The eastern Shandong (“Jiaodong”) gold district is divided from west to east into the Zhaoyuan- Yexian, Qixia, and Muping-Rushan gold belts. The Songjiagou Property is located within the MupingRushan gold belt situated in the eastern part of the Jiaobei Terrane, which contains about 20% of the gold reserves of the Shandong Peninsula. Gold mineralization is characterized as either vein-filling or as disseminated structures/stockwork.

Project area. A ductile shear zone and ductile brittle fault zone are major geological structures in the area. Major magmatic activity is represented by monzonite granite. Other veins include diabase, diorite, hornblende porphyrite, and lamprophyre.

Palaeoproterozoic metamorphic rocks of the Jingshan Group are mainly distributed to the north of the Project area near Tanjia village, and are comprised of biotite granulite, graphite-bearing gneiss, leucogranulite, and marble. These strata generally dip southeast with angles varying from 15° to 50°.

Cretaceous-age rocks are predominately represented by the Lisishan Formation, part of the Laiyang Group and comprised of conglomerate and sandstone. The Lisishan Formation in the Project area has an overall northeast strike and dips southeast with an angle of 20° to 40°. The formation is dividable into two conformably contacted sections according to the clast size. The first section of Lisishan Formation consists of relatively larger clasts with grain sizes of about 3 cm – 20 cm and is predominately composed of monzonitic granite and quartz; marble, gneiss, schist and granulite are occasionally visible in this section. The second section is characterized by more fine grained and rounded clasts made of sandstone and siltstone.

Gold mineralization of Songjiagou Project is hosted within the Cretaceous-age pyritic- sericitic conglomerate of the Laiyang Group Linsishan Formation. Gold enrichment occurs as veins as well as in disseminated and stockwork distributions. The vein-type mineralization is appropriately described as mesothermal; the disseminated and stockwork mineralizations have some aspects of epithermal mineralization but are both spatially and genetically associated with the vein-type, and so can be considered a variant of that type.

The Songjiagou Project’s conglomerate type gold deposit is believed to be associated with mesothermal filling activities and followed by alterations and metasomatism.

Wall rocks are generally consistent with the host rocks, comprised of conglomerate and occasional lamprophyre. Wall rocks and internal waste contain small quantities of gold, usually less than 0.10 g/t. The boundaries between wall rock, internal waste, and the host rocks are not visually obvious, and must be determined by chemical analysis.

Open pit
Mining inventory is loaded by excavator and then transported to the processing plant by truck.

In order to effectively control the grade and match excavator capacities, block sizes in the resource model were set at 10 m × 10 m × 5 m. Two benches were combined into one during optimization, and the final bench heihgt is 10 m.

Underground
The Songjiagou underground mine is situated approximately 405 metres northeast of the Company’s existing open pit operation. The formed concrete portal entrance provides access to a spiral ramp whose dimensions are 4.5 × 4.0 metres at a slope gradient ranging from 10-15% with the exception of curved portions which are slopped at 5% for safety reasons.

The ramp is sized to facilitate the use of trackless mining equipment including ore haulage to the surface process plant. The ramp was collared at an elevation of 80 meters a.s.l (above sea level) and is designed to achieve a total length of 2,075 meters in the first phase of development.

Underground mining operations are highly mechanized and include high efficiency, rapid- penetrating, hydraulic jumbo drills for development work, rotary drilling equipment employing extension steel for inclined medium and longer holes, 20 tonne dump trucks for ore haulage to surface via the ramp, and electric scrapers to facilitate ore recovery and loading in work areas.

The Company employs a mix of mining methods which are based on mining and geological conditions that are expected to be quite variable. Where warranted by ground conditions, mined out areas will be backfilled with tailings which - in addition to providing good ground support - reduces output into the surface tailings disposal area.

Ore blocks are typically 50-60 metres in length, with the thickness of the ore blocks determined by mining to an assayed rock face at a specific cutoff grade. One of the more common mining methods employed at Songjiagou is shrinkage stope mining whereby one third of the broken ore is drawn from the stope following blasting. The "swell factor" (broken ore expands by about one third when it's blasted) allows miners to work from a solid floor to facilitate ongoing mining.

Ventilation is provided by high capacity axial fans through air ducts secured by hangers on the side of mine passageways, while compressed air and water are introduced to the mine through metal pipes sized to accommodate fluctuating demand. Pumping stations have been installed underground to deal with water inflows - which are common in most underground mines – and the lifting system for the service shaft utilizes a multi-rope friction hoist with dual cages for transporting miners and their gear.

Primary Crushing
Haul trucks deliver the mining inventory from the open pit to the primary crushing workshop for grid screening, the underflow of which is sent to the mining inventory bin. Inventory with particle sizes less than 500 mm are fed to the jaw crusher by a heavy apron feeder, and the jaw crusher’s discharge is subjected to secondary crushing.

Secondary/Tertiary Crushing
A vibrating feeder feeds the primary crushing product to the cone crusher for secondary crushing. The crusher’s discharge is delivered to the vibrating screen for classification.

The screen oversize is conveyed to the cone crusher for tertiary crushing, and its discharge is conveyed back to the vibrating screen for classification. Particles passing the screen (-20 mm) are sent to the fine ore bin.

Grinding
The fine ore (-20 mm) is conveyed by the belt feeders to the ball mills. Each ball mill and its respective spiral classifier form a closed circuit for grinding. Ball mill discharge is classified by a spiral classifier. The continuously revolving spirals carry the settled sands up and discharge the sands into the mill feed chute. Overflow from the classifier flows to the flotation conditioning tank.

There are two fully operational processing plants at Songjiagou. One plant with a processing capacity of 1,200 tonnes-per-day commenced operation in 2006. Another plant with a capacity of 6,000 tonnes-per-day was put into production in May 2011, bringing the aggregate processing capacity at Songjiagou to 7,200 tonnes-per-day.

The Songjiagou processing plant includes conventional three-stage crushing within a closed circuit, grinding within a closed circuit, and flotation consisting of one stage of roughing, one stage of cleaning and two stages of scavenging.

The flotation process includes one stage of roughing, one stage of cleaning, and two stages of scavenging.

The slurry, mixed with sodium butyl xanthogenate (“SBX”) and frother (No. 2 oil) in the agitation tank, flows to the head cell of the roughing. The flotation tailings flow to the first scavenger flotation cells for further gold recovery. The rougher flotation concentrate is sent to cleaner f ........