UKRAINE MINING BUSINESS OPPORTUNITY AVELLANA GOLD COMPANY Au Ag Pb - - PowerPoint PPT Presentation

UKRAINE MINING BUSINESS OPPORTUNITY

We find the Gems in Ukraine’s Mineral Endowment

AVELLANA GOLD COMPANY

(A Cyprus-registered mineral exploration and development company)

Au Ag Pb Zn

CONTENT

1. CAUTIONARY STATEMENT................................................................................................................................. 4 2. INVESTMENT OPPORTUNITY............................................................................................................................. 5 3. WHY UKRAINE NOW?......................................................................................................................................... 6 4. STRATEGY & STRENGTHS................................................................................................................................. 7 5. MANAGEMENT TEAM.......................................................................................................................................... 8 6. LOCATION OF PROPERTIES……………………………………………………………………………………………. 9 7. BEREGOVO DISTRICT…………………………………………………….…………………………………...…….….. 10 8. ACTIVE MINERAL LEASES…………………………………………………………………………………………..….. 11 9. SCHEMATIC GEOLOGICAL MAP……………………………………………………..……………………...…....…… 12 10. MUZHIEVO PROPERTY OVERVIEW……………………………………………………………………………..……. 13 11. MUZHIEVO HISTORICAL RESOURCES ……………………………………..………………………………….……. 14 12. MUZHIEVO-BEREGOVO DEPOSITS SOLIDS ………………………………………………………………....…….. 15 13. TYPICAL FRESH AND OXIDIZED ORE TEXTURES FROM MUZHIEVO DEPOSIT…………………………..…. 16 14. DISTRIBUTION OF ORES BY TYPES (Muzhievo deposit) ……………………………………………………….…. 17 15. DISTRIBUTION OF ORES BY Au EQUIVALENT (Muzhievo deposit) ……………………………….…………..…. 18 16. DISTRIBUTION OF ORES BY Au EQUIVALENT (Ore body VI ) ………………………………………………….... 19 17. MUZHIEVO ORIGIN OF TAILINGS RESOURCES…………………………………………………………...……..… 20 18. MUZHIEVO HISTORIC TAILINGS RESOURCES……………………………………………………………………... 21 19. MUZHIEVO FINANCIALS………………..……………………………………………………………………………….. 22 20. RJC 2013 ESTIMATES OF MUSHIEVO MINE PROJECT ECONOMIC PERFORMANCE PARAMETERS........ 23 21. BEREGOVO PROPERTY OVERVIEW…………..……………………………………………………………………... 24 22. BEREGOVO GEOLOGICAL PLAN …………………………………………………………….……………………..… 25 23. RJC 2013 ESTIMATES OF BEREGOVO MINE PROJECT ECONOMIC PERFORMANCE PARAMETER......... 26 24. KVASOVO PROPERTY OVERVIEW……...………………………………………………………………...………….. 27 25. ORE TESTINGS………………………………………………………………………………………………………....... 28 26. ORE PROCESSING…………..…………………………………………………………………………………………... 32 27. PROPOSED WORK PROGRAM …………………………...……………………………………………………….….. 34 28. CAUTIONARY STATEMENT REGARDING REPORTING MINERALS RESOURCES AND RESERVES............ 35

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LEGAL ASPECTS OF MINING IN UKRAINE 1. REGULATORY BODIES ..................................................................................................................................... 37 2. LEGISLATION...................................................................................................................................................... 38 3. OTHER LAWS INFLUENCING ON THE MINING ACTIVITIES............................................................................ 39 4. OBTAINING A LICENSE...................................................................................................................................... 40 5. TYPES AND VALIDITY OF THE LICENSES........................................................................................................ 41 6. REGIMES OF LICENSE ISSUANCE................................................................................................................... 42 7. DOCUMENTS FOR THE AUCTION..................................................................................................................... 43 8. MINING ALLOTMENT.......................................................................................................................................... 44 9. LAND PLOT ALLOCATION.................................................................................................................................. 45 10. GENERAL REQUIREMENTS FOR LAND PLOT USE......................................................................................... 46 11. CLOSURE OF MINE……………………………………………………………..……………………………………..…. 47 12. TERMINATION OF THE LICENSES.................................................................................................................... 48 13. TAXATION............................................................................................................................................................ 49 14. LIST OF SOURCES............................................................................................................................................. 50 CONTACTS

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CONTENT

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This presentation contains forward-looking statements. All statements, other than of historical fact, that address activities, events or developments that Avellana Gold believes, expects or anticipates will or may occur in the future (including, without limitation, statements regarding the estimation of mineral resources, exploration results, potential mineralization, potential mineral resources and mineral reserves) are forward-looking statements. Forward-looking statements are generally identifiable by use of the words “may”, “will”, “should”, “continue”, “expect”, “anticipate”, “estimate”, “believe”, “intend”, “plan” or “project” or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond Avellana Gold’s ability to control or predict, that may cause the actual results of the project to differ materially from those discussed in the forward-looking statements. Factors that could cause actual results or events to differ materially from current expectations include, among other things, without limitation, failure to establish estimated mineral resources*, the possibility that future exploration results will not be consistent with Avellana Gold’s expectations, changes in world gold markets and other risks disclosed to the Canadian provincial securities regulatory authorities. Any forward-looking statement speaks only as of the date on which it is made and, except as may be required by applicable securities laws, Avellana Gold disclaims any intent or obligation to update any forward-looking statement. * Total Resources includes all categories of resources unless indicated otherwise. All currency numbers are in US$ unless otherwise stated.

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CAUTIONARY ST A TEMENT

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• Newly formed, Cyprus-based, Avellana Gold was created to identify,

acquire, develop and bring to market the best mineral opportunities in Ukraine.

• The Company has recently acquired three adjacent properties in the

historic Beregovo Mining District in the Carpathian Region of western Ukraine.

• The Beregovo Properties are underlain by Neocene volcanic

complexes with epithermal gold and base mineralization. One property (Muzhievo) has seen previous mining (1999-2006) and all three properties contain Soviet era mineral resources and reserves (see NI- 43-101 non-compliance note at the end).

• Avellana Gold is seeking early-stage funding to establish maiden

JORC/NI43-101 compliant mineral resource to support further development decisions.

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INVESTMENT OPPORTUNITY

• In spite of on-going conflict with Russia, Ukraine has the potential of

becoming the next Poland in Eastern Europe.

• Ukraine was mostly ignored during the original rush by western mining

company’s into the Balkan Countries (i.e. Bulgaria, Serbia, Romania).

• The government of Ukraine has implemented a number of reforms that

had previously been stalled and has received steady tranches of funding from Eurozone government as per agreement signed during the Riga Summit in May 2015.

• This demonstrates the commitment by Ukraine to the reforms that are

a fundamental condition of doing business safely and securely in the country.

• Very favorable fiscal regime: 18% rate, no restrictions on repatriation of

capital or profits, transfer of funds can be done as loans and paid back from pre-tax cash flows.

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WHY UKRAINE NOW?

• We seek out and acquire opportunities that meet our rigorous economic and

exploration potential criteria and implement exploration programs to establish JORC and NI43-101 compliant resources before bringing in partners to further develop the property in return for equity participation in the project.

• Our primary focus is Ukraine where our highly skilled associates have good

local knowledge of the geology and historical exploration work done during the Soviet era and since independence. Numerous projects are known in Ukraine that have reserves in the State Balance but need additional work to make the resources compliant to current international standards.

• We are initially focused on precious and base metal deposits in Ukraine. We

are also interested in technology metals such as lithium, rare earth metals and graphite that we believe are overlooked in Ukraine.

• The Beregovo Project, consisting of the Muzhievo, Beregovo and Kvasovo

Properties, is the first of numerous projects that Avellana Gold have acquired and it forms our flagship asset that will be the focus of our efforts in the coming months. 7

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STRA TEGY & STRENGTHS

BRIAN C SAVAGE Chairman and Chief Executive Officer

Brian C Savage has more than 35 years’ experience in all aspects of the mining industry. Brian is currently Chairman of Pioneer Management LLC, a privately held company he founded in 2009 to advise and invest in natural resource projects and companies. Brian has served on the board of public and private companies and has a wealth of experience

• perating in challenging jurisdictions. Brian earned his Bachelor of Science degree in Mining Engineering and his Master
• f Science degree in Minerals Economics from the Colorado School of Mines.

CHARLES BEAUDRY Head of Geological advisers

Charles Beaudry, M.Sc., P.Geo., géo., is a seasoned mining executive with over 35 years experience in project generation, business development and international project management. He has been involved in a number of deposit discoveries during his long career with Noranda/Falconbridge/Xstrata (now Glencore) and worked overseas in Brazil and Papua New Guinea. He was founding President and later Chief Executive Officer of Xmet Inc., outlining a NI 43-101 compliant, 850,000 ounce gold deposit in the Abitibi greenstone belt of Quebec. Mr. Beaudry hold a Masters Degree in geology from McGill University in Montreal, Canada and is a Qualified Person for the purposes of NI43-101

NIKOLAY GOZHIK Head of Business development, Ukrainian office representative

Nikolay Gozhik has more than 40 years of experience in the mining industry. Since 1975 he was involved in the geological exploration in Carpathian region. From 2000 Mr. Nikolay has held senior executive positions at a number of Ukrainian mining companies including serving as Deputy Director of Zakarpatpolimetaly LLC and Director of development at Carpathian Ore Company LLC. Mr. Gozhik personally estimated reserves for Muzhievo gold-polymetallic

• deposit. Nikolay has earned his Master degree from Taras Shevchenko National University of Kyiv, specialty - geological

survey and prospecting of mineral deposits.

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MANAGEMENT TEAM

Located on western border of Ukraine adjacent to Hungary, Slovakia and Romania Beregovo Mining District

UKRAINE

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LOCA TION OF PROPERTIES

• Three properties involved: Muzhievo developed to mining stage and

has historic reserves (C1+C2). Significant exploration and some resources (C2+P1) on Beregovo license. Potential resources (P2+P3)

• nly on Kvasovo because of very limited amount of exploration to date.
• Polymetallic epithermal, Bonanza-type deposits located in Neocene

volcanic dome complex on edge of major caldera.

• History of production dating back to 12th Century.
• Project has extensive metallurgical testing done and development

proposal would include underground mining and a metallurgical plant with gravity and sulphide floatation circuits.

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BEREGOVO DISTRICT

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ACTIVE MINERAL LEASES

Muzhievo and Beregovo Properties Kvasovo Property http://geoinf.kiev.ua/wp/interaktyvni-karty-spetsdozvoliv.htm Romania Hungary

Muzhievo Beregovo Kvasovo

See enlargement

Ukraine

All three Properties can share the same mining infrastructure and can be developed sequentially 12

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SCHEMA TIC GEOLOGICAL MAP

• The Muzhievo Project is the most developed property in the Beregovo District and

previous work established C1+C2 reserves that are recorded in the State Balance for Ukraine.The Muzhievo property consists of mineral license number 5495, covering 151.2 hectares, issued on March 19, 2012 and is valid until March 19, 2032. This license authorizes subsurface mining for gold and polymetallic ores as well as groundwater that would be suitable for the requirements of an eventual mine and metallurgical infrastructure.

• The geology of the Muzhievo Property is defined by volcanism and sedimentation

associated with a major Neogene volcanic caldera structure. The Muzhievo Property sits

• n the eastern rim of the caldera and epithermal gold and polymetallic mineralization are

best developed at the intersection of the rim faults and cross cutting east and northeast structures.

• Veins range from east-west to northeast-southwest in orientation with dips generally to

the north and northwest at 70 to 80 degrees and vary from 0.6 to 8.4 metres in

• thickness. The veins extend from surface down to at least 300 metres on Muzhievo and

about 400 metres depth on Beregovo.

• Three types of ore have been recognized at Muzhievo. Gold-only ore concentrated in

quartz stockwork zones in the upper part of the mine; oxidized gold-polymetallic ore in the top, weathered portion of the deposit; and gold-polymetallic sulphide ore common in the deeper levels.

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MUZHIEVO PROPERTY OVERVIEW

• During the 1970’s a major exploration program was undertaken by the

Ukrainian government on the property. More than 2,000 drill holes were collared and over 30km of underground workings were developed on 6 levels into the late 80’s which lead to the definition of C1+C2 “reserves” based on drilling and underground workings that were approved by the USSR GKZ in 1990

• In 2013 RJC Consulting of Moscow, undertook a mineral resource estimate

using existing data and arrived at the numbers in table below. The company provided separate estimates for precious and base metals which range between 17.0 and 17.8 million tonnes of ore at average grades of 2.13 gpt Au, 37.5 gpt Ag, 4.41% Zn and 2.16% Pb. In addition the company estimated an additional 2.2 million tonnes of P1 category resource at a grade of 8.36 gpt Au.

CATEGORY ORES, KTONS AMOUNT OF METAL ORE CONTENT

AU, KG AG, KG PB, KTONS ZN, KTONS AU, GPT AG, GPT PB, % ZN, %

C1

3,103.8 9,888 131,781 71.2 94.1 3.19 42.46 2.29 3.03

C2

10,693.3 21,284 367,239 204.8 475.5 1.99 34.34 1.92 4.45

C1 + C2

13,797.1 31,178 499,017 275.9 569.6 2.26 36.17 2.00 4.13

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MUZHIEVO HISTORICAL RESOURCES

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MUZHIEVO-BEREGOVO DEPOSITS SOLIDS

TYPICAL FRESH AND OXIDIZED ORE TEXTURES FROM MUZHIEVO DEPOSIT

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DISTRIBUTION OF ORES BY TYPES (Muzhievo deposit)

Gold ores Sulfide ores Oxidized ores

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DISTRIBUTION OF ORES BY Au EQUIVALENT (Muzhievo deposit)

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• 600m
• 400m
• 200m

0m 200m

MUZHIEVO DEPOSIT

VEIN 6

Au Equivalent g/t

0m 200m 400m 600m 800m

Scale 1:7500 0g/t Au_Eq 3g/t Au_Eq 4g/t Au_Eq 5g/t Au_Eq 10g/t Au_Eq 15g/t Au_Eq 20g/t Au_Eq

DISTRIBUTION OF ORES BY Au EQUIVALENT (Ore body VI )

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• Until 2006 year, 293k tons of ores were mined (annual capacity 200k tons) and produced only

646,4kg of gold - 48% are still buried in tailings. Even having less than 55% extraction rate, the project had brake-even point at price of !$359 oz. Unfortunately market quotes fluctuated between $255 oz and $300 oz. that time.

• Today we consider super-reach stockwork ores as minor bonus nevertheless, its tailing is a reliable

source of profit in short term period

MUZHIEVO ORIGIN OF TAILINGS RESOURCES

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• RJC estimates the tailings contain approximately 257,100 tonnes at a grade of

2.22 gpt Au for a total of over 18,000 ounces of in situ gold (table 4).

• Even avoiding cyanide techniques, it is possible to reach 70% recovery rate

that might deliver up to USD 10 mio CF during only 18 month.

STOCKS OF DRIED TAILINGS,

TONNES

GOLD CONTENT,

GPT

STOCKS OF GOLD,

KG (OZ) KRK 2013 281,500 1.66 467 (15,000) RJC (FULL VOLUME) 257,100 2.22 571 (18,360) RJC (ABOVE OTM 167 m) 240,000 2.22 533 (17,170)

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MUZHIEVO HISTORIC TAILINGS RESOURCES

• RJC 2013 provides an estimate of the economic performance of the

Muzhievo project.

• According to this study, based on a production of 100,000 tonnes of

gold-rich ore and 500,000 tonnes of gold-polymetallic ores over a 17 year mine life, the project has a net present value of US$ 84.7 million and generates an internal rate of return of 40% at a 15% discount rate.

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MUZHIEVO FINANCIALS

RJC 2013 ESTIMA TES OF MUSHIEVO MINE PROJECT ECONOMIC PERFORMANCE P ARAMETERS

Gold ores Sulfide polymetallic ores

Average annual operating expenses, USD'000 including 10 303 28 916 Mining 4 042 14 630 Beneficiation 4 063 8 534 Commercial costs 103 1 665 General buisness costs 1 245 4 087 Mineral extraction tax 850 Operational expenses per 1 ton of ore, $ 95,12 73,77 Operational expenses for the entire period of recourses mining, million $ Costs for 1$ of the commercial products, $ Profit, USD'000 Average annual gross profit Gross profit for the exploitation period Average annual net profit Net profit for the exploitation period Depreciation, USD'000 Average annual For the entire exploitation period Net profit plus depreciation, USD'000 Average annual For the entire exploitation period Discount rate, % Discounted ammount of investments, USD'000 Net Cash Flow Net present value, USD'000 Profitability index, units Internal rate of return, % Payback period of the initial investments, years:

MUZHIEVO DEPOSIT, HIGHER THAN THE LEVEL +50 DESCRIPTION

39 220 574 602 1,4 0,59 32 849 40% 3,2 84 736 15 60 788 333 004 400 504 27 593 335 876 5 273 414 405 78 529 32 866

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• The Beregovo Property consists of mineral license number 4113 covering

514.8 hectares. The license was issued on March 16, 2012 and is valid until March 16, 2017. This license is renewable and provides permission for subsurface use including geological exploration, research and industrial development of polymetallic ores.

• Beregovo is part of the same mineralized system that occurs on the Muzhievo

Property and development will benefit from the existing underground infrastructure at Muzhievo. The development plan calls for mining at Beregovo to occur in the later, deeper phases of development of Muzhievo.

• RJC in their 2013 study provided a mineral resource estimate, based on work

by Transcarpathian Exploration Company in 1994, for the Beregovo Property, presumably from the same dataset as above, that included a portion of C2

• resource. They give a total of 11.6M tonnes at 4.90 gpt Au, 38.24 gpt Ag,

5.02% Zn and 2.72% Pb

CATEGORY ORES, KTONS AMOUNT OF METAL ORE CONTENT

AU, KG AG, KG PB, KTONS ZN, KTONS AU, GPT AG, GPT PB, % ZN, %

P1

10,799.4 53,418.0 433,300.0 308.5 565.8 4.95 40.12 2.86 5.24

C2

751.3 323.0 8,414.0 5.41 14.42 4.30 11.20 0.72 1.92

P1 + C2

11,550.7 56,648.0 441,700.0 313.9 580.2 4.90 38.24 2.72 5.02

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BEREGOVO PROPERTY OVERVIEW

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RJC 2013 ESTIMA TES OF BEREGOVO MINE PROJECT ECONOMIC PERFORMANCE P ARAMETERS

Operational expenses for the entire period of recourses mining, million $ Costs for 1$ of the commercial products, $ Profit, USD'000 Average annual gross profit Gross profit for the exploitation period Average annual net profit Net profit for the exploitation period Depreciation, USD'000 Average annual For the entire exploitation period Net profit plus depreciation, USD'000 Average annual For the entire exploitation period Net Cash Flow Discount rate, % Net present value, USD'000 Profitability index, units Internal rate of return, % Payback period of the initial investments, years:

DESCRIPTION BEREGOVO + MUZHIEVO DEPOSIT, LOWER THAN THE LEVEL +50

532 913 33%

Gold polymetallic ores

0,49 50 264 551 172 42 222 462 984 1,5 6 103 67 750 48 325 530 734 455745 15 21 589 2

An estimate of the financial-economic parameters of the Beregovo was provided by RJC (2013). Under the assumption that Beregovo would not be a stand-alone project but would complement and extend the mine life of the Muzhievo mine, they calculated a NPV of US$ 21.6M with an internal rate of return of 33% at a discount rate of 15%.

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• The Kvasovo Property consists of mineral license number 4112 covering 691.5
• hectares. The license was issued on March 16, 2012 and is valid until March

16, 2017. This license is renewable and provides permission for subsurface use including geological exploration, research and industrial development of polymetallic ores.

• Only two diamond drill holes were apparently collared on the Kvasovo
• Property. Some surface sampling, including soil geochemistry, identified gold,

silver and base metal anomalies covering an area of approximately 10 square kilometres and centered on the Kvasovo caldera structure.

• The same style of mineralization as found at Muzhievi-Beregovo are also

present on the Kvasovo Property.

• A total of 12.3 million tonnes of prognostic mineral resources were delineated

at a grade of 4.99 gpt Au for a total of 61.4 metric tonnes of gold (1.97 million

• unces Au) down to a depth of 500m.

CATEGORY ORES, KTONS AMOUNT OF METAL ORE CONTENT

AU, T AG, T PB, KTONS ZN, KTONS AU, GPT AG, GPT PB, % ZN, %

P2

5,800 29 138 108 277 5.00 23.79 1.86 4.78

P3

6,500 32 162 112 340 4.92 24.92 1.72 5.23

P2 + P3

12,300 61 300 220 617 4.96 24.39 1.79 5.02

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KV ASOVO PROPERTY OVERVIEW

There were numerous test works during exploration of Muzhievo deposit:

• 1. Mineral-technological mapping was executed on the basis of low range

probes (30-50kg). Regarding that testing main types ore bodies were identified.

• 2. Laboratory test works were done on the basis of that mineral mappings.

That samples was taken from underground drifts and and were tested to identified most appropriate technological scheme of work-out. The size of samples 250-500kg

• 3. Beneficiation schemes were identified after that using semi-industrial size
• f samplings (50-180 tons). For example - 145 pages report of Samarkand

institute is available. That tastings were done for gold ores (Pb+Zn<1%) and polymetalic ores. For oxide ores semi-industrial testing were not done, because of its minor volume. For Beregovo, Mineral-technological mapping (1) was executed that confirmed its full identy with types of Muzhievo ores. 28

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ORE TESTINGS

MINERAL CONTENT (%) MINERAL CONTENT (%) SiO2 59,35 Na2O 0,05 TiO2

• SO3

0,0 Al2 O3 6,86 S 9,44 Fe2 О3 6,66 CO2 0,95 FeO 1,80 H2О-

• MnO

0,12 H2О+ 0,85 CaO 0,17 Zn 5,7 MgO 0,29 Pb 5,9 P2 О5 0,08 Cu 0,19 BaO 0,15 Au (g/t) 4,5 K2 О 1,72 Ag (g/t) 66,2 TOTAL – 100,00

Table 1.1. Chemical analysis of Beregovo sulfide ores According to the test the probe is rich with sulfur, zink, lead, iron and silica. Alcali content <2%, alumina -7%. Probe is classified as a quartz – moderate sulfide type.

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ORE TESTINGS

Table 1.2. Spectral analysis of the probe

MINERAL SENSITIVITY CONTENT (%) MINERAL SENSITIVITY CONTENT (%) 1 2 3 4 5 6 Cu 0,00 0,20 Ag 0,00 80 g/t Pb 0,0001 6,3 W 0,0001 0,0004 №1 0,0 0,0 Bi 0,0 0,0 Zn 0,00 10,00 Ye 0,00 0,00 Mo 0,00001 0,00032 Se 0,0001 0,0005 Cr 0,0 0,0 As 0,0 0,1 V 0,00 0,00 Sb 0,00 0,01 Ti 0,01 0,12 B 0,001 0,001 Sn 0,0 0,0 Ar 1,0 3,2 Mg 0,10 0,25 Fe 0,10 6,30 Mn 0,001 0,12 Ca 0,1 0,025 Ba 0,0 0,2 Si 1,0 15,0 Be 0,00 0,00 Au 0,00 15 g/t Nb 0,001 0,008 Cd 0,0001 0,25

Minerals Co, La, Ge, Y, Yb, Sr, P, Hg, Tl, Tn, U, У Ta, Li, are not detected. Mineral content of the ore was calculated using 0.4 mm grinded material. There is estimated that: sulfides -20%, clays - 12%, feldspars -10%, quartz – 47,4%.

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ORE TESTINGS

MINERAL CONTENT (%) MINERAL CONTENT (%) Quartz 47,29 Iarosite 4,60 Kaolinite 12,00 Calamine 1,40 Feldspars 10 Smithsonite 0,36 Pyrite 9,8 Decluasite 0,7 Sfalerite 7,10 Angelsite 0,08 Galena 5,5 Cerussite 0,32 Chalcopyrite 0,4 Pyromorphyte 0,1 Arsenopyrite 0,20 Barite 0,2

Table 1.3. Mineral content, %

Major content of Au, Ag found in: Galena, Sfalerite and Pyrite . MINERAL CONTENT (%) Au Ag g/t % g/t % Sfalerite 4,17 2,33 3,65 95,99 12,86 Galena 5,60 6,18 13,00 340,98 61,43 Pyrite 9,8 22,62 83,35 81,6 25,71 TOTAL: 100 100

Table 1.4. Au, Ag in sulfides (grinds 0,2 mm)

Table 1.4. shows main content of Au in pyrite, and Ag in galena. Results of rational analysis confirm that there is mainly thin dispelled gold in the ore that basically opted to floatation beneficiation schemes. 31

ORE TESTINGS

RJC in 2013 proposed that mined gold and polymetallic ores could be processed by a combination

• f gravity and floatation processing flow sheets with estimates of recoveries shown in Table 2.

Table 2: Precious and base metal recoveries estimated by RJC (2013).

Gold-Silver in precious metal sulphide concentrate

KTONS % AU AG AU AG ORE 1 240,23 100 4,2 25 100 100 CONCENTRATE, INCLUDING 22,54 1,82 200,0 824,2 86,1 60,0 TAILINGS 1 217,69 98,18 0,60 10,2 13,9 40,0

Gold-silver in base metal sulphide concentrates

KTONS % AU AG AU AG ORE 5 664,02 100 2,0 35,6 100 100 LEAD CONCENTRATE 215,75 3,81 37,0 654,7 70,0 70,0 ZINC CONCENTRATE 287,60 5,08 5,9 105,2 14,9 15,0 GENERAL CONCENTRATE 503,35 8,89 84,9 85,0 TAILINGS 5 160,67 91,11 0,33 5,9 15,1 15,0

Base metals in sulphide concentrates

KTONS % PB ZN PB ZN ORE 5 664,02 100 2,0 2,8 100 100 LEAD CONCENTRATE 215,75 3,81 41,0 5,9 80,0 8,0 ZINC CONCENTRATE 287,60 5,08 3,9 45,4 10,1 81,5 GENERAL CONCENTRATE 503,35 8,89 90,1 89,5 TAILINGS 5 160,67 91,11 0,21 0,3 9,9 10,5

PRODUCTS OUTPUT CONTENT, GPT EXTRACT, % OUTPUT CONTENT, GPT EXTRACT, % PRODUCTS PRODUCTS OUTPUT CONTENT, GPT EXTRACT, %

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ORE PROCESSING

This arrangement would produce three concentrates with gold and silver produced from a separate concentrate and as a by-product of both zinc and lead concentrates with recovery estimates graphed in figure below.

86,1% 13,9%

GOLD EXTRACTION FROM THE GOLD ORES, %

Concentrate Tailings

70,0% 14,9% 15,1%

GOLD EXTRACTION FROM THE POLYMETALLIC ORES, %

Lead concentrate Zinc concentrate Tailings

80,0% 10,1% 9,9%

LEAD EXTRACTION FROM THE POLYMETALLIC ORES, %

Lead concentrate Zinc concentrate Tailings

8,0% 81,5% 10,5%

ZINC EXTRACTION FROM THE POLYMETALLIC ORES, %

Lead concentrate Zinc concentrate Tailings

Figure 1. RJC 2013 estimates of metallurgical recoveries for gold and base metals from Muzhievo deposit. 33

ORE PROCESSING

• This phase of work will produce the maiden JORC/NI43-101 mineral

resource estimate on the Muzhievo Deposit.

• Work will comprise integration of all existing data into digital format

(much was already done by RJC of Moscow).

• Depending on actual QAQC data available a validation drilling of

appropriate scope will be undertaken to confirm historical results and will allow previous work to be integrated into a JORC/NI43-101 compliant dataset for geological modelling and resource estimation.

• Timeline for this phase will be Q2-2017.

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PROPOSED WORK PROGRAM

The estimation of mineral resources and reserves has been performed in accordance with the reporting system of the former Soviet Union and the State Geological and Subsurface Survey of Ukraine (SGSSU). Up to 1995 the State Commission of Ukraine on Mineral Resources used the classification system of the former Soviet

• Union. After 1995, the State Geological and Subsurface Survey of Ukraine (SGSSU)

used the United Nations Framework Classification for Fossil Energy and Mineral Reserves and Resources (UNFC). This is different than other reporting codes used internationally (JORC, NI43-101, US SEC, SAMREC, PERC, CRIRSCO). There have been no JORC or NI 43-101 compliant Mineral Resource estimates publically released for any of the properties. Although previous and historical estimates are useful in demonstrating the general potential of the properties, these estimates assumed considerably different gold prices and operating costs than might be expected at present and are therefore considered historical. Avellana cautions that a qualified person has not done sufficient work to classify the historical estimates as current mineral resources or mineral reserves; Avellana is not treating the historical estimates as relevant or as current mineral resources or mineral reserves and the historical estimates should not be relied upon.

CAUTIONARY STATEMENT REGARDING REPORTING MINERALS RESOURCES AND RESERVES

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LEGAL ASPECTS OF MINING IN UKRAINE

The Parliament - Verkhovna Rada of Ukraine

laws and parliamentary resolutions http://www.rada.gov.ua/

The Government - the Cabinet of Ministers of Ukraine

the State policies with regard to natural resources http://www.kmu.gov.ua/

The Ministry of Ecology and Natural Resources of Ukraine

legal regulation of geological exploration and rational use of mineral resources http://eng.menr.gov.ua/

The State Geological and Subsurface Survey of Ukraine

the State policy in the area of geological study and rational use of subsoil; issuance of licenses for subsoil use www.geo.gov.ua/

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REGULA TORY BODIES

The general legislation governing mining activities in Ukraine: the Code of Ukraine on the Subsoil; the State Program of Development of the Mineral Resources in Ukraine for a period up to 2030 (the Law of Ukraine No. 3268-VI dated 21 April 2011). the Law of Ukraine “On Production Sharing Agreements” dated 14 September 1999; the Mining Law of Ukraine dated 6 October 1999; the Law of Ukraine “On the State Geological Service of Ukraine” dated 4 November 1999; Resolution No. 615 of the Cabinet of Ministers of Ukraine “On Approval of the Procedure for Issuance of the Special Permits for Subsoil Use” dated 30 May 2011; and Resolution No. 594 of the Cabinet of Ministers of Ukraine “On Approval of the Procedure for Holding Auctions for the Sale of the Special Permits for Subsoil Use” dated 30 May 2011.

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LEGISLA TION

OTHER LAWS INFLUENCING ON THE MINING ACTIVITIES the Tax Code of Ukraine - taxation of the subsoil use activities; the Land Code of Ukraine - allocation of the land plots for the subsoil use activities; the Water Code of Ukraine - water use issues; the Forest Code of Ukraine - protection of forest resources; the Commercial and Civil Codes of Ukraine - rules and legal basis for contractual activities of mining companies.

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The mining activities in Ukraine imply as a use of “subsoil”– a part of the crust, which is located under the surface soil and water reservoirs and extends down to the depths accessible for geological exploration and development. Any legal entities and individuals (whether Ukrainian or foreign) intending to conduct exploration and/or mining activities are required to obtain special permits for subsoil use - the “licenses” which entitle their holders to carry out works within the determined subsoil plot. The licenses are issued by the State Geological and Subsurface Survey of Ukraine. The owner of a special permit for subsoil use can not give, sell or

• therwise dispose of the rights granted him to any other legal or natural

person, including transfer them to the authorized capital created for the participation in business entities, and also be made as a contribution to the joint activity.

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OBTAINING A LICENSE

The license is granted for the period specified by the applicant, but not more than stated in the table

• below. The term of the license is calculated from the date of its registration, except provided
• therwise.

Geological exploration of mineral deposits;

3 years

Geological exploration, including pilot development of mineral deposits of national importance;

5 years

Industrial mining;

20 years

Construction and operation of underground facilities not related to mining, including underground storage facilities for oil, gas and

• ther substances and materials, disposal of

hazardous substances and production waste, wastewater;

20 years - the construction and

• peration of underground

facilities not related to mining; 50 years - the construction and

• peration of underground oil or

gas;

Works (activities) under production-sharing agreement.

for the period of PSA execution

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TYPES AND V ALIDITY OF THE LICENSES

The Cabinet of Ministers of Ukraine may enter into a PSA with a foreign investor, the winner of a tender. Under the PSA a foreign investor carries out certain mining activities at its own expense, and is entitled to the reimbursement of its expenses and to a certain share of the relevant output. Investors also receive government support in

• rder to perform the PSA, including obtaining the

necessary permits and authorizations.

• 1. Via auction – the license is given to the bidder
• ffering the highest price
• 2. Without auction:
• if an investor already holds a special permit

allowing exploration in a particular area and, having fulfilled its obligations under this permit, wishes to proceed to the development

• f the area (i.e., applies for the special permit

for the production of minerals);

• extension of up to 50%of a subsoil for

exploration purposes (however such extension of the permit must not exceed 50%

• f the reserves of the original permit);
• exploration and extraction of minerals of local

importance;

Licensing Product Sharing

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REGIMES OF LICENSE ISSUANCE

To participate in the auction applicant must buy a package of auction documentation. These documents contain information about the subsoil (name and coordinates, location, general information about the geological structure, the initial price), the draft agreement on the conditions of use of mineral resources, the program of works, geological information that provided for use in the case of obtaining a special permit, copies

• f agreements granting the subsoil use, provided by the relevant authorities.

The price of the auction documentation package is 3.12 percent of the initial price of a permit, but not less than UAH 4,500 and not more than 72,550 UAH. The applicant also submits the following documents: a statement of intent to participate in the auction with the name and location of the subsoil, the type of minerals, information about candidate; document confirming the registration of a legal entity in the State of its location, including an extract from the trade, bank or court register (for foreign companies); information about associated with the applicant persons. The term "associated person" is used as defined in the Tax Code of Ukraine; the ownership structure of the applicant up to the final beneficial owner (controller) for legal entities; letter of inquiry, which confirms that the applicant has sufficient number of qualified professionals and technical resources for the implementation of the work program; documents confirming the payment for the package auction documentation, guarantee fee.

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DOCUMENTS FOR THE AUCTION

Amid the license for subsoil use investor must obtain a “mining allotment” issued by the State Service for Industrial Safety – for the deposits of the national importance and by the Regional Councils for the deposits of the local importance. However, for geological exploration, including the pilot development of mineral deposits of national importance, subsoil is available for use without granting mining allotment after obtaining a special permit for geological exploration. Mining allotment can only be provided if: the subsoil user has the relevant special permit for extraction of the mineral resources; mineral reserves of the deposit and its components were examined and received estimation of the State Commission on Mineral Resources; detailed project of the deposit development was prepared. 44

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MINING ALLOTMENT

Special permit does not provide any land plot use rights. Provision of land for the needs related to subsoil use is held after registration in the prescribed manner of subsoil use rights (the license for subsoil use and, if necessary, mining allotment). The land plot can be allocated to a private entity into lease or ownership for the purposes of the exploration and/or production of minerals provided it is of non-agricultural assignment. For production

• f

minerals the designated purpose of the land plot must be of industrial assignment, but this is not necessary for the exploration. There is a moratorium on change of the designated purpose of agricultural land in Ukraine (however, it is not applicable to PSA projects). Nevertheless there exist a road-map for court based solution for some types of deposit.

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LAND PLOT ALLOCA TION

GENERAL REQUIREMENTS FOR LAND PLOT USE

Compliance with the environmental regulations Re-cultivation of disturbed land plot Rent payment (in case of lease agreement) The closure of mines due to exhaustion of the mineral reserves, economic or technical reasons, must be held under control of the mining control authorities and other relevant State bodies in order to ensure the safety of people, property, and the environment.

CLOSURE OF MINE

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Under the Licensing Regime the State Geological and Subsurface Survey of Ukraine may cancel a license in case of: request of subsoil rights user; failure to use the subsoil according to the designated purpose; failure to commence the subsoil use activities within two years following the date

• f issuance of the special permit (for hydrocarbons – 180 calendar days) or

suspension of such activities for the same period without reasonable excuse in the event of non-compliance (for example, failure to comply with the terms and conditions of the special permit, environmental non-compliance, arrears with the applicable subsoil use payments, etc.) the special permit is only suspended by the State Geological and Subsurface Survey of Ukraine. If a subsoil user fails to remedy the violations within the prescribed time limits, the special permit may be cancelled. Under the PSA Regime the subsoil use rights may be terminated only for reasons specified in the PSA. 47

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TERMINA TION OF THE LICENSES

The Tax Code of Ukraine defines the following: Corporate Profit Tax - 18%. VAT* - 20% Subsoil Use Charge** = Volume x Price x Rate x Index

* Applied to sales of minerals or services provided and/or received during the exploration and mining; ** The volume of the extracted minerals; The price per unit of minerals; The rate varies for different types of mineral resources:

• coal – 0.75, 1 or 1.5% ;
• ores – 5 or 8%;
• oil and condensate – 21 or 45%;
• amber – 25%;
• natural gas –vary from 11 to 70%;
• other – 5%.

The index varies from 0.01 up to 0.97 depending on the type/state of the deposit, and applicable as defined in the Tax Code.

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T AXA TION

1. The Code of Ukraine on the Subsoil - http://zakon5.rada.gov.ua/laws/show/132/94-%D0%B2%D1%80 ; 2. The State Program of Development of the Mineral Resources in Ukraine for a period up to 2030 (the Law of Ukraine No. 3268-VI dated 21 April 2011) - http://zakon2.rada.gov.ua/laws/show/3268-17; 3. The Law of Ukraine “On Production Sharing Agreements” dated 14 September 1999 - http://zakon2.rada.gov.ua/laws/show/1039-14; 4. The Mining Law of Ukraine dated 6 October 1999 - http://zakon3.rada.gov.ua/laws/show/1127-14 ; 5. The Law of Ukraine “On Coalbed Methane” dated 21 May 2009 - http://zakon0.rada.gov.ua/laws/show/1392-17; 6. The Law of Ukraine “On the State Geological Service of Ukraine” dated 4 November 1999 - http://zakon0.rada.gov.ua/laws/show/1216-14 ; 7. Resolution No. 615 of the Cabinet of Ministers of Ukraine “On Approval of the Procedure for Issuance of the Special Permits for Subsoil Use” dated 30 May 2011 - http://zakon2.rada.gov.ua/laws/show/615-2011-%D0%BF ; 8. Resolution No. 594 of the Cabinet of Ministers of Ukraine “On Approval of the Procedure for Holding Auctions for the Sale

• f the Special Permits for Subsoil Use” dated 30 May 2011 - http://zakon2.rada.gov.ua/laws/show/594-2011-%D0%BF.

9. Resolution No. 594 of the Cabinet of Ministers of Ukraine “On approval of the Procedure for Granting Mining Allotment” dated 27 January 1995 - http://zakon5.rada.gov.ua/laws/show/59-95-%D0%BF; 10. The Tax Code of Ukraine - http://zakon5.rada.gov.ua/laws/show/2755-17 ; 11. The Land Code of Ukraine – http://zakon3.rada.gov.ua/laws/show/2768-14 ; 12. The Water Code of Ukraine – http://zakon2.rada.gov.ua/laws/show/213/95-%D0%B2%D1%80 ; 13. The Forest Code of Ukraine - http://zakon2.rada.gov.ua/laws/show/3852-12 ; 14. The Commercial Code of Ukraine - http://zakon2.rada.gov.ua/laws/show/436-15; 15. The Civil Code of Ukraine - http://zakon2.rada.gov.ua/laws/show/435-15 .

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THE LIST OF SOURCES

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CONTACTS

Chairman and Chief Executive Officer

Brian C Savage

bcsavage@avellanagold.com Head of Business development, Ukrainian office representative

Nikolay Gozhik

ngozhik@avellanagold.com Advisor to CEO

Andriy Smolin

info@avellanagold.com Cyprus office Vasili Michailidi, 9 3026, Limassol, Cyprus +357 25 206917 Ukrainian office Geologists Ave. 10 Beregovo, Zakarpattya Region 90202, Ukraine