Boroo Gold
Boroo Gold
Boroo Gold
TECHNICAL REPORT
on the
MONGOLIA
for
TABLE OF CONTENTS
Page
1. SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Boroo Gold Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Geology and Mineral Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Mining Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Projected Economic Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. BACKGROUND AND TERMS OF REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Terms of Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. PROPERTY DESCRIPTION AND LOCATION . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE
AND PHYSIOGRAPHY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5. PROJECT HISTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.1 Exploration History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.2 Production History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.3 History of Mineral Resources and Reserves . . . . . . . . . . . . . . . . . . . . . . . . 23
5.3.1 Historical Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.3.2 Recent Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6. GEOLOGICAL SETTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.1 Plate-Tectonic Setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.2 Boroo Bedrock Geology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7. GOLD MINERALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8. SAMPLING METHOD AND APPROACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.1 Historical Methods (pre-1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.2 AGR and BGC Methodology (from 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9. SAMPLE PREPARATION, ANALYSIS AND SECURITY . . . . . . . . . . . . . . . . . . 39
9.1 Historic Methods (pre -1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.2 AGR and BGC Methodology (from 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.2.1 1999 Drill Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.2.2 2002 and 2003 Drill Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.3 Bulk Density Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.4 Summary Comments on the Analytical and Bulk Density Databases . . . . . 46
10. DATA VERIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.2 Core Loss in JE Drill Holes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.3 Verification Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
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LIST OF FIGURES
Figure Page
1 Location Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2 BGC and CGM Exploration Licences, Northern Mongolia . . . . . . . . . . . . . . . . . 10
3 Boroo Mining and Exploration Licences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4 Site Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5 Boroo Area Drill Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6 Major Tectonic Elements, North-Central Mongolia . . . . . . . . . . . . . . . . . . . . . . . 27
7 Boroo Area Geology a. Surface Map . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
b. Typical Cross Section . . . . . . . . . . . . . . . . . . . . 29
8 Grade-Thickness Plan, Boroo Mineralized Zones . . . . . . . . . . . . . . . . . . . . . . . . 32
9 Geological Cross Sections a. Zone 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
b. Zone 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
c. Zone 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10 Lost-Core Intervals in 79 JE Intersections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11 Block Model Sections a. Zone 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
b. Zone 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
c. Zones 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
12 Ultimate Pit Design and December 31, 2003 Pits . . . . . . . . . . . . . . . . . . . . . . . . 65
13 Chargeability Results and Drill Hole Coverage, Boroo Area . . . . . . . . . . . . . . . . 77
14 Geological Setting, Gatsuurt Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
15 Regional Stream Sediment Survey Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
16 Panoramic View of Pit 2 and Mill Buildings, January 2004 . . . . . . . . . . . . . . . . . 91
17 Mill Flowsheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
18 Centerra Attributable Cash Flows - NPV Sensitivities . . . . . . . . . . . . . . . . . . . . 111
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LIST OF TABLES
Table Page
1 Boroo Mining Licences held by BGC, March 2004 . . . . . . . . . . . . . . . . . . . . . . . 12
2 BGC Boroo Area Exploration Licences - December 31, 2003 . . . . . . . . . . . . . . 15
3 Summary of Drilling Completed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4 History of Boroo Resource and Reserve Estimates . . . . . . . . . . . . . . . . . . . . . . 23
5 Average Bulk Densities of the Mineralization and by Weathering Zone . . . . . . . 45
6 Capping Levels on Individual Assays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7 Grade Interpolation Parameters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8 Development of Dilution Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9 Simulated Composites and Kriged Blocks Above 1.2 g/t Cut-off Grade . . . . . . . 57
10 Boroo Pit Design Parameters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
11 Boroo Mineral Reserves at December 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . 66
12 Boroo Life-Of-Mine Plan and Production Forecast . . . . . . . . . . . . . . . . . . . . . . . 68
13 Zone 2 Reconciliation as of March 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
14 Boroo Mineral Resources Additional to Mineral Reserves . . . . . . . . . . . . . . . . . 74
15 Noyon Project Mining Licences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
16 Noyon Project Exploration Licences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
17 Summary of Gatsuurt Drill Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
18 Central Zone Mineral Resource Estimate, Gatsuurt Deposit . . . . . . . . . . . . . . . 84
19 Planned 2004 Development and Exploration Drilling, Northern Mongolia . . . . . . 88
20 Boroo Employees December 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
21 Boroo Production Forecast 2004 - 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
22 Gold Sales 2004 - 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
23 Boroo Operating Cost Forecast 2004 - 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . 104
24 Royalty and Income Tax 2004-2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
25 Gold Cash Production Costs 2004 - 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
26 Project Costs 2004 - 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
27 Financing Costs 2004 - 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
28 Boroo Mine Net Cash Flow 2004 - 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
29 Boroo Net Cash Flow Attributable to Centerra . . . . . . . . . . . . . . . . . . . . . . . . . 110
30 NPV of Boroo Net Cash Flow Attributable to Centerra . . . . . . . . . . . . . . . . . . . 110
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1. SUMMARY
mineralization and the enclosing near-surface rocks have been subject to oxidation.
The oxide zone has the highest degree of oxidation, followed by a transitional zone,
and then the underlying fresh rocks in the primary zone of mineralization. The oxide
zone is the host to 40% of the mineral reserves on the Boroo property, and a further
45% are in the transitional zone, thus facilitating the recovery of gold in the treatment
of Boroo ore. The total depth to the bottom of the gold mineralization currently
planned to be mined is less than 130 metres reflecting the flat-lying nature of the gold
deposits.
Mineral reserves as at December 31, 2003 for the Boroo property have been
estimated using a gold price of $325 per ounce, and with cut-off grades of 1.1 to 1.4
grams of gold per tonne (g/t), that reflect differences in metallurgical recovery
depending upon the degree of oxidation.
Metallurgical testwork on samples of Boroo ore has resulted in forecasts of gold
recovery for oxidized, transitional and unoxidized ore of 95%, 90% and 77%
respectively, and those recoveries have been incorporated in the determination of
mineral reserves within the designed open pits.
Four open pits contain the current Boroo mineral reserves. Lower-grade material left
outside the present pit designs is reported as additional mineral resources, and much
of this additional gold mineralization is located within the unoxidized or primary rocks.
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The mining of mineral reserves at Boroo requires rather shallow open pits with a
consequent overall modest waste-to-ore strip ratio of 3.9, and with the possibility that
further drilling may result in some of the current pits being connected, adding to the
mineral reserves. The annual expenditures for mining decline over the period 2004 -
2009 as the strip ratio becomes less. Boroo is somewhat unique amongst mining
projects in that total mining costs, as a proportion of total operating costs over the
current life-of-mine plan, are lower than those presently forecast for either milling or
for administration costs, and illustrates the relative simplicity of mining at Boroo.
Gold production from Boroo will be about 200 000 ounces in 2004 and 2005 and total
in excess of 1.0 million ounces over the next six years.
Transitional 498 3.9 634 4.2 908 3.5 715 3.1 1 099 3.4 697 3.2 4 550 3.5
Fresh 1 1.7 245 4.3 388 3.2 127 2.6 247 2.9 603 2.8 1 612 3.1
Total 1 760 4.2 1 827 3.9 2 233 3.3 1 291 3.2 1 687 3.6 1 356 3.0 10 154 3.6
Ore Milled
1 723 4.2 1 750 3.9 1 750 3.4 1 750 3.3 1 750 3.6 1 469 3.1 10 191 3.6
Gold Sold
Ounces 212 201 170 168 180 132 1 064
Tonnes 6.6 6.3 5.3 5.2 5.6 4.1 33.1
average price of $316 per ounce, of which 10 000 ounces were delivered in April
2004. Revenue from the hedged gold sales has been included in projected cash flow
for the Boroo mine.
Based on projected gold production for the Boroo mine and associated operating
costs for the period 2004-2009, estimates for sustaining capital, royalty and taxes,
and a gold price of $350 per ounce for the six-year period, BGC would have net mine
cash flow for that period of $169 million, before allocation of funds for exploration
programs and repayment of the debt owing to Centerra for the funding provided to
develop the Boroo mine. At a gold price of $400 per ounce the net mine cash flow
would increase to $206 million.
The total capital investment to develop and construct the mining facilities of Boroo
was approximately $75 million which was largely financed by the loan advanced by
a subsidiary of Cameco Gold, now a subsidiary of Centerra. The consequent Boroo
net cash flow attributable to Centerra over the period 2004-2009 would be $109
million at a gold price of $300 per ounce and $147 million at a $400 price. The
Centerra economic interest in the Boroo net cash flow would be 83% at a $300 gold
price and 71% at a $400 price.
In summary, the performance of the Boroo project has been very satisfactory to date
with the project having been developed and brought into production as planned. The
operating results from the initial four months of operation have been very encouraging
with the gold grade of ore mined being higher than was forecast, and metallurgical
recoveries as anticipated. The Boroo mine should thus enjoy a successful minimum
six-year mine life.
Centerra is planning an aggressive exploration program on the Boroo property, and
within economic transport distance elsewhere in northern Mongolia, to take advantage
of the now established base in the region and further extend the life of the Boroo
operation. In particular the Gatsuurt deposit, 35 kilometres from Boroo, is being
studied as to the possibility of either providing one year of oxide ore to Boroo, or to
install a process facility on site to treat refractory non-oxide mineralization.
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2.1 General
The Boroo gold project in Mongolia is owned by Boroo Gold Company Limited (BGC),
a company incorporated in Mongolia. BGC is wholly-owned by Boroo Mongolia Mining
Company Limited (BMMC), a Bahamian company, which, in turn, is owned by AGR
Limited (AGR), an unlisted public company incorporated in the British Virgin Islands
with a 95% interest and by Altai Trading Company Limited (Altai), a Mongolian private
company, which holds the remaining 5% interest.
Cameco Gold Inc. (Cameco Gold), a wholly-owned subsidiary of Cameco Corporation
(Cameco), acquired an initial 51.85% interest in AGR on February 28, 2002 for $12
million in cash and a $4.8 million promissory note and subsequently increased this
interest to 56% by funding $3 million of exploration on the Boroo and nearby Gatsuurt
properties. The development of the Boroo mine has largely been financed by a $70
million loan provided by Cameco Barbados Inc. (now Centerra Barbados Inc.), a
subsidiary of Cameco Gold, with commercial production of gold declared on March
1, 2004. The Cameco Gold interest in the Boroo gold mine was transferred to
Centerra Gold Inc. (Centerra) on April 1, 2004. It is the intent of Centerra to make an
offer to acquire all or any part of the remaining 44% in AGR not held by Centerra.
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The results of the various historic field campaigns have been collated into a large
number of reports and technical documents (see References). The project database,
including a feasibility study prepared by AGR in December of 1999, was critically
reviewed by SRK Consulting in 2000 on behalf of NM Rothschild & Sons Australia
Limited. This review identified a number of shortcomings that were subsequently
addressed. An updated feasibility study for a project with a larger throughput of 1.75
million tonnes per year (compared to 1.3 million tonnes per year in the original study)
was completed by AGR in April of 2001, that included an updated reserve estimate
by SRK.
Following an in-house due diligence process, Cameco Gold acquired its initial interest
in AGR on February 28, 2002. A production decision was taken shortly thereafter,
based on the SRK (2001) mineral reserve estimate that was discounted by 20% on
the grade, while increasing the mineable tonnes by a like percentage. The reason for
the adjustments was the judgment by Cameco Gold staff that the 2001 SRK mineral
reserve estimate was too optimistic. Construction commenced in June 2002, and the
project started commissioning in early November 2003. Commercial production at
Boroo was achieved on March 1, 2004.
The mineral resources for the Boroo project were last estimated in July 2003 by
Geostat Systems International Inc. (Geostat). This estimate, prepared to National
Instrument 43-101 (NI 43-101) reporting standards, is currently the basis for the
December 31, 2003 reserve estimate and life-of-mine plan for the project. The
estimation process is under the control of the Cameco mining resources group at the
Cameco office in Saskatoon, Saskatchewan headed by Alain Mainville, P. Geo. and
Centerra in Toronto by Rob Chapman, P. Geo., each of whom is a qualified person
within the meaning of NI 43-101.
Strathcona Mineral Services Limited (Strathcona) has been retained by Centerra to
provide an independent technical review of the Boroo gold project. This review was
requested by Centerra in connection with its proposed initial public offering and listing
on the Toronto Stock Exchange. This report complies with the requirements for an
independent technical review as set forth in NI 43-101 pertaining to Standards of
Disclosure for Mineral Projects.
In preparing this report, we have relied on many of the earlier studies and reports. We
have not conducted independent sampling, or sample analysis, or surveys to verify
the validity of the assay data, the location of drill holes, or the location or validity of
mining claims. We have evaluated the data provided by BGC on the basis of our
experience in the mining industry, and particularly in the gold sector. In addition,
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Henrik Thalenhorst of Strathcona has visited the Boroo project from January 16 to 22,
2004 at which time all relevant technical and economic data were reviewed with BGC
staff both at the mine site and at the administrative and exploration offices in
Ulaanbaatar, the capital and principal city of Mongolia. A complete list of sources of
information and data is set out in the References section of this report.
As a result of our review of the Boroo gold project and the data supplied to us, we are
satisfied that the estimate of mineral reserves, and the life-of-mine plan based
thereon, for the project are in all material respects fair and reasonable subject to the
limits of uncertainty of certain data as expressed in this report.
This report uses the metric system of units, deviating only to report ounces of gold,
and the currency used is the United States dollar, unless otherwise indicated.
8
85°E 90°E 95°E 100°E 105°E 110°E 115°E 120°E
Jargalan Mandalgovi
Buyan-uhaa
Hovsgol
Dalandzadgad
82 82
80 80
76
KaralSea Laptev Sea 76
72 72
Baotou BEIJING
64
68 68
64
CHINA
iberia
Yakutia
rn S
60
110°E 115°E
60
Easte
90°E RUSSIA
YAKUTSK
95°E 100°E 105°E
CLIENT
CENTERRA GOLD INC.
56
56
Ru
75
ssia
Southeastern
52 NOVOSIBIRSK 52
Mining and Exploration Licences
nF
Siberia
And PROJECT
ar E
78 Transbaikalia
Boroo Technical Report
ast
48
IRKUTSK
96
CHINA KOREA
PA
PENINSULA
APPROVAL DATE
40
JA
Tsagaannuur RUSSIA
Suhbaatar
50°N
Shaamar
Dzuunburen N
50°N
Dulaahhaan
Yoroo
MONGOLIA Yoroohoroo
Darhan
49°N
49°N
Barunnharaa
Orhontuul
Dzuunharaa
BOROO MINE
Mandal
Ugtaaltsaydam Bayanchandmani
Dzaamar
48°N
Dumda
Urtaiin ULAANBAATAR
48°N
Bayantsogt
Bayshing
Hadasan
Nalayh
Bayandelger
Lun
Dashinchilen
Songino
Arhust
Altanbulag Dzuunmod
Ondorshireet
Naban Tseriyn
Guuiy Huree
Abdar Bayan Suma
Scale 1 : 2 million
0 20 100
47°N
47°N
Kilometres
Lambert Conformal Conic Projection CLIENT
Datum: Pulkovo 1942, Russia
Moron Buren Bayanbaraat CENTERRA GOLD INC.
PROJECT
107°E
104°E 105°E 106°E
Boroo Technical Report
108°E
Legend: TITLE
5404000m.N
5404000m.N
Boroo River
Scale 1 : 60,000
0 500 2,500
Man
Metres
Bay
UTM WGS84-48N 198A
N
dal
ang
1797X
Sou
ol S
m
oum
6964A
1970A
147
1960A
A
724A
5400000m.N
5400000m.N
1961A
1970A
238A
6963A
198A
1797X
72
2A
51
47
A
1970A (Boroo, 06 December 1999) 722A (Anod Bank) Boroo Mining and Exploration Licences
6963A (Bayangol, 17 January 2004) 5147A (Anod Bank)
APPROVAL DATE PROJECT No.
6964A (Boroogol, 17 January 2004) H.T. March 2004 329-7
238 A Bayangol Ikh Dashir 130 Jul 26, 1995 1 304 Mar 9, 2055
724 A Bayangol & Mandal Ikh Dashir Ar 90 Aug 14, 1997 900 Aug 14, 2057
1960 A Bayangol Boroo 571 Nov 29, 1999 4 283 Nov 29, 2059
1970 A Bayangol & Mandal Boroo 562 Dec 6, 1999 4 215 Dec 6, 2059
6963 A Bayangol Bayangol 25 Jan 17, 2004 125 Jan 17, 2064
6964 A Mandal Boroogol 345 Jan 17, 2004 1 725 Jan 17, 2064
7170 A Mandal Chandagat Uul 14 Mar 31, 2004 68 Mar 31, 2064
Mining Licence A-32 covering the Boroo gold deposits was originally granted to Altai
on July 4, 1996 for an initial period of 15 years. BGC was established in 1997 as a
joint venture between Altai (50%) and the London-based Asia Mining Investment
Corporation (AMIC, 50%). Mining Licence A-32 was transferred to BGC by the
Ministry of Energy, Geology and Mining on June 21, 1997 by Special Ministerial
decree (Order A\107). It was re-registered as Licence 198 A on September 20, 1997
as part of the adjustments when a new mining law was promulgated in Mongolia.
Mining licence 238 A was re-registered, also on September 20, 1997, from its pre-
decessor licence A-62 (originally issued to Mongol Erdene on July 26, 1995) and
subsequently transferred to Altai on January 23, 1998. Altai in turn transferred the
licence to BGC on May 5, 1999.
Mining licence 724 A was originally granted on August 14, 1997 to Altanhargui
Company covering part of an existing exploration licence. The licence was transferred
to the Nuuriin Gol Company on April 30, 1998 who subsequently changed their name
to Lanars Company. Lanars transferred licence 724 A to BGC on October 9, 2000.
Mining licences 1960 A, 1961 A, 1070 A, 6963 A and 6964 A were granted to BGC
directly on the dates indicated in Table 1. The two newest licence added in January
2004 serve to cover vital mine infrastructure such as the water wells in the Boroo river
valley.
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Centerra has advised that, other than a gold and silver royalty of 2.5% payable to the
Mongolian Government (Section 17.4) and a 50% profit royalty payable to Altai in
case of gold production from alluvial operations on licence 238 A, there are no other
royalties, payments or other agreements or encumbrances related to the Boroo
mining licences.
Surface rights have been negotiated with the soums, providing sufficient surface area
for the mill, for tailings and waste rock disposal. An order of the governor of Bayangol
soum dated November 11, 2003 provides BGC with the use of 1451.7 hectares for
ten years for an annual payment of 12 million tugriks (the local currency, currently
approximately $10 000). A similar order by the governor of Mandal soum dated
November 5, 2003 provides BGC with the use of 274 hectares for an annual payment
of 4 million tugriks (currently approximately $3400).
The mining license areas held by BGC enclose a mining license covering the Altan
Dashir placer gold deposit, owned and operated intermittently by Undram Sed, a
Mongolian company. While this enclosed area does not hinder operations, BGC have
agreed in principle to acquire this licence in consideration for a cash payment and to
enter into a two-year agreement to use equipment operated by Undram Sed.
The Government Committee Act on Commissioning of the Boroo facilities into
operation has been passed and gives BGC the right to operate and produce gold.
The Stability Agreement, originally concluded between BGC and the Mongolian
Government represented by the Minister of Finance on July 8, 1998 and amended on
May 9, 2000, stipulates that there will be no nationalization, compulsory acquisition
or illegal confiscation of the project by the Government of Mongolia. The Stability
Agreement applies to any gold production from the Boroo gold deposits.
The Stability Agreement further provides for BGC to be exempted from income tax for
the first three years of production, and for reduced income tax thereafter. It also
allows the mine to offset value-added tax against certain taxes payable (as provided
for in the Value Added Tax Law of Mongolia), allows the unlimited export of physical
gold, and the deposit of proceeds from gold sales in an offshore account provided that
sufficient funds are retained in Mongolia to pay royalty fees and taxes. The tax
provisions of the Stability Agreement are discussed in greater detail in Section 17.
A general site map is provided in Figure 4. Power for the operation is supplied from
the main Mongolian grid via a 110 KVA line that has the capacity to supply 40 MW of
power to the site. The national grid is connected to the Russian grid in the north.
13
584000m.E 586000m.E 588000m.E 590000m.E 592000m.E 594000m.E
Boroo
5404000m.N
5404000m.N
River
Powerline
N
ad
Ro
Water pipeline of
Outline of
Man
Undram Sed Co. Ltd.
Bay
Mining Licences Main Pump
Dump Station
dal
5402000m.N
5402000m.N
ang
Clay Pit Top Soil
Sou
ol S
Dump
m
oum
Top Soil Tailings
Pond
Explosives Powerline
Magazine Workshop Camp Monitoring Well
Well
Waste Crusher and
Dump Mill Complex Water
Water Pipeline Powerline Pipeline
5400000m.N
5400000m.N
Farmland
PIT 2 Well
Top Soil Water Pipeline
Camp
PIT 5 Gravel Well
Pit
Well
CLIENT
CENTERRA GOLD INC.
Si
te
Waste
Ac
Dump
ss
Ro
TITLE
ad
Site Map
Ro
Scale 1 : 50,000
ad
0 500 2,500
APPROVAL DATE PROJECT No.
5396000m.N
Historic records indicate a generally stable power supply, with few interruptions. A
power supply agreement was entered into by AGR on August 21, 2000 with the
Electrical Power Supply Office of Darkhan Province, a Mongolian-registered company.
The price per kilowatt-hour (kWh) was set at 41 tugriks, but has since been increased
to 47 tugriks, the current rate (about $0.045 per kWh). A new power supply
agreement is expected to be concluded during the second quarter of 2004.
Other agreements include a water supply agreement with the Mandal Soum that
covers the taking of water from five wells along the Boroo River. The annual payment
for the water is nominal, amounting to the equivalent of $15 000.
BGC also controls a number of exploration licences that surround the area covered
by the mining licences. These are shown in Figures 2 and 3 and are summarized in
Table 2.
Note: The expiry dates of all exploration licences granted in the first half of 1997 were extended by the
Mongolian authority to October 1, 2004.
The exploration licences held by CGM (Figure 2) will be reviewed in Section 14,
where the exploration results on the various BGC and CGM exploration licences will
be summarized as to their potential to provide supplementary ore supply to the Boroo
process plant.
25 cm of precipitation per year, most as rain during the rainy season of July and
August.
The operating conditions resemble those that might be found in northern Alberta or
the southern parts of the western Northwest Territories, if perhaps somewhat drier.
There is no principal impediment to industrial activities as exemplified by the operation
of the placer gold dredges that operate from April through October when streams are
ice-free, and by the large Erdenet open-pit copper-porphyry mine, located some 180
km west of Boroo, which operates year-round. The Erdenet mine reportedly milled 24
million tonnes of ore in 2001 from which 460 000 tonnes of copper concentrate (27%
Cu) and 3000 tonnes of molybdenum concentrate (50% Mo) were produced
(International Finance Corporation, 2002). The Boroo mining project will operate
continuously throughout the year.
The Boroo project provided employment for 453 permanent employees as of
December 31, 2003, of which 408 were citizens of Mongolia and 45 were expatriates.
In addition, there were 118 seasonal Mongolian workers and contractors, most of
whom were employed for the continuing tailings dam construction.
The mine site is served by the Mongolian national power grid via a 110 kVA line that
connects to a 110-kV overhead power line. Reliability of the system appears to be
good, however, the mine maintains emergency generators capable of supplying
power required for vital services in case of power outages. Fresh water for human and
industrial use is taken from five wells that tap into the water table in the Boroo River
valley (Figure 4). Draw-down tests have shown that a supply in excess of 80 litres
per second can be sustained from the five wells which compares to a maximum
requirement of 70 litres per second.
Boroo has all of the required facilities to support production such as a camp/residence
for the employees, a warehouse, maintenance shops, offices, and other services. A
description of the essential mining, treatment and general operating facilities is
provided in Section 15.
5. PROJECT HISTORY
The Boroo deposit was reportedly discovered in 1910 and was exploited by Mongolor
on an industrial scale until the 1920s when the facilities were destroyed during a civil
war. Activities did not start again until about 1933, when the gold potential of the area
was again investigated, followed by the installation of a gold refinery in 1942 that
probably treated gold from the mining of a number of individual, near-surface quartz
17
Strathcona Mineral Services Limited
veins (Cameco Gold Mongolia Inc., 2004b). There are no production records from this
time. Events in the ensuing years until about 1965 remain undocumented.
18
Strathcona Mineral Services Limited
In May 1998 Resolute Limited (Resolute), an Australian gold mining and exploration
company, was introduced to the project, and at the end of 1998, a tentative
agreement was in place whereby AGR, an affiliate of Resolute, would indirectly
acquire 85% of BGC. The remaining 15% was retained by Altai. In August 2000, AGR
purchased two-thirds of the Altai interest, leaving Altai with a 5% indirect interest in
BGC.
In preparation for a bankable feasibility document, AGR undertook a significant in-fill
drill program of the deposit area in 1999 to bring the existing “reserves” to comply with
the Australian JORC code for reporting of mineral resources and mineral reserves.
The definition drilling program aimed to evaluate mineralization within optimized pit
shells developed by Resolute in July 1998. The main zones of mineralization were
drilled on a nominal 40-metre by 40-metre pattern. Ulaanbaatar-based Gobi Drilling,
a division of Radial Drilling of Townsville, Australia, was contracted for a combined
reverse circulation (RC) and diamond drilling program undertaken in 1999.
The intention was to drill at right angles to the geology as mapped, rather than at right
angles to the mineralization as interpreted, in case the lithological control of
mineralization was stronger than previously thought. Therefore, holes of the main RC
drilling program were inclined at 60°, with an azimuth of 270° with respect to the local
grid over Zones 2, 3 and 5. Over Zone 6, the holes were inclined at 60°, with an
azimuth of 270° UTM grid. Lithological control on mineralization was expected to be
strongest where large blocks of metasediment occurred within the granitoid sections
of Boroo Zones 2, 3 and 5. Drill hole depths were designed to test the main ore
envelope and to intersect lithologically-controlled mineralization that might lie within
a mineable distance below it.
Three drilling programs with tightly-spaced RC holes were also undertaken by BGC
in 1999 to establish the continuity of mineralization and to provide a geostatistical
basis for the mineral resource estimation process. These were completed on the
deposit planned to be mined first (Zone 5) and on an interpreted “high grade lens” in
Zone 3, with the third cluster providing more general information in the northern part
of Zone 3 (Figure 5).
As will be detailed in Section 10.2, the DDR-MPR core holes did appear to have a
low-grade bias as compared to the more recent RC drill hole results. Consequently,
additional RC in-fill drilling was undertaken in 2002 and 2003 by BGC to investigate
this question resulting in a substantial amount of additional data being created.
Drilling in 2002 was conducted by Major Pontil, a large Australian drilling company,
which supplied a UDR 650 multi-purpose drill rig mounted on a truck.
19
Strathcona Mineral Services Limited
The various drill programs at Boroo are summarized in Table 3, sub-divided into drill
holes that are reflected in the current resource estimate and the newer holes that are
not.
Total Available for Resource Model (July 2003) 738 52 060 713
2002 CGM for BGC RC BX 16 1 953
2003 BGC RC BRC 223 8 475
1
Mineral Resource Estimate by Geostat, July 2003
20
584000m.E 585000m.E
Explosives
Legend: Magazine
5400000m.N
0
Roads (December 31, 2003) Secti
on (F
igure
9a &
11a)
Sec 2
0
Crusher and Mill
Complex
Secti Sec 3
on (F 0
igure
9b &
11b) Zone 3
5399000m.N
5399000m.N
Sec 4
5W Sec 4
0
Zone 6
Sec 4
6
N
Sectio
n (Fi
gure
Zone 5 9c &
11c)
Licence Exclusions
Boundary
CLIENT
Sec 6
3W
CENTERRA GOLD INC.
PROJECT
Boroo Technical Report
5398000m.N
TITLE
The Morrison-Knudsen holes drilled in 1992-94 were excluded from the resource
model database because of poor recoveries. Also, only three of the BG 1997 holes
were used for resource estimation because of collar survey errors for the six others.
The total drilled in 2003 includes about 50 condemnation holes that did not encounter
any mineralization of economic interest.
Figure 5 shows the coverage by the various drill campaigns, the original DDR-MPR
(section lines 1 to 63) and the newer exploration grids which have an orientation of
N 15° E. The Geostat block model, the basis for the current mineral reserve estimate,
has the same orientation. Boroo mining operations, in contrast, use a truncated
Gauss-Kruger grid aligned with astronomic north, also shown in Figure 5.
For all of the holes drilled at Boroo, collar locations have been surveyed. Down-hole
deviations have generally not been determined. This is not considered a serious
omission as the mineral resources at Boroo are at shallow depth, mineralized drill
intercepts are rarely more than 75 metres down the hole, and a majority of the drill
holes are vertical.
22
Strathcona Mineral Services Limited
Historical Estimates
1999 BM, PO, PD AGR Reserve Unclassified 1.0 11.0 2.8 1.0
Recent Estimates
2001 BM, PO & PD SRK Reserve Probable 1.0 to 1.4 9.4 3.8 1.1
2001 Factored Cameco Reserve Unclassified 1.0 to 1.4 11.2 3.2 1.1
2003 PO & PD Geostat Reserve Probable 1.1 to 1.35 10.3 3.5 1.2
Note: CoG = Cut-off grade; BM = block model; PO = pit optimization; PD = pit design; HL = heap leach
2
Category B in the Soviet system is broadly equivalent to the current “proven”, C1 to the current “probable”
category. Only about 14% of the 1989 total was classified as category B.
3
Recoverable ounces, using a recovery of 90%
4
Resources include the reserves on the line below
23
Strathcona Mineral Services Limited
All of the mineral resource and reserve estimates in the upper part of Table 4 are
“historical estimates” for the purpose of NI 43-101 that use essentially the original
DDR/MPR drill database except for the 1999 AGR estimate that was used for the
feasibility study of that year.
Alluvial gold deposits occur in valleys extending east from the Boroo deposit. The
largest of these deposits, Ikh Dashir, prominently displayed as a brown scar on the
Frontispiece, was originally evaluated by the DDR-MPR expeditions from 1985 to
1989 to contain “economic reserves” (C1 plus C2) of 2.8 million cubic metres contained
in two horizons with an average gold grade of 1.7 g/ m3, determined using prescribed
Soviet methods such as cable-tool drilling and vertical sample pits. The Ikh Dashir
deposit has in the interim been worked by a Mongolian government-owned company
24
Strathcona Mineral Services Limited
on a seasonal basis. BGC has estimated that about 60% of the original “reserve” is
currently remaining. This colluvial placer will in part have to be removed during pre-
stripping of Zone 3, and detailed grade control drilling at that time will be performed
to determine what portion can be mined and processed. This material is not now in
the Boroo mineral reserves or in the life-of-mine plan.
25
Strathcona Mineral Services Limited
6. GEOLOGICAL SETTING
The bedrock geology of the Boroo area (Figures 7 a and 7 b) is dominated by the
folded Haraa sediments, (PZhr in Figure 7 a), a fairly monotonous sequence of flysch
sediments consisting of siltstone, sandstone and greywacke. These rocks are of
regional extent and are interpreted to be of Late Proterozoic to Lower Paleozoic age.
Intrusive rocks of the Boroo Complex, of early Paleozoic age (~520 to 450 Ma), have
intruded the sediments. In the area, the Boroo complex is represented by leucocratic
granite and granodiorite (PZgr), underlying the eastern part of Figure 7 a. Detailed
drilling around the Boroo gold deposits shows that the contact between the intrusive
and the sedimentary rocks is highly irregular, with sedimentary xenoliths floating in the
intrusive rocks in the border zone. A significantly younger igneous event of probably
late Paleozoic age is restricted to narrow dikes and fissures of granitic to dioritic
composition.
26
105°E 106°E 107°E 108°E
RU
Tsagaannuur
M
Suhbaatar
SS
O
IA
NG
Dzuunburen
50°N
O
Shaamar
LI
50°N
A
way
N
n
ai
Dulaahhaan
h
Hig
rr
in on e
oc sin in
ar rat e T
u ts k
rm
ge Ba ra
tfo
z M le C g
r
la
r-Ir
n
M stic e
eP
e
Pz la i T
r P ab e
lin
pe St el
a ta
id s C te
S
nba
o-
-m ou n
io
rly gen e
at
Ea erri Kh
Ula
ry
Ta
r th
Up
Darhan
No
T
in
e as
ge ca n
lin B
Eu Vol ai
oc nic
Pz + rr
id tic Te
Sharingol
rly C tei
Ea ous en
-m las
en h
K
49°N
r rig
Te
49°N
Barunnharaa
Permian
Volcanic
Dzuunharaa Complex
oc sin in
DEPOSIT
ge Ba ra
Jargalant
M stic e
r
e
Pz la l T
lin
Bornuur Permian
id s C te
Volcanic
-m ou n
io
rly gen e
Complex Ea erri Kh
Ugtaaltsaydam Bayanchandmani
h
ut
Dzaamar
So
T
48°N
ULAANBAATAR
48°N
Bayantsogt
Lun
Nalayh
Scale 1 : 1.5 million CLIENT
0 10 50 CENTERRA
DZUUNMOD GOLD INC.
PROJECT
Kilometres
Lambert Conformal Conic Projection; Datum: Pulkovo 1942, Russia
Boroo Technical Report
TITLE
PZgr PZgr
PZhr
5401600 N
5401600 N
Licence Exclusions Qal
Boundary
Q
N
Qal
PZgr
PZgr
PZhr
Qal
PZhr Q
gr Q
PZgr
5400600 N
5400600 N
Qal PZgr
PZgr
Q PZhr
PZgr gr
dr
Qal
A Q
Zone 2
gr
JE117
5399600 N
OPERATIONS
Q
Qal
Q PZhr Q
Q PZgr
PZhr Qal
A’(Se
eF
PZhr igu
re 7
b)
gr
Licence Exclusions
Zone 3 PZgr Boundary
PZgr
Zone 6 5º
PZhr
5398600 N
5398600 N
PZgr
gr
Qal
PZhr
PZhr
Scale 1 : 20,000
0 200 1,000
Zone 5 Q
Q
Metres
Legend: UTM WGS84-48N
Paleozoic
Fault (observed) Boroo Technical Report
Fault (approximate) TITLE
gr Granite
dr Diorite Fault (inferred) Boroo Area Geology
PZgr Granite and granodiorite,
Surface Map
Surface projection of
Boroo Complex 0.8 g/t envelope APPROVAL DATE PROJECT No.
H.T. March 2004 329-7
Lower Paleozoic (August 2003)
PZhr Siltstone, sandstone and STRATHCONA MINERAL SERVICES LIMITED
graywacke (partly metamorphosed), TORONTO - CANADA
Haraa Series File:
04BorooGeolMap.cdr Figure 7a
Map Source: Geological content from Centerra Gold Inc.
A A'
1,200 m 1,200 m
gr
JE117
PZhr
dr
1,000 m 1,000 m
ZONE 3
PZgr
200
Legend: Vertical
Scale
Quaternary
Qal Sediments, alluvium Geologic contacts
Q Diluvium Horizontal Scale 0
Fault (approximate)
Paleozoic Fault (inferred) 0 100 500
gr Granite
Metres
dr Diorite
Mineralized zone, Boroo Deposit
CLIENT
Granite and granodiorite, Boroo Complex
CENTERRA GOLD INC.
PZgr
Selected drill holes
The fault pattern, with the exception of the gold-bearing structures, is poorly known,
but two crossing, high-angle, faults are indicated in Figure 7 a, one of them striking
70°, the other 340°, parallel to the Highway Fault mentioned above. The trace of the
340° fault, in its northern part, is directly underneath the Ikh Dashir Placer. A parallel
fault is indicated on the satellite picture some 1.7 kilometres to the east
(Frontispiece).
Much of the general area around the mine is covered by overburden that can reach
several tens of metres in thickness and that consists of colluvium and loess, and
minor alluvium deposited in head water drainages. The alluvial deposits can contain
significant gold placer deposits. In addition, the colluvium deriving from Zone 3 also
contains placer resources.
Oxidation has affected the rocks in the area to a depth of 40 to 60 metres. Oxidation
is accompanied by kaolinization of the feldspar crystals in the granitic rocks, but, not
having taken place under tropical conditions, has not progressed to the formation of
a saprolite profile, with the rocks retaining most of their original strength even near-
surface.
7. GOLD MINERALIZATION
Bulk-mineable gold mineralization at Boroo is controlled by a northerly trending
structure that has been followed for a distance of three kilometres and is interpreted
to be a thrust fault that is nearly flat or dips at a low angle to the west (see section in
bottom part of Figure 7) that cuts across the intrusive contact between sediments and
granitic rocks in the north, but is entirely contained within the sediments in the south.
The surface trace of this feature is shown as a dark black line in Figure 7 a.
There is a question as to whether there is more than one such mineralized structure,
and the interpretation shown assumes that the southern zones of ore-grade
mineralization are actually on a second, upper thrust compared to the northern parts.
However, an alternate explanation would be a cross-cutting fault with a relatively
minor vertical movement. While this question remains unresolved, some of the deep
holes drilled during the DDR-MPR program have given strong indications of similar
mineralized thrust structures at depth.
The main low-angle fault(s) is (are) variously altered and mineralized, and where
these features are strongest, individual deposits are formed. These are termed, from
north to south, Zones 2, 3, 5 and 6. Mining has started at Zone 2 (Pit 2) and Zone 5
30
Strathcona Mineral Services Limited
Grade-thickness contours show the same overall elongation (Figure 8), probably
caused more by the width than by the gold grade, with the “stacking” of multiple,
superimposed zones of alteration and mineralization responsible for the thicker parts.
The thickness of the individual deposits thus varies from a few metres at the deposit
edges to several tens of metres and averages around 20 to 30 metres except for
Zones 5 and 6 that are closer to 10 metres. Figures 9 a, b and c provide sectional
views of the three main deposits, with Zones 5 and 6 shown together in Figure 9 c.
Two main, but rather different types of alteration and mineralization have been noted:
• Gold-sulphide zones host the largest proportion of gold mineralization at Boroo.
This type manifests itself as an earlier, gold-pyrite-arsenopyrite-quartz phase that
occurs in thin, irregular veinlets, less often in breccia zones, and disseminated
within a pervasive zone of quartz-sericite alteration (“beresite” in the Soviet
nomenclature). This earlier type is overprinted, and locally completely replaced,
by a carbonate-bearing phase that is also quartz-sericite dominated and contains
disseminated sulphides. It appears that the gold in this mineralization is relatively
fine-grained. The overall intensity of the “beresite” alteration changes within the
individual mineralized zones;
• The second major gold bearing facies are massive, white quartz-sulphide veins
in which gold is commonly coarse-grained. From a volume point of view, this type
is subordinate, but can carry very high gold values of up to several hundred grams
per tonne.
The sulphide content in both types is relatively low, typically a few percent.
Geochemical assay results from the BGC due diligence drilling indicates that, in
keeping with the sulphide species observed, arsenic is highly anomalous (up to
21 500 ppm), but a positive correlation with gold is restricted to gold values up to
31
584000m.E 585000m.E
Legend:
Diamond Drill Holes Reverse Circulation Holes Explosives
Magazine
JE MRC
5400000m.N
Roads (December 31, 2003)
Metres
UTM WGS84-48N
Zone 3
Licence Exclusions
Boundary
5399000m.N
5399000m.N
N
Zone 5
Zone 6
CLIENT
CENTERRA GOLD INC.
PROJECT
Boroo Technical Report
5398000m.N
5398000m.N
TITLE
Grade-Thickness Plan,
BOROO GxT Boroo Mineralized Zones
(m x g/t)
100
150
200
10
20
50
2
JE050
ACTUAL PIT
JE052
Dec. 31, 2003
BR
BR
BR
20
JE003
BR
C0
C0
MR
C0
JE023
JE004
C0
JE101
Surface
JE014
00
C0
00
MR
00
C2
JE053
83
84
00
85
69
1100m. elev. 1100m. elev.
86
gr
Q Q
Q Q
Q ga Q Q
sst Q
g
sstr ga ga gr ga
ga wrk ga
gr ga ga dim gr ga
ga flt qvz flt flt
dim ga qvzt
qvz
ga fqltvz ga gr gr qvz
flt gr dim fl dim
Base of sst flt z flqtvz ga gr
qv ga dim grst
ga gr s
Oxide gr
flt ga ga dim
ga
--
ga dim ga
gr flt ga
dim
gr ga dim ga
dim dim ssta
sst
sst ga sst g ga
dim ga m ga dim ga
sst flt dim dim
ga m di
sst ga
dim di ga gr
sst
MR
1050m. elev. ga 1050m. elev.
ga
C2
gr gr
sst gr gr
67
sst gr
sst dim
qvz ga
flt
qvz sst sst
ga
sst sst qvz gr
sst
MR
gr
Top of
C2
ga
Fresh Rock
68
1000m. elev. 1000m. elev.
Scale 1:1,250
0 10 50
950m. elev.
Legend: Metres
Drillhole
Quaternary Drillhole collar
Base of oxide MRC158
Sediments, alluvium Q
Drillhole number CLIENT
Diluvium
Top of fresh rock sst
CENTERRA GOLD INC.
qvz PROJECT
Paleozoic Boroo Technical Report
Diorite Drillhole trace TITLE
Quartz vein Drillhole lithology Geological Cross Section
Granite and granodiorite, Zone 2
Boroo Complex (Looking North)
APPROVAL DATE PROJECT No.
0.8g/t envelope (August 2003) H.T. March 2004 329-7
Lower Paleozoic
Siltstone, sandstone and STRATHCONA MINERAL SERVICES LIMITED
graywacke (partly metamorphosed), TORONTO - CANADA
Haraa Series Map Source: Geology and Drillhole contents from Centerra Gold Inc. File:
04Sect14120N_geo.cdr Figure 9a
6600m.E 6700m.E 6800m.E 6900m.E 7000m.E
JE091
1150m. elev. 1150m. elev.
Q
sst
330
ga
50
49
48
90
sst
MRC
C0
C0
MR
35
MR
C0
MR
C0
46
47
45
ga
MR
MR
C3
Surface
C14
MR
C0
sst
MR
C0
C0
C14
Q Q
C13
dim Q Q s
MR
sstst gr Q
MR
MR
MR
Q gr
1
gr gr
0
6
ga Q Q gr ss gr
Q Q gr t
Q qvz sst sst sst
sst sst
gr
qvz
Base of sst
ga gr gr
sst r
Oxide grg sst
1100m. elev. gr
sst
gr 1100m. elev.
gr sst
gr gr gr
ga
sst
gr ss sst
sst t gr
sst gr
qvz gr
flt sst
qv qvz
gr gr z gr
qvz sst
dim gr qvz
sst flt sst
ga dim gr qvz gr
sst Top of
ga qvz gr
1050m. elev. Fresh Rock 1050m. elev.
gr
sst
0.8g/t Au gr
sst
Envelope
qvz ULTIMATE PIT
ga
qvz DESIGN
ga
ga sst
sst
ga
Scale 1:1,250
0 10 50
Legend: Metres
Drillhole
Quaternary Drillhole collar
Base of oxide MRC158
Sediments, alluvium Q
Drillhole number CLIENT
Diluvium
Top of fresh rock sst
CENTERRA GOLD INC.
qvz PROJECT
Paleozoic Boroo Technical Report
Diorite Drillhole trace TITLE
Quartz vein Drillhole lithology Geological Cross Section
Granite and granodiorite, Zone 3
Boroo Complex (Looking North)
APPROVAL DATE PROJECT No.
0.8g/t envelope (August 2003) H.T. March 2004 329-7
Lower Paleozoic
Siltstone, sandstone and STRATHCONA MINERAL SERVICES LIMITED
graywacke (partly metamorphosed), TORONTO - CANADA
Haraa Series Map Source: Geology and Drillhole contents from Centerra Gold Inc. File:
04Sect13360N_geo.cdr Figure 9b
6300m.E 6400m.E 6500m.E 6600m.E
ACTUAL PIT
Dec. 31, 2003
Surface
BRC00250
1250m. elev. 1250m. elev.
JE211
24
C1
MR
4
Q
C11
Base of
MDD07
sst
Oxide
MR
12
sch Q
C1
s
sst shst
MR
54 JE322
sst sst s c Q
hc
07
shc
--
C1
sst sst ssst sst
hc
46
MR
47
sh
49
sst c
C1
shc
58
59
C1
C1
C1
MR
Q
C1
C1
sstsst
MR
shc
MR
42
MR
sst
MR
MR
shc
41
08
00
1200m. elev. sch sst shc Q Q 1200m. elev.
00
C1
C0
sst shc sst sst Q
C0
sst
MR
BR
sst sh qvz sst
--
JE346
sst c qvz sst
BR
di shc sst sst Q
Q
--
sst sst qvz sst dim Q
qvz sst qv flt
sst z sst
sst sst sst s st qvz qvz qvz
Top of qvz sst
sst qvz Q
Fresh Rock shc sst
qvz sst
--
ss ss qvz sst sst
shct qvzt
sst
--
sst qvz dim sst
qv sst
sst z
0.8g/t Au sst
sst di
sst sst
Envelope sst
dim
dim
1150m. elev. sst 1150m. elev.
15
flt
ULTIMATE PIT
C1
MR
sst
DESIGN
about 2 g/t. Sulphur shows the same pattern, being noticeably lower in the higher gold
grade ranges. This would appear to separate the two main types of
mineralization/alteration described above. Silver values are generally low and are not
obviously correlated with gold, with most samples below the detection limit of 2 g/t.
Silver values can be higher in the quartz veins.
Given their very different macroscopic and geochemical character, the two types of
mineralization/alteration would also be strongly suspected to have different gold grade
distribution patterns.
The low-angle fault is often accompanied in its footwall by fine-grained, intermediate
to mafic dikes termed “microdiorite”. The weight of the evidence suggests that the
dikes are younger than the mineralization, which they are also seen to cross cut,
albeit in patterns that are difficult to discern with the existing drill hole spacing.
It has long been recognized that the degree of oxidation is an important economic
parameter at Boroo, as the gold in the fresh ore has a refractory component that limits
the metallurgical recovery. Three facies of oxidation have been defined. All sulphides
are completely or predominantly oxidized in the oxide zone, and additionally, the
feldspars in the granitic rocks have been partly or completely altered to kaolin. In the
transition zone, kaolinization of the feldspars is partial and the original sulphides
survive in the core of oxidized grains. This process has liberated enough of the gold
that metallurgical recoveries are nearly as high as in the overlying oxide zone. In the
fresh zone, there is no discernable oxidation in the drill core or in the RC chips. The
metallurgical significance of the different weathering zones is discussed in Section
15.2.
Nearly one-half of the current resource drill hole database is constituted by the JE
holes, drilled by the DDR-MPR expeditions in the years 1981 to 1989. When BGC
conducted their due diligence drilling in 1997 under the supervision of an independent
Australian consulting firm, a critical review of the DDR-MPR database and the
underlying sampling and assaying methods was also conducted, as described in
Waltho, 1998. Waltho also inspected some of the DDR-MPR drill core that was then
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Strathcona Mineral Services Limited
“.. still in quite good condition, considering handling of core during splitting and
sampling.” (Waltho 1998, page 83).
Waltho reports that the drill logs and assay ledgers were of excellent quality, and
describes the sample protocol used that observed lithologic boundaries and identified
sections of lost core. This latter item will be of importance when discussing the Boroo
grade estimation, that is to some extent dependent on how the lost-core intervals are
handled in the compositing process. We have observed copies of a few of the JE drill
logs which consist of a graphic and descriptive portion, the latter in Russian.
Nearly all of the drill core was split in two, and a one-half split submitted for assay.
According to SRK 2000, most of the sampling appears to have been done by splitting
rather than sawing. Full core was used for assaying in cases where the core was
smaller than 76 mm and for drill holes that were spaced so tightly that their results
were used to estimate Soviet category B resources. Unfortunately, most of the
remaining half-core is now largely lost, having been misplaced or destroyed since
1997 and was not available for the Cameco due diligence study or this review, or for
future reference.
The underground openings excavated by the DDR-MPR expeditions in Zones 3 and
5 were systematically sampled on a 0.2 by 0.2-metre grid, yielding 7 kg per sample
consisting of 20 to 25 rock pieces (Waltho, 1998).
On the basis of the evidence given by authors who had the opportunity to observe the
results of the historical methods and approach to drill core sampling, we conclude that
the methods applied reflect historical and current industry standards, and that there
are no obvious negative issues.
In 1997 BGC conducted a due-diligence drilling program of nine diamond drill holes
(Table 3). Drilling was performed by Vancouver-based Can-Asia Drilling Services Ltd.
The holes were sampled by Australian consultants Mining and Resource Technology
(MRT) personnel in Mongolia (Waltho, 1998). The core was stored at the BGC
exploration camp in a locked shipping container to which only the BGC camp
manager and chief geologist had access. MRT sampled the drill holes following
lithological intervals based on the BGC geological logs in a manner that provided
samples with an average down-hole length of about one metre. Whole core was
sampled, and 661 samples were packed in heavy plastic bags which were sealed
using staples and a self-adhesive label that would be damaged or destroyed if any
attempt was made to open the sample bags. Bags were carefully packed into small
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Strathcona Mineral Services Limited
wooden crates that were nailed closed for shipment to Analabs in Townsville,
Australia. All samples arrived in good condition with no evidence of tampering.
Drill core from the 28 MDD holes drilled in 1999 by AGR was shipped to Analabs in
Ulaanbaatar for sawing. SRK (2000 a), who were able to physically inspect much of
the JE and later BGC drill core pronounced themselves satisfied: “In summary, core
sampling is considered by SRK to be acceptable for the purpose of the project” (SRK
2000 a, page 11), with the “purpose of the project” referring to the AGR feasibility
study.
Subsequent drilling was by the reverse circulation method only. The sample protocol
used for the MRC holes in 1999 is described in SRK (2000 a). There was a first-pass
sample taken by scooping chips from each one-metre interval and combining into
four-metre composites. One-metre “re-samples” were taken at the same time, using
the more conventional and more reliable Jones riffle splitter, however, these were only
submitted for assay if the four-metre composite “scoop” assay returned a value of
greater than 0.2 g/t. The samples from occasional wet intervals were also taken by
scoop, an unsatisfactory method. There is no record showing how many RC holes
had wet intervals, and how many such intervals are in the database.
After Cameco assumed responsibility for the project in March of 2002, the logging and
sampling protocols were improved. Major changes were focussed on improvement
of the sampling quality which included on-site chip tray filling, permanent geological
control and preliminary field logging. Chip trays were sent to the CGM Ulaanbaatar
office, where detailed logging took place. The geology and alteration of the cuttings
were systematically logged and recorded in digital format using the CoreView
software.
This information was used to specify mineralized intervals. One-metre samples from
intervals identified as mineralized were submitted for assay directly. Two-metre
composite samples were created and assayed as before from intervals that appeared
visually unmineralized. Where samples returned anomalous gold values, the
appropriate one-metre samples were also submitted and assayed. Transport of the
samples from the field to Analabs was under the supervision of a geologist. The
receiving officer at the laboratory certified the samples as received.
Chip trays are in locked storage at CGM’s Ulaanbaatar office; rejects and pulps
currently are stored in locked storage in CGM’s warehouse in Ulaanbaatar.
The sample protocol for the BX and BRC holes in 2003 did not significantly differ from
that of the previous RC drilling campaign.
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Strathcona Mineral Services Limited
As is the case in many exploration ventures that evolve into mining projects, sampling
and data recording procedures at Boroo have improved over time. However, no
shortcomings of a serious nature are apparent in the past procedures that would
compromise the quality of the database used for mineral resource and reserve
estimates for the Boroo project.
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Strathcona Mineral Services Limited
(in Halle, Stendal and Bismuth). Waltho has reviewed the results of 439 duplicate
assays in 1997 and has concluded that they “...indicate excellent agreement between
original gold assay and duplicate assay.....The duplicate assay precision exceeds ten
percent for 50 percent of sample pairs.” (Waltho 1998, page 86)5.
As part of their very detailed project review in 1999, SRK (2000 a) have also
commented on the fire assay results of the JE drill holes. They noted that the ...”fire
assaying of JE holes is generally of poor precision.” and that “...the overall precision
is not adequate to enable reliable local estimation of resources for bankable
feasibility.” They also note, however, that “... there is little overall bias between original
fire assay and repeat fire assays. The issue relates to precision, not accuracy. “ And
they finally conclude “...that area solely informed by JE holes should not be
considered for conversion to reserves in the feasibility study, i.e. can only have the
status of Inferred Resources. Areas with substantial modern drilling can be classified
as Indicated. In these areas, the JE holes can be used.” (SRK 2000 a, pages 16, 17).
As part of the BGC due diligence in 1997, 254 repeat “samples collected from original
DDR-MPR expedition drill core .... by BGC geologists were also analysed at Analabs,
Ulaanbaatar.” Despite a problem to exactly match the original sample intervals due
to lost core intervals that had moved, the “analysis of this data by MRT confirmed the
existence and tenor of mineralisation at Boroo. ... The work completed by MRT
demonstrates that original DDR-MPR expedition gold assays are both accurate and
precise.” (Waltho 1998, Summary, page ii).
There is a difference of opinion between Waltho (1998) and SRK (2000 a) regarding
the precision of the JE drill hole fire assay database. Having reviewed the graphs in
both reports, we do not consider the lack of precision in the JE assay data sufficient
grounds to relegate areas solely defined by JE holes to the inferred resource
category. In addition, the argument is now largely moot, because of the very
substantial additional drilling that has taken place since.
There is no indication that the historical part of the Boroo assay data base is biased,
but individual assay results do have a significant degree of imprecision, as a result of
the inhomogeneous distribution of the gold in the Boroo mineralization (“nugget
5
Precision measures the reproducibility of assays (the percent variation at the two standard deviation (95%)
confidence level), while accuracy (determined by the use of standards for which assay values are well
established.) can be defined as the degree to which an analysis, or the mean of a set of analyses, approaches
the “true” concentration in the sample.
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effect”). The question of the treatment of the lost core intervals in the JE holes during
compositing is discussed in Section 10.
Sample preparation and assaying protocols used, and security precautions taken in
the years 1999 to 2003 are described by drill campaign (refer to Table 3).
error attached to those assay results, due to the inhomogeneous gold distribution
in this style of mineralization, continuing the poor reliability of individual assays of
the earlier drill campaigns.
2. The use of the metallics screen assay method is a more reliable method for such
materials, and that method could have been put to good use on the higher-grade
part of the Boroo sample population to reduce the variance of individual assay
results. The lack of a laboratory balance at Analabs to perform a gravimetric finish
for gold assays of >10 g/t is a further deficiency, one that still remains;
3. The results of internal pulp repeat assays at Analabs are graphed in SRK
(2000 a), showing very good precision;
4. AGR/BGC did not add any external standards to the sample stream, a quality
control and assurance measure that was standard industry practice at the time.
The sample preparation and assay protocols in place during the 1999 drill program
were less than optimal for Boroo-type gold mineralization, affecting about one-quarter
of the database used in the current resource estimate. The lack of proper quality
control does not mean that the resulting assay data are unreliable, but it means that
reliability cannot be documented.
Indirect evidence is, however, available as to the performance of Analabs in 1999:
1. While BGC did not submit any external standards together with the samples from
Boroo, the exploration group of CGM (and predecessor company Cascadia),
undertaking work elsewhere, did. The results of the CGM quality assurance-quality
control (QA/QC) measures were reviewed by Analytical Solutions (2002), who
concluded that the results “... for standards submitted to Analabs in 1999 are
biased low ...” and that there was “... a possibility that Analabs had technical
difficulties during this time period that could affect gold assays.” (Executive
Summary, first point).
2. Cameco Gold (2001) report that 657 new splits were renumbered and submitted
to Analabs by BGC. The results are described as follows: “The original and
duplicate assay pairs show poor reproducibility, however there is not a bias ...”
(page 8). The poor reproducibility is at least in part the obvious result of the poor
sample preparation protocol and the resultant increase in the sample error.
Analytical Solutions (2002) conclude with respect to this set of 657 repeat assays
as follows: “For re-splits between 5 to 10 g/t Au there is no statistical significance
to the differences [i.e., there is no bias], probably due to inhomogeneity of the
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rejects with respect to gold. Samples with low gold grades (<5 g/t) show that there
may be slight statistically significant bias towards higher assays in the original
splits compared to the re-split assays.“ (Analytical Solutions, 2002, page 11).
3. In 2002, a further 436 check assays were performed on samples from the 1999
MRC drill holes. This included 338 samples collected from the coarse reject bags
stored at the Boroo site (Cameco Gold Mongolia, 2003 b). The entire content of
each coarse reject bag was recovered, re-bagged and sent to Analabs for sample
preparation and fire assay. The original bags were rotted and open to the wind,
rain and surface contamination, and it was difficult to confirm the exact sample
numbers, but they all appeared to be in the original order as laid out by BGC
geologists originally responsible for archiving the samples.
The repeat assay results show no significant differences between the means and
standard deviations between the two assay sets, but scattergrams demonstrate
considerable differences of individual pairs, in line with earlier findings and
additionally caused by the poor condition of the samples and identification
problems during sample retrieval.
4. Finally, 98 pulps were also recovered from storage in Ulaanbaatar and re-assayed
by Analabs. Comparison between original assays and re-assays of the 98 pulp
samples shows a good correlation (R2 > 0.9) between the two sets.
As was apparent for the early (historical) assay data, that part of the Boroo assay data
base created in 1999 is not biased, but, as before, individual assay results have a
significant degree of imprecision, as a result of the sample preparation protocol and
the small aliquot size, particularly for high-grade samples.
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There was a QA/QC program directly connected with the Boroo assaying in 2002 and
not in 2003, but again there is indirect evidence as to the performance of Analabs
through the QA/QC measures taken, more or less coincidentally, by CGM for their
exploration samples as reported in Cameco Gold Mongolia (2003) and Cameco Gold
Mongolia (2004 a).
In 2002, CGM used a total of 22 standards spanning the gold grade range from 0.02
g/t to 25 g/t. Some of these were originally produced by Rocklabs, Auckland, New
Zealand. Others were created by Shea Clark Smith Minerals Exploration &
Environmental Geochemistry of Reno, Nevada by “doping” certain Rocklabs and
certain Lovstrom & Associates (Tucson, Arizona) standard reference materials with
gold chloride while others were synthetically created. For the 2003 program, there
were 14 such standards with a grade range of 0.6 g/t to 21 g/t gold. In each of 2002
and 2003, one of these standards was added for approximately every ten samples
submitted. In addition, one of two commercial blanks was added at a rate of one in
twenty samples. Finally, a total of 465 duplicate samples from RC holes drilled by
CGM were prepared and submitted simultaneously with the original samples in 2002,
and 93 drill core duplicates in 2003, a total of 558 for the two years.
The samples representing standards would have been readily apparent to the
laboratory because of their pulverized nature. However, the large number of different
grades used, some of them quite close to each other, would have made them all but
blind for the laboratory. The blanks, also pulverized, would have by-passed the
crushing and pulverizing stages in the lab and were thus of limited use as a check on
the sample preparation process.
In both of 2002 and 2003, the acceptance level for each standard used in the CGM
program was set at ±10% of its certified value (although this rule was not universally
followed). On this basis, there was a 5% failure rate in 2002 (43 out of 792) and a
failure rate of 9% (7 out of 80) in 2003, with no systematic preference of the failures
to occur low or high. Sample batches in which a standard failed were repeated. The
blanks had failure rates of a similar magnitude.
Overall, the QA/QC results on the CGM samples were reasonable, and provide
confidence on the accuracy of the assaying process at Analabs, even for high-grade
assays where a gravimetric finish would have been more appropriate.
The 558 re-numbered duplicate field sample assays show a fairly strong scatter, but
no bias, in keeping with the earlier observation that an individual assay at Boroo has
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a significant sample error due to the nugget effect resulting from the coarse gold in
the Boroo mineralization.
The bulk density of 2.62 tonnes per cubic metre for the primary hard rock appears
reasonable, given the composition of this material. However, based on observation
while at Boroo that the oxidized parts of the mineralized zone in Zone 2 are somewhat
porous, and noting the very small overall difference in interpolated bulk density
between the oxidized and the primary mineralization, the bulk density figure of 2.56
for oxidized mineralization may be too high by an unknown, but probably small factor,
and the tonnage of this material would be over-estimated by the same factor. A
detailed comparison between a sizeable excavated ore volume and the corresponding
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tonnage milled is required to settle this question and to develop a better bulk density
for the oxide zones.
Some of the later drill programs did not follow current QA/QC industry practices, and
the overall reliability of part of the assays obtained in the years 1999 to 2001 and
again in 2003 is only indirectly supported by the results of the QA/QC programs
undertaken by CGM, mostly on samples from different areas, but assayed at the
same laboratory in Ulaanbaatar as was used for the Boroo program and at about the
same time. However, despite this lack of direct evidence, the indirect evidence cited
earlier provides comfort that the accuracy of the analytical results throughout the
many drill campaigns that used a variety of analytical laboratories for initial and check
assaying, is not compromised. There is thus no indication of any large assay bias
(either low or high) in the various assay populations. Without such a bias, the
variances of the individual assay results during grade estimation on a larger scale,
using many individual assays, will cancel out and will thus not impart any bias on the
estimation results.
There is a possibility that the oxide tonnages (both ore and waste) in the Boroo
deposits are over-estimated by a small factor owing to the translation of specific
gravity data into bulk density figures, without giving adequate consideration to rock
porosity.
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10.1 General
During the AGR feasibility study of the Boroo project in 1999, the information from
surface trenches and drill holes was entered into a computerized database. Drill collar
coordinates, assay results, and information on lithology, alteration and mineralization
were recorded in the mine database that is used for reserve and resource estimation
purposes. These data were validated at different times, initially by MRT for BGC in
early 1998, later by BGC staff and subsequently by SRK (2000). CGM performed a
rigorous database evaluation in 2002/2003 and added the DDR/MPR underground
information to it. The mining resources group at the Cameco head office in Saskatoon
validated the original 0.3 g/t gold envelope and created the new 0.8 g/t gold envelope
(Section 11.2). One of the results of this process was the identification of some of the
1997 BG holes being unsuitable for resource estimation.
A substantial amount of additional drill data has now been created, and after the
further considerable in-fill drilling planned for the current year, a full and complete
database validation is required as part of a new, updated resource estimate.
Survey control of the JE drill holes was based on a considerable number of
trigonometric stations established in the area by the Soviet military. For the 1999 BGC
drill program, a new grid was surveyed by the Mongolian company Geomaster and
tied to the existing trigonometric stations. At that time, two-metre contour topographic
maps of the general area, and one-metre topographic maps in areas contemplated
for infrastructure projects were established. Drill holes in subsequent years were
surveyed by BGC personnel with audits provided by Geomaster, with further
verification by CGM in 2002.
There are reports of periodic “wet” samples being recovered during reverse circulation
drilling. From informal accounts it is likely that the status of these samples would have
been better characterized as damp. It has not been possible to determine where
these samples were located, nor how many there are. This information should be
assembled to aid in the determination of the water table in the pits planned for mining,
and for possible exclusion of the wet portions of the affected RC holes from the
database because of the possibility of sample contamination.
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The lost core in the mineralized zone in any hole varied from zero to a maximum of
54%, averaging nearly 10%. The highest proportions of lost core occurred in near-
surface intersections (lower graph in Figure 10).
Geostat International (2003 b) have studied the effect of the low grade bias of the JE
drill holes with respect to the rest of the drill hole database, and have concluded that
there is a significant difference in JE holes 1 to 200 (a large low bias) while the later
holes numbered 200 and higher did not show such a bias. The earlier holes would
mainly impact on Zones 2 and 3 (amounting to perhaps a 10% negative bias beyond
the regular variability of the various drill hole assay populations tested), while Zone
5 is not so affected. As a result, Geostat for future mineral resource estimates, has
proposed to remove from the resource database all those JE holes numbered 1 to
200 in Zones 2 and 3 that are within 15 metres of a newer drill hole.
From Figure 10 it is apparent that removing drill holes because of the date of drilling
is an unsatisfactory solution to the question of what assay values to assign to intervals
where core has been lost. The exercise of substituting neighbouring grades to lost-
core intervals rather than a fixed grade should be completed for all of the JE holes to
determine whether the pattern developed from analysing assays from one-third of the
holes applies to all drill holes. The grade interpolation should then be re-run with
bothsets of JE data and both grade predictions used in the grade and tonnage
reconciliation with the mill at the end of 2004. JE holes with particularly large amounts
of lost core may then be selectively removed from the database (the outliers in
Figure 10), but care should be taken that another hole with solid information is
nearby.
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Strathcona Mineral Services Limited
12.0
Gold grade using average of adjacent assays
10.0
8.0
(g/t)
6.0
4.0
2.0
0.0
0.0 2.0 4.0 6.0 8.0 10.0 12.0
Gold grade with 0.8 g/t inserted
60%
50%
40%
Core loss
30%
20%
10%
0%
0 20 40 60 80 100 120 140 160
Depth of intersection
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Intervals of core loss in the JE drill holes, which represent nearly one-half of the
database, have been assigned a 0.8 g/t gold grade. The brief study presented in this
section indicates that this approach may be unduly conservative and may understate
the resource gold grade for the Boroo deposits in a systematic fashion. The size of
the negative bias may be in the range of 5 to 10%, but can only be quantified by
careful reconciliation of mineral reserve estimates with production data.
11.1 General
Section 11 provides a description of the mineral resource model. The procedures for
estimating mineral reserves for the Boroo project are described in Section 12, while
a review of the mineral resource and mineral reserve estimates follows in Section 13.
As outlined in Section 5.3, the current mineral resource estimate for the Boroo project
was undertaken by Geostat in 2003 on a database supplied by Cameco (Geostat
2003 a). It was based on a total of 713 drill holes drilled from 1982 to 2002, as
detailed in Table 3 and shown in Figure 5. The resource estimate relies on a drill hole
spacing of 40 metres by 40 metres, but a few areas have poorer coverage, such as
much of the northern part of Zone 5, most of Zone 6 and the down-dip portions of
Zones 2 and 3. The substantial in-fill drilling shown in Figure 5 has yet to be
incorporated into an updated resource model, but alleviates some of the lack of drill
hole coverage, mostly near-surface. Additional RC and diamond drilling is planned for
2004 to improve the coverage (92 holes with 12 400 metres), with a completion date
of August, 2004 (Bradley, 2004).
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together have resulted in Geostat proposing the following capping levels for Boroo
gold assays:
Table 6 Capping Levels on Individual Assays
Zone No. of Assays Capping Level (g/t) Percentile Gold Removed
2 1 200 35 99.6 2.3%
3 2 621 45 98.7 9.1%
5 727 70 98.6 3.2%
6 297 45 98.6 4.9%
In the absence of mill production or reliable bulk sampling data, the determination of
gold capping levels is an inexact process. From a purely statistical point of view, the
capping levels arrived at by Geostat are reasonable. However, as noted in the
preceding section, the assay statistics probably incorporate data from more than one
natural gold assay population. For the next resource estimation, this exercise should
thus be repeated for each of the populations separately. There will then be a
substantial sample from Zone 2 that will have been mined and milled, that can be
used as a test case as to the reasonableness of the gold capping level for that
deposit.
Geostat (2003 a) use a gold capping level of 30 g/t for all assays that are outside of
the 0.8 g/t mineralized envelope, which thus applies to the inferred resources.
11.3.3 Compositing
Following adjustments for the high outlier gold values, the assays were bench-
composited, with the bench height set at 2.5 metres, the actual mining dimension.
This is a safeguard against the inclusion of an insufficient amount of dilution during
compositing. Provisions were taken that incomplete composites would be maintained
as is (if they were larger than one metre) or merged with an adjoining bench
composite (if they were shorter). The compositing started and stopped at the zone
boundaries, i.e., the process did not add dilution or remove any of the mineralization.
An initial grade-tonnage curve for each of the Boroo mineralized zones was created
from the capped composites that were declustered or not, using whichever resulted
in the lower mean gold grade. Of the total tonnage within the mineralized envelopes
(some 25.9 million tonnes with an average gold grade of 2.1 g/t gold), about 12.1
million tonnes (48%) with an average gold grade of 3.8 g/t were above the cut-off
grade of 1.2 g/t. This would be considered the best possible result, assuming no
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Strathcona Mineral Services Limited
internal or external dilution, perfect selectivity during mining, and no sample error on
individual assays.
11.3.4 Variography
The grade continuity of the bench composites was tested with correlograms, showing
the decrease of the coefficient of correlation between bench composites with
increasing distance. The correlograms were constructed in the four principal
horizontal6 directions (N-S, NE-SW, E-W, NE-SW) and the vertical. The nugget effect
for all zones and in all directions is modest at 35%, a first spherical range in the
horizontal is typically isotropic, i.e., there is no preferred direction, and clusters from
25 to 30 metres except for Zone 5 where it is about one-half of that number. Zone 2
is somewhat anisotropic with better continuity northeast-southwest than in the other
directions. The first spherical range in the vertical is generally around 10 metres. The
second spherical component represents 15% of the variability and has horizontal
ranges of 60 to 80 metres.
The results of the variography would appear to confirm the observation that the
pronounced elongation apparent in the grade-thickness contours (Figure 9) is mainly
caused by the thickness variations.
6
Because of the dip of about 20° in Zone 2, the horizontal actually moves from the footwall to the hanging
wall of the zone and thus incorporates a degree of “vertical”. The “horizontal” search in the next resource
estimate should be inclined into the plane of the mineralization. The other zones are sufficiently horizontal
and do not require this adjustment.
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Strathcona Mineral Services Limited
3 30 30 8 70% 80 80 15 100%
6 30 30 8 57% 80 80 15 100%
The search distances closely match the variogram ranges except for Zone 5 where
a range of 15 x 15 x 3 metres would not have allowed successful grade interpolation
satisfying the criteria for minimum number of composites per octant. This reflects the
lack of drill hole coverage in parts of Zone 5.
The individual steps are shown in Table 8 which summarizes Table 9 in Geostat,
2003 a. The final result is a theoretical diluted tonnage of 13.9 million tonnes with an
average grade of 3.1 g/t gold. The overall tonnage dilution, compared to the initial
grade-tonnage curve for the capped composites, is 15%, the gold grade is reduced
by 18%, and the contained gold by 5%.
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Ore Gold Ore Gold Ore Gold Ore Gold Ore Contained Gold
ounces
tonnes g/t tonnes tonnes g/t tonnes tonnes g/t tonnes tonnes g/t tonnes tonnes g/t tonnes
(000s)
No Cut-off Grade 4 742 1.7 8.2 17 265 1.9 32.1 2 294 4.4 10.2 1 615 2.2 3.5 25 916 2.1 53.9 1 750
1.2 g/t Cut-off on Bench Composites 2 033 3.3 6.6 7 527 3.5 26.3 1 642 5.9 9.7 882 3.4 3.0 12 084 3.8 45.6 1 477
1.2 g/t Cut-off on Blocks 2 569 2.6 6.7 8 530 3.1 26.3 1 954 5.1 9.9 1 047 2.9 3.0 14 101 3.3 45.9 1 496
After Information Effect 2 523 2.5 6.3 8 430 3.0 25.3 1 938 5.0 9.7 1 028 2.9 3.0 13 920 3.2 44.3 1 432
After Contact Dilution 2 523 2.4 6.0 8 430 2.9 24.6 1 938 5.0 9.7 1 028 2.8 2.9 13 920 3.1 43.2 1 388
Overall Dilution 24% -27% -9% 12% -17% -6% 18% -15% 0% 17% -18% -3% 15% -18% -5%
56
Strathcona Mineral Services Limited
The grade-tonnage curve for 5 x 5 metre blocks that result from these three steps is
used as a target for the grade-tonnage curve of the final, diluted resource model. The
comparison of the theoretical and actual model tonnages above cut-off, and their
average gold grades, are reasonably close, as shown in Table 9.
Table 9 Simulated Composites and Kriged Blocks Above 1.2 g/t Cut-off Grade
57
6800m.E 6900m.E 7000m.E 7100m.E
JE050
ACTUAL PIT
JE052
Dec. 31, 2003
BR
BR
BR
20
JE003
BR
C0
C0
MR
C0
JE023
JE004
C0
JE101
Surface
JE014
00
C0
00
MR
00
C2
JE053
83
84
00
85
69
1100m. elev. 1100m. elev.
86
--
Base of
Oxide
--
0.8g/t Au
Envelope
MR
1050m. elev. 1050m. elev.
C2
67
ULTIMATE PIT
DESIGN
MR
Top of
C2
Fresh Rock
68
1000m. elev. 1000m. elev.
--
Scale 1:1,250
0 10 50
950m. elev. Legend:
Metres
JE091
1150m. elev. 1150m. elev.
330
50
49
48
90
MRC
C0
C0
MR
35
MR
C0
MR
C0
46
47
45
MR
MR
C3
Surface
C14
MR
C0
MR
C0
C0
C14
C13
MR
MR
MR
MR
1
0
6
Base of
Oxide
--
1100m. elev. 1100m. elev.
--
--
Top of
1050m. elev. Fresh Rock 1050m. elev.
0.8g/t Au
Envelope
ULTIMATE PIT
DESIGN
Scale 1:1,250
0 10 50
Legend: Metres
ACTUAL PIT
Dec. 31, 2003
Surface
BRC00250
1250m. elev. 1250m. elev.
JE211
24
C1
MR
Base of
4
C11
Base of
MDD07
Overburden Oxide
MR
12
C1
MR
54 JE322
07
--
C1
46
MR
47
49
C1
58
59
C1
C1
C1
MR
C1
C1
MR
MR
42
MR
MR
MR
41
08
00
1200m. elev. 1200m. elev.
00
C1
C0
C0
MR
BR
--
JE346
BR
--
Top of
Fresh Rock
--
--
0.8g/t Au
Envelope
1150m. elev. 1150m. elev.
15
C1
ULTIMATE PIT
MR
DESIGN
61
Strathcona Mineral Services Limited
a process that is standard in most other gold mines. Only a comprehensive mine-
mill reconciliation will show whether the capping levels need to be adjusted, and
that might result in an adjustment either up or down. Centerra does not publish
these inferred resources “created” by the capping process.
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Strathcona Mineral Services Limited
which are then engineered in detail by adding ramps for mining access and by
smoothing of the pit walls.
The current open-pit design for each zone was engineered by Boroo mine staff based
on the Geostat resource model. The final pit shells were passed back to Geostat
(Geostat 2003 a) who then produced mineral reserves for each zone. Mine planning
and scheduling resulting in the current life-of-mine (LOM) plan are based on this
estimate and were undertaken by Boroo staff. The main economic parameters for this
pit design (Boroo Gold Company, 2003 a) are summarized and compared to the 2004
budget figures in Table 10. The 2004 budget figures are based on an improved
understanding of the overall scope of the project, and on limited actual operating
experience.
The operating cost parameters in the 2004 budget, with the exception of the milling
costs, are quite different from the pit optimization assumptions. The budgeted mine
operating costs are lower than had been assumed while the general and
administration costs in the 2004 budget are substantially increased compared to costs
used in the pit design.
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Strathcona Mineral Services Limited
Comparative optimization results at gold prices of $400 per ounce and $250 per
ounce show that Zones 2 and 3 are sensitive to a lower gold price, while the high-
grade Zone 5 is relatively insensitive.
All of the open pits designed for the Boroo mineralized zones (Figure 12) will be
relatively shallow, with a maximum depth of 130 metres below the original surface.
Geotechnical wall design parameters were developed at the time of the initial AGR
feasibility study (C. M. Orr, 1999). Rock conditions are described as generally “good”
in the intrusive rocks and “fair” in the sediments. The pits are simple, shallow and the
design used a recommended face bench angle of 60° with catch berms ranging in
width from three to five metres. The bench heights are from five to ten metres. All of
the pits will be asymmetrical, with a highwall where each deposit dips underneath the
overlying topography, while ramp access is maintained on the up-dip side. The
ultimate pit outlines in section are shown in Figures 11 a to c.
The overall pit wall angle in the lower parts of the highwalls for each zone is 43°, with
the upper, near-surface parts of the highwalls being generally flatter. Berms are from
three to five metres wide which, given the short pit lives, is judged to be sufficient to
catch loose rocks from the upper parts of the pits. This may become a temporary
issue for the highwall of the pit for Zone 5 where the steeply dipping sediments may
be subject to ravelling as a result of the thaw-and-freeze cycle.
Compared to the original pit shells produced by the pit optimization, the final designed
Boroo pits recover essentially the same amount of ore but mine 10% more tonnage,
increasing the overall strip ratio from 3.6 to 4.1.
64
584000m.E 585000m.E 586000m.E
Legend:
Lic
enc
Explosives
e
Magazine
Ex
cl
Ultimate pit design
usi
on
1055
s
Actual pit (December 31, 2003)
1110 Waste Dump
Crushed Ore
Stockpiles Subgrade Ore
Roads (December 31, 2003) Stockpiles
1172.5 Workshop
5400000m.N
5400000m.N
NOTE: Topographic contour at 2.5m interval
Topsoil
1180
PIT
PIT 2
2
Crusher and Mill
Complex
ROM Ore
1075 Stockpiles
1245
N 1120 1040
Ikh Dashir
Alluvial Pit
PIT
PIT 3
3
1252.5 1110
1147.5
5399000m.N
5399000m.N
1167.5
1177.5
PIT
PIT 5
5 1132.5
1137.5
Licence Exclusions
Pit 3/5 Waste Rock
1157.5
PIT
PIT
Facility Area
6
6
1147.5
1140
TITLE
1262.5
Ultimate Pit Design and
December 31, 2003 Pits
Scale 1 : 12,500 APPROVAL DATE PROJECT No.
H.T. March 2004 329-7
0 100 500
Metres STRATHCONA MINERAL SERVICES LIMITED
TORONTO - CANADA
UTM WGS84-48N
File:
04Boroo_Pits_Area_EOY2003.cdr Figure 12
Map Source: Pit and infrastructure information from Centerra Gold Inc.
Strathcona Mineral Services Limited
The mineral reserves are reported at incremental cut-off grades that take into account
the changes in metallurgical recovery with the degree of oxidation, calculated at 1.10
g/t gold for oxide ore (0.9 g/t for oxide sub-grade), 1.15 g/t for transitional ore (0.95
7
There are very slight differences between the Geostat and the Boroo mineral reserve figures due to the
different software used. They amount to a variance of 8000 tonnes and 3000 ounces, with the mine figures
being higher.
66
Strathcona Mineral Services Limited
g/t) and 1.35 g/t (1.1 g/t) for fresh ore. These figures were recently reviewed due to
the increase in general and administration costs (Table 10) (Boroo Gold Company
2003 d). The study concludes that a value of 1.2 g/t gold be used for both oxide and
transition ore for the daily grade control. Given the sharp ore/waste contacts in Zone 2
currently being mined, this change will have little impact.
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Strathcona Mineral Services Limited
Mill Feed Oxide 1 226 4.4 880 3.6 639 3.1 863 3.4 341 4.7 81 2.9 4 029 3.8
Transitional 497 3.9 628 4.2 723 3.7 759 3.1 1 159 3.4 785 3.3 4 551 3.5
Fresh - 243 4.3 388 3.2 127 2.6 251 2.9 603 2.8 1 612 3.1
Total 1 723 4.2 1 750 3.9 1 750 3.4 1 750 3.3 1 750 3.6 1 469 3.1 10 191 3.6
Average Recovery 93.8% 90.6% 89.2% 92.1% 90.1% 85.7% 90.6%
Gold Ounces 220 201 170 168 180 124 1 064
Recovered Tonnes 6.8 6.3 5.3 5.2 5.6 3.9 33.1
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Strathcona Mineral Services Limited
13.1.1 Database
The uncertainties in the Boroo assay database, which could have some impact, either
positive or negative, on the projected mine production versus mineral reserve
estimates, have been noted in Sections 9.4 and 10.3 and may be evaluated as
follows:
1. Individual assay results have poor precision or high variance due to the erratic
distribution of relatively coarse gold in the Boroo mineralization. This variance
could have been reduced using larger samples and screen metallics assays on
higher-grade samples. The main effect is to make local gold grade estimation
based on only a few assays unreliable. However, there is no effect on the
resource grade estimate, as the individual variances during gold grade estimation
using many individual assays should be offsetting;
2. There is a lack of QA/QC as now practised affecting the assay database created
prior to 2001. A rigorous check assaying program is reported from the JE holes
drilled during the DDR/MPR period, 1982 to 1988 (Table 3). Only indirect
evidence exists for the reliability of the 1999 AGR assay results in the form of
quality control programs undertaken coincidentally at the same laboratory by CGM
on samples from other programs, and by a certain amount of check assaying at
independent laboratories. The available information does not suggest that the
accuracy of the assay results is in doubt.
3. There is a low bias for the calculated grade of some samples from the original JE
drill holes (Table 3) as the result of the preferential loss of gold in intervals with no
core recovery, as discussed in Section 10. This could result in the current gold
grade estimate also being biased low as is currently being experienced with ore
from Pit 2 (Section 13.1.5) . Geostat (2003 b) came to the conclusion that Zone
2 in particular, and Zone 3 to a lesser extent, will show an increased gold grade
as a result of the detailed in-fill drilling (Figure 5). Conversely, the in-fill drilling in
the near-surface part of Zone 5 has resulted in a small loss of grade, according
to Geostat (2003 b).
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Strathcona Mineral Services Limited
4. The oxide tonnages (both ore and waste) in the Boroo deposits may be over-
estimated by a small factor due to a possible small reduction in the bulk density,
as discussed in Section 10.3 but this problem would not have a significant effect
on mineral reserve tonnages.
The data presented in the lower part of Table 4 show that the 2002 SRK mineral
reserve estimate, and the 2003 Cameco and Geostat estimates, have resulted in
divergent grade and tonnage predictions that reflect mainly the different treatment of
the same database during grade estimation, including the treatment of high outlier
assay values and the amount of dilution included in the model. The Geostat and
Cameco estimates appear more reasonable and defensible than the SRK estimate.
Resource Service Group has commented on the SRK methodology (used also for an
earlier SRK estimate for Boroo) as follows: “RSG considers the resource models
compiled by SRK overstate the likely recovered grade but conversely understate the
potential tonnes available, with the overall recovered metal being similar.” (Resource
Service Group (2001), page 3). We agree with this assessment.
As noted in Table 3, a significant amount of drill hole data was created after the
current resource model was produced, and the in-fill program is ongoing. A non-
quantitative review suggests that the drill hole results not yet incorporated into the
resource database appear to corroborate the resources, and maybe expand them, as
will be discussed in Section 14.1.
In the northern part of Zone 5 the drill hole spacing is quite open, and there are a few
benches where projected gold grades are considerably higher than the drill hole
composite grades which are overwhelmed by high-grade information from other drill
holes. This area may show a loss of gold grade upon in-fill drilling, affecting perhaps
one or two percent of the total contained gold at Boroo.
70
Strathcona Mineral Services Limited
Tonnes Gold (g/t) Gold (oz) Tonnes Gold (g/t) Tonnes Tonnes
Mined 575 500 4.26 78 800 63 300 0.84 6 396 200 7 035 000
Block Model 635 200 2.73 55 800 19 600 1.01 6 606 000 7 260 800
Note that mined figures are by survey for tonnes and from blasthole assays for gold
grades. The waste mined includes Pit 5.
There was a small shortfall in tonnage mined versus the block model estimate (3%
for waste and 7% for ore), but a very significant increase in gold grade by some 50%,
compared to the grades predicted by the block model, and the contained ounces of
gold were more than 40% higher than forecast. The trend, if not the extent of the
grade difference, was predicted by the Geostat (2003 b) study on the influence of the
lost core intervals in the JE holes, but is expected to diminish in size as fresher rocks
are mined below the oxide zone. The difference in ore tonnage may be the result of
less dilution predicted than experienced.
The uncertainties affecting the Boroo mineral reserve estimate as discussed above
are typically found in projects at the beginning of their production cycle. This is
expressed in the classification of all of the reserves as probable rather than a portion
as proven. The JE lost core question does result in an under-stated grade prediction
for some of the reserves. As Section 18 demonstrates, the Boroo project is
economically robust, and the other uncertainties addressed in this section will not
change this assessment.
71
Strathcona Mineral Services Limited
72
Strathcona Mineral Services Limited
• Pit shells at a suitably higher gold price will determine the quality of the resources
that are not included in the new pit designs and that can be reported as additional
mineral resources;
• The accumulated actual operating cost experience will give a firmer and more
detailed basis for the pit optimization, including the use of different haulage costs
for the individual pits reflecting the distance to the mill.
It is not anticipated that such a process, would necessarily alter the current mineral
reserves and Boroo mine plan to a great extent. However, the Boroo mineral resource
and mineral reserve estimates as well as the forecast project economic performance
will be based on a larger technical database and more operating experience.
73
Strathcona Mineral Services Limited
Of the 13.5 million tonnes contained in the Geostat resource model for the Boroo
mineralized zones before mining (Table 9), the mineral reserve estimation process
depletes about 75%, with depletion figures for the three weathering zones being 96%,
80% and 46% for oxide, transitional and fresh ore, respectively. The depletion is more
efficient yet with respect to the contained ounces, where the figures are 98%, 83%
and 55% for the three weathering zones, and 82% for the entire resource. The
mineral resources left beyond the pit outlines thus tend to be of lower grade than the
ore recovered within the pits. The higher proportion of fresh mineralization with its
partially refractory quality also influences the determination of the additional
resources.
The in-fill and exploration drilling in 2002 and 2003 (holes with prefixes BRC and BX,
Table 3) have shown ore-grade material to extend beyond the limits of the 0.8 g/t gold
mineralized envelope as used in the current resource and reserve estimate that was
completed in mid-2003. Together with a higher gold price, this would be expected to
result in a somewhat higher reserve estimate. At a gold price of $325 per ounce, the
same as used for the reserve estimation, most of the ore tonnage increase, however,
would be within the pits as currently designed, with a corresponding decrease in the
strip ratio. At a higher gold price, the economic pits for Zones 3 and 5 might increase
in size. According to Geostat (2003 b) who evaluated the new drilling and compared
it to the existing reserve estimate: “However, if gold price can increase to US$375/oz,
there is some indication that part of the material around the BX holes on the west side
of pit#3 and in the transition zone between pit#3 and pit#5 may be included in the final
shell of pit#3 and pit#5 respectively. Hence those "hot spots" constitute excellent
74
Strathcona Mineral Services Limited
targets for additional exploration drilling...” (Geostat 2003 b, page ii). Quantification of
this effect awaits the completion of the 2004 drill program and of the subsequent
resource and reserve update.
Any increase of the Boroo mineral reserve base in the areas between and
immediately surrounding the current open pits from the additional mineral resources,
or on the basis of the additional drilling completed since the reserve estimate, will
likely be of modest size.
75
Strathcona Mineral Services Limited
In the immediate Boroo area, the stream geochemical, induced polarization (IP) and
magnetic coverage is complete. The chargeability results and the existing drill holes
are shown in Figure 13. The area within a distance of two kilometres from the pits
planned for production has been drilled fairly extensively, if on a relatively open
pattern, and most of the obvious geophysical targets have been tested. The results
do not indicate the likelihood of an undiscovered major zone of mineralization in
proximity to the known deposits, a conclusion confirmed by the results of
condemnation drilling to the north of Zones 2 and 5 that did intersect the mineralized
low-angle fault but found only a few, discontinuous assay intervals with a grade above
1.2 g/t gold.
There remain few IP targets in the immediate surroundings of the present open pits
that remain untested by drilling, which will be undertaken in 2004. One apparent
target is the large positive chargeability anomaly at the southern edge of Figure 13.
This area, based on its high resistivity and its magnetic response, is interpreted to be
caused by a specific rock type rather than by mineralization.
14.3.1 General
Regional exploration pertinent to the Boroo project has been undertaken since 1999
in two different corporate settings and on two sets of mining and exploration licences
that are shown in Figure 3. The northern Mongolia exploration licences held by BGC
form the Boroo project. This land package was introduced in Section 3, is shown in
red in Figure 3, and is summarized in Table 2.
Cameco has also been involved with the Noyon project since 1997. The original
Noyon land position, centred on the Gatsuurt deposit, was assembled by Cascadia
Chemicals and Minerals Corporation, which later became Cascadia Minerals Inc.
(Cascadia) during 1996 and 1997, with Cameco assuming a role in the project in
1997.
In August 1997, Cameco Resources (Mongolia) Inc. entered into a subscription and
earn-in agreement with Cascadia pursuant to which Cameco acquired an ownership
interest in Cascadia through exploration funding in the spring of 1998. The interest in
the project was held by wholly-owned Cameco Gold Investments Inc. (CGII), a
Cayman company. CGII earned an additional interest in Cascadia in the fall of 1998,
increasing its Cascadia interest to 41.78%. In October 2001, CGII acquired Cascadia
LLC, Cascadia’s Mongolian subsidiary, that held the licences to the Noyon project,
76
582000m.E 584000m.E 586000m.E 588000m.E
5404000m.N
5404000m.N
Legend:
7.49
6.40
5.99
5402000m.N
5.76
5402000m.N
5.58
5.44
5.33
5.23
BX-06 BX-35
5.14
BX-30
5.06
4.98 BX-05
4.89 BX-07
4.81 BX-04
4.71 BX-03
BX-02
4.61 BX-08
4.50
4.36 N
4.18
3.94 BX-01
BX-09 BX-10
3.63
BX-12 BX-11
Leveled Zone 2
5400000m.N
5400000m.N
Chargeability BX-13
(msec) BX-47
BX-48
BX-14
BX-46
BX-52,53
BX-50 BX-49 BX-45
BX-17
Licence Exclusions
BX-18
BX-15 Boundary
BX-51 BX-16
BX-54
BX-28 BX-19 BX-60 BX-44
BX-27 BX-55
BX-20 Zone 3
BX-26 BX-21
BX-56
Zone 6 BX-22
BX-57
BX-58
BX-25
Zone 5
BX-59
BX-23
5398000m.N
5398000m.N
BX-32 BX-24 Licence Exclusions
Boundary
BX-37 BX-31 BX-29
BX-34
BX-39
BX-40
BX-33
BX-36 BX-43
BX-41
BX-38
BX-42
CLIENT
CENTERRA GOLD INC.
PROJECT
5396000m.N
in exchange for the surrender of the Cascadia shares held by CGII and $2.5 million.
Cascadia LLC is now Centerra Gold Mongolia Limited.
In December 2002, Cameco Gold satisfied a $4.8 million promissory note owing to
AGR by transferring a 61% interest in CGII to AGR (now owned 56.4% by Centerra),
and retaining a 39% holding in CGII. Thus, the Centerra effective interest in the
Noyon project is 73.4%. CGM is the project operator.
The Noyon project land position is continually changing with large mature licenses
being reduced in size and new licenses being acquired. As of December 31, 2003 the
project consists of mining licenses totalling 3 222 hectares and exploration licenses
totalling 215 537 hectares as shown in yellow in Figure 6. A portion of the land
position covers non-contiguous blocks over a 200-kilometre strike length of the
Yeroogol regional fault system (Figure 5). Most of the remaining exploration licenses
are along the trend of the Boroo deposit. Tables 15 and 16 provide a summary of the
property holdings within the Noyon project.
Noyon represents a very substantial licence area comprising 2150 km2 in a region that
has not been subjected to much surface exploration employing modern concepts and
methods.
1 All mining and exploration licenses in Mongolia are encumbered by a 2.5% Royalty to the
Government of Mongolia pursuant to Article 38.3 of the Minerals Law of Mongolia (1997). In
addition to this royalty, there are the following encumbrances:
2 Sujigtei licence – 7% net profits interest (NPI).
3 Gatsuurt licences – 3% net smelter royalty (NSR) Royalty on all hard-rock gold produced, held or
sold.
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Strathcona Mineral Services Limited
Area
Licence No. Notes Licence Name Issue Date 2004 Fees Expiry Date
(hectares)
193 X, X-2, X-3 1, 5 Haraa gol 17 524 Jun 14, 1997 – Oct 1, 2004
193 X-1 1 Shivert 886 Jun 14, 1997 $1329 Oct 1, 2004
4077 - 79 X 1 Haraa 2-4 1 600 Jan 21, 2002 160 Jan 21, 2009
4662 X 1 Shaazgait 2 829 Jul 19, 2002 283 Jul 19, 2009
5199 X 1 Chandagatai-2 1 851 Dec 10, 2002 185 Dec 10, 2009
5311 X 1 Chandagatai 11 999 Jan 16, 2003 1 200 Jan 16, 2010
5572, 73 X 1 Davkhar Uul, Bayansydal 14 663 Jan 1 2003 1 466 Jan 1, 2010
5847, 48 X 1 Ganga undurt Uul, Munglulug Uul 6 738 May 26, 2003 674 May 26, 2010
5864 X 1 Toli Sair Uul 16 510 Jun 2, 2003 1 651 Jun 2, 2010
5924 X 1 Buureg Uul 11 184 Jun 12, 2003 1 118 Jun 12, 2010
6075, 76, 77 X 1 Zuun Orgon Uul & 2, Airag Uul 52 978 Jul 22, 2003 5 298 Jul 22, 2010
6258, 60, 61, 62 X 1 Lun, Ikh Borolzoi 1, 2, Bayan 44 161 Sep 1, 2003 4 416 Sep 1, 2010
6265, 66, 67 X 1 Halzan Uul, Tarni, Bayangol 31 817 Sep 2, 2003 3 182 Sep 2, 2010
79
Strathcona Mineral Services Limited
14-kilometre dirt road from the town of Tunkhel. A railway station is located at Tunkhel
and a 100-kV power line passes within 25 kilometres of the area. Local topography
is gentle to moderately steep.
Property
The Gatsuurt deposit is within mining licenses 372A and 431A, which expire in 2058
and 2059, respectively, at the end of the original 60-year term. Upon expiration,
mining licenses can be extended once for an additional 40-year term.
History
Placer operations have taken place at Gatsuurt beginning in 1995 and ending
recently. Total production is uncertain but believed to be in the order of 1.5 tonnes of
gold. From 1996 to 1998, reconnaissance exploration programs were completed to
evaluate the large land position. Gold mineralization was intersected in the Gatsuurt
area in 1998 during a small drill program to test geochemical anomalies in the active
gold placer mining area. Subsequent drilling and trenching programs successfully
delineated continuous mineralized zones at the Gatsuurt Central Zone and the
Gatsuurt Main Zone areas. Most of the data for the two deposits was obtained by
drilling. Table 17 provides a summary of drilling by zone, by year and by drilling
method. Drilling is generally restricted to the upper 75 to 100 metres of the deposits.
A few deeper holes demonstrate the continuation of the Central Zone in that direction,
and the Main Zone is also “open” at depth.
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Strathcona Mineral Services Limited
Geology
The regional structural zone transecting the Gatsuurt area is the Sujigtei fault, an
element of the Yeroogol fault zone. It is a northeasterly trending, high-angle fault
system that can be traced for over 200 kilometres along strike (Figure 5). Outside of
the Noyon project licences, the Sujigtei and Yalbag bedrock gold prospects and
numerous placer gold workings occur along the fault system.
In the Gatsuurt area, the Sujigtei fault separates two profoundly differing geologic
settings. To the northwest, the bedrock is constituted by Permian felsic volcanic rocks
associated with the Dzuun Mod caldera. To the southeast, the Lower Paleozoic clastic
metasedimentary rocks of the Haraa Formation are intruded by intermediate members
of the Boroo Intrusive Complex. Figure 14 shows the geologic setting.
Mineralization
Gold mineralization at Gatsuurt occurs immediately adjacent to the Sujigtei fault. The
fault and the mineralized zones are sub-vertical. The Main Zone is hosted by the
Permian felsic volcanic rocks in the footwall (northwestern side) of the fault while the
Central Zone is hosted mostly by the intrusive rocks and, to a lesser extent, by
enclosed meta-sedimentary xenoliths. It is likely that the two zones once formed a
single deposit, and that the Sujigtei fault displaced the Main Zone from the Central
Zone by a left-lateral offset of some 750 metres (Figure 14).
At the Central Zone, continuous gold mineralization has been traced over a strike
length of 900 metres and over widths that vary from three metres to more than 70
metres. It comprises a broad lower grade shell (>1.0 g/t gold ) containing higher grade
(>3.0 g/t gold) lenses with variable lateral and vertical continuity.
In both zones, the host rocks are variably altered to a quartz-sericite-potassium
feldspar-pyrite-arsenopyrite assemblage. Gold is associated with three styles of
mineralization:
• The most important style of mineralization is contained in fracture-controlled
stockwork zones of quartz-sericite alteration with quartz and sulphide veinlets.
Predominant sulphides are pyrite and acicular arsenopyrite in equal amounts.
Sulphide concentrations reach 10%, and tend to be higher in the intrusive rocks
compared to the sedimentary rocks. The gold grade is positively correlated with
the amount of sulphides present, but native gold has been observed in this facies
of mineralization also, amounting to perhaps 20% of the total gold content.
Petrographic studies have identified micron-size gold as discrete particles within
81
106°34'22.5" 106°35'0.00"
PLACER
CENTRAL ZONE
A A'
OPERATIONS GT-55
48°37'55"
Base of Oxide
Drh PZhr
Q PZhr
Drh PZgr
CENTRAL 1150m.
A
GT-17
ZONE
48°37'30"
0 100 m
Drh
t
PZgr
ul A'
Fa
MAIN ZONE
tei
Q
B B'
jig
Su
B Trenc
h 01-21
MAIN 1 GT-06
ZONE GT-06 PZhr PZgr
B' 1300m.
48°37'05"
Drh
Drh Drh
Qal
1200m.
0 100 m
PZgr
CLIENT
Q
PZgr 0 500 CENTERRA GOLD INC.
Meters PROJECT
Boroo Technical Report
TITLE
Legend:
Quaternary PZgr Granite and granodiorite,
Boroo Complex
Fault (observed) Geological Setting, Gatsuurt Deposit
Qal Sediments, alluvium
Fault (approximate)
Q Diluvium
Paleozoic APPROVAL
H.T.
DATE
March 2004
PROJECT No.
329-7
Paleozoic Drh Devonian rhyolite, rhyolite-porphyry Mineralized zone
dr Diorite (Drh), Dzuun Mod Series (>1g/t Au) STRATHCONA MINERAL SERVICES LIMITED
PZhr Siltstone, sandstone, and graywacke Selected drill holes TORONTO - CANADA
(partly metamorphosed), Haraa Series File:
04Gatsuurt_Geology.cdr Figure 14
Map Source: Geological content from Centerra Gold Inc.
Strathcona Mineral Services Limited
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Strathcona Mineral Services Limited
Based on this poor performance, CGM have begun to explore the possibility of
treating the Gatsuurt refractory mineralization by bulk sulphide flotation followed by
bio-oxidation of the concentrate to make the entrapped gold available for cyanide
dissolution.
Initial bottle roll tests on transitional and fresh mineralization from the Main Zone
resulted in gold recoveries of only 13 to 15%, while bottle roll recoveries on oxidized
material averaged 60%.
Resource Estimation
A preliminary estimate of the mineral resources in the Central Zone has been
completed by the Cameco mining resources group following the 2002 drilling season.
No resources were estimated for the insufficiently-drilled and refractory Main Zone.
The parameters and methods were as follows:
• The mineralized zones were modelled with solids defined by gold distribution,
lithology and assay composites;
• Assays were composited observing a minimum of 1 g/t over 3.5 metres down-hole
(to give approximately two metres true thickness) including up to 1 metre of
internal waste;
• Grade interpolation was by ordinary kriging on a block model with 10 m x 4 m x
5 m blocks;
• High-grade assays were capped at 60 g/t Au; and
• A bulk density of 2.7 t/m3 was used to translate volume into tonnage.
The estimated mineral resources for the Central Zone at a 1.2 g/t cut-off grade are
summarized in Table 18.
Transition & Fresh 4 262 3.2 444 13.8 906 2.7 77 2.4
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Strathcona Mineral Services Limited
The mineral resource estimate summarized in Table 18 was performed using the CIM
best practice guidelines for mineral resource and mineral reserve estimation, and the
classification meets the appropriate CIM standards.
Outlook
There are two main scenarios that would allow exploitation of the Gatsuurt gold
resources. The simpler (and smaller) approach is currently being subjected to a
feasibility study by BGC (Boroo Gold Company, 2004 a & b) and involves mining of
the oxide mineralization only and trucking the ore to the Boroo mill for processing. The
main capital item is the haul road to Boroo, a distance of some 40 km. One of the
alternate options to be investigated is to heap leach the oxide material at Gatsuurt.
The total cost of the feasibility study that will also address all environmental and
permitting questions is estimated at $0.6 million, including a provision for 6000 metres
of RC in-fill drilling and additional, systematic metallurgical characterization work. The
expected completion date is early 2005. Scoping-level investigations (Boroo Gold
Company, 2004 a) indicate that the economics of this solution should be positive, and
that an addition to the Boroo milling operation of up to one year of production is
possible.
For the sulphide, refractory part of the Gatsuurt deposit, an alternate approach being
investigated would involve a treatment facility at Gatsuurt that would produce a bulk
sulphide concentrate to be bio-oxidized with the gold recovered from the concentrate
at Boroo. Much testwork remains to be completed before this option can be fully
evaluated, but given the size of the deposit, the potential for expansion of the sulphide
resources at depth, and the possible operational synergies, this approach is worth
pursuing in parallel to the oxide pre-feasibility study and is the subject of a separate
scoping study currently underway.
With the current drill coverage extending to a depth of less than 100 metres, four or
five widely-spaced holes are planned to be drilled at the Central Zone in 2004 to test
the continuation of the zone to a depth of 150 to 200 metres. In addition, a newly-
identified mineralized area to the southeast of the Central Zone will be tested by
surface drilling.
80 km, covering two structural lineaments, one interpreted to be associated with the
Boroo deposit, the other with Gatsuurt (Figure 15).
Within this overall area, some 5000 samples had been collected in the period 1999
to 2003 by Cascadia, BGC and CGM personnel. The method works well in areas of
low overburden with gold and arsenic being the main elements of interest, but gives
a subdued response in areas of deep loess cover. Similarly, soil geochemical
responses are adversely affected in areas of substantial loess cover which acts as an
impermeable blanket.
A large number of target areas indicated by the stream geochemical results, and the
large number of exploration licences acquired by CGM in 2003 was in response to
more recent stream sediment survey results (Table 16). Reconnaissance work has
been undertaken on licences acquired in earlier years, and detailed follow-up work
(prospecting, soil geochemical sampling, geophysical surveys and test drilling) has
taken place on a number of others, as indicated in Figure 15. The best results to date
have been obtained at the following prospects:
• The Argal prospect (Figure 15), located some 100 km to the southwest of Boroo,
occurs in Boroo-type intrusive rocks and minor Haraa sediments. Surface
exposures consist of a system of sheeted quartz veins that form a zone at least
200 metres wide, surrounded by quartz-sericite-pyrite alteration. The system is
gold bearing, with initial surface sampling results indicating the possibility of ore-
grade mineralization. Soil geochemistry indicates anomalous conditions over a
total strike length of eight kilometres. Drilling is currently in progress.
Beyond the two identified targets, follow-up work remains to be completed on many
individual target areas, a process that will require several years of field work to be
accomplished.
86
500000m.E 600000m.E 700000m.E
Legend:
Sangiin
Roads
Buguntai
t
Railroad
en
am
nt
me
ne
Khoshig Stream sediment anomalies
ea
Li
in
Khalzan
ol
Argal Prioprity exploration targets
lL
og
go
ro
oo
Bo
r
Ye
Khar Mod
Mining and Exploration Licences Khailast
Ganga
Khoyer
BGC (Boroo Gold Company) Sevsuul Khurai
Shiver
October Ulan Bulag
CGM (Cameco Gold Mongolia LLC) Mergen (Belkh)
Tarni
Sair
5400000m.N
Davkhar
Uul
Boroo Mine
Khujirt
Bayan
Tsogt Dzun Mod
Tsagaan Gatsuurt Deposit
Chuluut
Salkhit
Khar Tavag N
Agit
Red Pit
(Tsagaan Uul)
Khurga
Saikhan
Scale 1 : 1,250,000
Enger 0 10 50
Asgat Kilometers
UTM WGS84 Zone 48N
Khamar
Uidzen
Regional Stream Sediment
ULAANBAATAR Survey Results
APPROVAL DATE PROJECT No.
H.T. March 2004 329-7
mineralized zones scheduled for mining and will take place in two phases, the second
being dependent on the results of the first. At Gatsuurt, detailed near-surface RC
drilling is planned as part of the oxide project pre-feasibility study described in
Section 14.3.2.
The exploration programs planned by CGM for the combined Boroo and Noyon
projects for 2004 consist of further regional and detailed follow-up geochemical and
geophysical surveys and include a provision for drill testing.
Table 19 summarizes the substantial drilling planned for development and exploration
purposes in northern Mongolia for 2004.
The regional exploration programs in northern Mongolia will require a sustained effort
over several years to systematically cover the current substantial exploration
concessions and any new concessions that BGC is likely to acquire in future. Such
programs are warranted given the presence of the Boroo operation in the area that
lowers the economic threshold for new discoveries.
The within-pit drill program in 2004 at Boroo estimated to cost $0.4 million will be
funded from the mine operating budget. The other exploration programs on the Boroo
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Strathcona Mineral Services Limited
project will be funded by BGC. The Noyon programs will be funded by Centerra as to
39% and AGR as to 61% in accordance with their direct interests in the Noyon
project. The cost for 2004 for Boroo programs outside the mining pits, and the Noyon
programs, is $2.0 million.
14.5 Discussion
While the possibilities of adding mineral reserves in the immediate Boroo mine area
appear to be modest, the Gatsuurt Central Zone represents potential additional gold
resources for Centerra in northern Mongolia, either as a supplementary operation by
adding perhaps one year of oxide ore to the Boroo mine life, or as a more substantial
stand-alone project, if the metallurgical challenges for gold recovery can be
successfully overcome.
Beyond the Boroo and Gatsuurt deposits that have been known for a long time and
have given rise to placer operations, the surrounding area in northern Mongolia has,
prior to the arrival of western-based companies, not been systematically explored at
the “grass-roots” level using modern concepts and exploration technologies. This
process is still in the early stages.
The Centerra predecessor companies have assembled a very large land package
covering what could turn out to be a new gold district, and have already identified two
drill targets. Future exploration activities and expenditures as summarized in Table
20 are warranted, but the timing of these should be integrated into the overall Boroo
LOM plan so that any additional mineral reserves resulting from the exploration
activities becomes available for mining before the mineral reserves at Boroo are
exhausted.
15.1 Mining
The Boroo mining operations are based on conventional open-pit methods to mine a
nominal 5000 tonnes per day (tpd) of ore. The waste tonnage is initially higher than
indicated by the average waste-to-ore ratio of 3.9 over the mine life, but will decline
from 30 000 tpd in 2004, to near 20 000 tpd in the years 2005 to 2007, to 11 000 tpd
in 2008, and 3000 tpd in 2009.
Mining commenced in 2003 with the initial ore for processing coming from Zone 2 (Pit
2) while the waste removal program for the higher-grade Zone 5 (Pit 5) was in
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Strathcona Mineral Services Limited
progress. Mining is done with bench heights of five metres, with ore mined on half-
benches for improved grade control in the flat-lying ore. Figure 16 is a panoramic
view of mining operations in Pit 2, with the milling facilities nearby.
Blasthole drilling is carried out with two rotary-percussion drill rigs, with holes of 115
mm diameter drilled on a 3.5 x 3.5-metre pattern, with wider spacing in the waste .
Bulk explosives trucks blend ammonium nitrate with fuel oil as each hole is loaded,
and explosives consumption is 0.35 kg per cubic metre of ore or waste.
The principal rock handling equipment is supplied by Caterpillar and includes two
7.6 m3 hydraulic excavators and eight 50-tonne haul trucks. Additional haul trucks
are to be temporarily added to the fleet in 2004 for tailings dam construction. The
waste rock mined is deposited on waste dumps immediately adjacent to the individual
pits.
Additional mining equipment includes two large front-end loaders for ore handling and
blending, three tracked dozers for the maintenance of waste dumps and benches, and
two graders maintain the roads and bench floors.
Current mining operations are well above the water table. Drill hole information
indicates that water is first encountered some 30 to 40 metres below surface, and
may occur in individual perched lenses rather than as a continuous water table.
Grade control in mining is by manual sampling of the blasthole cuttings. Two separate
samples are taken for each blasthole, one for the initial 2.5 metres, one for the second
2.5 metres, which allows ore and waste selection to occur for those short vertical
intervals. The mine plans to purchase automatic sampling devices for the blasthole
rigs similar to those being used in mineral exploration on reverse circulation drills.
Sorting of ore in the pit is done as per the following grade ranges:
Sub-grade >0.8 and < ore cut-off Stockpile, not scheduled for milling, counted
as waste for the calculation of the strip ratio
The cut-off grades were reviewed in November 2003 (Olson, 2003) because of higher
operating costs for administration than earlier estimates. As a result, the grade control
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CRUSHER
CRUSHER AND
AND MILL
MILL
COMPLEX
COMPLEX
CLIENT
CENTERRA GOLD INC.
PROJECT
Boroo Technical Report
TITLE
cut-off grades currently used in mining are slightly higher than those used for the
Geostat mineral reserve estimate (Section 12.3) that were set at 1.1 g/t gold for
oxide, 1.15 g/t for transitional and 1.35 g/t for fresh ore. Once a more solid base of
operating cost experience has been gained, the question of incremental cut-off grades
will be reviewed. The mining experience in Zone 2 to date shows a very sharp grade
contrast between ore and waste, and the exact level of the cut-off grade may have
little impact on definition of ore and waste boundaries.
The blasthole assay data are determined at a laboratory in Ulaanbaatar. A large
proportion of each sample needs to be pulverized, and the metallics screen method
is required to obtain results that are both accurate and precise (reproducible) and
allow grade control decisions to be made based on few samples. A laboratory will be
installed at Boroo in 2004 that will result in sample assays being available more
rapidly to assist grade control in mining operations.
The blasthole assay data are combined into an ore control model that is being used
to determine the boundaries for the various grade categories and to estimate the
monthly pit production. The blasthole cuttings are logged, and a geological map is
produced for each bench mined. The grade and geological maps produced as a result
of the grade control work are assembled into packages that can be readily used in
mining operations and are of excellent quality.
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Strathcona Mineral Services Limited
fresh, high-grade ore that would produce a bulk sulphide concentrate to be re-ground
followed by cyanidation.
As part of the initial BGC due diligence in 1997, a composite bulk sample of drill core
weighing 160 kg that represented various types of Boroo ores was collected for bottle
roll tests to assess the feasibility of heap leaching and was sent to AMMTEC Limited,
Balcatta, Australia. Later, more exhaustive testwork on chips from reverse-circulation
drilling at AMMTEC included testing on different composites representing the
oxidized, transitional and fresh, sediment-hosted ore types. This work resulted in the
determination of the basic Boroo processing flowsheet of a combination of gravity
separation and cyanidation. The excellent metallurgical behaviour of the oxidized ore
and of the upper part of the transitional ore with gold recoveries in the 90% to 95%
range was indicated, and somewhat lower recoveries for the lower part of the
transitional zone (85%). Little work was completed on the primary or fresh material,
and the few test results were highly variable.
Comminution testing was undertaken by Orway Mineral Consultants of Mt. Pleasant,
Western Australia in 1999 and indicated ball mill work indices of 12.2 and 13.0 for
oxidized and fresh “granite”, respectively, while the figures for the Haara sediments
(hornfels) were much higher in the range of 22.3 to 24.6. Several options for the
design of a comminution circuit were evaluated.
Additional bottle roll testwork at a grind of 80% passing 75 microns on ore within the
planned open pits that had not been adequately covered earlier was undertaken in
2002 (Chapman, 2003), using ore from the lower transitional or fresh material. Again,
the results in the fresh ore were very variable, averaging 75% gold recovery, but
ranging from 57% to 90%.
The testwork to date has confirmed the gold recovery predictions for the oxidized and
transitional zones at 95% and 90%, respectively. However, there is a variation in
metallurgical response for the primary or fresh ore at Boroo, and the current expected
average gold recovery at 77% is not as well-founded. Only about 15% of total Boroo
mill feed will be primary ore based on current mine plans. Further testing will be
undertaken on samples from the lower transitional and primary zones during the
planned in-fill drilling program that is underway, including an investigation into the
mineralogical reason(s) for the relatively low recoveries in the fresh mineralization.
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Strathcona Mineral Services Limited
The selected flowsheet for Boroo ore (Figure 17), based on the test results described
above, is a standard layout that consists of crushing, grinding, gravity concentration,
cyanide leaching and gold recovery in a carbon-in-pulp (CIP) circuit.
A jaw crusher reduces the ore to 100% minus 20 centimetres. The crushed ore is fed
directly to a semi-autogenous (SAG) mill (8.5-metre diameter) or to a temporary
coarse ore stockpile from which it can be reclaimed during crusher maintenance.
Limefor pH control is added ahead of the SAG mill which, together with a ball mill,
reduces the particle size to 80% passing 75 microns. Cyclones part the ore into two
streams, with the cyclone underflow reporting to the ball mill. About 17% of the total
cyclone underflow reports to the gravity circuit, which consists of two 750-mm Knelson
concentrators followed by an Acacia reactor where the gravity-recovered gold is
leached in high cyanide solution.
The cyclone overflow is thickened prior to the leaching circuit that consists of two pre-
leach tanks where air is injected, followed by six CIP tanks. Gold in solution from the
leaching circuit is recovered on the carbon in the CIP circuit and subsequently
stripped from the carbon and again put in solution to be recovered by electrowinning,
followed by smelting and the production of a doré bar.
The tailings after processing of the ore have an average grade of 0.1 g/t gold and are
thickened and detoxified to meet a target cyanide level of one part per million (ppm)
using a modified INCO air-sulphur-dioxide process. Heavy metals are removed by
treatment with ferric sulphate. The tailings are discharged by gravity to the permanent
tailings facility, five kilometres from the process plant (Figure 4). The tailings storage
is designed for no discharge, with all of the water being reclaimed for re-use in the
mill, and will have an ultimate capacity of ten million cubic metres, sufficient for the
tonnage to be mined as per the life-of-mine plan (Section 12.5). The height of the
dams retaining the tailings will be increased yearly until 2007 and can be further
expanded as required.
The Boroo mill was designed with a capacity to process 1.8 million tonnes of ore per
year (5000 tpd). Throughput in December 2003 was 94 000 tonnes or 3000 tpd, and
normal plant commissioning issues were addressed. The first quarter of 2004 saw a
steady improvement in the mill tonnage processed, rising to 153 000 tonnes or 4900
tpd in March 2004. The gravity circuit has, to the end of March 2004, recovered
nearly50% of the gold contained in the ore, and the overall gold recovery has been
96%, in accordance with the expectations based on the metallurgical testwork.
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PRIMARY CRUSHER
BALL MILL
CYCLONES
THICKENER
GRAVITY CONCENTRATION
CYANIDATION
INTENSE CYANIDATION
CARBON - IN - PULP
LOADED CARBON
DORE
TAILINGS POND
NO DISCHARGE
CLIENT
CENTERRA GOLD INC.
PROJECT
Boroo Technical Report
TITLE
Mill Flowsheet
APPROVAL DATE PROJECT No.
H.T. March 2004 329-7
Mongolian
Department Expatriates Total Employees
Nationals
Mining 127 10 137
Milling 47 13 60
Maintenance – Mine 15 4 19
– Mill 37 6 43
Camp Operation 72 3 75
Site Administration 81 5 86
Ulaanbaatar Office 29 4 33
Sub-total 408 45 453
Seasonal 118 - 118
Total 526 45 571
The proportion of Mongolian nationals in the permanent work force at Boroo is about
90%, and training programs have been implemented to further the capabilities of
those employees in their current placements, and to prepare them for career
advancement, and reflects the Centerra policy of involving the residents of Mongolia
to the maximum extent.
The language used for communications between senior and supervisory staff is
English, but all manuals, policies and instructions are maintained in the Mongolian
language as well as English. A number of translators are employed at the operation
to permit collaboration between local and expatriate employees. As in many other
mining operations in the start-up phase, turn-over in the labour force is still relatively
high, but is expected to improve as the operation matures.
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BGC have confirmed that all required licences and permits for the development and
operation of the Boroo mine have been secured. The Mongolian authorities have
been cooperative in providing permits as required and it is anticipated that this
cooperation will continue given the importance of the Boroo mine for the local
economy.
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Strathcona Mineral Services Limited
metres and is up to ten metres in height. The bottom of the tailings storage area was
sealed with a compacted clay liner and an HDPE liner on all embankments.
In April 2004, the Mongolian government approved an extension to the tailings dam,
which is estimated to cost $2.5 million.
AMMTEC (1999 d) undertook acid mine drainage testing of tailings composites during
their metallurgical testwork and report that “The above results indicate that the
Blended Composite # 2 leach residue possess no acid generating potential, but rather
have significant acid consuming potential.” (AMMTEC 1999 d, page 4), and therefore
no concerns have been indicated for acid generation from the tailings storage areas.
An Environmental Protection Plan and an Environmental Monitoring Plan for 2004
were formulated and submitted to the state ministry for the environment, and written
approval has been received.
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Strathcona Mineral Services Limited
Safety elements are incorporated in the design and operational procedures of major
facilities of the mine. The open-pit operation is carried out under safe blasting
procedures. The pit slopes are designed with a 1.5 failure factor and stability is
constantly monitored for safety. Pit design has incorporated rock fall catchment
berms. The in-pit ramps and the haulage road between the pits and the mill are
constructed 25 metres wide to allow two haul trucks to pass safely and are equipped
with safety berms and drainage ditches. Dumping berms and procedures are in place
to avoid incidents with equipment. Pit operators are properly trained in the safe
handling of heavy equipment.
Process and effluent treatment facilities were designed to address issues of dust
control, noise, toxic chemicals, moving pieces of stationary equipment, potential
electrical and fire hazards.
The camp complex providing accommodation, kitchen, dining and recreation facilities
is equipped with smoke detectors, fire hose reels and hand-held fire extinguishers.
The transportation of materials and personnel, both on- and off-site, is undertaken
under accident prevention and safety procedures that include speed limitations and
control signs as required. All transport equipment units are under a preventive
maintenance program. The mine site is under security with authorized entry policy
enforced by specialized personnel.
At the mine site, two doctors and one certified nurse provide first aid, routine medical
services and operate a fully equipped first aid clinic centre. An ambulance equipped
to accommodate a stretcher and with appropriate medical supplies, is on standby.
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Strathcona Mineral Services Limited
• BGC may elect to take physical delivery of the refined gold, or to sell it to JM with
an early payment provision to receive 95% of the value based on the mine site
assay within two working days of delivery to the refinery, and the balance following
agreement on assays.
17.2 Taxation
BGC entered into a Stability Agreement with the Mongolian Government in 1998, as
amended in 2000, and which expires in 2013. The Stability Agreement stabilizes all
existing Mongolian taxation legislation as it was in effect on December 31, 1998,
unless more favourable laws take effect. The agreement provides for an exemption
from income tax for the first three years from the commencement of production, and
for 50% tax relief for the next three-year period. For the final period, until the
agreement expires, the tax rate is specified to be 15% for annual taxable income up
to 100 million tugriks (approximately $90 000 as of December 31, 2003), and 40% on
taxable income above that level.
17.4 Royalty
A 2.5% royalty will be paid to the Mongolian Government on the revenue from the
sale of gold and silver, valued at market prices.
Table 21 summarizes the forecast of gold production from Boroo over the next six
years based on the current LOM plan (Section 12.5).
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340
300
260
1990 1992 1994 1996 1998 2000 2002 2004
A portion of future gold production from Boroo is hedged using forward sales
contracts. As at March 31, 2004, a total of 200 000 ounces of gold were designated
against hedge contracts at an average expected price of $316 per ounce, with 10 000
ounces having been delivered against those commitments in April 2004. The balance
of the gold production will be sold at the prevailing market price at the time of delivery.
The expected sales revenues based on average gold prices for the six-year period of
2004-2009 of $300, $350 and $400 per ounce, and taking into account the existing
hedged portion are shown in Table 22.
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The most noteworthy feature about Boroo operating costs is the relatively low
proportion of total operating costs that is represented by mining. Over the period
2004-2009 mining is only 22% of total costs, and that is a result of low waste-to-ore
ratios for the near-surface deposits and minimal quantities of hard rock to be mined.
Initial operating cost experience at Boroo, based only on actual costs for the first
quarter of 2004, indicates that mining costs could be lower than estimated, milling
costs as estimated, but general and administration costs will be higher including
procurement and transportation of supplies, and catering. Total operating costs for
the first quarter of 2004 were within budget. It is normal to have somewhat higher
operating costs when a mine is in the start-up phase, which then trend lower as the
personnel and operating procedures stabilize.
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BGC is subject to corporate income tax as previously described in Section 17.3, with
BGC benefiting from a tax-free period for the first three years of production from
Boroo.
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Strathcona Mineral Services Limited
Gold price
2004 2005 2006 2007 2008 2009 Average
per ounce
$300 $150 $150 $176 $172 $149 $170 $160
350 152 151 177 173 150 172 161
400 153 152 178 174 152 173 162
Project costs for Boroo, shown in Table 26, consist of sustaining capital expenditures
and funding of the reclamation trust to be accumulated and used in post-production
reclamation projects.
Capital expenditures include the extension of the tailings storage capacity and
sustaining capital and are small in value, relative to operating costs, totalling $14.8
million over the projected life of the mine.
The reclamation funding is based on a contribution of $0.26 for every tonne of ore
milled, which amounts to approximately $500 000 in annual funding requirements.
These funds are expected to be deposited into a separate cash account to be used
to fund reclamation projects once the mineral reserves are depleted.
Table 26 Project Costs 2004 - 2009
Project Costs - $ millions 2004 2005 2006 2007 2008 2009 Total
Tailings dam construction $3.5 $1.4 $1.4 $0.7 - - $7.0
Sustaining capital 4.6 1.2 0.9 0.6 0.5 - 7.8
Funding of reclamation trust 0.4 0.5 0.5 0.5 0.4 0.4 2.7
Total Project Costs $8.5 $3.1 $2.8 $1.8 $0.9 $0.4 $17.5
18.5 Financing
Financing costs, shown in Table 27, include interest to service the debt facility that
BGC has in place with AGR, which in turn has a debt facility in place with Centerra
Barbados Inc. for $70 million. Cash received by AGR will be used to make payments
on the amount outstanding under the Centerra Barbados loan, commencing June 30,
2004, based on the following requirements:
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Table 28 summarizes the projected Boroo mine cash flows at gold prices of $300,
$350 and $400 per ounce, net of operating costs, sustaining capital, reclamation costs
and taxes, but before expenditures on exploration, and before repayment of the
project loan of $70 million advanced by Centerra Barbados Inc. together with
associated interest costs.
Exploration expenditures of $0.5 million are planned by BGC in 2004 on the Boroo
property in close proximity to the four zones of gold mineralization in the current
mineral reserves. Expenditures for subsequent years are likely to be for similar
amounts dependent upon the results of the exploration programs for prior years. In
addition an exploration budget of $1.5 million in 2004 has been established for work
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on other exploration licenses held by BGC and CGM in northern Mongolia (Section
14.4).
BGC has also budgeted $0.6 million for a pre-feasibility study on Gatsuurt oxide gold
mineralization to be completed in 2004. Funding of the exploration programs, both
on and off the Boroo property, and the Gatsuurt pre-feasibility study is not included
in the summary of Boroo mine net cash flow in Table 28.
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Strathcona Mineral Services Limited
300
250
NPV $ million
NPV $ million
Gold price 0% 5% 10% 200
0%
per ounce
$300 $131 $111 $95 150 5%
Gold price
2004 2005 2006 2007 2008 2009 Total
per ounce
$300 $15.9 $25.0 $16.3 $17.0 $23.0 $12.0 $109.2
350 21.4 31.0 21.5 21.6 17.6 14.6 127.7
400 27.0 37.0 26.7 17.5 21.3 17.3 146.8
For every $50 per ounce change in the price of gold, the net mine cash flow for Boroo
attributable to Centerra over the period 2004-2009 will change by approximately $19
million.
The NPV of the Boroo cash flow attributable to the economic interest of Centerra has
been analyzed for sensitivity to changes in the key parameters of gold price, operating
costs and mineral reserves over the life of the Boroo project based on the current
mineral reserves. The resulting NPV values are tabulated in Table 30 and presented
in Figure 18. As with all gold mine projects, the Boroo mine cash flow is most
sensitive to changes in the gold price.
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200
NPV $ millions
150
0%
125
5%
100
10%
75
50
275 300 325 350 375 400 425 450 475 500
Gold Price ($/oz)
200
Operating Costs
175
NPV $ millions
150
0%
125 5%
100 10%
75
Base Case Gold Price - $375
50
+10% Base Case -10%
Operating Costs
200
Gold Reserves1
175
NPV $ millions
150
0%
125
5%
100 10%
75
Base Case Gold Price - $375
50
Base Case +10% +20%
Gold Reserves
1
Increases in net mine cash flows are based on any ounces of gold in excess of current reserves being
produced in 2009 or later, at a total cash cost of $165 per ounce, including royalties.
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The NPV of the Boroo net cash flow attributable to Centerra, or the NPV of the
Centerra economic interest, expressed as a percentage of the NPV of the entire
Boroo mine net cash flow is presented in the following tabulation.
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19. REFERENCES
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C M Orr, 1999
Boroo Gold Project, Mongolia. Assessment of Ground Conditions Influencing Pit Wall
Stability and Excavation Requirements, and Recommended Wall Designs. George, Orr
and Associates (Australia) Pty Ltd., September 1999 (Appendix 4.4 in AGR Feasibility
Study)
H. A. Simons, 1994
MK Gold Corporation. Boroo - Joint Venture in Mongolia - Feasibility Study. November
1994
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CERTIFICATES OF QUALIFICATION