Maoling Gold

Minority investment in China’s largest undeveloped gold project

The Maoling Gold Project was earmarked by the Chinese government for development and foreign investment as early as 1994, when the State Council approved a report identifying it as one of 10 deposits to be made available for international participation. The Maoling Gold Project was again presented as one of 16 alternative exploration districts to be opened to foreign investors by the Ministry of Land and Resources at the 1999 "China Mining Conference" in the city of Dalian.

Encouraged by these invitations to participate in the project together with the national policy of opening up mineral resource development to foreign-funded companies, Mundoro Mining conducted a project assessment and began partnership discussions with a company controlled on behalf of the provincial government of Liaoning by the Geological and Exploration Bureau, Liaoning Aidi Resources Company Ltd. ("Aidi").

The Joint Venture Contract, where Mundoro Mining has rights to a 79% interest in the JV and Aidi has a 21% interest, was finalized in 2001, resulting in the formation of Tianli to manage the Maoling Gold Project.

The exploration license for the Maoling Gold Project, covering an area of approximately 20 square kilometers, was transferred to Tianli in 2002. Tianli's business license was granted in August 2001 and the exploration license was transferred to Tianli in April 2002. Tianli's business license was not renewed on August 31, 2005. Tianli's exploration license for the Maoling Gold Project expired on November 5, 2005, and was not capable of being renewed because Tianli did not have a renewed business license.

Pursuant to the definitive share purchase agreement, China National Gold Group Hong Kong Limited ("CNGHK"), which Mundoro Capital Inc. (the "Company" or "Mundoro") understood to be a wholly-owned subsidiary of China National Gold Group Corporation ("CNG"), acquired 95% of the issued and outstanding shares of Mundoro Mining, with the Company retaining 5% of the issued and outstanding shares of Mundoro Mining. In October 2011, the Company and CNGHK entered into a Shareholders Agreement governing their ownership of Mundoro Mining. CNGHK has operating control of Mundoro Mining and its board with the goal of advancing the development of the Maoling Gold Project.

History

2010

Throughout 2010, Mundoro continued its efforts to communicate with the Liaoning government and the Company's joint venture partner regarding the status of Tianli's business license for the future development of the Maoling Gold Project. The Company attempted to attain a resolution that involved either: a strategic transaction with a Chinese group; receiving the necessary licenses to develop the Maoling Gold Project directly; or obtaining compensation from the relevant Chinese government. The Company also evaluated legal alternatives in China.

The Company was in negotiations and various levels of due diligence with a Chinese publicly listed company, a Chinese state-owned company, and other companies in order to determine if a strategic transaction could be structured such that the Chinese group would acquire the Maoling Gold Project and the Company would retain a minority interest or a form of participation in the event the Maoling Gold Project is developed in the future. Despite the Company's best efforts, the Joint Venture's business license and exploration license were not renewed and the Maoling Gold Project remains stalled.

2009

In May 2009, a study titled "A Technical Evaluation Study on Production Process of the Maoling Gold Project" was issued by Guojie Senior Professors Science and Technology Consultation and Development Academy, Department of Environmental Science and Engineering, Tsinghua University in Beijing ("May 2009 Production Process Study") indicating that the Maoling Gold Project can be developed as per the Feasibility Study (as defined below "2008") and treated in China as an example of an eco-industrial system for the gold industry.

In the third and fourth quarters of 2009, as part of the evolving Chinese regulatory framework, particularly with respect to cyanide management and Chinese tailings regulations, Mundoro Mining commissioned Ausenco International Pty Ltd ("Ausenco") and Golder Associates ("Golder") to prepare a series of studies related to the Maoling Gold Project processing plant and waste storage facilities. It is anticipated that if the Joint Venture's business license is renewed, the studies will be used in the future towards completion of the Feasibility Study.

The Ausenco study, completed in the fourth quarter of 2009, dealt with a modification to the process flowsheet to incorporate a flotation circuit. The test work on the flotation and Carbon in Leach ("CIL") route achieved an overall recovery acceptably close to the levels achieved in the original CIL-only circuit. By incorporating the flotation circuit, the use of cyanide would be reduced on a kilogram per tonne of ore basis.

Ausenco carried out an estimate of comparative capital costs and operating costs for the revised flowsheet, comprising an identical front end of crushing, grinding and gravity circuits, but with the addition of a simple bulk flotation circuit and a smaller CIL and cyanide destruction circuit. The capital cost estimate showed a small reduction compared to the original gravity-CIL circuit previously studied in 2007. The operating cost estimate showed a reduction due mainly to the significant savings in cyanide consumption and the consequent reductions in cyanide destruction reagents.

The first of the Golder studies was to redesign the tailings storage facilities to reflect the flotation--CIL flowsheet completed by Ausenco. The Golder study for the waste storage facilities planned for the Maoling Gold Project demonstrates the flotation tailings could be stored in an unlined tailings storage facility as there is no cyanide in the flotation tailings. Only the CIL tailings, a small proportion of the mass, will require storage in a lined storage facility. Both tailings facilities are designed to be operated as closed circuit facilities and the CIL facility in addition would be zero release with flood event storage capacity exceeding current Chinese regulatory requirements. A surface water and groundwater management plan has been designed by Golder for the construction, operation and closure phases of the Maoling Gold Project. This design would minimize potential effects on downstream surface water systems.

These Golder studies, completed in the fourth quarter 2009, have been evaluated by three Chinese design institutes, in the context of certain Chinese environmental regulations and in comparison with relevant Chinese and international examples as related to downstream water storage issues, a key issue for the Maoling Gold Project. As part of the evaluation, three Chinese design institutes completed in January 2010 a document titled "A Study on Yushi Reservoir Water Source Protection Zoning and Analysis of Impact of Maoling Gold Project on Water Source Protection" (the "January 2010 Water Source Protection Study") which indicated that the Maoling Gold Project can be developed in a sustainable and responsible manner with no significant impact on the downstream water storage facilities.

In 2009, the Company's community relations contribution involved two schools within the Gaizhou County. Both schools demonstrated a need for computers to help in the teaching and learning process for their respective students. The Company purchased 50 computers, two servers and two printers for a total donation amount of RMB 257,000. To date, the Company has contributed approximately RMB 750,000 to the local and county communities to support health and educational programs.

2008

In January 2008, Ausenco provided an interim report to the Company on the status of the feasibility study (the "Feasibility Study"). Due to the delays in the renewal of Tianli's business license, certain portions of the Feasibility Study, such as geotechnical drilling for the final pit slope design in Zone 1 and final Chinese cost estimations, were not completed. Throughout the year, Mundoro Mining focused on government relations for the renewal of the business license for the Joint Venture in China. Continuing with the 2007 community relations program, Mundoro Mining contributed RMB 280,000 (US$41,000) for the upgrade of the Kuangdonggou Medical Clinic and middle school in the form of equipment and supplies.