Location:

The Song Jiagou Property is located on the Jiaodong Peninsula in Muping County, the Shandong Province, the People's Republic of China.

Gold production from the entire peninsula accounts for over 25% of China's annual gold production, which in 2010 was estimated to be 340.8 tonnes.


Location Map

Project Highlights:
  • Production Highlights (for the twelve months ended September 30, 2012 vs. the twelve months ended September 30, 2011)
    • 104% increase in gold production: 18,969 oz vs. 9,292 ounces year on year

  • Financial Highlights (for the nine months ended June 30, 2012 vs. the nine months ended June 30, 2011)
    • Increased Joint Venture revenues and profits following the commissioning of the 6,000 tpd mill in May 2011;
      Nine months ended June 30, 2012 compared to nine months ended June 30, 2011:
    • - 240% Increase in Revenues: $19.4 million vs. $5.7 million
      - 374% Increase in Gross Profit: $7.87 million vs. $1.66 million
      - 19% Reduction in Cash Costs Per Ounce: Cash cost per ounce of $806    compared to $995
      - Shift to Cash-­Flow Positive Operations: $2.9 million, compared to a $0.4    million loss
  • Positive Preliminary Economic Assessment (PEA)
    • Net Present Value of US$ 525 million using a 10% discount rate and a US$ 973/oz gold price
    • Total gold production of 2.32 million ounces at an average of 105,645 ounces per year for the mine-life of 22 years
    • Internal Rate of Return of 78.6%
    • Payback in 1.4 years
    • Life of Mine strip ratio 1.87: 1 (waste to ore)
    • Initial capital costs US$ 64.4 million

  • Maximum capacity - 7,400 tpd
  • Management with proven track record

  • NI 43-101 compliant resource estimate used in preparation of the PEA
  • *Resource Categroy Cut-off (g/t) Tonnes Au Uncap g/t **Au Cap g/t Ounces Au Uncap Ounces Au Cap
    Indicated 0.30 33,739,586 1.384 1.147 1,501,298 1,244,211
    Inferred 0.30 38,812,054 1.500 1.467 1,871,755 1,830,576
      *Mineral Resources are not mineral reserves and do not have demonstrative economic viability. All figures have been rounded to reflect the relative accuracy of the estimates.
    **Gold grades were capped at 40.0 g/t
    • Open pit optimization was carried out using WhittleTM 4.3 which uses a series of Lerchs Grossman (LG) pit shells at different prices of gold to optimize the size of the pit while maximizing net present value (NVP) of the deposit. The resulting LG shells generated the highest discounted cash flow from the ore body at varying prices of gold. The LG shell used for optimization does not apply practical mining considerations and constraints.
      The strategic planning using the generated LG pit resulted in Wardrop identifying the following "potentially mineable" resources within the proposed preliminary production schedule:
    Resources Classification Tonnes Grade, Au (g/t)
    Indicated 29,875,527 1.207
    Inferred 22,806,473 1.936
      The optimization was based on a gold price of US$973/oz and an exchange rate of USD 1.000 to CAD 1.087

    Disclaimer

    The Company’s production decision was not based on a feasibility study of mineral reserves demonstrating economic and technical viability. The Company's production decision was made based on the open pit optimization resource model set out in the Preliminary Economic Assessment (“PEA”), which takes into account the relatively low mining costs negotiated by the Company. The pit optimization that was conducted in the preliminary assessment generated a production schedule summary at grade cut-off of 0.30 gram per tonne Au.

    The PEA includes the inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that the preliminary assessment will ever be realized. mineral resources that are not mineral reserves do not have demonstrated economic viability.

    Open pit optimization was carried out using Whittle 4.3 which uses a series of Lerchs Grossman (LG) pit shells at different prices of gold to optimize the size of the pit while maximizing net present value (NVP) of the deposit. The resulting LG shells generated the highest discounted cash flow from the ore body at varying prices of gold. The LG shell used for optimization does not apply practical mining considerations and constraints.

    The strategic planning using the generated LG pit resulted in Wardrop identifying the "potentially minable" resources within the proposed preliminary production schedule.

    The optimization was based on a gold price of $973 per ounce and an exchange rate of $1.000 (U.S.) to $1.087 (Canadian).

    The Song Jiagou resource estimate was carried out using industry-standard procedures and a geological interpretation of the deposit that, to the extent possible, reflected observations of grade distributions. Modeling of the deposit is uncertain, however, because it is difficult to establish with a high level of confidence the area of influence of higher-grade gold values. The risk remains, therefore, that the geological model may overstate the distribution of high-grade gold values. If future mining demonstrates that this is in fact the case, then the model may overstate anticipated gold grades. Because the probability of this outcome is unknown, the level of uncertainty must also be unknown.



    Geology and Mineralization:

    The following assessment of Geology and Mineralization has been described by Wardrop Engineering Inc. and reported in the N I 43-101 Technical Reports for Majestic Gold Corp:

    GEOLOGY

    The tectonic evolution of China has been dominated by the interaction between, and convergence of, a number of Precambrian microplates that have deformed sedimentary basins and accreted island arcs that developed along the intervening sutures. Rocks on the Jiadong Peninsula peninsula were affected by two major orogenies, the Indosinian collision between the north China and Yangtze cratons. The Property is underlain by Cretaceous-age conglomerate and related clastic sediments of the Liayang Group and is situated near the basin margin where the Liayang Group is underline by Proterozoic gneisses.

    The Fayunkuang gold deposit (Song Jiagou gold project) is located along the north-eastern margin of the Jiaolai Basin, about 10 km northeast of the geologically-similar and well-documented Pengjiakuang gold deposit.

    Paleoproterozoic metamorphic rocks of the Jingshan Group are mainly distributed to the north of the basin and are comprised of biotite granulite, graphite-bearing gneiss, leucogranulite and marble. Cretaceous-age rocks comprised of conglomerate and sandstone of the Liayang Group, volcanics of the Qingshan Group, and mudstone and shale of the Wangshi Group are distributed to the south. Early Mesozoic-age granites are widely distributed in the northern and eastern parts of the area.

    The Property is underlain by polymictic conglomerate belonging to the Linshishan Formation, a member of the Liayang Group. Clasts are predominantly derived from granitoid Proterozoic gneiss, although mafic gneiss and clastic sedimentary clasts are present in subordinate quantities. Clasts vary in size from pebble to cobble, mostly in the range of 10 to 30 centimeters in diameter, and are typically well-rounded. No sorting or stratification is recognizable in surface or underground exposures of the conglomerate at the Fayunkuang Mine.

    Alteration minerals associated with the fault zone include sericite, silica, pyrite, carbonate, chlorite and potassium feldspar and are present in a large halo around the fault zone and contained mineralization.

    MINERALIZATION

    The Property is located within the Muping-Rushan gold belt that is situated in the eastern part of the Jiaobei Terrane and contains about 20% of the gold reserves of the Jiaodong Peninsula.

    The Fayunkuang deposit is situated to the southeast of the Zhuwu-Dianji Fault, within conglomerate of the Upper Cretaceous Linsishan Formation which unconformably overlies metamorphic rocks of the Proterozoic-age Jinshan Group.

    The underground sampling carried out by Majestic substantially confirms that the highest grades of gold mineralization are confined to relatively narrow although vertically and horizontally persistent zones. Away from these higher-grade corridors, gold grades drop to 0.5 grams per tonne or less, with rare, interspersed higher values.

    Gold mineralization is associated with sulphides that include pyrite, chalcopyrite, galena, sphalerite and bornite. Gold is most abundantly associated with pyrite as matrix cement in breccia, and in sulphide veins. Galena and chalcopyrite are present in minor quantities.