Touquoy Gold Project

Acquisition of surface titles

For further details see our announcement dated 18 June 2012 and Minister's announcement.

Definitive Feasibility Study (DFS)

The Touquoy Definitive Feasibility Study ('DFS'), completed in July 2010, was compiled in association with Merit Engineers Pty Ltd and Ausenco Limited and considered all aspects related to development of Touquoy including ore reserve definition, mining, metallurgical, processing and engineering, economics and environmental. In February 2012 the DFS was updated to include current costs and revenues.

The updated Touquoy DFS re-affirms the strong viability of the Touquoy Gold Project as a significant development opportunity and provides the basis for Atlantic Gold to materially advance discussions with bankers and other financiers for the Project's funding.

Based on Proved and Probable Reserves of 9.59 million tonnes at 1.48 g/t (454,000 contained ounces of gold) and a gold price of US$1500 per ounce, the ungeared pre-tax project NPV is A$149 million.

The Touquoy Gold Project represents the first stage of the conceptual 10-year production plan for the combined Touquoy-Cochrane Hill Gold Project of 900,000 ounces with net cash surplus pre-tax of A$721 million (at US$1500 per ounce gold price).

For further details see our announcement dated 23 February 2012 and March 2012 quarterly report.

Permitting

Background

Under an Agreement established in May 2003 with a private local company Atlantic Gold NL (ATV), through its wholly-owned local subsidiary DDV Gold Limited (DDV), now holds 60% interest in the Touquoy Gold Deposit and satellite deposits, located in Nova Scotia on Canada's Atlantic coast. A further 15% interest in the surrounding property can be earned on securing project financing. DDV is the Operator. Under the Agreement DDV receives 100% of all project cashflow until all exploration, pre-development and development expenses, charges and overheads - capital or otherwise - plus interest are recouped, following which it retains 60% share of profits.

ATV has now advanced the Project to the Feasibility Study stage for an open pit mining and processing operation, having now obtained Environmental Approval and completed comprehensive resource delineation and trial grade control drilling along with metallurgical, geotechnical, geohydrological, environmental and other technical investigations. In addition to in-house expertise, ATV has engaged specialist consultants, where appropriate, to assist with these studies.

Location

The Project is located in central Nova Scotia approximately an hour and a quarter by sealed road from Halifax. The region is mostly forested.

Skilled labour services and housing are available in the nearby Musquodoboit Valley, where several long-standing gypsum and limestone open pits are operating. Grid power will be available with connection requiring 5 km of new line and upgrade of 5 km of existing line.
 

Resources

As a result of ATV's resource delineation drilling - 129 diamond holes for 10,480 m - and trial grade control drilling, the resource inventory has now been confidently expanded to 656,000 ounces gold (13.2 million tonnes @ 1.5 g/t), a 60% increase over the 405,000 ounces which had been identified prior to ATV's involvement. The single-pit Touquoy Gold Deposit itself presently contains 11.7 million tonnes @ 1.5 g/t gold for 557,000 ounces to a depth of 140 m with the remainder (1.5 million tonnes @ 2.0 g/t gold for 99,000 ounces) developed in two satellite deposits 2 km away at Touquoy West.

Current resource estimates (April 2008) are as follows:

Underpinned by this resource inventory, the Touquoy Gold Deposit represents an attractive open pit mine development given these further favourable attributes:

• Low waste:ore ratio of 2.6:1
• Ore is soft with Bond work index of 10
• High gravity gold recoveries of about 75%
• Low reagent consumption (0.4 kg/t cyanide) at coarse grind (150 microns)
• Excellent cyanide detoxification characteristics
• No acid rock drainage because of low sulphide and high carbonate content of ore
• Excellent metallurgical recoveries 93%
• Coarse grind permitted (150μm), hence reduced power consumption
• Short residence time (16-24 hours)
• Close to grid power
• Acess to excellent infrastructure and services
• Keen local and homecoming workforce
• No on-site accommodation required
• No sovereign risk

Metallurgy

Final comprehensive metallurgical testwork has been undertaken under the guidance of Peter Lewis and Associates. The ore has excellent metallurgical characteristics:

• Very high total recoveries (93%)
  
• Very high gravity recoveries (65%)
  
• Permissible coarse grind (150 microns)
  
• Low reagent consumption
  
• Very short residence time (16-24 hours)

Grindability

Grindability testwork on large diameter (PQ) diamond core samples drilled by ATV in August 2005 has been conducted by SGS Lakefield Research Limited with direction from Perth-based, Orway Mineral Consultants (WA) Pty Ltd. Results confirm the extremely low Bond ball mill work index (average 8.3 kWh/t) for the argillite host rock, which will comprise 85-90% of the mill feed. This result implies low power consumption for the grinding circuit. The preferred comminution circuit option arising from this testwork is a 3-stage crush/Ball mill configuration.

Geotechnical testwork

A review of detailed and specific geotechnical investigations undertaken by ATV on selected resource delineation drillholes under the guidance of Perth-based consultant, Peter O'Bryan and Associates has defined the pit slope parameters used in the Engineering and Cost Study.

Geohydrological testwork

Results of airlift tests on selected resource delineation drillholes and eight monitoring water bores drilled in and around the proposed pit, indicate minimal potential impact on surface water flow characteristics and simple pit dewatering requirements.

Geology

The Touquoy gold deposit is located in the Meguma Group, a sequence of Cambro-Ordovician sandstones and mudstones which underlies about half of the province of Nova Scotia. Since the mid-1800s about sixty underground gold deposits within the Meguma Group have been mined, for an aggregate documented production of about 1.2 million ounces. These deposits evidence the substantial gold potential of the Meguma Group. The Touquoy deposit however is different from most of these deposits in that the gold is disseminated throughout the host sediments and is essentially unrelated to quartz veining.

The very wide drill intersections of gold mineralisation at Touquoy, some in excess of 100 m, therefore set this deposit apart from the typical Meguma Group gold deposits as a substantial, open-pit, bulk mining proposition.
 

Property ownership

Under the 2003 farm-in Agreement, Atlantic Gold:

• has earned a 60% interest in the entire Property by having spent C$2.2 million before 31 December 2005 on exploration, evaluation and development of the Property, and by having made cash payments totalling $200,000 to the property vendors, Moose River Resources Inc (MRRI).
  
• may earn an additional 15% interest in the Exploration Block, which comprises the major part of the property outside the currently defined resource area, upon securing project financing for the Project.
  
• is the operator and manager of the Project and will arrange project financing in respect of MRRI's minority interest, and
  
• receives 100% of all project cashflow until all exploration, pre-development and development expenses, charges and overheads - capital or otherwise - plus interest are recouped, following which it retains 60% share of profits.
  

Since the site of the Touquoy Gold Project was one of the many pre-World War I production centres within this region of Nova Scotia, it is overlain by several dozen residential titles dating from that period though almost all are now vacant. Many of these have now been purchased and others are held under option to purchase. Dedicated legal counsel has been secured through prominent Halifax legal firm Cox & Palmer and property settlements and title clearances are in progress.
 

History

Gold mining began in the area in 1877, and continued intermittently until 1936, with numerous small underground operations and open pits developed around the central part of the project area. About 26,000 ounces of gold are reported to have been recovered from 150,000 tonnes of slate, quartz and glacial overburden material.

The deposit has undergone several exploration campaigns since 1986. These include:

• Seabright Exploration Inc, 1986-87: 143 diamond drill holes for 19,523 metres drilled around the Higgins and Lawlor prospect and eastwards towards Touquoy. Seabright was taken over by Western Mining Corporation in late 1987.
   
• Westminer Canada Limited (a subsidiary of Western Mining Corporation), 1988-89: 129 diamond drill holes for 12,722 metres drilled on the Touquoy zone and surrounds. Mining and processing of a 57,000-tonne bulk sample taken from near-surface mineralisation at the western end of the deposit.
   
• Moose River Resources Inc, 1996: 38 diamond drill holes for 2,669 metres and 37 percussion holes for 1,110 metres.
   
• Aurogin Resources Ltd, 2002: five percussion and one diamond drill holes for 381 metres.

Exploration potential

In addition to developing the Touquoy Gold Project Atlantic Gold is undertaking extensive exploration, both regional and near-mine, to build its resource base. Atlantic Gold believes the area is highly prospective for additional Touquoy style deposits (a) elsewhere within the Touquoy property close to the proposed plant site, (b) on the well-located Cochrane Hill property and (c) outside the Touquoy property elsewhere within the Meguma Terrain.

(a) Step-out diamond and percussion drilling indicates the Touquoy host stratigraphy is gold- and arsenic-anomalous for a kilometre eastwards of the Touquoy deposit. This favourable stratigraphy and structure also extends westwards into the area of the historic Higgins & Lawlor and Stillwater deposits of the Touquoy West locale. Both these deposits are open along strike.

(b) Indicated and Inferred Resources of 10.1 million tonnes at 1.7 g/t Au for 549,000 contained ounces have been identified at Cochrane Hill, an advanced gold exploration property located 80 km east of the Touquoy Gold Project and the subject of an option agreement with Scorpio Mining Corporation. The nature of the Cochrane Hill mineralisation confirms Atlantic Gold's belief that this district is highly prospective for bulk-mineable gold reserves similar to that at Touquoy.

(c) Considerable potential along adjacent parallel gold-mineralised belts - the anticlinal axes of pioneer government geologist ER Faribault mapped over a century ago - is recognised beneath the widespread cover of masking glacial till, and a strong local land position has been secured. A customised reconnaissance drilling technique has been employed by ATV to effectively penetrate the cover and explore this terrain and to date over 10,000 m have been drilled to test regional targets. This work is ongoing.