At the Karamaevskoe occurrence, historical hole C-197 was drilled in the southwestern direction at 70 degrees to a depth of 104 metres and intercepted a wide mineralized interval (at a cut-off of 0.5 grammes of gold per tonne) of 20.0 metres grading 1.55 grammes of gold per tonne (from 28 metres).

Despite promising intercepts, none of the prospects has been systematically drilled.

Orsu collected 15 lump samples during its site visit and inspection of the historical trenches. These samples were submitted by Orsu to the SGS Vostok Limited laboratory (“SGS Vostok”) in Chita, which is a Russian subsidiary of SGS Societe Generale de Surveillance S.A. and member of SGS Group, the inspection, verification, testing and certification company, independent from both Orsu and the sellers. SGS Vostok has assayed 15 samples, including one field duplicate, but no blanks or external standards were included by Orsu. SGS Vostok used a standard fire assay technique with detection limit of 0.03 grammes of gold per tonne. Of these, 13 assays returned between 0.18 to 5.69 grammes of gold per tonne for samples, generally collected randomly from the mineralized intervals shown on the historical maps for the above-mentioned trench K-679 at Zone 23 and Kozie occurrences. The duplicate samples Ser-003 returned 0.53 and 0.55 grammes of gold per tonne, indicating good correlation for this limited sampling programme.

Footnotes:

1. Dr Alexander Yakubchuk, Chief Operating Officer for Orsu and a qualified person as such term is defined in National Instrument 43-101, has reviewed and approved the contents of this disclosure. Dr Alexander Yakubchuk has verified the data disclosed in this disclosure, including sampling, analytical and test data underlying the information or opinions contained in this news release.

2.All $ figures are United States Dollars unless otherwise indicated.

3. Benevolskiy BI, 2002. Gold of Russia: Problems of the Use and Replacement of Mineral Resources. 2nd Revised Edition. Moscow, ZAO Geoinformmark, 464 pp. In Russian.

4. Based on publicly available information, which was not prepared, or independently verified, by Orsu.

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