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Executive Summary

16 th March 2011

Majestic Gold Corporation (‘MJS’, ‘Majestic’ or ‘the Company’) is a TSX- Venture listed mineral exploration, development & production company with a particular emphasis on gold. All of the Company’s current interests are in China. The focus of this note is the Song Jiagou property, in which the Company’s subsidiary now has a 75% net revenue interest.

Key Facts

 

Ticker:

MJS

 

Exchanges:

TSX-V, Frankfurt

 

Recent Price:

C$ 0.23

 
C$
C$

Source: www.ft.com (14.03.11)

This document has been prepared following a 3 day fieldtrip to the Song Jiagou property, Shandong Province, China. The site visit and note publication are part of VCL’s ongoing UK investor relations and corporate finance role with MJS. The document includes discussion of the Company’s corporate structure, physical assets, mine plan and exploration activities. The document includes a NPV assessment of MJS as well as a suitable peer group comparison.

52 week Hi/Lo:

C$ 0.04 - 0.285

 

Treasury:

C$ 4,920,964 (31.12.10)

G

& A:

C$ 141k/ month (2010)

Issued:

499,826,309

 

Authorised:

Unlimited

 

Daily volume:

499,460 (10 day average)

 

Market Cap:

C$114 M

 

Website:

www.majesticgold.net

 

Significant Shareholders (Feb 2011)

100 M

Management

20.00%

Fan Zhong

62

M

12.40%

Kong*

Lei Wang*

30 M

6.00%

Yi Dong

20

M

4.00%

 

Chen*

Ying Liu*

20 M

4.00%

Hui Wang*

20 M

4.00%

Chao Zhao*

20 M

4.00%

Strengths

 
 

Low, fixed, operating costs.

 

The Song Jiagou property currently hosts a starter pit for an open pit mine, an underground mine, two mills and tailings storage facilities. MJS has been conducting exploration work on the Song Jiagou site since 2004. The underground mine has been in production since 2004, and small- scale trial mining began at the open pit in 2006. Production for the period January – September 2010 was approximately 4,700 oz Au. During 2010, the two mills processed ore from the open pit at a rate of approximately

NI 43-101 compliant resource.

 

Project has been in production for over 12 months.

Construction of the new mill and associated facilities has so far progressed to schedule.

Potential for rapid repayment of initial capital within 2 years.

1,050 tonnes per day, and from the underground mine at approximately 350 tonnes per day, producing gold concentrate which is sold to a local smelter.

The Company is in the process of constructing a new mill facility with a capacity of 6,000 tonnes per day. The electricity substation and water pumping station are already in place, and the mill is expected to be operational from June 2011. MJS has also purchased land for a new tailings dam, with construction of the dam also underway. The Company has applied for an extended mining licence that will allow production at the rate of 7,400 tonnes per day (LOM average grade expected to be milled of 1.5 g/t Au).

Risks

 

Contract mining price is fixed in RMB so MJS is exposed to exchange rate fluctuations.

China may implement more stringent environmental and mine closure obligations during the mine lifetime.

Pending application for increased rate of mining.

Significant increase in mining rate required to meet production schedule.

Mine

plan

includes

ore

defined

as

 

inferred resources.

The NI 43-101 resource estimate (October 2010) is: Indicated- 34 Mt grading at 1.1 g/t Au (1.2 Moz); Inferred- 39 Mt grading at 1.5 g/t Au

Current mine plan may require sourcing of a new tailings storage facility, and potentially village relocation.

(1.8 Moz), using a lower cut-off of 0.3 g/t Au and a capping level of 40 g/t Au. At the 7,400 tonnes per day rate of production, the life of mine is estimated at 22 years.

Analysts

 

Dr

Janette Tourney

As part of this document, VCL has attempted to assess the value that the Song Jiagou project will bring to MJS; this has been done by undertaking a peer review of similar projects in China and also by modelling the intended mine development plan. This has resulted in a base case scenario NPV (C$1,000/ oz Au) (8%) of C$432 M for the 75% net revenue interest that MJS has in the project, for a 22 year mine life.

+44 (0) 207 248 9773 janette@vicaragecapital.com

 

Mr Will King +44 (0) 207 248 9773 william@vicaragecapital.com

Majestic Gold Corporation

Majestic Gold Corporation 16 t h March 2011
Majestic Gold Corporation 16 t h March 2011

16 th March 2011

* These listed significant shareholders are individuals understood to be associated directly or indirectly with Dahedong Smelter Mill.

Contents

Aim and scope of research

2

Introduction

3

Properties and subsidiaries

3

Background information: China

4

Asset: Song Jiagou

5

Staff & relationships in country

14

Peer comparison matrix

15

Valuation

17

Comments and summary

18

Capital structure

19

Key management

19

Summary financials

20

Appendix

21

Aim and scope of research

The aim of this research document is to provide the reader with:

An understanding of Majestic Gold Corp’s Song Jiagou gold property;

A description of MJS’s proposed mine plan and strategy going forward;

VCL valuations in the form of peer group comparisons and a NPV model.

This document was produced following a three day site visit by the author, during which the Song Jiagou mine and processing plants were visited, as well as MJS’s site office on the Song Jiagou property.

All financial units are in Canadian dollars (C$) unless otherwise stated.

Units used in this report include: hectares (ha); kilometres (km); metres (m); millimetres (mm); micrometres (µm); metric tonnes (t); grams (g); ounces (oz); kilovolts (kV); million (M); thousand (k); Yuan Renminbi (RMB).

(kV); million (M); thousand (k); Yuan Renminbi (RMB). VCL Vicarage Capital Limited 4 College Hill, London,

VCL

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Tel + 44 (0) 207 248 9773

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Majestic Gold Corporation

Majestic Gold Corporation 16 t h March 2011
Majestic Gold Corporation 16 t h March 2011

16 th March 2011

Introduction

Figure 1. Map of China, showing location of Song Jiagou asset.

1. Map of China, showing location of Song Jiagou asset. Source: MJS (edited) Properties and subsidiaries

Source: MJS (edited)

Properties and subsidiaries

Table 1: MJS’s present and former interests in China.

Licence

Licence

Area

type

Status

 

Exploration

Advanced development/ production Property recognized to be impaired. MJS recognized write down of

$294,508.

Song Jiagou

and mining

Jingang

Exploration

Three

Property recognized to be impaired. MJS recognized write down of

$957,675.

Shandong

licences

exploration

licences

Sold 2009.

Final payment

Sawayaerdun

Exploration

of C$846,453

not yet

received.

Exploration of C$846,453 not yet received. VCL Source: MJS Majestic Gold Corporation is a TSX-Venture

VCL

Source: MJS

Majestic Gold Corporation is a TSX-Venture Exchange listed company focussed on locating, acquiring, exploring and developing natural resource properties, with an emphasis on gold. MJS is part of Global Catalyst Group. All of the Company’s current property interests are in China.

The focus of this report is the Song Jiagou property, located on the Jiadong Peninsula in north-east China.

MJS has a 94%- owned subsidiary, Majestic Yantai Gold Ltd, which in turn has a 100% interest in a Chinese co-operation company, Yantai Zhongjia Mining Co. The Song Jiagou property is 100% owned by the co-operation company. MJS has a 75% interest in the net revenue from the Song Jiagou project. The remaining 25% net revenue interest is held by Dahedong Smelter Mill (‘Dahedong’), MJS’s Chinese partner.

All material seen and discussed below is with regard to that owned or leased by MJS unless otherwise stated.

This report has been produced following a 3 day field trip to China by Dr Janette Tourney. During this time, Dr Tourney visited the Song Jiagou property and MJS’s office on site, and met with key management and operational staff.

All of the Company’s interests are in China. The Sawayaerdun project was sold in 2009, but is included in Table 1 as MJS has yet to receive the final payment from the sale (C$0.85 M).

The remaining interests are all in Shandong Province: the Song Jiagou property, Jingang licences and three other mining licences, not presently being exploited.

The Song Jiagou property consists of an open pit which is currently being mined at a rate of approximately 1,050 t/day and an underground mine (the Fayunkuang Mine) which is being mined at a rate of approximately 350 t/day.

The mines and mills are operated by Dahedong. Dahedong in turn subcontracts the mining and milling to other local companies.

The Mineral Exploration Licence is 3.76 km 2 in area. The underground mining licence is 0.3421 km 2 in area and is contained within the Exploration licence.

MJS has a site office on the Song Jiagou property, and has use of two mills on the site, owned and operated by Dahedong.

The company is currently building a new mill facility on the Song Jiagou site.

The gold concentrate produced by the mills is sold to Shandong Humon Smelting Co. Ltd., located 35 km from Song Jiagou.

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Majestic Gold Corporation 16 t h March 2011
Majestic Gold Corporation 16 t h March 2011

16 th March 2011

Background information: China

Figure 2. Political map of China.

information: China Figure 2. Political map of China. Source: Encyclopaedia Britannica Figure 3. Orchard and

Source: Encyclopaedia Britannica

Figure 3. Orchard and village near to the Song Jiagou property.

3. Orchard and village near to the Song Jiagou property. Source: Author’s photo Figure 4. Large

Source: Author’s photo

Figure 4. Large granite works, Shandong Province, China.

Figure 4. Large granite works, Shandong Province, China. Source: Author’s photo 1 www.gov.cn 2 Financial

Source: Author’s photo

1 www.gov.cn

2 Financial Times Special Report, 27 th October 2010.

3 World Gold Analyst Special Report- China 2007.

4 www.chinamining.org

5 British Geological Survey, Mineral Information and Statistics for the BRIC Countries 1999-2008.

Politics 1

China has been ruled by the Communist Party of China (CPC) since 1949. There are currently 8 other democratic parties recognised in China, but all are affiliated to the CPC.

China has 33 administrative units under the central government, consisting of 22 provinces, 5 autonomous regions, 4 municipalities and the special administrative regions of Hong Kong and Macau.

Economy 2-3

China’s participation in the global economy has increased dramatically since the 1970’s and it became a member of the World Trade Organisation in 2001.

The Chinese Communist Party still has the right to dictate economic policy, but in practice the running of the economy is carried out by the State Council.

The State Council retains control of most industries considered to be of national economic importance, but supervision of most industrial activity is devolved to municipal, provincial and state governments.

Development in the country has been limited by constraints in areas such as energy supply, communications and transport infrastructure, but large sums are being invested to overcome these issues.

Since the financial crisis of 2008, during which there was a collapse in Chinese exports, the government has sought to reduce dependence on western economies. Instead, links with and investments in other developing countries such as Brazil have been strengthened.

Mining 3-5

China now has the world’s largest mining industry with over 25,000 mines in operation.

Exploration and mining activities are administered and supervised by the Ministry of Land and Resources. All mining activity is subject to a mineral resource tax equivalent to approximately C$0.75 per tonne of ore.

China has been the world’s largest gold producer since 2007, and production increased by 72% between 1999 and 2008. The country hosts about 7% of the world’s total gold deposits.

China currently has approximately 1,200 gold mines.

Foreigners have been allowed to own gold mines since 2002.

There is a monopoly on gold in China and all gold produced in the country is administered by the state. Purchase is by the

Bank of China, although sale takes place on the open market at

the Shanghai Metals Exchange.

s place on the open market at the Shanghai Metals Exchange. VCL Vicarage Capital Limited 4

VCL

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Majestic Gold Corporation

Majestic Gold Corporation 16 t h March 2011
Majestic Gold Corporation 16 t h March 2011

16 th March 2011

Asset: Song Jiagou

Table 2: Song Jiagou licences.

Licence

Number

Area (km 2 )

Expiry

date

Mineral

T372200

 

June

Exploration

9090203

3.76

2011

Licence

4373

C37000

Aug

Underground

Mining

Licence* a

0200904

4110010

983

0.34

2015

* a Contained within the Mineral Exploration Licence Source: MJS

Figure 5. Terraced fields, Shandong Province.

Source: MJS Figure 5. Terraced fields, Shandong Province. Source: Author’s photo Figure 6. Boulder showing the

Source: Author’s photo

Figure 6. Boulder showing the conglomerate structure.

photo Figure 6. Boulder showing the conglomerate structure. Source: Author’s photo Figure 7. Specimen of ore

Source: Author’s photo

Figure 7. Specimen of ore from the underground mine.

photo Figure 7. Specimen of ore from the underground mine. Source: Authors photo 6 Yao, Y.

Source: Authors photo

6 Yao, Y. et al. (2002) Mesozoic Gold Deposits in the Eastern Shandong Peninsula, P.R. China- Preliminary Geology, Geochemistry and Fluid Inclusion Characteristics.

Geology, Geochemistry and Fluid Inclusion Characteristics. VCL Ownership The licences and title to the Song Jiago

VCL

Ownership

The licences and title to the Song Jiagou property are held by the Chinese co-operation company, Yantai Zhongjia Mining Co. MJS’s subsidiary, Majestic Yantai Gold, acquired a 60% interest in the co-operation company

after fulfilling (on 1 st

US$5.3 M on exploration and/or development, over a 4 year period. The

remaining 40% interest in the co-operation company was acquired through

the Acquisition Agreement of 11

MJS has a 75% interest in the revenue from the Song Jiagou project, and Dahedong has a 25% interest. All mining and processing activities are contracted to Dahedong (see appendix for diagram). MJS has submitted an application for renewal of the Mineral Exploration Licence, which is due to expire in June 2011.

Location and access

The Song Jiagou property is located on the Jiadong Peninsula, Muping County, People’s Republic of China. The Song Jiagou mine and processing plants are approximately 30 km southeast of the coastal city of Yantai, which is a 90- minute flight southeast of Beijing. The property is accessed from Yantai via paved roads, and a new highway is under construction close to the site. The Song Jiagou property hosts an open pit mine and an underground mine. Processing of the ore is carried out at two separate mills, both of which are located approximately 4.2 km from the mines. The historical and current tailings dams are situated adjacent to the mills. MJS has a site office on the Song Jiagou property, adjacent to the offices and facilities of Dahedong. The Company’s head office is in Vancouver, Canada, and was not visited by the author.

Jan 2009) a requirement to spend approximately

th

February 2010 (discussed below).

Figure 8. Geology of the Jiadong Peninsula.

below). Figure 8. Geology of the Jiadong Peninsula. Stratigraphic units Magmatic rocks Faults Gold deposits
Stratigraphic units Magmatic rocks Faults Gold deposits Jiadong Group: granulite, amphibolite, gneiss schist.
Stratigraphic units
Magmatic rocks
Faults
Gold deposits
Jiadong Group: granulite,
amphibolite, gneiss schist.
Jinshan and Fenzichan
Groups:amphibolite,
serpulite, granulite, schist,
marble, quartzite.
Proterozoic
Deep-seated
granite.
fault.
Very large (> 50
tonne).
Granite,
Local fault.
granodiorite.
Large (30- 50
tonnes).
Granite,
Supracrustal slate, marble,
quartzite, limestone.
granodiorite,
Medium (10- 30
tonnes).
diorite, monzonite.
Sandstone, conglomerate,
Basalt, rhyolite,
Small (1-10 tonnes).
shale.
andesite.
Sandstone, clay, alluvium.
Occurrence (< 1
tonnes).

Source: MJS (from Yao et al. 2002 6 , edited)

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16 th March 2011

Figure 9. Pyrite crystals in the conglomerate matrix.

2011 Figure 9. Pyrite crystals in the conglomerate matrix. Source: Author’s photo Figure 10. Drilling adjacent

Source: Author’s photo

Figure 10. Drilling adjacent to the western open pit.

photo Figure 10. Drilling adjacent to the western open pit. Source: Author’s photo Figure 11. East

Source: Author’s photo

Figure 11. East pit, looking towards the East.

photo Figure 11. East pit, looking towards the East. Source: Author’s photo Figure 12. East pit,

Source: Author’s photo

Figure 12. East pit, looking towards the West.

photo Figure 12. East pit, looking towards the West. Source: Author’s photo 7 Wardrop, Song Jiagou

Source: Author’s photo

7 Wardrop, Song Jiagou Project, Shandong Province, China- Preliminary Assessment Technical Report. 25 th February 2011.

8 Wardrop, Technical Report on the Song Jiagou Property, Shandong province, China (Resource Update). November 2010

Shandong province, China (Resource Update). November 2010 VCL Local environment and climate The Song Jiagou property

VCL

Local environment and climate

The Song Jiagou property is located within a region of low hills (maximum elevation 600 m), approximately 30 km from the coast of the Jiadong Peninsula (Figure 1). The local climate is relatively mild, and does not suffer the severe winters of the Chinese interior so mining and exploration can therefore be carried out all year round. The region is very dry, which can increase the problem of dust generation from the tailings dams.

Shandong province is the second wealthiest in China, thanks in part to the Jiadong Peninsula gold belt. The other main industry is farming, and the region is well known in China for its wine production. Whilst Yantai city is heavily developed, the land surrounding the mine largely consists of small terraced fields, where the main products grown are apples, peanuts and sweetcorn.

Geology 7-8

Regional

Regionally, the Jiadong Peninsula is located on the south-eastern margin of the North China craton, and on the western margin of the Pacific Plate. It is bounded to the west by the Tan-Lu fault zone, which extends from the Yangtze River to the Russian Far East.

The Jiadong Peninsula has been affected by two major orogenies; the Indosinian collision between the North China and Yangtze cratons (200- 230 Ma), and the Yanshanian subduction of the Pacific plate beneath Eurasia during the middle Jurassic.

Local

The Song Jiagou property (Fayunkuang gold deposit) is located within the Muping-Rushan gold belt of the Jiadong Peninsula gold province (Figure 8), which is in the eastern part of the Jiobei Terrane, the more northern of the two pre-Jurassic terranes on the Peninsula. The Jiobei terrane consists of approximately 40% granitoid intrusions, 30% Archean greenstone, Proterozoic and Mesozoic sequences and Quaternary alluvium.

The Song Jiagou deposit lies to the southeast of the Zhuwu-Dianji fault and consists of a high-energy, well-rounded but unsorted conglomerate belonging to the Linshishan Formation, a member of the Liayang Group. Clasts range in size from millimetres to metres and are derived from Proterozoic gneiss as well as mafic gneiss and sediments. The conglomerate is understood to be Upper Cretaceous in age and unconformably overlies the Proterozoic Jinshan Group.

Mineralisation

The source of the mineralisation is the Mesozoic granite underlying the property at a depth of 400- 600 m. The granitoid intrusions of the Jiadong peninsula are both Mesozoic and Precambrian in age, but mineralisation is exclusively associated with the Mesozoic intrusions. Gold grade increases with depth in boreholes, and visible free gold was encountered close to the granite contact. The mineralisation on the Song Jiagou property is shear or fault-zone rather than vein hosted, as is found elsewhere on the Jiadong Peninsula. Exploration work carried out on the site indicates that the highest grades of Au mineralisation are associated with these narrow, linear zones. Away from these zones, there is a ‘halo’ of lower grade mineralisation (Au grade is approximately 0.3-0.5 g/t).

The mineralisation event is thought to be largely responsible for the cementation of the matrix and alteration minerals including sericite, silica and K-feldspar are found within the region of the faults. The gold mineralisation is found in the matrix of the Cretaceous-age conglomerate. Micron-sized free gold is present, but the majority of the gold is associated

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16 th March 2011

Figure 13. Large current mill.

16 t h March 2011 Figure 13. Large current mill. Source: Author’s photo Figure 14. Small

Source: Author’s photo

Figure 14. Small current mill.

Source: Author’s photo Figure 14. Small current mill. Source: Author’s photo Table 4. Mill performance

Source: Author’s photo

Table 4. Mill performance (2006-09).

Year

Tonnage

Grade (g/t Au) Conce

Feed

Au

recovery

 

-ntrate

(%)

Large processing plant

 

2008

171,242

0.44 0.48 0.46
0.44
0.48
0.46

24.7

88.7

2009

256,141

27.0

89.8

Total/

Mean

427,383

26.1

89.3

Small processing plant

 

2006

78,652

0.48

29.0

89.7

2007

129,685

0.55

35.5

91.1

2008

32,862

0.97

29.9

93.5

2009

63,449

1.21

35.5

93.2

Total/

Mean

304,648

0.71

33.4

91.9

93.2 Total/ Mean 304,648 0.71 33.4 91.9 VCL Source: MJS with sulphide minerals including galena,

VCL

Source: MJS

with sulphide minerals including galena, sphalerite and chalcopyrite, but principally pyrite, which is present as up-to-millimetre sized euhedral crystals within the conglomerate matrix (see Figure 9).

Exploration and Mining

Historical and artisanal

As China has been mapped extensively by geologists associated with the Chinese army since the 1960’s, it is thought likely that small-scale mining may have taken place on the Song Jiagou site as long ago as the 1970’s, but there are no records to verify this. The Fayunkuang underground mine has been operated since 1992, and is licenced to produce 66’000 t per annum. Four levels have been excavated at the Fayunkuang mine, at levels of 0, -40, -80 and -120 relative to sea level, with two parallel 300 m drifts at each level. Shandong Yantai Muping Gold Mine (‘Muping’) carried out exploratory drilling work on the Song Jiagou site between 1999 and 2004, and commenced exploratory mining at the site in 2001.

MJS exploration and mining

MJS has undertaken exploration work on the Song Jiagou site since 2004

(Table 3). Small-scale trial mining has taken place at the open pit since

2004 and the Company was pilot milling at a rate of approximately 250

tonnes per day between October 2007 and December 2009. As this was considered to be a ‘pit rehabilitation’ phase, separation of ore and waste was not considered practical and the results have not been released.

Historical mill performance (2006-2009) is listed in Table 4 (production for

2010 is discussed in the Current activity section).

Mining from the open pit was scaled up in December 2009, following the purchase of the remaining 40% interest in the site from Muping, by MJS’s Chinese partner Dahedong. Subsequent to this purchase, the open pit has been operated by Dahedong. The underground mine has been operated by Muping since 2004.

Table 3: MJS exploration activity at Song Jiagou.

Date

Activity

2003

Agreements signed to evaluate China projects. 547 channel and panel samples were collected from crosscuts on levels 2, 3 and 4 of the underground mine in order to establish the gold distribution within the conglomerate.

2004

2005

25 holes were drilled from the surface, with a total length of 6,558 m.

Nine holes were drilled from surface, with a total length of

3,701m.

2006

11 holes were drilled underground and 1,987 underground channel samples were collected.

46 trenches with an aggregate length of 3,628 m were dug, and 3,221 samples were collected from these. Gold content ranged from 0 to 35.8 g/t Au, with approximately 5% of assay values

exceeding 1 g/t Au.

2007

12 surface holes with an aggregate length of 1,867 m were drilled. A total of 1,743 samples were collected and assay values ranged from zero to 48.7 g/t gold. Approximately 6.5% of the samples had a gold content greater than 1.0 g/t.

2010

Acquisition of additional 40% interest in Song Jiagou. Mining operations scaled up.

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16 th March 2011

Resource estimates

Figure 15. Stockpile from open pit, adjacent to new mill.

Figure 15. Stockpile from open pit, adjacent to new mill. Source: Authors photo Figure 16. Ore

Source: Authors photo

Figure 16. Ore from the underground mine.

Authors photo Figure 16. Ore from the underground mine. Source: Authors photo The initial NI 43-101

Source: Authors photo

The initial NI 43-101 resource estimate for MJS’s Song Jiagou property was published in 2006, and updated in 2007. The most recent NI 43-101 resource estimate was published in April 2010 and updated in October 2010. The updated report included a revised resource estimate that was calculated by rotating the original model parallel to the trend of the deposit and lowering the cut-off to 0.3 g/t. This lower cut-off was selected by MJS to reflect a reduction in production cost after the Mining Contract was renegotiated.

The technical reports upon which the NI 43-101 resource estimates are based were all prepared by Wardrop Engineering Inc. The October 2010 Indicated resource was estimated by kriging to contain approximately 33.7 Mt at an average grade of 1.1 g/t Au, based on a lower threshold of 0.3 g/t Au and a capping level of 40 g/t Au. The Inferred resource is approximately 38.8 M tonnes at an average (capped) grade of 1.5 g/t gold.

The Song Jiagou deposit is considered to consist of two different populations of mineralisation; narrow, high grade zones contained within fractures, and a lower grade surrounding zone. However, modelling of sample data by Wardrop for the current, and previous, resource estimates was unable to separate the two populations in terms of grade. This failure was attributed to insufficient available data. Consequently, the resource estimate has been calculated as a single population.

Using the data available: compliant resource estimates, diamond drilling data, production and pit extraction data from around the concession, it is reasonable to acknowledge the following:

Total NI 43-101 defined resource (18 th Oct 2010): Indicated- 33,739,586 tonnes at 1.147 g/t Au (1,244,211 oz). Inferred- 38,812,054 tonnes at 1.467 g/t Au (1,830,576 oz). These resources were defined at a cut-off grade of 0.30 g/t Au and a capped grade of 40 g/t Au. It is estimated that, of the total resource of approximately 3.0 Moz Au, approximately 2.3 Moz Au are potentially recoverable under the current mine plan.

Table 5. Resource estimates for the Song Jiagou property.

 

Tonnage

(MT)

 

Capping

Contained metal (g Au)

 

Year

Company

NI 43-101

Category

Grade Au

(g/t)

Threshold

grade (g/t)

grade

(g/t)

Orientation* a

 

No. 3 Geological Brigade

Not

           

1998

compliant

N/A

1.8

6.8

NA

NA

12,240,000

NA

2006

MJS/Wardrop

Compliant

Indicated

6.10

1.0

0.5

NA

6,100,000

Parallel

Inferred

12.1

0.8

9,680,000

2007

MJS/Wardrop

Compliant

Indicated

8.8

1.5

0.5

NA

13,200,000

Parallel

Inferred

18.2

1.3

23,660,000

April

MJS/Wardrop

Compliant

Indicated

24.9

1.3

0.4

40

32,370,000

Un-rotated

2010

Inferred

28.1

1.9

53,390,000

October

MJS/Wardrop

Compliant

Indicated

28.0

1.3

0.4

40

36,717,397

Parallel

2010

Inferred

30.7

1.8

54,115,477

October

MJS/Wardrop

Compliant

Indicated

33.7

1.1

0.3

40

38,699,305

Parallel

2010

Inferred

38.8

1.5

56,937,283

* a Orientation of the block model used to calculate resource estimates was either rotated parallel to the trend of the mineralisation, or un-rotated.

parallel to the trend of the mineralisat ion, or un-rotated. VCL Vicarage Capital Limited 4 College

VCL

Vicarage Capital Limited

4 College Hill, London, EC4R 2RB, UK

Tel + 44 (0) 207 248 9773

Fax + 44 (0) 207 248 6680

Web: www.vicaragecapital.com

Source: MJS

8

Majestic Gold Corporation

Majestic Gold Corporation 16 t h March 2011
Majestic Gold Corporation 16 t h March 2011

16 th March 2011

Current activities

Figure 17. Breaking up ore from the underground mine.

Figure 17. Breaking up ore from the underground mine. Source: Authors photo Figure 18. Loading ore

Source: Authors photo

Figure 18. Loading ore at the underground mine.

photo Figure 18. Loading ore at the underground mine. Source: Author’s photo Figure 19. 50T truck

Source: Author’s photo

Figure 19. 50T truck used to transport ore.

Author’s photo Figure 19. 50T truck used to transport ore. Source: Author’s photo Figure 20. Ball

Source: Author’s photo

Figure 20. Ball mill at current mill.

Author’s photo Figure 20. Ball mill at current mill. VCL Source: Author’s photo Recent production The
Author’s photo Figure 20. Ball mill at current mill. VCL Source: Author’s photo Recent production The

VCL

Source: Author’s photo

Recent production

The licences held by MJS are shown in Table 2. The Underground Mining Licence permits a mining rate of 66,000 tonnes per year. The rate of mining is currently limited by the capacity of the two mills on site, the larger of which can process the 1,050 t produced daily from the open pit. The smaller mill processes the 350 t/day produced from the underground mine. MJS has submitted an application for permission to increase the mining rate to 7,400 tonnes per day, all of which will be extracted from the open pit.

From January until September (2010), 225,109 t of ore from the open pit has been milled, grading between 0.36 and 0.49 g/t Au, with a mean grade of 0.43 g/t Au.

From January until September (2010), 77,549 t of ore from the underground mine has been milled, grading between 0.58 and 1.06 g/t Au, with a mean grade of 0.87 g/t Au.

In September 2010 the reserve ore stockpile for the underground mine was 5,463 t. The reserve ore stockpile from the open pit was 63,168 t in September 2010, and in November 2010 was estimated at approximately 120,000 t.

The ore processed from both the open pit and underground mines recovered an average of 89.09 % of recoverable gold. This resulted in a total production of 5,248 t concentrate at an average grade of 26.47 g/t Au (4,709 Troy oz Au) between Jan and Sept 2010.

Table 6. Recent mill performance (Jan- Sept 2010).

 

Grade (g/t Au)

Au

Month

Tonnage

Feed

Concentrate

recovery

 

(%)

 

Large processing plant

 

Jan 10

27,203

0.45

29.4

89.1

Feb 10

27,758

0.44

26.8

88.7

March 10

27,258

0.44

22.5

88.1

April 10

30,625

0.37

26.2

86.5

May 10

30,217

0.43

21.7

88.3

June 10

31,092

0.36

17.0

86.0

July 10

18,120

0.47

20.3

89.3

Aug 10

15,488

0.49

26.5

86.0

Sept 10

17,348

0.45

31.2

86.9

Total/Mean

225,109

0.43

23.8

87.7

 

Small processing plant

 

Jan 10

3,180

0.64

31.3

92.3

Feb 10

11,530

0.58

37.9

91.5

March 10

9,547

0.84

38.0

93.8

April 10

11,357

1.03

44.4

94.9

May 10

10,129

1.02

29.7

95.1

June 10

11,176

0.84

27.0

94.1

July 10

10,775

0.81

29.2

93.8

Aug 10

4,041

1.06

35.8

90.9

Sept 10

5,814

1.05

32.9

92.2

Total/Mean

77,549

0.87

33.4

93.6

Source: MJS

Plant and processing

Underground mine

Ore from the underground mine is raised to the surface in traditional mine carts using a double lift, with a capacity of 1.6 tonnes. The ROM is directly outside of the mine entrance (Figure 16). The ore is mechanically broken up (Figure 17), and then loaded into 50 tonne trucks (Figures 18-19) for transportation to the smaller (350 t/d) of Dahedong’s two existing mills, both of which are located approximately 5 km away from the mine.

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Majestic Gold Corporation

Majestic Gold Corporation 16 t h March 2011
Majestic Gold Corporation 16 t h March 2011

16 th March 2011

Figure 21. Flotation cells at 350 tpd mill.

h March 2011 Figure 21. Flotation cells at 350 tpd mill. Source: Author’s photo Figure 22.

Source: Author’s photo

Figure 22. Flotation cell.

mill. Source: Author’s photo Figure 22. Flotation cell. Source: Author’s photo Figure 23. Current tailings dam.

Source: Author’s photo

Figure 23. Current tailings dam.

Source: Author’s photo Figure 23. Current tailings dam. Source: Author’s photo Figure 24. Current tailings dam.

Source: Author’s photo

Figure 24. Current tailings dam.

Source: Author’s photo Figure 24. Current tailings dam. VCL Source: Author’s photo Open pit Ore from
Source: Author’s photo Figure 24. Current tailings dam. VCL Source: Author’s photo Open pit Ore from

VCL

Source: Author’s photo

Open pit

Ore from the open pit is extracted by conventional drill and blast mining. It is then loaded directly into 50T trucks and transported to the larger mill (1050 t/d) for processing.

Transportation and processing

Processing at both of the mills consists of a succession of crushing and grinding stages (primary crusher, cone crusher, ball mill) to produce ore crushed to 100% passing 22 mm and then ground to approximately 50% passing a 75 µm mesh size. The ore then proceeds to a succession of flotation cells where the free gold and pyrite-associated gold is separated by rougher and scavenger flotation. The concentrate is dewatered in an outdoor courtyard prior to transportation by truck to a local smelter facility, Humon Smelting Co. Ltd., which is located approximately 10 km northeast of the Song Jiagou property. There is a commercial scale on the road to the mill for weighing the trucks used for transporting ore and concentrate, but this was not in operation at the time of VCL’s site visit.

The concentrate also contains a quantity of silver, but MJS does not assay for it, or receive payment for the silver content. The smelter does extract and sell the silver from the concentrate.

Historical production data shows that the average gold recovery for the 0.43 g/t Au feed from the open pit was 87.7%. The average recovery for the 0.87 g/t Au mill feed from the underground mine was 93.6%. Preliminary recovery testing was carried out in February 2010 by Yantai Jinyuan Mining Machinery Co., Jinyuan. It was found that 92.9% of the Au from a 0.68 g/t Au sample, at a grind size of 52% passing 75 µm, was recovered into a 22. 5% Au concentrate.

Figure 25. Aerial view of the Song Jiagou mills.

. Figure 25. Aerial view of the Song Jiagou mills. Source: MJS (edited) Tailings The tailings

Source: MJS (edited)

Tailings

The tailings are transported by pipeline to a tailings dam adjacent to the location of the mills. The site contains three historical tailings dams, and a fourth that is currently in use (Figures 23-24). This tailings dam is close to capacity, at the current production rate of 1,400 tonnes per day.

The historical and current tailings dams were created by the sequential infilling of a valley. The volume of tailings held in the dams is not known as MJS does not have records either of how long the tailings dams have been in use, or of the original topography of the infilled valley.

The three historical tailings dams have been planted with grass and small bushes, as a means of reducing dust generation from the surfaces. The

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10

Majestic

Gold Co rporation

16 th March 201 1

water cour ses in

mine.

During t he site visit , the autho r was infor med that th ere has be en no recorded discharge o f acidic leac hate.

Equipme nt

order to

governm ent regularl y conducts

sampling of downstream

assess wh ether there

is any harm ful dischar ge from the

The cost s of mining, milling and t ransportatio n are includ ed in MJS’s mining

contract

Dahedon g or the sub contractors employed by

with Dahed ong. As su ch, all equi pment is ow ned or leas ed by

Dahedong.

Fu ture actio ns

Ta ble 7. Prelimin ary productio n summary.

P arameter

U nit

Years

LOM

 

1-8

Pro cess feed Gol d grade Mat erial min ed Mill feed Wa ste Ore mined Stri p ratio Tot al pro duction Gol d Ave rage

pro

duction

g/t

2.12

1.52

kt

18,494

52,682

kt

47,746

100,377

kt

18,494

52,682

2.33

1.87

koz

1,152

2,324

Gol

d

koz

144

106

Source: MJS

Table 8. Poten tially mineable resources.

Cl

assification

Tonnes

Au (g/t)

 

Indicated

29,875,527

1.207

Inferred

22,806,473

1.936

Figure 27.

Source: MJS

New mill: Nove mber 2010.

1.936 Figure 27. Source: MJS N ew mill: Nov e mber 2010. Source: Author’s photo Figure

Source:

Author’s photo

Figure 28. New mill: Dece mber 2010.

Author’s photo Figure 28. N ew mill: Dec e mber 2010. Source: MJS Mine pl a

Source: MJS

Mine pla n

Song

Jiagou p roperty in or der to achie ve the desir ed rate of a pproximately 7,400

tonnes

2011.

Details o f the new p lant require d are outlin ed below, a nd the preli minary

mining

by Wardro p, are

shown in Table 8.

The new processing plant is inte nded to pro cess 6,000 t /day whilst t he two

and 1,050 t/d ay, thus ach ieving Gold concen trate produc tion is

grade will be (Table 6).

noted

that MJS

g/t Au, b ased on rec ent product ion statistics

estimate d at 230 t/da y, and the c oncentrate

approxima tely 30

resource s, based o n pit shell

7. The po tentially mi neable

Assessm ent 5 undert aken by W ardrop and

in the NI 4 3-101 Preli minary

MJS has submitted a n applicatio n to increase

the rate of mining at the

published i n February

undertaken

per day.

schedule

A

is

mine plan

presented

is outlined

in

Table

optimisation

current p lants contin ue to produc e 350 t/day the desir ed processi ng rate of 7 ,400 t/day.

intends to

year. Th e locations

mine and pr ocess higher

of the three

It should be

grade mate rial during t he first

(see Table s 7-8, and T able 13a for the full prod uction

schedule ). The Com pany intends to operate f or approxim ately 330 da ys per

plants in r elation to e ach other a nd the

current t ailings pond are shown i n Figure 25. The Fayunk uang under ground mine will be decomm issioned an d all future m ining will be from the op en pit.

few year s of mine life

Figure

26. Cross sec tion of the pla nned Song Jia gou pit, show ing viable dep osit at a range of gold prices.

show i ng viable dep o sit at a range of gol d prices. Source: MJS

Source: MJS

New fac ilities

New mill

The Co mpany is c onstructing

location

a new

mill

(Figures 27 -32) close

to the

Song Jiago u ore.

of the mills

currently in u se for proc essing of the

ore. o f the mills currently in u se for proc essing of the VCL Vic

VCL

Vic arage Capital Lim ited

4 College Hill, London, EC4 R 2RB, UK

T el + 44 (0) 207 2 48 9773

Fax + 4 4 (0) 207 248 668 0

Web:

www.vicaragecapi tal.com

11

Majestic Gold Corporation

Majestic Gold Corporation 16 t h March 2011
Majestic Gold Corporation 16 t h March 2011

16 th March 2011

Figure 29. New mill: conveyor.

16 t h March 2011 Figure 29. New mill: conveyor. Source: Author’s photo Figure 30. New

Source: Author’s photo

Figure 30. New mill: ball mills.

Source: Author’s photo Figure 30. New mill: ball mills. Source: Author’s photo Figure 31. New mill:

Source: Author’s photo

Figure 31. New mill: stirring tanks.

Author’s photo Figure 31. New mill: stirring tanks. Source: Author’s photo Figure 32. New mill: concentrate

Source: Author’s photo

Figure 32. New mill: concentrate tank.

Author’s photo Figure 32. New mill: concentrate tank. VCL Source: Author’s photo The new mill is
Author’s photo Figure 32. New mill: concentrate tank. VCL Source: Author’s photo The new mill is

VCL

Source: Author’s photo

The new mill is designed to have a processing capacity of 6,000 tonnes per day, taking the total milling capacity at Song Jiagou to 7,400 tonnes per day. At the time of VCL’s visit (November 2010) the estimated completion date was June 2011. The new processing plant will also house an assay laboratory.

Reclaimed water from the tailings dam will provide the main source of

process water for the new mill. The balance of the required water supply will come from the Jincheng River, where the Company has constructed a new pumping station (Fig. 33). The supply lines to the new mill have been installed. As noted in the Preliminary Assessment, the impact of extracting

water (approximately 2,600 m

As this is a dry region, this particular environmental impact does need to be addressed.

The company has built a new 35 kV substation to supply electricity to the new mill. The substation has been constructed, and is ready to receive power from the grid as soon as the mill construction is complete. The new mill will require 12 kV of electricity and the rest will be used to supply local villages.

The ore stockpile from the open pit (Figure 15) is intended for processing when the new mill opens.

New tailings dam

The company recently purchased land to locate a new tailings dam (Figure 34). The clay-core dam was under construction at the time of VCL’s visit and will have an effective capacity of 7.1 Mm 3 (total capacity of 9.5 Mm 3 ). At the intended processing rate of 7,400 tonnes per day, the new tailings dam will have a lifetime of 4.4 years. As the predicted life of mine is 22 years, the Company is considering further tailings disposal options. The dam will be raised sequentially by an upstream-type embankment, and raising the height from 48 m to 70 m is a possible option for increasing tailings disposal capacity. This option will require a full review of the tailings dam design, as well as local environmental, geotechnical and hydrological impacts. This is MJS’s preferred option, and an engineering study is currently underway in order to determine the viability of this route for tailings storage. Alternatively, the tailings could be dry stacked, or else transported to an alternative tailings storage facility. In this case, MJS will have to identify a suitable site.

Contracts

Mining Contract

The mining contract is a three-party agreement between Yantai Zhongjia Mine Development Enterprise, Shandong Yantai Muping Gold Mine and Dahedong Smelter Mill, and was formalised on 14 th Nov 2007. The terms of the agreement are as follows:

3

per day) from the river has not been studied.

Dahedong will provide immediate access to one 300 tpd mill, and access from 1 st Aug 2008 to a second, 1,200 tpd mill.

Exclusive use of the mills is set as 30 years.

Dahedong will be entitled to 20% of the net profit from the 1,200 tpd mill.

Once the output of all mills on site exceeds 3,000 tpd, Zhongjia will have the right to continue paying Dahedong 20% of the net profit of the 1,200 tpd mill as the royalty, or negotiate for the land and equipment owned by Dahedong.

During the term of exclusive use, Dahedong warrants that the operation costs for all the mills will not exceed RMB 70 per tonne. The operation costs includes the costs and expenses incurred in mining, transportation, milling and tailing and disposal of solid waste, in addition to any other costs and expenses arising from the

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12

Majestic Gold Corporation

Majestic Gold Corporation 16 t h March 2011
Majestic Gold Corporation 16 t h March 2011

16 th March 2011

Figure 33. New pumping station.

16 t h March 2011 Figure 33. New pumping station. Source: Author’s photo Figure 34. New

Source: Author’s photo

Figure 34. New tailings dam.

Source: Author’s photo Figure 34. New tailings dam. Source: Author’s photo Table 9. Initial capital costs.

Source: Author’s photo

Table 9. Initial capital costs.

 

C$ (M)

Power Supply System Water Supply System Process Equipment Process Plant Construction Land Acquisition Tailing Storage Facility Mining and roads Indirect costs Contingency Project risk (15%) TOTAL

1,989

2,803

12,108

8,175

10,716

5,572

10,893

3,658

5,154

9,062

70,13

Source: MJS

Table 10. Sustaining capital costs.

 

C$ (M)

Mining Salvage at Mine End Owner's Costs TSF Reclamation costs Contingencies Sunk Costs TOTAL

10,250

0

6,926

24,538

10,534

10,171

8,000

70,42

Source: MJS (Note: conversion from US$ to C$ based on Wardrop’s exchange rate of 0.92).

from US$ to C$ based on Wardrop’s exchange rate of 0.92). VCL mining and processing operations.

VCL

mining and processing operations.

The cost of mining and milling under the Mining Contract is 75 RMB per tonne processed (‘Mining Fee’), plus 25% of net profits go to Dahedong.

Acquisition Agreement

The Acquisition Agreement was entered into on 11 th February 2010, between MJS and the Muping Group (seven individuals), with the objective of acquiring the remaining 40% interest in Yantai Zhongjia Mining Enterprise. The terms of the Acquisition Agreement include the following:

The Mining Permit for Song Jiagou will be held by Yantai Zhongjia Mining Enterprise, enabling mining to commence at the site.

Dahedong Smelter Mill will undertake mining operations at Song Jiagou.

The Agreement provides for the construction of the new mill and associated facilities.

The cost of acquiring land for the new mill will be borne exclusively by Dahedong if the capacity of the mill does not exceed 5,000 t/day.

Construction costs will be borne 75% by Yantai Zhongjia Mining Enterprise and 25% by Dahedong.

Dahedong will carry out mining operations at no cost to MJS for a period of 30 years. This will include mining, transporting, and processing ore and tailings and other waste material.

Dahedong will be responsible for dealing with the Chinese authorities in respect of mining operations.

Dahedong will receive a mining fee of RMB 75 per tonne. The mining fee and Dahedong’s share of net profits will be payable solely from proceeds from the sale of gold or other metals from the Song Jiagou property.

Smelter Contract

The cost of smelting the concentrate produced is based on a fee of RMB 100 per tonne of concentrate.

Necessary immediate investment

Cost estimates have been made by Wardrop and MJS, and published in the Preliminary Assessment:

Initial capital cost: C$70 M

Working capital cost: C$7.7 M

Sustaining capital cost: C$70 M

The initial capital cost is broken down in Table 9. These costs are associated with construction of the new facilities and tailings dam.

Further Investment

MJS has made plans for approximately C$70 M of sustaining capital costs over the lifetime of the mine (outlined in Table 10). The majority of this cost will be associated with storage of tailings when the tailings dam currently under construction reaches the end of its life in approximately 4.5 years.

Exploration

The company intends to undertake further exploration over the next 2 years:

Phase 1: C$1 M- convert Inferred resources in the upper pit area to the Indicated category.

Phase 2: C$3.5 M- define resources in the mid-pit area, and test for additional resources at depth and along strike.

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Majestic Gold Corporation

Majestic Gold Corporation 16 t h March 2011
Majestic Gold Corporation 16 t h March 2011

16 th March 2011

Staff and relationships in country

Figure 35. Administrative compound.

relationships in country Figure 35. Administrative compound. Source: Author’s photo Figure 36. Head of underground

Source: Author’s photo

Figure 36. Head of underground mine.

Author’s photo Figure 36. Head of underground mine. Source: Author’s Photo Figure 37. Core storage buildings.

Source: Author’s Photo

Figure 37. Core storage buildings.

Source: Author’s Photo Figure 37. Core storage buildings. Source: Author’s photo Figure 38. Half- cores stored

Source: Author’s photo

Figure 38. Half- cores stored on site.

Author’s photo Figure 38. Half- cores stored on site. Source: Authors photo Staff At time of

Source: Authors photo

Staff

At time of the VCL site visit, MJS had the following staff breakdown:

One Canadian member of MJS staff is always present on site.

The underground mine is staffed by workers from Muping.

The open pit is staffed by workers from Dahedong.

The mills are staffed by workers from Dahedong.

Security

Security is not considered to be a requirement on Song Jiagou site as the end product is gold concentrate rather than dore. The concentrate is transported to the smelter in the same 50 tonne trucks used to transport the ore to the mills.

Local community

All permits and other applications have to be approved at local (village) level before proceeding to County and Province level. The Song Jiagou project is not sufficiently large-scale to require approval at national level. This structure ensures that any decisions must be approved by the local community or will not proceed any further. According to MJS, relations with local people are good, and there are no particular cultural or ethnic groups that object to the mining activity. However, under the current mining plan it may be necessary to undertake village relocations in order to accommodate the outer pit shells.

Lab

MJS sends all core and concentrate samples for analysis by SGS Tigian, a North American 9001/2 approved lab. MJS splits all cores in half and sends one half for assay by SGS. The other half core is stored in a locked building on the Song Jiagou site (Figure 37). The sample pulps and coarse rejects are returned by SGS to MJS for storage at a secure facility in Yantai (not visited by the author).

QAQC

The samples analysed for the 2007 drill and trenching programs were analysed along with blanks and standard reference materials. One-meter lengths of core (half cores) from both drill and trench sampling were sent to SGS Mineral Services in Tianjin. One-kilogram pulverized samples were subject to screening for metallic content prior to analysis for Au by fire assay with an atomic adsorption spectroscopy (AAS) finish. A total of 174 blanks were analysed, equivalent to 3.5% of the total sample population. The blanks were all found to be below the detection limit (5 parts per billion) for Au. A set of four standards were used during analysis of all the drill and trenching samples. The standards were prepared by CDN Resource Laboratories of Delta, British Columbia, Canada, and had Au values ranging from 0.12 g/t to 14.83 g/t. It was noted in the 2010 Technical Report by Wardrop that there was a high failure rate associated with analyses of the top standard, indicating that results for higher grade samples may be unreliable. However, it was pointed out that this potentially affects only a small minority of the sample population as only 18 out of approximately 5,000 sample assays exceeded 10 g/t.

Environmental legislative restraints

There are no known environmental obligations.

There are no closure obligations. The historical tailings dams have been planted with trees and grass to reduce dust generation, and this is the extent of the remediation planned by MJS for the current

extent of the remedi ation planned by MJS for the current VCL Vicarage Capital Limited 4

VCL

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14

Majestic Gold Corporation

Majestic Gold Corporation 16 t h March 2011
Majestic Gold Corporation 16 t h March 2011

16 th March 2011

Figure 39. Half- cores stored on site.

t h March 2011 Figure 39. Half- cores stored on site. Source: Author’s photo and new

Source: Author’s photo

and new tailings dams.

The government regularly undertakes sampling downstream from the tailings dams.

Two different environmental impact assessment (EIA) studies have been undertaken. The first, in August 2010, was undertaken by Quingdao University and investigated the impact of a process rate of 400 tonnes per day. The second, in December 2010, was conducted by Shandong Academy of Environmental Science and studied the impact of a process rate of 6,000 tonnes per day. Both studies considered the impact of the process and tailings dam on the environment, including environmental protection measures, and recommendations for safety operations, emergency plan and reclamation plan. However, there has not yet been an EIA undertaken on the basis of processing at the intended rate of 7,400 tonnes per day.

Valuations

Peer comparison matrix Peers used for the primary comparison are taken from the World Gold Analyst Special Report- China 2007, in combination with a current list of gold- focused development/mining companies operating in China and listed on the TSX. Companies with NI 43-101 compliant resource estimates for gold mining or development operations in China were selected as comparable peers for MJS. Where a company is producing other metals in addition to gold, these have been converted to a gold equivalent value based on the value ratio according to Platts metals prices (11.03.2011). Furthermore, if a company has additional precious metal assets outside of China, these have been included in the peer comparison in order to account for value attributed to the company by the market. Companies with diverse portfolios have been disregarded.

Table 11. Total Au equivalent Defined Resource.

Name

Tiker

Mcap (C$M)

Total Au (M oz)

EV (C$ M)

Gross Metal Value (C$ M)

Stage

Eldorado Gold China Gold International Resources Corp. Ltd. Mundoro Mining Inc. Continental Minerals Corporation InterCitic Minerals Inc.

ELD:TSX CGG:TSX MUN:TSX KMK:TSX V ICI:TSX

8,201.37

35.81

8,051.56

49,073.56

Production

2,189.50

18.78

2,250.58

25,745.43

Production

22.24

7.27

12.34

9,961.28

Development

396.62

7.08

379.93

9,709.83

Development

189.26

3.05

179.89

4,181.60

Development

Majestic Gold Corp.

MJS:TSX V

114.01

2.55

109.09

3,492.94

Trial stage production

Minco Gold Corporation

MMM:TSX

111.98

0.55

110.88

750.51

Development

Table 11 shows that there is a wide range in the size of the gold deposits currently being mined or developed in China by Canadian-listed companies. Eldorado Gold has a number of defined resources located both in China and elsewhere (see Sources and Assumptions), and therefore has a large total Au resource. China Gold International Resources Corp. Ltd. Has two deposits in China, one of which is polymetallic, so much of the total resource stems from Au equivalents. Continental Minerals Corp. has two deposits in China. The remaining four companies each have a single resource in China, and are therefore the most suitable peers to be considered. With this in mind it is evident that the Song Jiagou resource falls in the middle of the total Au single deposit size range.

Table 12. Enterprise Value/ Defined Au Resource.

Name

Tiker

Mcap (C$M)

Total Au (M oz)

EV (C$ M)

EV/Total Au (C$/oz)

Stage

Eldorado Gold Minco Gold Corporation China Gold International Resources Corp. Ltd. InterCitic Minerals Inc. Continental Minerals Corporation

ELD:TSX MMM:TSX CGG:TSX ICI:TSX KMK:TSX V

8,201.37

35.81

8,051.56

225

Production

111.98

0.55

110.88

202

Development

2,189.50

18.78

2,250.58

120

Production

189.26

3.05

179.89

59

Development

396.62

7.08

379.93

54

Development

Majestic Gold Corp.

MJS:TSX V

114.01

2.55

109.09

43

Trial stage production

Mundoro Mining Inc.

MUN:TSX

22.24

7.27

12.34

2

Development

Table 12 indicates that, by comparison, MJS appears undervalued in relation to the companies selected for the peer comparison, with the exception of Mundoro Mining Inc (‘MUN’). However, it should be noted that MUN is currently

involved in a dispute with its Chinese JV partner

that mining of the Maoling gold deposit will not be feasible due to environmental restrictions. This issue may explain the

lower share price and hence significantly lower EV/Total Au value obtained for MUN. Looking at the other companies listed in Table 12, it can be seen that the value per ounce in the ground for MJS is lower than, but within the same approximate range as those for Continental Minerals Corp. and Inter-Citic Minerals Inc, both development stage

. The JV partner wishes to terminate the JV company as it is believed

*9

wishes to terminate the JV company as it is believed *9 VCL Vicarage Capital Limited 4

VCL

Vicarage Capital Limited 4 College Hill, London, EC4R 2RB, UK

Tel + 44 (0) 207 248 9773

Fax + 44 (0) 207 248 6680

Web: www.vicaragecapital.com

15

Majestic Gold Corporation

Majestic Gold Corporation 16 t h March 2011
Majestic Gold Corporation 16 t h March 2011

16 th March 2011

companies. However, MJS is a producing company with ongoing construction, and as such appears significantly undervalued when compared with Eldorado Gold and China Gold International, two producing entities. The valuation attributed by the market to the companies in the peer comparison may in some cases reflect other assets in addition to Chinese gold deposits (see Source and Assumptions), so consideration of these factors should be made when interpreting the results shown in Tables 11 and 12.

* 9 News release published on Sedar, 9 th Nov 2010

Peer group comparison: Sources and assumptions

1

In an attempt to compile as appropriate a group of peers as possible, VCL has undertaken peer comparisons using the World Gold Analyst Special Report- China 2007, and the TSX current company listings. Selected peers are companies with gold development or production operations in China.

2

Each company’s assets have been reviewed on a compliant NI 43-101 basis. Where additional defined resources and/or metals other than gold are present, these have been converted to a gold equivalent for means of comparison. The metal prices used in this conversion are taken from Platts on 11 th March 2011: Au US$ 1,411.5/oz; Ag- US$ 34.10/oz; Fe- US$ 171.5/tonne; Cu- US$ 9,048/tonne; Mo- US$ 35,805/ tonne; Zn- US$ 2,260/tonne; Pb- US$ 2,428.5/tonne.

3

Spot prices were taken from www.ft.com on 14 th March 2011.

4

Exchange rate values are taken from www.xe.com on the 14 rd of March 2011.

5

Number of shares outstanding is taken from the most recent Financial Statement or Management Discussion and Analysis available.

6

Where companies have both defined resources and reserves, peer comparison is based only on the reserves.

7

Continental Minerals Corp. has two Au-Cu projects in China, both with NI 43-101 compliant resources.

8

Eldorado Gold has three Au projects in China, a Au-Ag project in China, two Au projects in Turkey and one Au project each in Brazil and Greece. In addition there is an iron ore project in Brazil. Each project has an NI 43-101 compliant resource and is therefore included in the peer group comparison. Further exploration projects in Brazil, China, Turkey and the US do not have defined resources so are not included in the comparison.

9

China Gold International Resources Corp. Ltd. Has one Au and one polymetallic project in China. Both are incorporated into the peer comparison.

10

Minco Gold Corporation has one Au-Ag project in China. Minco also has a 29.5% interest in Silvercorp Metals Inc.

11

Inter-Citic Minerals Inc. has one Au project in China.

12

Mundoro Mining Inc. has one Au project in China.

Song Jiagou mine development project

Table 13a. Production schedule/mine plan.

Period

Tonnes mined,

including

Tonnes

moved to

Stockpile to

mill

Mill feed

Waste

Total

material

Strip

ratio

stockpile

stockpile

 

kt

Au, g/t

kt

Au, g/t

kt

Au, g/t

kt

1

1,400

0.742

-

-

-

-

1,400

2

2,442

3.431

237

0.334

-

-

2,442

3

2,442

2.881

332

0.331

-

-

2,442

4

2,442

1.868

344

0.329

-

-

2,442

5

2,442

2.201

284

0.33

-

-

2,442

6

2,442

1.696

304

0.33

-

-

2,442

7

2,442

1.76

262

0.335

-

-

2,442

8

2,442

1.803

207

0.332

-

-

2,442

9

2,442

1.635

212

0.335

-

-

2,442

10

2,442

1.316

222

0.333

-

-

2,442

11

2,442

1.27

211

0.335

-

-

2,442

12

2,442

1.45

202

0.331

-

-

2,442

13

2,442

1.554

182

0.334

-

-

2,442

14

2,442

1.539

185

0.334

-

-

2,442

15

2,442

1.422

264

0.331

-

-

2,442

16

2,442

1.162

319

0.333

-

-

2,442

17

2,442

1.256

251

0.332

-

-

2,442

18

2,442

1.226

316