Update on Merger with Polymetals - Notice of Meeting

BDO CORPORATE FINANCE (WA) PTY LTD
Polymetals Mining Limited and Southern Cross Goldfields Limited
Technical Specialist's Report
Exploration Valuation
AMC considers that the production cases indicate an appropriate value for groups of tenements hosting
Mineral Resources. In the Marda area, tenements hosting Mineral Resources occupy about half of the
overall tenement area. The northern part of the Marda tenement area (about 650 km 2 ) does not host any
Mineral Resources but remains prospective for gold and base metals as previously described. AMC
considers it appropriate to assign a value of $1,000/km 2 to $2,000/km 2 indicating a range of values for this
area of $0.65M to $1.3M.
Opportunities and Risks
AMC considers that additional opportunities that might be available for Marda include:
• Southern Cross has undertaken a review of the mine schedules in the feasibility study. The results of
this work demonstrate a mine plan targeting early development of higher grade ore. AMC has
reviewed this work and although it is preliminary in nature, believes the revised mine schedules would
generate higher earlier cash flows and an increase in the projects DCF compared to case 1.
• A significant resource remains outside and below the open pits at Marda. Reductions in cost
structures and/or an increase in gold price would allow more of this material to be mined economically.
• AMC has not considered underground mining of additional resources in its evaluation as no work has
been undertaken in this regard. However, a number of the Mineral Resources at Marda have a grade
that might support underground mining.
• Potential to achieve plant throughputs greater than design once the project is commissioned.
• Potential to install higher grinding capacity and hence increase plant throughput and gold production.
This could be achieved by specifying a larger SAG mill or utilising the spare ball mill at Sandstone.
The rest of the process plant either has the capacity to handle the additional tonnage or modifications
required are relatively simple and inexpensive.
AMC considers that the following risks apply to Marda:
• Marda is a green-fields open pit operation. There is no historical mining or ore processing in the area,
therefore there is a level of risk associated with the key assumptions for the project such as mine
dewatering, geotechnical and productivity assumptions.
• The advance rate assumed for the open pits is high, however this is offset to an extent by the number
of ore sources available and the ore stockpiles built up during the operation.
• AMC's production cases include Inferred Mineral Resources and assumed further exploration success.
Based on AMC's assessment of the large Mineral Resource inventory and exploration prospectivity in
the area, AMC considers that there is a reasonable basis for including these in its production cases.
However, it is not certain if further exploration will result in the determination of additional Mineral
Resources and Ore Reserves.
• Slightly lower metallurgical recoveries are possible in later years of the project because of limit specific
test work on the ore scheduled to be treated in those years.
4.2 Sandstone Project
The Sandstone project was acquired by Southern Cross from Troy Resources NL (Troy) in a transaction
completed in March 2013 involving $2.3M cash, replacement of $2.7M of existing environmental bonds, a
2% net smelter royalty and 44M SXG options. The transaction included the Sandstone treatment plant and
camp.
Troy acquired the project in 1998, purchased the Sandstone treatment plant in 1999 and commenced mining
at Bulchina. The Bulchina pit produced 230,000 oz of gold. Production commenced from the Lord Nelson
and Lord Henry pits in 2005. Mining at Lord Nelson was discontinued in August 2007 having produced
180,000 oz of gold but was restarted in a pit cutback to produce a further 27,440 oz of gold. The Lord Henry
pit was completed in 2007 having produced 48,000 oz of gold.
41