Massalsky Iron Ore Deposit

MASSALSKY DEPOSIT
Subsoil user: Limited liability partnership MASSALSKY GOK
Contractual rights: Contract 2519 dated 24.12.2007 Exploration Period: 2 years Mining Period: 25 years Founders: 1. Limited liability partnership GORNOE BURO: 70 % www.gornoeburo.kz 2. JSC National Company Social Entrepreneurial Corporation Yesil: 30 % www.spk-esil.kz

LOCATION
Zharkain district, Akmola region, Kazakhstan

Railway distances to potential consumers (km)

Distance (km)
1 2 3 4 Potential consumer Pagan smelter (China) Chelyabinsk metallurgical complex JSC (Mechel) West-Siberian metallurgical complex JSC (Evraz Holding) Novokuznezk metallurgical complex JSC (Evraz Holding) Railway station name and code Dostyk (708507) Chelyabinsk (800101) Kemerovo (870104) Novokuznezk (860102) Priishimskaya (680800) 1 844 746 1 781 1 654

INFRASTRUCTURE

GEOLOGICAL PROSPECTING

Discovered Research and evaluation Detailed prospecting

Drilling

1948 - 1949 1952 - 1953 2008 - 2011

In 2009 Wardell Armstrong International (Great Britain) conducted mineral resources estimate in compliance with JORC Code based on results of geological prospecting. On 29 October 2009 Massalsky GOK LLP filed Feasibility Study of evaluation conditions for Massalsky deposit and approved it by State Commission on Reserves (Minutes of Meeting 868-09- dated 30 October 2009).

Core description

Temporary core storage

GEOLOGICAL PROSPECTING

1 2 3

Type of operation Magnetic survey with 10020m grid Magnetic survey with 5020m grid Electric survey, IP-DF, profile, 20m spacing Gravity survey, profile, 20km spacing

Unit

4
GP in 2008

5 6

Geological routes
Prospective drilling Core drilling Hydrogeological drilling Geophysical logging

sq. km sq. km l.km l.km l.km

l.m

Quantity 1952-1953 2008-2011 8 10 7,6

2
203 1 174 31 601,7

7
8 9 10 11

dh
l.m l.m sample sample

16

1 064,3
422,2 31 034

Core sampling in 2m sections

Composite sampling Sampling for bulk density definition Processing of core sampling Chemical analysis o f run-of-min e samples

156 8

12 805 795

12
Drilling

sample
sample sample sample sample

24
156 156 5 23

574
12 805 12 805 698 710

13 14 15 16

Internal geological control

External geological control Engineering geology Hydrogeology Geoecology study Technological sampling and trial

17
18 19
Operations in 2009

complex
complex complex sample

1
1 1 1 5

20

PROSPECTING RESULTS
Reserves listed to the State Balance Resources classified per JORC, estimated by

Minutes of GKZ meeting 868-09- dated 30.10.2009

(COG 13%) Classification acc. to GKZ Ore (mln. t) Fe Average content (%) TiO2 V2O5 Metal Fe (mln. t)

Wardell Armstrong International as of 04.07.09

(COG 13%) Classification acc.to JORC Ore (mln. t) Fe Measured Average content (%) TiO2 V2O5 Metal Fe, (mln. t)

2,3
530,52

14,62
16,08

1,91
2

0,1
0,12

0,34
85,3

343,8

15,57

1,93

0,18

53,52

Indicated

2
1+2 1

180,66
524,46 1 344,09

15,66
15,6 16,64

1,99
1,98

0,16
0,17

28,29 Inferred Measured + 81,81 Indicated + Inferred 227,01 No equivalent

662,12
1194,94

15,81
15,92

2,09
2,04

0,12
0,12

104,68
190,32

GEOLOGICAL MAP

Massalsky deposit is associated with Massalsky intrusive massive, 33,5km big. Type of ores is titanium-magnetite, disseminated, schlieren, connected with pyroxenites and hornblendites. Area of distribution makes 1,5km2, depth of exploration reaches 500m and 2,5km in geophysical data.

DEPOSITS ADVANTAGES

1.

Mining and geological conditions of deposit Suitable for open mining. Vanadium content Based on GKZ RK data V2O5 reserves make 3,2 MT. Brown coal content Orlovsky big coal mine is located 70 km away from Massalsky deposit. Deposit coal is brown with low ash (16%) and sulphur rates, calorific value of combustible mass is 6,7 thousand kcal/kg, suitable for direct iron reduction technologies SL/RN, used by DNP New Zealand Steel. Commercial reserves of coal deposit make 1,9 milliard of tons, where 1,7 milliard are suitable for open mining.

2.

3.

4. Developed infrastructure Distances from deposit to: Priishymskaya railway station 16 km Yesil-Arkalyk road 12 km PL 500 kV 50 km PL 110 kV (two lines) 14 -21 km Yesil river (Ishim) 12 km 5. Water sources Yesil river and technical recirculated water.

MINING OPERATIONS
Pit design:

Planned dimensions: Surface Bottom Depth V of pit V of overburden V of ore Strip ratio

2000 1600 1100 500 305 395 761,7 262 624,2 133 137,5 485 415,6 0,54

m m m th.m3 th.m3 th.m3 000 tons m3/t

Planned annual rate of mining Mining 20 mln.t Overburden 8,6 mln.m3

The low stripping ratio is stipulated by compact ore body depositing close to the surface.

MINING OPERATIONS
Progressive mining technology:
Unlike conventional delivery of ore and overburden by trucks it is planned to use line technology with conveyer transportation of blasted rock mass to the processing plant and dumps. This will allow to decrease operational and capital costs.

Stripping operations and overburden spreader:

Overburden spreader eliminates the need to use trucks at stockpiles

LAYOUT GENERAL FOR MASSALSKY MINE

Process cycle of mine includes stripping operations by the dump trucks and excavators, conveying method of ore extraction.
Ore is transported to the open pit slope by conveyers, enriched firstly through XRS and shipped to the crusher.

Small ore with water is transported to the mill through pulp line and processed afterwards. Wastes are drained off into storage pond.

MAIN OPERATIONAL SOLUTIONS

Reduced ore throughput due to main enriching processing via X-ray radiometric separation Recovery of magnetic and nonmagnetic mineral forms of ferrum due to combined gravitational and magnetic separations with magnetic field of low and high intensity Optimum efficiency of enrichment through ore grinding size to 75-100 m Flotation upgrading of metal content to reduce silicium dioxide content Enrichment technology of main processing is used by Chinese producer Qi Dashan Awaited throughout recovery reaches 75-80%

PROCESS FLOWSHEET OF ORE DRESSING

X-RAY RADIOMETRIC SEPARATION

Advantages of XRS: Reduced cost of ore processing. XRS allows to separate significant amount of barren rock, which dilutes the ore. Up to 50% of barren rock is removed while the content of targeted component grows in 1.5-2 times Reduced cost of ore transportation. Crushing and screening plant is installed on open pit wall. Significant cutting of wet tailings dump capacity which is materially more costly and environmentally harmful Cutting capital expenditures of main enriching processing through reduced flow of processed ore and increased content of target component Operational expenditures of XRS technology make approximately 1.5$/t of ore

DIRECT IRON REDUCTION AND PIG IRON OUTPUT

Possibility of deep raw material processing is under review. It assumes construction of plant with designed smelting capacity around 1 mln.tons of pig iron per annum. Approximate amount of investments on this stage of project make 520-550 mln. US dollars. Company carries out marketing research of pig iron market.

Rio-Tinto proposes Hismelt technology adapted for titanium-magnetite ores.

MAIN ASSUMPTIONS OF ECONOMIC MODEL

Long-term forecasted price of iron ore concentrate (65%) reaches 80$/t Optimized schedule of ore mining to increase cash flow in the beginning of deposit development Major part of equipment might be purchased in China, that is why mineral processing equipment is assessed based on quotation from Chinese manufacturer While no technological ore testing have been carried out the balance of basic process material flows was created by analogy with existing producer Qi Dashan

Industrial X-ray radiometric separators

CAPITAL EXPENSES
Construction
ITEM Research, design and procurement, 000 $ Total per item, 000 $ Rate from general capex, % 38.7 1.2 2.3

Cost of material, 000 $

38582.5 1701.8

Cost of labor, 000 $

Indirect cost, 000 $

1 2 3

Procurement of basic equipment including pit machinery Erection of basic equipment Arrangement and pipelines construction

1183.8 567.7

38582.0 1183.8 2269.5

4
5 6 7 8 9 10 11 12 13

Construction of buildings and facilities

Steel structures erection Control and automated equipment Electrical equipment Painting of equipment and preservation coating Other expenses Sub-total: Overheads and administrative costs Contractor Fee Total main expenditures:

7137.2 7137.2 306.9 7444.1

11211.6
3195.2 876.4 2005.6 233.1 57806.2 1734.2 1190.8 60731.2

8552.6
877.4 76.5 877.8 360.2 12495.9 374.9 772.2 13643.0

16363.1 16363.1 460.9 1011.2 17865.2

19764.1
4072.6 952.9 2883.3 593.3 23500.3 93802.4 2600.0 3281.2 99683.5

19.8
4.1 1.0 2.9 0.6 23.6 94.1 2.6 3.3 100.0

14
15

Incidental expenses
Total for project:

9968.4
109651.9

+10.0%

STRUCTURE OF CAPITAL EXPENSES

OPERATING EXPENSES
ITEM Direct operating expenses Ore extraction (average) Raw material and reagents for enrichment Storing slag and operational tailings in dumps and tailings ponds Electric power Coal Transporting concentrate to Priishimskaya railway branch Labor at main operations Office staff Maintenance and repair of machinery Consumables Subtotal of direct operating costs: Fixed costs Overhead costs Taxes, social contributions and insurance Subtotal of fixed costs : General expenses 12 13 Administrative expenses Cost of transportation, storage and sale of products Research and modernization expenses Expenses, 000 $/

1 2 3

42300 1500.0

10000.0 52000.0 2800.0 720.0 9000.0 1620.0 10965.2 1315.8 132221.0

10319.5

4 5 6 7 8 9

10 11

3508.0
13827.5 2579.9 15620.0 7100.0

14

Subtotal of general expenses: Total:

25299.9 171348.4

STRUCTURE OF OPERATING EXPENSES

FINANCIAL PERFORMANCES OF ENTITY ACTIVITY

Cash Flow Diagram (Interest Rate 15%)
200,0 Project Value (millions of dollars) 150,0 100,0 50,0 0,0 -50,0 -100,0 -150,0 -200,0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Project Life (Years) Standardized value NPV/Investments

NET PRESENT VALUE (NPV15%) Internal rate of return (IRR)

$182.77M 28.4%

1.67 $64.44M

Averaged net annual gain

Discounted payback period

5.5 years

Cumulative Cashflow/Investments Ratio

19.21

PROSPECTS FOR FURTHER DEVELOPMENT

Preliminary assessment of ore dressing technology demonstrates high earnings yield Cumulative cash flow and investments ratio proves the possibility of project credit financing
Capacity to launch metal conversion on site of Massalsky GOK