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June 12, 2014 --- Vol. 08, No. 24June 2014

PEA promises quick payback, robust economics at Coffee Gold

Robust results of a preliminary economic assessment for the Coffee Gold project in the Yukon Territory sent Kaminak Gold Corp.’s stock surging more than 20 percent on June 11.

The study, prepared by JDS Energy & Mining Inc., envisions an 11-year open-pit mine with the ability to return high margins at the expanding gold deposit situated some 130 kilometers (80 miles) south of Dawson City.

At a gold-price of US$1,250 per ounce and using an exchange rate of C$1.00 equal US$0.95, Coffee generates a pre-tax net present value (5 percent discount) of more than C$500 million and an internal rate of return of 33 percent. Further, the mine could become a significant Yukon gold producer, yielding close to 450,000 ounces in the first two years and producing an average of 167,000 ounces annually over the life of mine at an all-in sustaining cash cost of US$688 per ounce of gold.

“The recently completed Coffee PEA has delivered a high-value, high-margin and low-risk gold project in one of the world’s safest, pro-mining jurisdictions, Yukon Canada, and marks a significant milestone for our company. At a US $1,250 gold-price, Coffee will generate more than $2 billion in gross revenue, deliver total life of mine, pre-tax, free cash of $800 million and payback capital in under two years,” said Kaminak CEO Eira Thomas. “Further upside to this evaluation is anticipated through optimization studies and continued exploration. All of the deposits in the current resource remain open along strike and to depth.”

The economic assessment envisions an owner-operated open-pit mine with roughly an 11-year mine life. The study incorporates a three-stage crushing circuit and a valley fill heap leach facility designed by Knight Piésold and Co., along with a standard carbon adsorption gold recovery plant projected to produce 1.86 million ounces of gold doré over the mine’s currently project life.

Highlights of the PEA (using a base case gold price of US$ 1,250 per ounce and an exchange rate of C$1.00-US$0.95) include:

• An NPV of C$522 million (5 percent discount) and an IRR of 32.8 percent before taxes and mining duties, and an NPV of C$330 million and an IRR of 26.2 percent after taxes and mining duties;

• A mine life of 11 years with annual peak production of 231,000 ounces of gold in year one and average life-of-mine production of 167,000 ounces of gold per year;

• Average gold recoveries of 88 percent;

• 1.86 million ounces at an average diluted grade of 1.23 g/t gold produced over the mine life;

• All-in sustaining costs of US $688/oz (As defined by the World Gold Council less corporate general and administrative expenses.) for life-of-mine, generating an operating margin of more than US$560/oz, or 42 percent;

• Initial capital costs of C$305 million (including a 15 percent contingency);

• Payback of 2 years post-tax; and

• Gross revenue of c$2.4 billion and operating cash-flow of $1.24 billion.

Kaminak Director of Mine Development Fred Lightner said, “With the completion of the PEA, we now have an initial look at the economic potential of the Coffee Project. The grade of the deposit and strip ratio, metallurgical response, and relatively low operating costs are strong factors which create value. We believe that with additional exploration, delineation drilling, and project engineering the project will be further enhanced.”

While pleased with the PEA results, Kaminak anticipates that future trade-off studies may reduce the initial capital requirements. Such items as coarser crushing or run-of-mine leaching coupled with high fragmentation blasting in the mine, contract mining or mine equipment leasing, liquefied natural gas as a potential power generation fuel source and a staged development of a smaller project followed by expansion, are a few of the scenarios being considered.

With more than 20 kilometers (12 miles) of untested gold-in-soil anomalies yet to be evaluated, Kaminak is also confident that additional near-surface oxide resources can be identified in the near term, further enhancing the project.

The PEA is based on an indicated and inferred mineral resource estimate derived from 961 diamond core and reverse circulation drill holes completed from 2010 to 2013 for a total of 185,000 meters.

This estimate consists of an indicated resource of 14 million metric tons averaging 1.56 grams per metric ton (719,000) ounces gold and an inferred resource of 79 million metric tons averaging 1.36 g/t (3.43 million) ounces gold.

Coffee is amenable to development as an open pit mine as all mineralized lodes commence at surface in all pits and pre-strip is limited to one to two meters of soil. Mining of the deposit is planned to produce a total of 53.4 million metric tons of heap leach feed and 212.4 metric tons of waste (4.0:1 overall strip ratio) over a 13-year project production life which includes two years of pre-production. The current LOM plan focuses on achieving consistent heap leach production rates, and mining of higher grade material early in the production schedule.

The total capital cost of the mining equipment of C$110.8 million has been based on a detailed equipment list and budget cost quotations from a major equipment supplier. The initial pre-production capital cost of the mine is estimated at C$46.3 million and the remaining cost of C$64.5 million will be spent after the pre-production period as sustaining capital. Kaminak notes that the $304.8 million of initial capital in the economic model includes $50.3 million of mining costs that have been capitalized in the pre-production period.

The open pit mine operations require a total average of 100 personnel, mine maintenance requires 35 personnel, and supervision/technical needs a total of 30 personnel, for a total of 165 open pit personnel.

The process flow-sheet includes a three-stage crushing plant followed by a heap leach operation. Gold is extracted by an adsorption-desorption-recovery carbon plant.

The design particle crush size is minus-16 millimeters (80 percent passing 12.5 mm) however, rock types found to leach adequately at coarser sizes could bypass the tertiary crushing circuit. Based on experience gained during actual operations, the crush size for each rock type may be modified as conditions permit.

Kaminak said the estimates for ultimate gold recovery and major reagent consumptions for various rock types were based on the results of laboratory column leach tests conducted by Kappes Cassiday & Associates, industry leading experts in heap leach processing and consultants to Kinross for the development of the heap leach facility at Kinross Gold’s Ft. Knox Heap Leach mine in Alaska.

The total capital cost of the process facilities of C$73.3 million has been based on budget cost quotations from major equipment suppliers. The initial pre-production capital cost of the process facilities mine is estimated at C$56.1 million and the remaining cost of C$17.2 million will be spent after the pre-production period as sustaining capital. Kaminak points out that the C$304.8 million of initial capital in the economic model includes C$8.7 million of processing costs that have been capitalized in the pre-production period.

Process operating costs were estimated to include all crushing, heap loading, and gold recovery activities to produce doré. Process manpower requirements were estimated at 126 personnel. All re-agents cost estimates were calculated by projected consumptions and estimated prices. All power is supplied by diesel generators and power costs are estimated at C35 cents per kilowatt hour.

The project envisions the construction of the following key infrastructure items to support the mine and process facilities:

• A roughly 250-kilometer (155 miles) all-season access road from the Klondike Highway;

• About seven kilometers (4.5 miles) of new on-site access roads;

• New airstrip;

• Truck shop, warehouse and camp;

• Fresh water supply developed from groundwater;

• Bulk explosives storage and magazines;

• Power plant and bulk fuel storage;

• Potable, fire and sewage water systems; and

• Camp and administrative office.

The total capital cost of the project infrastructure and development indirect costs is $109.2 million based on a budget quotation to construct the access road, JDS’ northern operating experience, and more specifically, their Yukon project experience. The all-season access road will be constructed to connect the project site to Carmacks. The conceptual design for the road includes upgrading approximately 74 kilometers (46 miles) of existing public road and building 179 kilometers (111 miles) of new road. The road will be designed as a single-lane mine access road with intermittent turnouts and traffic will be radio controlled.

The general and administrative operating costs for the operation are estimated to be about C$20 million per year, or C$4.00 per metric ton leached.

More details of the PEA, including an archived webcast of Kaminak discussing the results of the study is available at www.kaminak.com.


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