boroo gold

Strathcona Mineral Services Limited

TECHNICAL REPORT

on the

BOROO GOLD MINE

MONGOLIA

for

CENTERRA GOLD INC.

Henrik Thalenhorst, P. GeoMay 13, 2004 Graham Farquharson, P. EngToronto, Canada Strathcona Mineral Services Limited

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CRUSHER AND MILL COMPLEX

WORKSHOP

CAMP

PIT 2

PIT 3

IKH DASHIR ALLUVIAL PIT

WASTE DUMP

Boroo Site - Satellite ImageSeptember 2003


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TABLE OF CONTENTSPage

1. SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 Boroo Gold Mine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 Geology and Mineral Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3 Mining Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.4 Projected Economic Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2. BACKGROUND AND TERMS OF REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . 62.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.2 Terms of Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

3. PROPERTY DESCRIPTION AND LOCATION . . . . . . . . . . . . . . . . . . . . . . . . . . 84. ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE

AND PHYSIOGRAPHY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165. PROJECT HISTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

5.1 Exploration History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185.2 Production History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225.3 History of Mineral Resources and Reserves . . . . . . . . . . . . . . . . . . . . . . . . 23

5.3.1 Historical Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245.3.2 Recent Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

6. GEOLOGICAL SETTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266.1 Plate-Tectonic Setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266.2 Boroo Bedrock Geology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

7. GOLD MINERALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308. SAMPLING METHOD AND APPROACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

8.1 Historical Methods (pre-1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368.2 AGR and BGC Methodology (from 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . 37

9. SAMPLE PREPARATION, ANALYSIS AND SECURITY . . . . . . . . . . . . . . . . . . 399.1 Historic Methods (pre -1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399.2 AGR and BGC Methodology (from 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . 41

9.2.1 1999 Drill Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419.2.2 2002 and 2003 Drill Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

9.3 Bulk Density Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459.4 Summary Comments on the Analytical and Bulk Density Databases . . . . . 46

10. DATA VERIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4710.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4710.2 Core Loss in JE Drill Holes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4810.3 Verification Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49


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11. MINERAL RESOURCE MODEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5111.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5111.2 Mineralized Envelopes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5111.3 Estimation Procedures and Parameters . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

11.3.1 Bulk Density Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5211.3.2 Assay Capping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5211.3.3 Compositing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5311.3.4 Variography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5411.3.5 Grade Interpolation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5411.3.6 Developing a Realistic Grade-Tonnage Curve and Dilution Factors . . 55

11.4 Resource Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5712. MINERAL RESERVES AS OF DECEMBER 31, 2003 . . . . . . . . . . . . . . . . . . . . 62

12.1 Procedures and Parameters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6212.2 Open Pit Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6412.3 Boroo Mineral Reserve Estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6612.4 Mineral Reserve Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6712.5 Life-Of-Mine (LOM) Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

13. COMMENTS ON THE BOROO RESOURCE AND RESERVE ESTIMATES . . . 6913.1 Accuracy of the Current Resource and Reserve Estimates . . . . . . . . . . . . . 69

13.1.1 Database . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6913.1.2 Grade Estimation Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7013.1.3 Data Density . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7013.1.4 Economic Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7013.1.5 Actual Performance and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . 71

13.2 Updating the Boroo Mineral Reserve Estimate . . . . . . . . . . . . . . . . . . . . . . . 7214. POSSIBLE MINERAL RESERVE ADDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 73

14.1 Pit Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7314.2 Areas Adjacent to Boroo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

14.2.1 Ikh Dashir Placer Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7514.2.2 Exploration around the Boroo Deposit . . . . . . . . . . . . . . . . . . . . . . . . . 75

14.3 Regional Exploration and Possibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7614.3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7614.3.2 Gatsuurt Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7914.3.3 Other Targets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

14.4 Planned Development and Exploration Programs . . . . . . . . . . . . . . . . . . . . 8614.5 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89


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15. CURRENT OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8915.1 Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8915.2 Mineral Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

15.2.1 Metallurgical Testwork . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9215.2.2 Process Flowsheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

15.3 Human Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9616. PERMITTING, ENVIRONMENTAL MANAGEMENT AND CLOSURE PLAN . . . 97

16.1 Permits and Licences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9716.2 Environmental Management System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9816.3 Closure Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9916.4 Occupational Health and Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

17. GOLD SALES AND TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10017.1 Gold Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10017.2 Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10117.3 Corporate Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10117.4 Royalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10117.5 Value Added Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

18. ECONOMIC ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10218.1 Production Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10218.2 Revenue Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10218.3 Cash Production (Operating) Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

18.3.1 Operating Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10418.3.2 Royalties and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10518.3.3 Gold Institute Standard Unit Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

18.4 Project Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10618.5 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10618.6 Boroo Mine Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10718.7 Centerra Economic Interest in Boroo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

19. REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113CERTIFICATES OF QUALIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118


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LIST OF FIGURES

Figure Page 1 Location Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2 BGC and CGM Exploration Licences, Northern Mongolia . . . . . . . . . . . . . . . . . 10 3 Boroo Mining and Exploration Licences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4 Site Map . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5 Boroo Area Drill Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6 Major Tectonic Elements, North-Central Mongolia . . . . . . . . . . . . . . . . . . . . . . . 27 7 Boroo Area Geology a. Surface Map . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

b. Typical Cross Section . . . . . . . . . . . . . . . . . . . . 29 8 Grade-Thickness Plan, Boroo Mineralized Zones . . . . . . . . . . . . . . . . . . . . . . . . 32 9 Geological Cross Sections a. Zone 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

b. Zone 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34c. Zone 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

10 Lost-Core Intervals in 79 JE Intersections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 11 Block Model Sections a. Zone 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

b. Zone 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59c. Zones 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

12 Ultimate Pit Design and December 31, 2003 Pits . . . . . . . . . . . . . . . . . . . . . . . . 65 13 Chargeability Results and Drill Hole Coverage, Boroo Area . . . . . . . . . . . . . . . . 77 14 Geological Setting, Gatsuurt Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 15 Regional Stream Sediment Survey Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 16 Panoramic View of Pit 2 and Mill Buildings, January 2004 . . . . . . . . . . . . . . . . . 91 17 Mill Flowsheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 18 Centerra Attributable Cash Flows - NPV Sensitivities . . . . . . . . . . . . . . . . . . . . 111


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LIST OF TABLES

Table Page 1 Boroo Mining Licences held by BGC, March 2004 . . . . . . . . . . . . . . . . . . . . . . . 12 2 BGC Boroo Area Exploration Licences - December 31, 2003 . . . . . . . . . . . . . . 15 3 Summary of Drilling Completed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 4 History of Boroo Resource and Reserve Estimates . . . . . . . . . . . . . . . . . . . . . . 23 5 Average Bulk Densities of the Mineralization and by Weathering Zone . . . . . . . 45 6 Capping Levels on Individual Assays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 7 Grade Interpolation Parameters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 8 Development of Dilution Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 9 Simulated Composites and Kriged Blocks Above 1.2 g/t Cut-off Grade . . . . . . . 57 10 Boroo Pit Design Parameters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 11 Boroo Mineral Reserves at December 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . 66 12 Boroo Life-Of-Mine Plan and Production Forecast . . . . . . . . . . . . . . . . . . . . . . . 68 13 Zone 2 Reconciliation as of March 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 14 Boroo Mineral Resources Additional to Mineral Reserves . . . . . . . . . . . . . . . . . 74 15 Noyon Project Mining Licences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 16 Noyon Project Exploration Licences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 17 Summary of Gatsuurt Drill Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 18 Central Zone Mineral Resource Estimate, Gatsuurt Deposit . . . . . . . . . . . . . . . 84 19 Planned 2004 Development and Exploration Drilling, Northern Mongolia . . . . . . 88 20 Boroo Employees December 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 21 Boroo Production Forecast 2004 - 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 22 Gold Sales 2004 - 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 23 Boroo Operating Cost Forecast 2004 - 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . 104 24 Royalty and Income Tax 2004-2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 25 Gold Cash Production Costs 2004 - 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 26 Project Costs 2004 - 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 27 Financing Costs 2004 - 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 28 Boroo Mine Net Cash Flow 2004 - 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 29 Boroo Net Cash Flow Attributable to Centerra . . . . . . . . . . . . . . . . . . . . . . . . . 110 30 NPV of Boroo Net Cash Flow Attributable to Centerra . . . . . . . . . . . . . . . . . . . 110


1. SUMMARY

1.1 Boroo Gold Mine

The Boroo gold property in northern Mongolia was explored by joint East German-Mongolian geological expeditions from 1982 to 1990, and that period of explorationactivity has provided much of the geological database for the property. The BorooGold Company Limited (BGC) acquired the Boroo project in 1997, and in 1998 AGRLimited (AGR), an unlisted public company incorporated in the British Virgin Islands,acquired an initial 85% interest in BGC. Altai Trading Company Limited (Altai), aMongolian private company, held the remaining interest in BGC, but in 2000 sold two-thirds of their interest to AGR resulting in the current 95% interest in BGC for AGRand the remaining 5% for Altai.

Centerra Gold Inc. (Centerra) has a 56% interest in AGR that was acquired in 2002by Cameco Gold Inc. (Cameco Gold), the predecessor to Centerra. It is the intent ofCenterra to make an offer to acquire all or any part of the remaining 44% in AGR notheld by Centerra.

From 1997 to 2001 BGC conducted further exploration and undertook feasibilitystudies on the Boroo project, which were continued by Cameco Gold upon acquiringthe initial interest in AGR. In 2002 the decision was made to put the Boroo goldproperty into production, with a subsidiary of Cameco Gold providing a $70 millionloan to finance the mine development, processing facilities and associatedinfrastructure. The capital investment program was successfully completed onschedule and commercial production for the Boroo gold project was confirmed byCenterra, effective March 1, 2004. The Boroo Gold project is forecast to produce anaverage of about 180 000 ounces of gold per year over the period 2004-2009 at anaverage cash cost of $160 per ounce.

1.2 Geology and Mineral Reserves

Gold mineralization on the Boroo property is controlled by a northerly trending thrustfault that dips at a very low angle to the west. In the northern part of the property, thethrust fault cuts across the contact between sedimentary rocks and granitic rocks,while in the southern part of the property the thrust fault is entirely contained withinsedimentary rocks. Gold mineralization within the thrust fault zone is found togetherwith disseminated sulphides in a pervasive zone of quartz-sericite alteration, and alsoin quartz-sulphide veins in which gold is commonly coarse-grained.

To date, four zones of economic gold mineralization have been identified on the Borooproperty along the trend of the thrust fault, identified as Zones 2, 3, 5 and 6. The gold


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mineralization and the enclosing near-surface rocks have been subject to oxidation.The oxide zone has the highest degree of oxidation, followed by a transitional zone,and then the underlying fresh rocks in the primary zone of mineralization. The oxidezone is the host to 40% of the mineral reserves on the Boroo property, and a further45% are in the transitional zone, thus facilitating the recovery of gold in the treatmentof Boroo ore. The total depth to the bottom of the gold mineralization currentlyplanned to be mined is less than 130 metres reflecting the flat-lying nature of the golddeposits.

Mineral reserves as at December 31, 2003 for the Boroo property have beenestimated using a gold price of $325 per ounce, and with cut-off grades of 1.1 to 1.4grams of gold per tonne (g/t), that reflect differences in metallurgical recoverydepending upon the degree of oxidation.

Metallurgical testwork on samples of Boroo ore has resulted in forecasts of goldrecovery for oxidized, transitional and unoxidized ore of 95%, 90% and 77%respectively, and those recoveries have been incorporated in the determination ofmineral reserves within the designed open pits.

Four open pits contain the current Boroo mineral reserves. Lower-grade material leftoutside the present pit designs is reported as additional mineral resources, and muchof this additional gold mineralization is located within the unoxidized or primary rocks.

Boroo Mineral Reserves at December 31, 2003

Category Tonnes Gold Contained Gold000’s g/t Ounces - 000's Tonnes

Proven

Stockpiles 33 4.2 4 0.1

Probable

Zone 2 1 667 2.8 149 4.6

Zone 3 6 478 3.3 683 21.2

Zone 5 1 572 5.3 268 8.3

Zone 6 419 4.0 54 1.7

Total Mineral Reserves 10 169 3.5 1 158 36.0


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Boroo Mineral Resources Additional to Mineral Reserves

Zone

Oxide Transition Fresh Total Contained Gold

Tonnes000's

Gold g/t

Tonnes000's

Goldg/t

Tonnes000's

Goldg/t

Tonnes000's

Goldg/t

Ounces000's Tonnes

Indicated Mineral Resources (diluted)

2 73 1.7 172 1.6 357 1.6 602 1.6 31 1.0

3 88 1.7 552 2.0 1 151 1.8 1 791 1.9 108 3.4

5 9 2.7 111 3.6 266 4.0 386 3.9 48 1.5

6 10 3.8 309 2.2 289 2.0 608 2.1 41 1.3

Total 180 1.8 1 144 2.1 2 063 2.1 3 387 2.1 228 7.1

Inferred Mineral Resources (undiluted)

Total 869 3.0 83 2.6

1.3 Mining Operations

The Boroo project is located at an elevation of 1200 metres in a sparsely populatedarea of moderate relief with grassland cover in a relatively arid landscape. Climaticconditions are typically continental with extreme seasonal temperature variations.The Boroo project is very well situated with respect to access to the principalinfrastructure of northern Mongolia, being 140 kilometres from Ulaanbaatar, thecapital of Mongolia, and the project has been connected to the national electric powergrid.

Development and construction activities commenced at the Boroo site in 2002. Aconventional open-pit gold mining operation was planned to mine about 1.7 milliontonnes of ore per year with an average gold grade of 3.6 g/t. Gold would berecovered following standard gravity and leaching flowsheets with average goldrecovery of 90% forecast for the life of the mine.

Ore was first delivered to the Boroo process plant in November 2003, and to the endof March 2004, 512 000 tonnes of ore from Zone 2 has been milled with gold recoveryof 96%, including recovery of about one-half of the gold in the gravity circuit. The goldgrade for that tonnage, however, was 4.0 g/t versus the 2.7 g/t that was forecast, andresulted in the production and sale of 51 000 ounces of gold. All of the ore milledcame from the oxide zone and whether the substantial improvement in ore grade willcontinue is unknown, but the tonnage milled to date does represent a very large bulksample from the Zone 2 oxide reserves.


4

The mining of mineral reserves at Boroo requires rather shallow open pits with aconsequent overall modest waste-to-ore strip ratio of 3.9, and with the possibility thatfurther drilling may result in some of the current pits being connected, adding to themineral reserves. The annual expenditures for mining decline over the period 2004 -2009 as the strip ratio becomes less. Boroo is somewhat unique amongst miningprojects in that total mining costs, as a proportion of total operating costs over thecurrent life-of-mine plan, are lower than those presently forecast for either milling orfor administration costs, and illustrates the relative simplicity of mining at Boroo.

Gold production from Boroo will be about 200 000 ounces in 2004 and 2005 and totalin excess of 1.0 million ounces over the next six years.

Boroo Life-Of-Mine Production Forecast-thousands of tonnes of ore and waste and ounces of gold-

2004 2005 2006 2007 2008 2009 LOMWaste Mined

Tonnes 11 095 8 222 7 857 7 268 3 902 1 238 39 582

Strip Ratio 6.3 4.5 3.5 5.6 2.3 0.9 3.9

Ore Mined TonnesAu

(g/t)Tonnes

Au(g/t)

TonnesAu

(g/t)Tonnes

Au(g/t)

TonnesAu

(g/t)Tonnes

Au(g/t)

TonnesAu

(g/t)

Oxide 1 261 4.3 947 3.6 938 3.1 448 3.6 341 4.7 56 2.9 3 992 3.8

Transitional 498 3.9 634 4.2 908 3.5 715 3.1 1 099 3.4 697 3.2 4 550 3.5

Fresh 1 1.7 245 4.3 388 3.2 127 2.6 247 2.9 603 2.8 1 612 3.1

Total 1 760 4.2 1 827 3.9 2 233 3.3 1 291 3.2 1 687 3.6 1 356 3.0 10 154 3.6Ore Milled

1 723 4.2 1 750 3.9 1 750 3.4 1 750 3.3 1 750 3.6 1 469 3.1 10 191 3.6

Gold Sold

Ounces 212 201 170 168 180 132 1 064

Tonnes 6.6 6.3 5.3 5.2 5.6 4.1 33.1

1.4 Projected Economic Performance

Boroo is expected to be a low-cost gold producer, because of the low waste-to-oreratio, good ore grade for an open-pit mining operation, and amenability of the ore tostandard metallurgical treatment. Total operating costs are anticipated to be withinthe range of $14 to $20 per tonne milled. The resulting cash cost per ounce of goldproduced, including a 2.5% royalty on gold sales paid to the Government of Mongolia,is estimated to average about $160 per ounce over the period 2004 -2009.

A portion of the Boroo gold production has been committed under forward salesagreements with 200 000 ounces to be delivered over the period 2004-2007 at an


5

average price of $316 per ounce, of which 10 000 ounces were delivered in April2004. Revenue from the hedged gold sales has been included in projected cash flowfor the Boroo mine.

Based on projected gold production for the Boroo mine and associated operatingcosts for the period 2004-2009, estimates for sustaining capital, royalty and taxes,and a gold price of $350 per ounce for the six-year period, BGC would have net minecash flow for that period of $169 million, before allocation of funds for explorationprograms and repayment of the debt owing to Centerra for the funding provided todevelop the Boroo mine. At a gold price of $400 per ounce the net mine cash flowwould increase to $206 million.

The total capital investment to develop and construct the mining facilities of Boroowas approximately $75 million which was largely financed by the loan advanced bya subsidiary of Cameco Gold, now a subsidiary of Centerra. The consequent Boroonet cash flow attributable to Centerra over the period 2004-2009 would be $109million at a gold price of $300 per ounce and $147 million at a $400 price. TheCenterra economic interest in the Boroo net cash flow would be 83% at a $300 goldprice and 71% at a $400 price.

In summary, the performance of the Boroo project has been very satisfactory to datewith the project having been developed and brought into production as planned. Theoperating results from the initial four months of operation have been very encouragingwith the gold grade of ore mined being higher than was forecast, and metallurgicalrecoveries as anticipated. The Boroo mine should thus enjoy a successful minimumsix-year mine life.

Centerra is planning an aggressive exploration program on the Boroo property, andwithin economic transport distance elsewhere in northern Mongolia, to take advantageof the now established base in the region and further extend the life of the Boroooperation. In particular the Gatsuurt deposit, 35 kilometres from Boroo, is beingstudied as to the possibility of either providing one year of oxide ore to Boroo, or toinstall a process facility on site to treat refractory non-oxide mineralization.


6

2. BACKGROUND AND TERMS OF REFERENCE

2.1 General

The Boroo gold project in Mongolia is owned by Boroo Gold Company Limited (BGC),a company incorporated in Mongolia. BGC is wholly-owned by Boroo Mongolia MiningCompany Limited (BMMC), a Bahamian company, which, in turn, is owned by AGRLimited (AGR), an unlisted public company incorporated in the British Virgin Islandswith a 95% interest and by Altai Trading Company Limited (Altai), a Mongolian privatecompany, which holds the remaining 5% interest.

Cameco Gold Inc. (Cameco Gold), a wholly-owned subsidiary of Cameco Corporation(Cameco), acquired an initial 51.85% interest in AGR on February 28, 2002 for $12million in cash and a $4.8 million promissory note and subsequently increased thisinterest to 56% by funding $3 million of exploration on the Boroo and nearby Gatsuurtproperties. The development of the Boroo mine has largely been financed by a $70million loan provided by Cameco Barbados Inc. (now Centerra Barbados Inc.), asubsidiary of Cameco Gold, with commercial production of gold declared on March1, 2004. The Cameco Gold interest in the Boroo gold mine was transferred toCenterra Gold Inc. (Centerra) on April 1, 2004. It is the intent of Centerra to make anoffer to acquire all or any part of the remaining 44% in AGR not held by Centerra.

2.2 Terms of Reference

The Boroo gold deposit was initially discovered in 1910, and an undocumentedamount of gold was produced intermittently from near-surface deposits until about1945. The area was extensively explored by a joint East German (DDR)-Mongoliangeological expedition from 1982 to 1990. Much of the early project database, andnearly all of the diamond drilling done, originates from this period. Additional work wascarried out from 1991 to 1994 by the Boroo Gold Mining Joint Venture (the MiningBureau of the Government of Mongolia and the Morrison-Knudson Gold Company).Only limited drilling with poor core recoveries was undertaken during this latter timeperiod.

BGC acquired the Boroo project in 1997, and completed initial due diligence diamonddrilling in 1997. AGR acquired its initial indirect interest in BGC in 1998 andembarked on an extensive reserve delineation drill program. Additional in-fill drillingwas undertaken in 2002 and 2003, and is ongoing as of the date of this report.


7

The results of the various historic field campaigns have been collated into a largenumber of reports and technical documents (see References). The project database,including a feasibility study prepared by AGR in December of 1999, was criticallyreviewed by SRK Consulting in 2000 on behalf of NM Rothschild & Sons AustraliaLimited. This review identified a number of shortcomings that were subsequentlyaddressed. An updated feasibility study for a project with a larger throughput of 1.75million tonnes per year (compared to 1.3 million tonnes per year in the original study)was completed by AGR in April of 2001, that included an updated reserve estimateby SRK.

Following an in-house due diligence process, Cameco Gold acquired its initial interestin AGR on February 28, 2002. A production decision was taken shortly thereafter,based on the SRK (2001) mineral reserve estimate that was discounted by 20% onthe grade, while increasing the mineable tonnes by a like percentage. The reason forthe adjustments was the judgment by Cameco Gold staff that the 2001 SRK mineralreserve estimate was too optimistic. Construction commenced in June 2002, and theproject started commissioning in early November 2003. Commercial production atBoroo was achieved on March 1, 2004.

The mineral resources for the Boroo project were last estimated in July 2003 byGeostat Systems International Inc. (Geostat). This estimate, prepared to NationalInstrument 43-101 (NI 43-101) reporting standards, is currently the basis for theDecember 31, 2003 reserve estimate and life-of-mine plan for the project. Theestimation process is under the control of the Cameco mining resources group at theCameco office in Saskatoon, Saskatchewan headed by Alain Mainville, P. Geo. andCenterra in Toronto by Rob Chapman, P. Geo., each of whom is a qualified personwithin the meaning of NI 43-101.

Strathcona Mineral Services Limited (Strathcona) has been retained by Centerra toprovide an independent technical review of the Boroo gold project. This review wasrequested by Centerra in connection with its proposed initial public offering and listingon the Toronto Stock Exchange. This report complies with the requirements for anindependent technical review as set forth in NI 43-101 pertaining to Standards ofDisclosure for Mineral Projects.

In preparing this report, we have relied on many of the earlier studies and reports. Wehave not conducted independent sampling, or sample analysis, or surveys to verifythe validity of the assay data, the location of drill holes, or the location or validity ofmining claims. We have evaluated the data provided by BGC on the basis of ourexperience in the mining industry, and particularly in the gold sector. In addition,


8

Henrik Thalenhorst of Strathcona has visited the Boroo project from January 16 to 22,2004 at which time all relevant technical and economic data were reviewed with BGCstaff both at the mine site and at the administrative and exploration offices inUlaanbaatar, the capital and principal city of Mongolia. A complete list of sources ofinformation and data is set out in the References section of this report.

As a result of our review of the Boroo gold project and the data supplied to us, we aresatisfied that the estimate of mineral reserves, and the life-of-mine plan basedthereon, for the project are in all material respects fair and reasonable subject to thelimits of uncertainty of certain data as expressed in this report.

This report uses the metric system of units, deviating only to report ounces of gold,and the currency used is the United States dollar, unless otherwise indicated.

3. PROPERTY DESCRIPTION AND LOCATION

The Boroo gold project is located in the Republic of Mongolia some 110 kilometresto the northwest of the capital city of Ulaanbaatar (Figure 1) and about 230 kilometresto the south of the international boundary with Russia, at 48°45' N and 106°10' E.

The following information with respect to the property and its legal status wasprovided by BGC and has not been independently verified. Figure 2 shows, in ageneral way, the location of all of the mineral properties in the northern part ofMongolia held either by BGC or Centerra Gold Mongolia LLC, which is also controlledindirectly by AGR.

In the Boroo mine area, BGC has been granted the exclusive rights to all hard-rockminerals and placer deposits within a number of contiguous mining licences, whichcover 3146 hectares of land centred on, and surrounding the Boroo gold deposit(Figure 3). The licenses are located in about equal measure in the counties (soums)of Bayangol and Mandal, situated in the province (aimag) of Selenge. Both the aimagand the soums play an important role in some of the permitting and environmentalmanagement aspects of the project, as will be discussed in greater detail in Section16. The particulars of the individual mining licences are summarized in Table 1.

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CGM(Cameco Gold Mongolia LLC)

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Roads

Lambert Conformal Conic ProjectionDatum: Pulkovo 1942, Russia

0 20 100

Kilometres

Scale 1 : 2 million

N

TITLE

BGC and CGM Exploration Licences,Northern Mongolia


TORONTO - CANADA

File:

329-7APPROVAL PROJECT No.

H.T.

04BGC_CGM_Lic.cdr Figure 2

March 2004DATE


CENTERRA GOLD INC.PROJECT

CLIENT

Map Source: Licences information from Centerra Gold Inc.

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Map Source: Licences information from Centerra Gold Inc.

EXCLUSIONS

BGC EXPLORATION LICENSESBGC MINING LICENSES

722A (Anod Bank)

028X (Boroo, 31 May 1997)

6964A (Boroogol, 17 January 2004)

7170A (Chandagat Uul, 31 March 2004)

724A (Ikh Dashir Ar, 14 August 1997)

5147A (Anod Bank)

147A (Undram Sed Co.Ltd)

1797X (Ikh Dashir, 10 August 1999))

6963A (Bayangol, 17 January 2004)

1970A (Boroo, 06 December 1999)

1961A (Boroo, 29 November 1999)

1960A (Boroo, 29 November 1999)

238A (Ikh Dashir 09March 2000)

198A (Boroo, 21 June 1997)

UTM WGS84-48N

0 500 2,500

Metres

Scale 1 : 60,000

N

TITLE

Boroo Mining and Exploration Licences


TORONTO - CANADA

File:


H.T.

04BorooMiningLic.cdr Figure 3

March 2004DATE



CLIENT


12

Table 1 Boroo Mining Licences held by BGC, March 2004

LicenceNo. Soum Licence

NameArea

(hectares)Issue Date

AnnualFees Expiry Date

198 A Bayangol & Mandal Boroo 1 407 Jun 21, 1997 $14 070 June 21, 2057

238 A Bayangol Ikh Dashir 130 Jul 26, 1995 1 304 Mar 9, 2055

724 A Bayangol & Mandal Ikh Dashir Ar 90 Aug 14, 1997 900 Aug 14, 2057

1960 A Bayangol Boroo 571 Nov 29, 1999 4 283 Nov 29, 2059

1961 A Bayangol Boroo 1 Nov 29, 1999 13 Nov 29, 2059

1970 A Bayangol & Mandal Boroo 562 Dec 6, 1999 4 215 Dec 6, 2059

6963 A Bayangol Bayangol 25 Jan 17, 2004 125 Jan 17, 2064

6964 A Mandal Boroogol 345 Jan 17, 2004 1 725 Jan 17, 2064

7170 A Mandal Chandagat Uul 14 Mar 31, 2004 68 Mar 31, 2064

Total 3 146 $26 703

Mining Licence A-32 covering the Boroo gold deposits was originally granted to Altaion July 4, 1996 for an initial period of 15 years. BGC was established in 1997 as ajoint venture between Altai (50%) and the London-based Asia Mining InvestmentCorporation (AMIC, 50%). Mining Licence A-32 was transferred to BGC by theMinistry of Energy, Geology and Mining on June 21, 1997 by Special Ministerialdecree (Order A\107). It was re-registered as Licence 198 A on September 20, 1997as part of the adjustments when a new mining law was promulgated in Mongolia.

Mining licence 238 A was re-registered, also on September 20, 1997, from its pre-decessor licence A-62 (originally issued to Mongol Erdene on July 26, 1995) andsubsequently transferred to Altai on January 23, 1998. Altai in turn transferred thelicence to BGC on May 5, 1999.

Mining licence 724 A was originally granted on August 14, 1997 to AltanharguiCompany covering part of an existing exploration licence. The licence was transferredto the Nuuriin Gol Company on April 30, 1998 who subsequently changed their nameto Lanars Company. Lanars transferred licence 724 A to BGC on October 9, 2000.

Mining licences 1960 A, 1961 A, 1070 A, 6963 A and 6964 A were granted to BGCdirectly on the dates indicated in Table 1. The two newest licence added in January2004 serve to cover vital mine infrastructure such as the water wells in the Boroo rivervalley.


13

Centerra has advised that, other than a gold and silver royalty of 2.5% payable to theMongolian Government (Section 17.4) and a 50% profit royalty payable to Altai incase of gold production from alluvial operations on licence 238 A, there are no otherroyalties, payments or other agreements or encumbrances related to the Boroomining licences.

Surface rights have been negotiated with the soums, providing sufficient surface areafor the mill, for tailings and waste rock disposal. An order of the governor of Bayangolsoum dated November 11, 2003 provides BGC with the use of 1451.7 hectares forten years for an annual payment of 12 million tugriks (the local currency, currentlyapproximately $10 000). A similar order by the governor of Mandal soum datedNovember 5, 2003 provides BGC with the use of 274 hectares for an annual paymentof 4 million tugriks (currently approximately $3400).

The mining license areas held by BGC enclose a mining license covering the AltanDashir placer gold deposit, owned and operated intermittently by Undram Sed, aMongolian company. While this enclosed area does not hinder operations, BGC haveagreed in principle to acquire this licence in consideration for a cash payment and toenter into a two-year agreement to use equipment operated by Undram Sed.

The Government Committee Act on Commissioning of the Boroo facilities intooperation has been passed and gives BGC the right to operate and produce gold.The Stability Agreement, originally concluded between BGC and the MongolianGovernment represented by the Minister of Finance on July 8, 1998 and amended onMay 9, 2000, stipulates that there will be no nationalization, compulsory acquisitionor illegal confiscation of the project by the Government of Mongolia. The StabilityAgreement applies to any gold production from the Boroo gold deposits.

The Stability Agreement further provides for BGC to be exempted from income tax forthe first three years of production, and for reduced income tax thereafter. It alsoallows the mine to offset value-added tax against certain taxes payable (as providedfor in the Value Added Tax Law of Mongolia), allows the unlimited export of physicalgold, and the deposit of proceeds from gold sales in an offshore account provided thatsufficient funds are retained in Mongolia to pay royalty fees and taxes. The taxprovisions of the Stability Agreement are discussed in greater detail in Section 17.

A general site map is provided in Figure 4. Power for the operation is supplied fromthe main Mongolian grid via a 110 KVA line that has the capacity to supply 40 MW ofpower to the site. The national grid is connected to the Russian grid in the north.

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586000m.E

586000m.E

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5398

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Outline ofMining Licences

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Crusher andMill Complex

Water pipeline ofUndram Sed Co. Ltd.

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Clay Pit

BorooRiver

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Well

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Powerline

Powerline

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MonitoringWell

Water Pipeline

FarmlandWater Pipeline

Tailings Road

GravelPit

TailingsPond

ROM OreStockpile

WasteDump

WasteDump

PIT 2

PIT 3

PIT 6

PIT 5

Scale 1 : 50,000

UTM WGS84-48N

0 500 2,500

Metres

N

TITLE

Site Map

STRATHCONA MINERAL SERVICES LIMITEDTORONTO - CANADA

File:


H.T.

04Boroo_SitePlan.cdr Figure 4

March 2004DATE



CLIENT

Map Source: Site map information from Centerra Gold Inc.


15

Historic records indicate a generally stable power supply, with few interruptions. Apower supply agreement was entered into by AGR on August 21, 2000 with theElectrical Power Supply Office of Darkhan Province, a Mongolian-registered company.The price per kilowatt-hour (kWh) was set at 41 tugriks, but has since been increasedto 47 tugriks, the current rate (about $0.045 per kWh). A new power supplyagreement is expected to be concluded during the second quarter of 2004.

Other agreements include a water supply agreement with the Mandal Soum thatcovers the taking of water from five wells along the Boroo River. The annual paymentfor the water is nominal, amounting to the equivalent of $15 000.

BGC also controls a number of exploration licences that surround the area coveredby the mining licences. These are shown in Figures 2 and 3 and are summarized inTable 2.

Table 2 BGC Boroo Area Exploration Licences - December 31, 2003

74Licence No.

Licence Name

Area(hectares)

Issue Date 2004 Fees Expiry

Date028 X, X-1, X-2 Boroo 34 438 May 31, 1997 - Oct 1, 2004

1797 X Ikh Dashir 1 246 Aug 10, 1999 $1 869 Aug 10, 2006

2085 X Baraat Uul 3 778 Feb 14, 2000 3 778 Feb 14, 2007

2086 X, X-1 Onjon Uul 20 580 Feb 14, 2000 20 580 Feb 14, 2007

2087 X Tseel 14 180 Feb 14, 2000 14 180 Feb 14, 2007

2748 X Bugtur Nars Uul 3 056 Nov 21, 2000 3 056 Nov 21, 2007

2750 X Baruun Bor Uul 5 270 Nov 21, 2000 5 270 Nov 21, 2007

3405 X Zurhiin Oboo 4 712 Jun 19, 2001 4 712 Jun 19, 2008

6061 X Ikh Olont 4 975 Jul 16, 2003 498 Jul 16, 2010

Total 92 235 $53 943

Note: The expiry dates of all exploration licences granted in the first half of 1997 were extended by theMongolian authority to October 1, 2004.

According to the Mongolian mining law enacted in 1997, an exploration licence isinitially issued for a period of three years, and can be renewed twice for two years, fora total of seven years, at which time the claims must be abandoned. Conversion intoa mining licence is possible at any time during the seven years. Annual fees aregraduated, starting with $0.05 per hectare in year one, $0.10 per hectare in years twoand three, $1.00 per hectare in years four and five and finally increasing to $1.50 perhectare in years six and seven.


16

The exploration licences held by CGM (Figure 2) will be reviewed in Section 14,where the exploration results on the various BGC and CGM exploration licences willbe summarized as to their potential to provide supplementary ore supply to the Borooprocess plant.

4. ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTUREAND PHYSIOGRAPHY

The Boroo mine site is easily reached by travelling northward from Ulaanbaatar on thepaved Ulaanbaatar-Irkutsk highway for about 130 kilometres (km), then on animproved all-weather road east of the highway for about 10 km, the total trip takingjust over two hours to complete. The railroad town of Baruunkharaa is located about20 km north of the junction of the all-weather road with the Ulaanbaatar-Irkutskhighway (Figure 2). Ulaanbaatar is served by commercial aircraft connecting tonational and international destinations.

The Boroo area is sparsely populated, inhabited mainly by nomadic herdsmen livingin single family camps on rural land or in small villages. The nearest towns areBaruunkharaa (20 km north), Zuunkharaa (25 km north-east) and Bornuur (32 km).Of these, only Baruunkharaa and Zuunkharaa have populations exceeding 3000people, and are served by the Trans-Mongolian railway that links Ulaanbaatar withIrkutsk and Beijing. This important rail link passes within 20 km of the Boroo golddeposit.

The project is situated in an area of gently or moderately steeply rolling hills, largelycovered by grasslands but with small discontinuous forests of birch and alder treeson north facing slopes. The average elevation is about 1200 metres above sea level.Boroogol (gol meaning river) is the main drainage system in the area and flowsnorthward into the Kharaagol, a major river that continues northward into Russia andultimately into Lake Baikal. The Ikh Dashir valley, which originates in the area of theBoroo deposit and is host to placer gold resources, is a mostly dry western tributaryof the Boroogol.

North-central Mongolia is semi-arid with a continental climate. It is a land of extremeseasonal and diurnal temperature variations. Winter temperatures can dip to -40o Cwhile summer temperatures may exceed +40o C. The mean annual temperature isabout 0o C, but there is no permafrost in the Boroo area. The dry continental climateof northern Mongolia results in the Boroo region having more than 300 days ofsunshine each year and only a light snow cover in winter. The area receives about


17

25 cm of precipitation per year, most as rain during the rainy season of July andAugust.

The operating conditions resemble those that might be found in northern Alberta orthe southern parts of the western Northwest Territories, if perhaps somewhat drier.There is no principal impediment to industrial activities as exemplified by the operationof the placer gold dredges that operate from April through October when streams areice-free, and by the large Erdenet open-pit copper-porphyry mine, located some 180km west of Boroo, which operates year-round. The Erdenet mine reportedly milled 24million tonnes of ore in 2001 from which 460 000 tonnes of copper concentrate (27%Cu) and 3000 tonnes of molybdenum concentrate (50% Mo) were produced(International Finance Corporation, 2002). The Boroo mining project will operatecontinuously throughout the year.

The Boroo project provided employment for 453 permanent employees as ofDecember 31, 2003, of which 408 were citizens of Mongolia and 45 were expatriates.In addition, there were 118 seasonal Mongolian workers and contractors, most ofwhom were employed for the continuing tailings dam construction.

The mine site is served by the Mongolian national power grid via a 110 kVA line thatconnects to a 110-kV overhead power line. Reliability of the system appears to begood, however, the mine maintains emergency generators capable of supplyingpower required for vital services in case of power outages. Fresh water for human andindustrial use is taken from five wells that tap into the water table in the Boroo Rivervalley (Figure 4). Draw-down tests have shown that a supply in excess of 80 litresper second can be sustained from the five wells which compares to a maximumrequirement of 70 litres per second.

Boroo has all of the required facilities to support production such as a camp/residencefor the employees, a warehouse, maintenance shops, offices, and other services. Adescription of the essential mining, treatment and general operating facilities isprovided in Section 15.

5. PROJECT HISTORY

The Boroo deposit was reportedly discovered in 1910 and was exploited by Mongoloron an industrial scale until the 1920s when the facilities were destroyed during a civilwar. Activities did not start again until about 1933, when the gold potential of the areawas again investigated, followed by the installation of a gold refinery in 1942 thatprobably treated gold from the mining of a number of individual, near-surface quartz


18

veins (Cameco Gold Mongolia Inc., 2004b). There are no production records from thistime. Events in the ensuing years until about 1965 remain undocumented.

5.1 Exploration History

The exploration history of the Boroo deposit that is currently being mined commenceswith prospecting activities between 1965 and 1969 that led to the recognition ofBoroo’s potential as a bulk-mineable deposit and ultimately to a program of detailedfield evaluation and reserve estimation by a joint East German (DDR)-Mongolian(MPR) Geological Expedition from 1982 to 1990. During this time, the deposit areawas drilled using vertical core holes on an 80-metre by 80-metre grid with in-filldrilling to a density of 40 metres by 40 metres and even 40 metres by 20 metres intwo areas along the eastern edge of the areas of interest. These diamond core holesof the Joint Expedition, the JE series, generally had a comparably large diameter of76 millimetres (mm), larger than HQ core size, less frequently 52 mm (between NQand HQ), 93 mm or 112 mm, both larger than PQ core size.

Two bulk samples were obtained from underground openings for pilot-scalemetallurgical testing. Initial bench scale tests were conducted in Freiberg, EastGermany, followed by pilot scale testing by Irgiredmet, Irkutsk, Russia, in 1987. Otherstudies examined the metallurgical character of both oxidized and fresh ore.

The East German-Mongolian project was terminated in 1991 because of the Germanreunification.

From 1991 to 1994, the concession, which includes the Boroo deposits, wascontrolled by the Boroo Gold Mining Joint Venture comprised of Mongol Erdene,representing the Mining Bureau of the Government of Mongolia (51%), and MorrisonKnudsen Exploration (MKE) representing the Morrison-Knudsen Gold Company(49%). MKE drilled 19 vertical diamond holes, apparently with generally poor corerecovery. The location of these holes is uncertain, and they are not being used in thecurrent database. In 1994, MKE engaged the Simons Mining Group to prepare afeasibility study (H. A. Simons, 1994) that investigated a heap leach (oxides only) anda combined heap leach/treatment plant option (oxides plus sulphides). Subsequently,MKE allowed the joint venture to lapse because of unsatisfactory project economics.

BGC completed nine confirmatory diamond drill holes and check assaying of DDRsample splits in 1997. The new drill holes were sampled by Australian consultantsMining and Resource Technology (MRT) personnel in Mongolia, and MRT establisheda database for the project.


19

In May 1998 Resolute Limited (Resolute), an Australian gold mining and explorationcompany, was introduced to the project, and at the end of 1998, a tentativeagreement was in place whereby AGR, an affiliate of Resolute, would indirectlyacquire 85% of BGC. The remaining 15% was retained by Altai. In August 2000, AGRpurchased two-thirds of the Altai interest, leaving Altai with a 5% indirect interest inBGC.

In preparation for a bankable feasibility document, AGR undertook a significant in-filldrill program of the deposit area in 1999 to bring the existing “reserves” to comply withthe Australian JORC code for reporting of mineral resources and mineral reserves.The definition drilling program aimed to evaluate mineralization within optimized pitshells developed by Resolute in July 1998. The main zones of mineralization weredrilled on a nominal 40-metre by 40-metre pattern. Ulaanbaatar-based Gobi Drilling,a division of Radial Drilling of Townsville, Australia, was contracted for a combinedreverse circulation (RC) and diamond drilling program undertaken in 1999.

The intention was to drill at right angles to the geology as mapped, rather than at rightangles to the mineralization as interpreted, in case the lithological control ofmineralization was stronger than previously thought. Therefore, holes of the main RCdrilling program were inclined at 60°, with an azimuth of 270° with respect to the localgrid over Zones 2, 3 and 5. Over Zone 6, the holes were inclined at 60°, with anazimuth of 270° UTM grid. Lithological control on mineralization was expected to bestrongest where large blocks of metasediment occurred within the granitoid sectionsof Boroo Zones 2, 3 and 5. Drill hole depths were designed to test the main oreenvelope and to intersect lithologically-controlled mineralization that might lie withina mineable distance below it.

Three drilling programs with tightly-spaced RC holes were also undertaken by BGCin 1999 to establish the continuity of mineralization and to provide a geostatisticalbasis for the mineral resource estimation process. These were completed on thedeposit planned to be mined first (Zone 5) and on an interpreted “high grade lens” inZone 3, with the third cluster providing more general information in the northern partof Zone 3 (Figure 5).

As will be detailed in Section 10.2, the DDR-MPR core holes did appear to have alow-grade bias as compared to the more recent RC drill hole results. Consequently,additional RC in-fill drilling was undertaken in 2002 and 2003 by BGC to investigatethis question resulting in a substantial amount of additional data being created.Drilling in 2002 was conducted by Major Pontil, a large Australian drilling company,which supplied a UDR 650 multi-purpose drill rig mounted on a truck.


1 Mineral Resource Estimate by Geostat, July 2003

20

The various drill programs at Boroo are summarized in Table 3, sub-divided into drillholes that are reflected in the current resource estimate and the newer holes that arenot.

Table 3 Summary of Drilling Completed

Year Company Type ofDrilling

Drill HolePrefix

Number ofHoles

Length(metres)

No. of HolesUsed for

Estimate 1

1982-88 DDR-MPR Expedition DDH JE 343 28 431 343

1992-94 MKG/Erdene DDH - 19 Unknown -

1997 BGC DDH BG 9 735 3

1999 BGC DDH MDD 28 1 852 28

Sub -total DDH 399 31 018 374

1999 BGC RC MRC 162 10 945 162

2002 BGC RC MRC 177 10 097 177

Sub- total RC 339 21 042 339

Total Available for Resource Model (July 2003) 738 52 060 7132002 CGM for BGC RC BX 16 1 953

2003 BGC RC BRC 223 8 475

2003 CGM RC BX 33 3 814

Data not yet incorporated into Resource Model 272 14 242

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While the investigations at Boroo prior to 2002 consisted predominantly of surfacedrilling, a small ground magnetic survey and some underground cross-cutting, it wasonly in 2002 that other exploration methods were more systematically being employedat Boroo. The area of known mineralization was covered by an induced polarization(IP) survey to more fully understand the geophysical signature of the mineralization,and a substantial stream sediment geochemical survey was undertaken that coveredthe general Boroo area in search of additional mineral deposits. The results of theseinvestigations will be more fully described in Section 14.

The Morrison-Knudsen holes drilled in 1992-94 were excluded from the resourcemodel database because of poor recoveries. Also, only three of the BG 1997 holeswere used for resource estimation because of collar survey errors for the six others.The total drilled in 2003 includes about 50 condemnation holes that did not encounterany mineralization of economic interest.

Figure 5 shows the coverage by the various drill campaigns, the original DDR-MPR(section lines 1 to 63) and the newer exploration grids which have an orientation ofN 15° E. The Geostat block model, the basis for the current mineral reserve estimate,has the same orientation. Boroo mining operations, in contrast, use a truncatedGauss-Kruger grid aligned with astronomic north, also shown in Figure 5.

For all of the holes drilled at Boroo, collar locations have been surveyed. Down-holedeviations have generally not been determined. This is not considered a seriousomission as the mineral resources at Boroo are at shallow depth, mineralized drillintercepts are rarely more than 75 metres down the hole, and a majority of the drillholes are vertical.

5.2 Production History

The Boroo mill started the commissioning phase in November of 2003, and thus hasa rather short production history at the time of this report. To the end of March 2004,a total of 512 000 tonnes of ore had been milled from the oxide part of Zone 2, withan average gold content of 4.0 grams per tonne (g/t). Overall recovery was 96%,resulting in the recovery of 63 800 ounces of gold, of which 51 300 ounces wasproduced and sold in the form of doré, with the balance retained in process inventory.In addition, 6.6 million tonnes of waste had been mined, mostly pre-stripping in Zone5, for a strip ratio of 10.7 to 1, taking into account the 102 000 tonnes of stockpiledore.


2 Category B in the Soviet system is broadly equivalent to the current “proven”, C1 to the current “probable”category. Only about 14% of the 1989 total was classified as category B.

3 Recoverable ounces, using a recovery of 90%

4 Resources include the reserves on the line below

23

5.3 History of Mineral Resources and Reserves

There have been numerous estimates of the mineral resources and reserves of thebulk-mineable deposits at Boroo, reflecting different methods and the databaseplateaus reached at various times. A partial listing is given in Table 4, and explanatorynotes are offered on historical and recent estimates.

Table 4 History of Boroo Resource and Reserve Estimates – millions of tonnes and contained ounces –

Year Method Author Type Classification CoG (g/t )

Tonnes Gold(g/t)

ContainedOunces

Historical Estimates

1989 Polygonal DDR-MPR “Reserve” B & C1 2 0.8 13.8 3.1 1.4

1994 BM, PO H. A Reserve Unclassified Unspecified 3.5 2.4 0.3

BM, PO Reserve Unclassified Unspecified 7.8 2.1 0.5

1997 BM MRT Resource Unclassified 0.7 26.9 2.2 1.9

Resource Unclassified 1.5 13.0 3.4 1.4

1998 Sectional Resolute Resource Unclassified Unknown 9.1 2.8 0.8 3

1999 BM, PO, PD AGR Reserve Unclassified 1.0 11.0 2.8 1.0

Recent Estimates

2001 BM, PO & PD SRK Reserve Probable 1.0 to 1.4 9.4 3.8 1.1

2001 Factored Cameco Reserve Unclassified 1.0 to 1.4 11.2 3.2 1.1

2002 BM, PO SRK Reserve Probable 1.2 11.0 4.0 1.4

2003 BM, PO Cameco Reserve Probable 1.2 10.0 3.3 1.0

2003 BM Geostat Resource 4 Indicated 1.2 13.5 3.2 1.4

2003 PO & PD Geostat Reserve Probable 1.1 to 1.35 10.3 3.5 1.2

Note: CoG = Cut-off grade; BM = block model; PO = pit optimization; PD = pit design; HL = heap leach


24

5.3.1 Historical Estimates

The first mineral reserve estimate for the bulk-mineable mineralization at Boroo wascompleted at the end of the DDR-MPR geological expeditions in 1989 using theSoviet

reserve evaluation and classification criteria. It is interesting to note that the latestresource estimate in 2003 by Geostat (last line in Table 4) is close to the 1989estimate . The reserves of the Ikh Dashir placer deposit were also estimated in 1989(see below).

MKE had a preliminary mineral resource calculation on the deposit prepared in 1992(not shown in Table 4). After additional fieldwork, MKE in 1994 engaged ComincoEngineering Services and their successor, H.A. Simons (Simons, 1994) to prepare afeasibility study of the Boroo project that evaluated the project as a stand-alone heap-leach operation or, alternatively, as a combined heap-leach (for the oxidized part ofthe deposit)/CIP operation. Because of the lower metallurgical recovery achievableby heap leaching, the mineral reserves considered for the two approaches aresignificantly lower than other estimates using the same database.

In 1997, the Australian group Mining and Resource Technology (MRT) completed apreliminary mineral resource estimate using DDR-MPR geological expedition andBGC drilling data compiled by MRT.

In May 1998 Resolute used the MRT database to carry out a sectional interpretationof the deposit (Tchaikov, 1998). The model envisaged six individual zones numbered1 through 6. Later in 1998, AGR produced a block model using the East Germandrilling results.

All of the mineral resource and reserve estimates in the upper part of Table 4 are“historical estimates” for the purpose of NI 43-101 that use essentially the originalDDR/MPR drill database except for the 1999 AGR estimate that was used for thefeasibility study of that year.

Alluvial gold deposits occur in valleys extending east from the Boroo deposit. Thelargest of these deposits, Ikh Dashir, prominently displayed as a brown scar on theFrontispiece, was originally evaluated by the DDR-MPR expeditions from 1985 to1989 to contain “economic reserves” (C1 plus C2) of 2.8 million cubic metres containedin two horizons with an average gold grade of 1.7 g/ m3, determined using prescribedSoviet methods such as cable-tool drilling and vertical sample pits. The Ikh Dashirdeposit has in the interim been worked by a Mongolian government-owned company


25

on a seasonal basis. BGC has estimated that about 60% of the original “reserve” iscurrently remaining. This colluvial placer will in part have to be removed during pre-stripping of Zone 3, and detailed grade control drilling at that time will be performedto determine what portion can be mined and processed. This material is not now inthe Boroo mineral reserves or in the life-of-mine plan.

5.3.2 Recent Estimates

More recent estimates had a substantially larger database to work with compared tothe historical estimates, as is apparent from Table 3. The two SRK estimates of 2001and 2002 were carried out in accordance with the Australasian JORC code and usedordinary kriging followed by uniform conditioning. Uniform conditioning is an advancedgeostatistical estimation technique that attempts “...to allow the theoretical recoveredtonnage and grades of small blocks to be estimated.” (Resource Services Group,2000, page 2). A review of the earlier of the two estimates (SRK, 2001) by Camecoas part of the due diligence in 2001 arrived at the assessment (Mainville & Chauvet,2001) that the SRK estimate was over-stating the grade and under-estimatingtonnage and that the very tight grade control regime anticipated by SRK wasunrealistic. As a result, a 20% (positive) factor was applied to the SRK tonnage anda 20 %(negative) factor to the SRK grade estimate. The resulting figures, shown inbold in the lower part of Table 4, then served as the basis for the decision by Camecoto put the Boroo project into production.

After additional drilling in 2002, mineral resource and reserve estimation was againundertaken in parallel by SRK (2003) and by the Cameco resource estimation groupin late 2002 (Chapman, 2003 b), and again there was a significant divergence of thetwo estimates due to the different approaches taken with respect to the treatment ofhigh-grade assays, the continuity of high-grade mineralization and mining selectivity.The two resulting reserve estimates are compared in Featly Pty Limited (2003).

Geostat was brought in to provide another independent opinion, and their estimatesof the Boroo mineral resources and reserves as of July 2003, completed inaccordance with NI 43-101, are shown on the last two lines of Table 4. The Geostatreserve estimate, which will be discussed in greater detail in Sections 11 and 12, withresults intermediate to the Cameco and SRK (2003) estimates, is the estimate onwhich the current Boroo life-of-mine plan is based. The similarity between the originalpolygonal estimate by DDR-MPR in 1989 and the Geostat resource estimate is to benoted.


26

6. GEOLOGICAL SETTING

6.1 Plate-Tectonic Setting

Mongolia occupies a central part of the Asian continent, and an interior portion of theEurasian Plate. Major tectonic events took place during the Paleozoic and earlyMesozoic when exotic terranes and micro-plates were repeatedly accreted to theancient core of the Siberian plate. The age of the terranes in Mongolia thus decreasessouthward, with the northern Tuva Terrane consisting mostly of Proterozoic andLower Paleozoic rocks while the Southern Terrane contains an important componentof Permian to Jurassic intrusives. A major Caledonian event cratonized northern Mon-golia, while a subsequent Hercynian event affected central and southern Mongolia.Post-Permian intrusions were of anorogenic alkalic affinity, and Mesozoic volcanicswere extruded in response to extensional relaxation (adapted from IFC, 2002).

The structural setting of north-central Mongolia is dominated by several northeasterlystriking strike-slip faults of regional extent that are considered terrane-bounding innature and may have tens of kilometres of cumulative sinistral displacement(Figure 6). The Gatsuurt deposit (Section 14.3.2) is controlled by one of these, theYeroogol Fault, while the Boroo gold deposits are interpreted to be located near asecond-order, northwesterly striking sympathetic structure locally termed the“Highway Fault”.

6.2 Boroo Bedrock Geology

The bedrock geology of the Boroo area (Figures 7 a and 7 b) is dominated by thefolded Haraa sediments, (PZhr in Figure 7 a), a fairly monotonous sequence of flyschsediments consisting of siltstone, sandstone and greywacke. These rocks are ofregional extent and are interpreted to be of Late Proterozoic to Lower Paleozoic age.Intrusive rocks of the Boroo Complex, of early Paleozoic age (~520 to 450 Ma), haveintruded the sediments. In the area, the Boroo complex is represented by leucocraticgranite and granodiorite (PZgr), underlying the eastern part of Figure 7 a. Detaileddrilling around the Boroo gold deposits shows that the contact between the intrusiveand the sedimentary rocks is highly irregular, with sedimentary xenoliths floating in theintrusive rocks in the border zone. A significantly younger igneous event of probablylate Paleozoic age is restricted to narrow dikes and fissures of granitic to dioriticcomposition.

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The fault pattern, with the exception of the gold-bearing structures, is poorly known,but two crossing, high-angle, faults are indicated in Figure 7 a, one of them striking70°, the other 340°, parallel to the Highway Fault mentioned above. The trace of the340° fault, in its northern part, is directly underneath the Ikh Dashir Placer. A parallelfault is indicated on the satellite picture some 1.7 kilometres to the east(Frontispiece).

Much of the general area around the mine is covered by overburden that can reachseveral tens of metres in thickness and that consists of colluvium and loess, andminor alluvium deposited in head water drainages. The alluvial deposits can containsignificant gold placer deposits. In addition, the colluvium deriving from Zone 3 alsocontains placer resources.

Oxidation has affected the rocks in the area to a depth of 40 to 60 metres. Oxidationis accompanied by kaolinization of the feldspar crystals in the granitic rocks, but, nothaving taken place under tropical conditions, has not progressed to the formation ofa saprolite profile, with the rocks retaining most of their original strength even near-surface.

7. GOLD MINERALIZATION

Bulk-mineable gold mineralization at Boroo is controlled by a northerly trendingstructure that has been followed for a distance of three kilometres and is interpretedto be a thrust fault that is nearly flat or dips at a low angle to the west (see section inbottom part of Figure 7) that cuts across the intrusive contact between sediments andgranitic rocks in the north, but is entirely contained within the sediments in the south.The surface trace of this feature is shown as a dark black line in Figure 7 a.

There is a question as to whether there is more than one such mineralized structure,and the interpretation shown assumes that the southern zones of ore-grademineralization are actually on a second, upper thrust compared to the northern parts.However, an alternate explanation would be a cross-cutting fault with a relativelyminor vertical movement. While this question remains unresolved, some of the deepholes drilled during the DDR-MPR program have given strong indications of similarmineralized thrust structures at depth.

The main low-angle fault(s) is (are) variously altered and mineralized, and wherethese features are strongest, individual deposits are formed. These are termed, fromnorth to south, Zones 2, 3, 5 and 6. Mining has started at Zone 2 (Pit 2) and Zone 5


31

is being pre-stripped. All of the deposits are elongated in a northeasterly direction,with a length to width ratio of about two to one. Individual dimensions are:

Zone metres 2 350 x 200

3 900 x 400

5 400 x 200

6 300 x 150

Grade-thickness contours show the same overall elongation (Figure 8), probablycaused more by the width than by the gold grade, with the “stacking” of multiple,superimposed zones of alteration and mineralization responsible for the thicker parts.The thickness of the individual deposits thus varies from a few metres at the depositedges to several tens of metres and averages around 20 to 30 metres except forZones 5 and 6 that are closer to 10 metres. Figures 9 a, b and c provide sectionalviews of the three main deposits, with Zones 5 and 6 shown together in Figure 9 c.

Two main, but rather different types of alteration and mineralization have been noted:

• Gold-sulphide zones host the largest proportion of gold mineralization at Boroo.This type manifests itself as an earlier, gold-pyrite-arsenopyrite-quartz phase thatoccurs in thin, irregular veinlets, less often in breccia zones, and disseminatedwithin a pervasive zone of quartz-sericite alteration (“beresite” in the Sovietnomenclature). This earlier type is overprinted, and locally completely replaced,by a carbonate-bearing phase that is also quartz-sericite dominated and containsdisseminated sulphides. It appears that the gold in this mineralization is relativelyfine-grained. The overall intensity of the “beresite” alteration changes within theindividual mineralized zones;

• The second major gold bearing facies are massive, white quartz-sulphide veinsin which gold is commonly coarse-grained. From a volume point of view, this typeis subordinate, but can carry very high gold values of up to several hundred gramsper tonne.

The sulphide content in both types is relatively low, typically a few percent.Geochemical assay results from the BGC due diligence drilling indicates that, inkeeping with the sulphide species observed, arsenic is highly anomalous (up to21 500 ppm), but a positive correlation with gold is restricted to gold values up to

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36

about 2 g/t. Sulphur shows the same pattern, being noticeably lower in the higher goldgrade ranges. This would appear to separate the two main types ofmineralization/alteration described above. Silver values are generally low and are notobviously correlated with gold, with most samples below the detection limit of 2 g/t.Silver values can be higher in the quartz veins.

Given their very different macroscopic and geochemical character, the two types ofmineralization/alteration would also be strongly suspected to have different gold gradedistribution patterns.

The low-angle fault is often accompanied in its footwall by fine-grained, intermediateto mafic dikes termed “microdiorite”. The weight of the evidence suggests that thedikes are younger than the mineralization, which they are also seen to cross cut,albeit in patterns that are difficult to discern with the existing drill hole spacing.

It has long been recognized that the degree of oxidation is an important economicparameter at Boroo, as the gold in the fresh ore has a refractory component that limitsthe metallurgical recovery. Three facies of oxidation have been defined. All sulphidesare completely or predominantly oxidized in the oxide zone, and additionally, thefeldspars in the granitic rocks have been partly or completely altered to kaolin. In thetransition zone, kaolinization of the feldspars is partial and the original sulphidessurvive in the core of oxidized grains. This process has liberated enough of the goldthat metallurgical recoveries are nearly as high as in the overlying oxide zone. In thefresh zone, there is no discernable oxidation in the drill core or in the RC chips. Themetallurgical significance of the different weathering zones is discussed in Section15.2.

8. SAMPLING METHOD AND APPROACH

8.1 Historical Methods (pre-1997)

Nearly one-half of the current resource drill hole database is constituted by the JEholes, drilled by the DDR-MPR expeditions in the years 1981 to 1989. When BGCconducted their due diligence drilling in 1997 under the supervision of an independentAustralian consulting firm, a critical review of the DDR-MPR database and theunderlying sampling and assaying methods was also conducted, as described inWaltho, 1998. Waltho also inspected some of the DDR-MPR drill core that was then


37

“.. still in quite good condition, considering handling of core during splitting andsampling.” (Waltho 1998, page 83).

Waltho reports that the drill logs and assay ledgers were of excellent quality, anddescribes the sample protocol used that observed lithologic boundaries and identifiedsections of lost core. This latter item will be of importance when discussing the Boroograde estimation, that is to some extent dependent on how the lost-core intervals arehandled in the compositing process. We have observed copies of a few of the JE drilllogs which consist of a graphic and descriptive portion, the latter in Russian.

Nearly all of the drill core was split in two, and a one-half split submitted for assay.According to SRK 2000, most of the sampling appears to have been done by splittingrather than sawing. Full core was used for assaying in cases where the core wassmaller than 76 mm and for drill holes that were spaced so tightly that their resultswere used to estimate Soviet category B resources. Unfortunately, most of theremaining half-core is now largely lost, having been misplaced or destroyed since1997 and was not available for the Cameco due diligence study or this review, or forfuture reference.

The underground openings excavated by the DDR-MPR expeditions in Zones 3 and5 were systematically sampled on a 0.2 by 0.2-metre grid, yielding 7 kg per sampleconsisting of 20 to 25 rock pieces (Waltho, 1998).

On the basis of the evidence given by authors who had the opportunity to observe theresults of the historical methods and approach to drill core sampling, we conclude thatthe methods applied reflect historical and current industry standards, and that thereare no obvious negative issues.

8.2 AGR and BGC Methodology (from 1997)

In 1997 BGC conducted a due-diligence drilling program of nine diamond drill holes(Table 3). Drilling was performed by Vancouver-based Can-Asia Drilling Services Ltd.The holes were sampled by Australian consultants Mining and Resource Technology(MRT) personnel in Mongolia (Waltho, 1998). The core was stored at the BGCexploration camp in a locked shipping container to which only the BGC campmanager and chief geologist had access. MRT sampled the drill holes followinglithological intervals based on the BGC geological logs in a manner that providedsamples with an average down-hole length of about one metre. Whole core wassampled, and 661 samples were packed in heavy plastic bags which were sealedusing staples and a self-adhesive label that would be damaged or destroyed if anyattempt was made to open the sample bags. Bags were carefully packed into small


38

wooden crates that were nailed closed for shipment to Analabs in Townsville,Australia. All samples arrived in good condition with no evidence of tampering.

Drill core from the 28 MDD holes drilled in 1999 by AGR was shipped to Analabs inUlaanbaatar for sawing. SRK (2000 a), who were able to physically inspect much ofthe JE and later BGC drill core pronounced themselves satisfied: “In summary, coresampling is considered by SRK to be acceptable for the purpose of the project” (SRK2000 a, page 11), with the “purpose of the project” referring to the AGR feasibilitystudy.

Subsequent drilling was by the reverse circulation method only. The sample protocolused for the MRC holes in 1999 is described in SRK (2000 a). There was a first-passsample taken by scooping chips from each one-metre interval and combining intofour-metre composites. One-metre “re-samples” were taken at the same time, usingthe more conventional and more reliable Jones riffle splitter, however, these were onlysubmitted for assay if the four-metre composite “scoop” assay returned a value ofgreater than 0.2 g/t. The samples from occasional wet intervals were also taken byscoop, an unsatisfactory method. There is no record showing how many RC holeshad wet intervals, and how many such intervals are in the database.

After Cameco assumed responsibility for the project in March of 2002, the logging andsampling protocols were improved. Major changes were focussed on improvementof the sampling quality which included on-site chip tray filling, permanent geologicalcontrol and preliminary field logging. Chip trays were sent to the CGM Ulaanbaataroffice, where detailed logging took place. The geology and alteration of the cuttingswere systematically logged and recorded in digital format using the CoreViewsoftware.

This information was used to specify mineralized intervals. One-metre samples fromintervals identified as mineralized were submitted for assay directly. Two-metrecomposite samples were created and assayed as before from intervals that appearedvisually unmineralized. Where samples returned anomalous gold values, theappropriate one-metre samples were also submitted and assayed. Transport of thesamples from the field to Analabs was under the supervision of a geologist. Thereceiving officer at the laboratory certified the samples as received.

Chip trays are in locked storage at CGM’s Ulaanbaatar office; rejects and pulpscurrently are stored in locked storage in CGM’s warehouse in Ulaanbaatar.

The sample protocol for the BX and BRC holes in 2003 did not significantly differ fromthat of the previous RC drilling campaign.


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As is the case in many exploration ventures that evolve into mining projects, samplingand data recording procedures at Boroo have improved over time. However, noshortcomings of a serious nature are apparent in the past procedures that wouldcompromise the quality of the database used for mineral resource and reserveestimates for the Boroo project.

9. SAMPLE PREPARATION, ANALYSIS AND SECURITY

9.1 Historic Methods (pre -1997)

The sample preparation and analysis protocols of the DDR-MPR campaigns isdescribed in Waltho (1998) and Cameco Gold Mongolia LLC (2004 b). The samplesproduced from drill core or underground openings were submitted to the CentralLaboratory in Ulaanbaatar, a Soviet-era institution. Each sample was initially crushedto minus one millimetre and a one-kilogram split was coarse pulverized to minus 315microns (50 mesh). This material was split into two 250-gram sub-samples of whichthe first was subjected to a spectral gold analysis without further comminution. Forthis method, the pulverized sample is digested in aqua regia and the gold adsorbedby powdered activated carbon. The activated carbon is combusted in an opticalemission spectrograph using a direct current arc, and the resulting spectrum fixed onphotographic plates where the strength of the signal is compared to known goldconcentrations. This method was in wide use in the former USSR, both for gold andalso for other metals.

Samples returning elevated gold values (the threshold was variably set at 0.1 or 0.2g/t), were re-assayed using the second 250-gram split that was pulverized to minus63 microns (230 mesh) and subjected to a 50-gram fire assay with an atomicadsorption (AA) finish (Waltho, 1998, page 85). Given the secrecy surrounding anyprecious metals exploration and its results in the former USSR, there is reason tobelieve that security measures were taken to protect the samples (and the informationderived from them), although no actual information is available.

A number of trace elements were determined among them silver, arsenic, antimony,chromium, nickel, and barium.

According to Waltho (1998) and Cameco Mongolia Gold LLC (2004 b), a rigorouscheck assaying regime was maintained during the DDR-MPR programs, involving thesystematic submission of duplicate samples amounting to 5 to 10% of the totalsample stream to three outside laboratories, all of them in the former East Germany


5 Precision measures the reproducibility of assays (the percent variation at the two standard deviation (95%)confidence level), while accuracy (determined by the use of standards for which assay values are wellestablished.) can be defined as the degree to which an analysis, or the mean of a set of analyses, approachesthe “true” concentration in the sample.

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(in Halle, Stendal and Bismuth). Waltho has reviewed the results of 439 duplicateassays in 1997 and has concluded that they “...indicate excellent agreement betweenoriginal gold assay and duplicate assay.....The duplicate assay precision exceeds tenpercent for 50 percent of sample pairs.” (Waltho 1998, page 86)5.

As part of their very detailed project review in 1999, SRK (2000 a) have alsocommented on the fire assay results of the JE drill holes. They noted that the ...”fireassaying of JE holes is generally of poor precision.” and that “...the overall precisionis not adequate to enable reliable local estimation of resources for bankablefeasibility.” They also note, however, that “... there is little overall bias between originalfire assay and repeat fire assays. The issue relates to precision, not accuracy. “ Andthey finally conclude “...that area solely informed by JE holes should not beconsidered for conversion to reserves in the feasibility study, i.e. can only have thestatus of Inferred Resources. Areas with substantial modern drilling can be classifiedas Indicated. In these areas, the JE holes can be used.” (SRK 2000 a, pages 16, 17).

As part of the BGC due diligence in 1997, 254 repeat “samples collected from originalDDR-MPR expedition drill core .... by BGC geologists were also analysed at Analabs,Ulaanbaatar.” Despite a problem to exactly match the original sample intervals dueto lost core intervals that had moved, the “analysis of this data by MRT confirmed theexistence and tenor of mineralisation at Boroo. ... The work completed by MRTdemonstrates that original DDR-MPR expedition gold assays are both accurate andprecise.” (Waltho 1998, Summary, page ii).

There is a difference of opinion between Waltho (1998) and SRK (2000 a) regardingthe precision of the JE drill hole fire assay database. Having reviewed the graphs inboth reports, we do not consider the lack of precision in the JE assay data sufficientgrounds to relegate areas solely defined by JE holes to the inferred resourcecategory. In addition, the argument is now largely moot, because of the verysubstantial additional drilling that has taken place since.

There is no indication that the historical part of the Boroo assay data base is biased,but individual assay results do have a significant degree of imprecision, as a result ofthe inhomogeneous distribution of the gold in the Boroo mineralization (“nugget


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effect”). The question of the treatment of the lost core intervals in the JE holes duringcompositing is discussed in Section 10.

9.2 AGR and BGC Methodology (from 1997)

Sample preparation and assaying protocols used, and security precautions taken inthe years 1999 to 2003 are described by drill campaign (refer to Table 3).

9.2.1 1999 Drill Program

The 661 samples originating from the nine BGC due-diligence diamond drill holes in1997 (BG series) were initially analysed at Analabs in Townsville, Australia using a50-gram fire assay aliquot with an AA finish under supervision by MRT. Analabs wassubsequently certified by the Council of the National Association of TestingAuthorities, Australia, as an accredited laboratory in September of 2000, but did nothave that certification in 1997. All samples assaying greater than 4 g/t gold were re-assayed in duplicate using gravimetric and metallics screened fire assay techniquesto confirm the accuracy of fire assay data and examine the contribution of coarse goldto high grades associated with some samples.

For the 1999 program, assays were performed at Analabs in Ulaanbaatar, acommercial laboratory established by its Australian parent, that had not yet receivedcertification. The sample and assay protocol used by AGR/BGC for the 1999 MRCdrill holes (Table 3), that represent nearly one-quarter of the drill hole database forthe current resource estimate, is described and commented upon in SRK, 2000 a:

• Samples received are dried for three to four hours;

• A one-half to one-kilogram sample is riffled out for further crushing andpulverization;

• Crush the sub-sample in a jaw crusher to minus 5 mm;

• Pulverize the sub-sample to 95% passing 75 microns (200 mesh). The capacityof the pulverizer was the reason for the initial sample splitting after drying;

• A 50-gram aliquot of the pulp is fire assayed with an AA finish at all goldconcentrations.

The following observations can be made on the sample preparation and assayingprotocols for the 1999 program:

1. The initial splitting of the RC samples into sub-samples with a mass of only one-half to one kilogram before further comminution will have increased the sample


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error attached to those assay results, due to the inhomogeneous gold distributionin this style of mineralization, continuing the poor reliability of individual assays ofthe earlier drill campaigns.

2. The use of the metallics screen assay method is a more reliable method for suchmaterials, and that method could have been put to good use on the higher-gradepart of the Boroo sample population to reduce the variance of individual assayresults. The lack of a laboratory balance at Analabs to perform a gravimetric finishfor gold assays of >10 g/t is a further deficiency, one that still remains;

3. The results of internal pulp repeat assays at Analabs are graphed in SRK(2000 a), showing very good precision;

4. AGR/BGC did not add any external standards to the sample stream, a qualitycontrol and assurance measure that was standard industry practice at the time.

The sample preparation and assay protocols in place during the 1999 drill programwere less than optimal for Boroo-type gold mineralization, affecting about one-quarterof the database used in the current resource estimate. The lack of proper qualitycontrol does not mean that the resulting assay data are unreliable, but it means thatreliability cannot be documented.

Indirect evidence is, however, available as to the performance of Analabs in 1999:

1. While BGC did not submit any external standards together with the samples fromBoroo, the exploration group of CGM (and predecessor company Cascadia),undertaking work elsewhere, did. The results of the CGM quality assurance-qualitycontrol (QA/QC) measures were reviewed by Analytical Solutions (2002), whoconcluded that the results “... for standards submitted to Analabs in 1999 arebiased low ...” and that there was “... a possibility that Analabs had technicaldifficulties during this time period that could affect gold assays.” (ExecutiveSummary, first point).

2. Cameco Gold (2001) report that 657 new splits were renumbered and submittedto Analabs by BGC. The results are described as follows: “The original andduplicate assay pairs show poor reproducibility, however there is not a bias ...”(page 8). The poor reproducibility is at least in part the obvious result of the poorsample preparation protocol and the resultant increase in the sample error.Analytical Solutions (2002) conclude with respect to this set of 657 repeat assaysas follows: “For re-splits between 5 to 10 g/t Au there is no statistical significanceto the differences [i.e., there is no bias], probably due to inhomogeneity of the


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rejects with respect to gold. Samples with low gold grades (<5 g/t) show that theremay be slight statistically significant bias towards higher assays in the originalsplits compared to the re-split assays.“ (Analytical Solutions, 2002, page 11).

3. In 2002, a further 436 check assays were performed on samples from the 1999MRC drill holes. This included 338 samples collected from the coarse reject bagsstored at the Boroo site (Cameco Gold Mongolia, 2003 b). The entire content ofeach coarse reject bag was recovered, re-bagged and sent to Analabs for samplepreparation and fire assay. The original bags were rotted and open to the wind,rain and surface contamination, and it was difficult to confirm the exact samplenumbers, but they all appeared to be in the original order as laid out by BGCgeologists originally responsible for archiving the samples.

The repeat assay results show no significant differences between the means andstandard deviations between the two assay sets, but scattergrams demonstrateconsiderable differences of individual pairs, in line with earlier findings andadditionally caused by the poor condition of the samples and identificationproblems during sample retrieval.

4. Finally, 98 pulps were also recovered from storage in Ulaanbaatar and re-assayedby Analabs. Comparison between original assays and re-assays of the 98 pulpsamples shows a good correlation (R2 > 0.9) between the two sets.

As was apparent for the early (historical) assay data, that part of the Boroo assay database created in 1999 is not biased, but, as before, individual assay results have asignificant degree of imprecision, as a result of the sample preparation protocol andthe small aliquot size, particularly for high-grade samples.

9.2.2 2002 and 2003 Drill Programs

The RC holes drilled in 2002 and 2003 constitute more than 25% of the total Boroodrilling. Analabs in Ulaanbaatar was again the only practical choice for assaying of thesamples created from these drill campaigns. It appears that the sample preparationand assaying protocols were identical to those in 1999, without use of the metallicsscreen method. The limitations of the laboratory with respect to handling of larger sub-samples, and to providing a gravimetric finish for a fire assay continued. However,161 pulps from the 2002 Gatsuurt program were sent to American Assay Labs inNevada, USA where the check assays used a gravimetric finish for samples withgreater than 5 g/t gold. The results show the usual scatter of assay pairs but theaverage values were confirmed, indicating the absence of a bias.


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There was a QA/QC program directly connected with the Boroo assaying in 2002 andnot in 2003, but again there is indirect evidence as to the performance of Analabsthrough the QA/QC measures taken, more or less coincidentally, by CGM for theirexploration samples as reported in Cameco Gold Mongolia (2003) and Cameco GoldMongolia (2004 a).

In 2002, CGM used a total of 22 standards spanning the gold grade range from 0.02g/t to 25 g/t. Some of these were originally produced by Rocklabs, Auckland, NewZealand. Others were created by Shea Clark Smith Minerals Exploration &Environmental Geochemistry of Reno, Nevada by “doping” certain Rocklabs andcertain Lovstrom & Associates (Tucson, Arizona) standard reference materials withgold chloride while others were synthetically created. For the 2003 program, therewere 14 such standards with a grade range of 0.6 g/t to 21 g/t gold. In each of 2002and 2003, one of these standards was added for approximately every ten samplessubmitted. In addition, one of two commercial blanks was added at a rate of one intwenty samples. Finally, a total of 465 duplicate samples from RC holes drilled byCGM were prepared and submitted simultaneously with the original samples in 2002,and 93 drill core duplicates in 2003, a total of 558 for the two years.

The samples representing standards would have been readily apparent to thelaboratory because of their pulverized nature. However, the large number of differentgrades used, some of them quite close to each other, would have made them all butblind for the laboratory. The blanks, also pulverized, would have by-passed thecrushing and pulverizing stages in the lab and were thus of limited use as a check onthe sample preparation process.

In both of 2002 and 2003, the acceptance level for each standard used in the CGMprogram was set at ±10% of its certified value (although this rule was not universallyfollowed). On this basis, there was a 5% failure rate in 2002 (43 out of 792) and afailure rate of 9% (7 out of 80) in 2003, with no systematic preference of the failuresto occur low or high. Sample batches in which a standard failed were repeated. Theblanks had failure rates of a similar magnitude.

Overall, the QA/QC results on the CGM samples were reasonable, and provideconfidence on the accuracy of the assaying process at Analabs, even for high-gradeassays where a gravimetric finish would have been more appropriate.

The 558 re-numbered duplicate field sample assays show a fairly strong scatter, butno bias, in keeping with the earlier observation that an individual assay at Boroo has


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a significant sample error due to the nugget effect resulting from the coarse gold inthe Boroo mineralization.

9.3 Bulk Density Determination

A total of 2319 samples were collected from drill core by the DDR-MPR expedition,and another 158 from MDD holes for the purpose of specific gravity determinations.Samples consisted of meta-sedimentary rocks, granite, diorite and altered/mineralizedrocks. The DDR-MPR data were obtained using the method of total immersion ofunwrapped and unwaxed whole drill core in water and determination of the volumedisplaced. This method can be reliably translated into bulk densities only for non-porous drill core. However, the specific gravity figures will be higher than the bulkdensity where rock porosity at the surface of the core is encountered and filled withwater during the process.

The specific gravity data have been directly translated into bulk density figures. Thedatabase was large enough to allow Geostat (2003 b) to interpolate by kriging thebulk density data for the various zones of weathering in each deposit. The results aresummarized in Table 5:

Table 5 Average Bulk Densities of the Mineralization and by Weathering Zone– tonnes per cubic metre –

Zone Oxide Transition Primary Total

2 2.59 2.60 2.67 2.62

3 2.54 2.57 2.59 2.57

5 2.60 2.67 2.70 2.65

6 2.66 2.65 2.69 2.67

Total 2.56 2.59 2.62 2.59

The bulk density of 2.62 tonnes per cubic metre for the primary hard rock appearsreasonable, given the composition of this material. However, based on observationwhile at Boroo that the oxidized parts of the mineralized zone in Zone 2 are somewhatporous, and noting the very small overall difference in interpolated bulk densitybetween the oxidized and the primary mineralization, the bulk density figure of 2.56for oxidized mineralization may be too high by an unknown, but probably small factor,and the tonnage of this material would be over-estimated by the same factor. Adetailed comparison between a sizeable excavated ore volume and the corresponding


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tonnage milled is required to settle this question and to develop a better bulk densityfor the oxide zones.

9.4 Summary Comments on the Analytical and Bulk Density Databases

There are some uncertainties with the assay database created during the various drillprograms at Boroo (Table 3) that pertain mainly to the precision of the assay results,both for the early JE diamond drill holes and for the later RC holes with precisionbeing a measure of the ability of the laboratory to reproduce the same result. This islargely due to the erratic distribution of relatively coarse gold in the Boroomineralization, which in turn is evidenced by the recovery of about 50% of the gold inthe ore treated to date in the gravity circuit in the Boroo mill.

All individual assay results in the Boroo database thus appear to have a relativelylarge variance due to the sample error, and local grade estimation based on only afew assays is therefore unreliable. The application of a cut-off grade, based on assaysalone, is particularly affected by this uncertainty. The only bias identified is artificialand is caused by the insertion of 0.8 g/t gold values into the lost core intervals of theJE drill holes that will be discussed in more detail in Section 10.

Some of the later drill programs did not follow current QA/QC industry practices, andthe overall reliability of part of the assays obtained in the years 1999 to 2001 andagain in 2003 is only indirectly supported by the results of the QA/QC programsundertaken by CGM, mostly on samples from different areas, but assayed at thesame laboratory in Ulaanbaatar as was used for the Boroo program and at about thesame time. However, despite this lack of direct evidence, the indirect evidence citedearlier provides comfort that the accuracy of the analytical results throughout themany drill campaigns that used a variety of analytical laboratories for initial and checkassaying, is not compromised. There is thus no indication of any large assay bias(either low or high) in the various assay populations. Without such a bias, thevariances of the individual assay results during grade estimation on a larger scale,using many individual assays, will cancel out and will thus not impart any bias on theestimation results.

There is a possibility that the oxide tonnages (both ore and waste) in the Boroodeposits are over-estimated by a small factor owing to the translation of specificgravity data into bulk density figures, without giving adequate consideration to rockporosity.


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10. DATA VERIFICATION

10.1 General

During the AGR feasibility study of the Boroo project in 1999, the information fromsurface trenches and drill holes was entered into a computerized database. Drill collarcoordinates, assay results, and information on lithology, alteration and mineralizationwere recorded in the mine database that is used for reserve and resource estimationpurposes. These data were validated at different times, initially by MRT for BGC inearly 1998, later by BGC staff and subsequently by SRK (2000). CGM performed arigorous database evaluation in 2002/2003 and added the DDR/MPR undergroundinformation to it. The mining resources group at the Cameco head office in Saskatoonvalidated the original 0.3 g/t gold envelope and created the new 0.8 g/t gold envelope(Section 11.2). One of the results of this process was the identification of some of the1997 BG holes being unsuitable for resource estimation.

A substantial amount of additional drill data has now been created, and after thefurther considerable in-fill drilling planned for the current year, a full and completedatabase validation is required as part of a new, updated resource estimate.

Survey control of the JE drill holes was based on a considerable number oftrigonometric stations established in the area by the Soviet military. For the 1999 BGCdrill program, a new grid was surveyed by the Mongolian company Geomaster andtied to the existing trigonometric stations. At that time, two-metre contour topographicmaps of the general area, and one-metre topographic maps in areas contemplatedfor infrastructure projects were established. Drill holes in subsequent years weresurveyed by BGC personnel with audits provided by Geomaster, with furtherverification by CGM in 2002.

There are reports of periodic “wet” samples being recovered during reverse circulationdrilling. From informal accounts it is likely that the status of these samples would havebeen better characterized as damp. It has not been possible to determine wherethese samples were located, nor how many there are. This information should beassembled to aid in the determination of the water table in the pits planned for mining,and for possible exclusion of the wet portions of the affected RC holes from thedatabase because of the possibility of sample contamination.


48

10.2 Core Loss in JE Drill Holes

It has been recognized for some time that core recovery of the JE holes in themineralized zones was somewhat problematical. “High grade mineralisation isinvariably associated with poor drilling conditions. Frequent core loss is recorded inDDR-MPR expedition sampling and assay ledgers. ... Comparable levels of core losswere experienced in all BGC drill holes.” (Waltho 1998, page 73, referring to the ninedue-diligence holes). It is not clear on what observations this statement is based.However, SRK (2000 a) interviewed the chief geologist of the DDR-MPR era and weretold that core loss was greatest at the edges of the sheared zones, and that visiblegold was seen frequently in that structural position, implying that the core loss wouldlead to a systematic bias in the assay database.

Historically, there were two “mineralized envelopes” at Boroo, both based strictly ongold grade (Section 11.2). One was drawn at a grade of 0.3 g/t gold, the other at0.8 g/t. The current database used for the estimation of the Boroo mineral resourceswas changed by SRK to assign a gold value of 0.3 g/t if a missing interval falls into the0.3 g/t envelope, and to assign a value of 0.8 g/t if the missing interval falls into the0.8 g/t envelope.

Within the industry, there are several ways of dealing with the problem of core loss.The most conservative is to assign a zero value to all missing intervals. A second,less conservative, is the approach adopted at Boroo for the existing database, ofassigning a low value to all missing intervals. A third is to assign the zone averagegrade, and a fourth is to assign the average of the immediately surrounding assayintervals to the missing core, with the last two approaches giving very similar results.The procedure chosen will depend on the circumstances of each individual case.

We have undertaken a brief review of the first one-third of the JE drill holes (JE 1 to138) that provide 79 recognizable mineralized intersections totalling 1213 metres. Theupper graph in Figure 10 is a scatter plot of the average gold grades of themineralized zones in these holes, calculated using a 0.8 g/t gold grade for the lostcore intervals in one case (plotted along the horizontal axis), and using the averagegrade of the two adjacent assays in the other (plotted along the vertical axis). Theaverage grade of the 1213 metres in the database, which assigns a value of 0.8 g/tgold to lost core intervals, was 2.50 g/t gold. If one substitutes the average of theadjoining assays for the arbitrary 0.8 g/t, then the average grade increases to 2.73 g/tgold, nearly 10% higher. If one assigns a zero value to the missing intervals, theaverage grade decreases to 2.42 g/t. This study needs to be completed for the entireJE drill hole database.


49

The lost core in the mineralized zone in any hole varied from zero to a maximum of54%, averaging nearly 10%. The highest proportions of lost core occurred in near-surface intersections (lower graph in Figure 10).

Geostat International (2003 b) have studied the effect of the low grade bias of the JEdrill holes with respect to the rest of the drill hole database, and have concluded thatthere is a significant difference in JE holes 1 to 200 (a large low bias) while the laterholes numbered 200 and higher did not show such a bias. The earlier holes wouldmainly impact on Zones 2 and 3 (amounting to perhaps a 10% negative bias beyondthe regular variability of the various drill hole assay populations tested), while Zone5 is not so affected. As a result, Geostat for future mineral resource estimates, hasproposed to remove from the resource database all those JE holes numbered 1 to200 in Zones 2 and 3 that are within 15 metres of a newer drill hole.

From Figure 10 it is apparent that removing drill holes because of the date of drillingis an unsatisfactory solution to the question of what assay values to assign to intervalswhere core has been lost. The exercise of substituting neighbouring grades to lost-core intervals rather than a fixed grade should be completed for all of the JE holes todetermine whether the pattern developed from analysing assays from one-third of theholes applies to all drill holes. The grade interpolation should then be re-run withbothsets of JE data and both grade predictions used in the grade and tonnagereconciliation with the mill at the end of 2004. JE holes with particularly large amountsof lost core may then be selectively removed from the database (the outliers inFigure 10), but care should be taken that another hole with solid information isnearby.

10.3 Verification Summary

The general database underlying the current Boroo mineral resource estimate,assembled prior to 2002, has been verified several times in the past. While a fewclerical errors persist, they will not have a noticeable effect on the outcome of theestimate. The database from the drilling after 2002, including the ongoing drillprogram, will require verification prior to the next resource and reserve estimates.


50

Scattergram of Composite Gold Gades of the Mineralized Envelope

0.0

2.0

4.0

6.0

8.0

10.0

12.0

0.0 2.0 4.0 6.0 8.0 10.0 12.0

Gold grade with 0.8 g/t inserted

Gol

d gr

ade

usin

g av

erag

e of

adj

acen

t ass

ays

(g/t)

Core Loss vs. Depth of Intersection

0%

10%

20%

30%

40%

50%

60%

0 20 40 60 80 100 120 140 160

Depth of intersection

Cor

e lo

ss

Figure 10 Lost-Core Intervals in 79 JE Intersections


51

Intervals of core loss in the JE drill holes, which represent nearly one-half of thedatabase, have been assigned a 0.8 g/t gold grade. The brief study presented in thissection indicates that this approach may be unduly conservative and may understatethe resource gold grade for the Boroo deposits in a systematic fashion. The size ofthe negative bias may be in the range of 5 to 10%, but can only be quantified bycareful reconciliation of mineral reserve estimates with production data.

11. MINERAL RESOURCE MODEL

11.1 General

Section 11 provides a description of the mineral resource model. The procedures forestimating mineral reserves for the Boroo project are described in Section 12, whilea review of the mineral resource and mineral reserve estimates follows in Section 13.

As outlined in Section 5.3, the current mineral resource estimate for the Boroo projectwas undertaken by Geostat in 2003 on a database supplied by Cameco (Geostat2003 a). It was based on a total of 713 drill holes drilled from 1982 to 2002, asdetailed in Table 3 and shown in Figure 5. The resource estimate relies on a drill holespacing of 40 metres by 40 metres, but a few areas have poorer coverage, such asmuch of the northern part of Zone 5, most of Zone 6 and the down-dip portions ofZones 2 and 3. The substantial in-fill drilling shown in Figure 5 has yet to beincorporated into an updated resource model, but alleviates some of the lack of drillhole coverage, mostly near-surface. Additional RC and diamond drilling is planned for2004 to improve the coverage (92 holes with 12 400 metres), with a completion dateof August, 2004 (Bradley, 2004).

11.2 Mineralized Envelopes

Geostat were given two “mineralized envelopes”, an outer envelope using a 0.3 g/tgold grade developed by SRK, and an inner envelope using a 0.8 g/t gold gradedeveloped by Cameco. It appears that no other information but the gold grade wasused to define the two envelopes, with the inner envelope being used as a guide todefine “ore” for the resource estimation process. Geostat have changed the outlinesof the 0.8 g/t gold envelope to some extent, by excluding a few isolated intersections,and have otherwise ignored the outer envelope. The total volume included within theadopted inner mineralized envelope is just over 10 million cubic metres.

As described in Section 7, the two types of mineralization/alteration (“beresite” andquartz veins), with their suspected divergent gold grade distributions, should normally


52

be correlated and estimated independently, including the separate evaluation of thegold grade statistics. The geological sections observed in the CGM exploration officein Ulaanbaatar have the thicker veins clearly marked, and in addition classify theberesite intensity as strong, intermediate or weak. None of this information has beenincluded in the geological modelling of the deposit. All of the gold grade statistics,capping levels and variography results of the current resource estimate are thusbased on what may be a mix of two or more distinct gold grade populations.

A greater effort should be made to develop a geological model to serve as the basisfor the resource estimation process. Besides giving more credence to the resultingmineralization envelope, the geological model would provide two or more sub-unitswithin the overall envelope which would be expected to show different gold gradedistributions and which could then be evaluated separately with respect to thestatistical treatment of their assay data.

Geostat used a drill oxidation file supplied by Cameco and a contact surface file bySRK to model the oxide/transition and the transition/fresh surfaces. Of the 10 millioncubic metres within the 0.8 g/t gold envelope, one-quarter is in the oxide zone, nearly40% is in the transition zone, and one-third is designated fresh or primary rock.

11.3 Estimation Procedures and Parameters

11.3.1 Bulk Density Model

A bulk density model for the Boroo project was built by Geostat using nearly 2000actual core measurements. After producing correlograms (a variety of the variogram),the density data were kriged using a search ellipsoid of 100 by 100 by 50 metres.Comments on a possible small high bias for the bulk density data within the oxidezone were made in Section 9.3.

11.3.2 Assay Capping

Geostat (2003 a) evaluated the Boroo assay database above 1.2 g/t gold, the cut-offgrade used for the resource estimate, within the 0.8 g/t mineralized envelope todetermine the appropriate level to which high, outlier gold assays should be cut back(capping) to restrict their influence. Cumulative frequency plots were used todetermine natural “breaks” in the assay populations. In addition, a percentile-basedstatistical approach was taken that examines the contribution that individual highassays make to the gold content of the deposit compared to their tonnage contributionand sets an upper, acceptable limit of ten times for this value. The two methods


53

together have resulted in Geostat proposing the following capping levels for Boroogold assays:

Table 6 Capping Levels on Individual AssaysZone No. of Assays Capping Level (g/t) Percentile Gold Removed

2 1 200 35 99.6 2.3%

3 2 621 45 98.7 9.1%

5 727 70 98.6 3.2%

6 297 45 98.6 4.9%

In the absence of mill production or reliable bulk sampling data, the determination ofgold capping levels is an inexact process. From a purely statistical point of view, thecapping levels arrived at by Geostat are reasonable. However, as noted in thepreceding section, the assay statistics probably incorporate data from more than onenatural gold assay population. For the next resource estimation, this exercise shouldthus be repeated for each of the populations separately. There will then be asubstantial sample from Zone 2 that will have been mined and milled, that can beused as a test case as to the reasonableness of the gold capping level for thatdeposit.

Geostat (2003 a) use a gold capping level of 30 g/t for all assays that are outside ofthe 0.8 g/t mineralized envelope, which thus applies to the inferred resources.

11.3.3 Compositing

Following adjustments for the high outlier gold values, the assays were bench-composited, with the bench height set at 2.5 metres, the actual mining dimension.This is a safeguard against the inclusion of an insufficient amount of dilution duringcompositing. Provisions were taken that incomplete composites would be maintainedas is (if they were larger than one metre) or merged with an adjoining benchcomposite (if they were shorter). The compositing started and stopped at the zoneboundaries, i.e., the process did not add dilution or remove any of the mineralization.

An initial grade-tonnage curve for each of the Boroo mineralized zones was createdfrom the capped composites that were declustered or not, using whichever resultedin the lower mean gold grade. Of the total tonnage within the mineralized envelopes(some 25.9 million tonnes with an average gold grade of 2.1 g/t gold), about 12.1million tonnes (48%) with an average gold grade of 3.8 g/t were above the cut-offgrade of 1.2 g/t. This would be considered the best possible result, assuming no


6 Because of the dip of about 20° in Zone 2, the horizontal actually moves from the footwall to the hangingwall of the zone and thus incorporates a degree of “vertical”. The “horizontal” search in the next resourceestimate should be inclined into the plane of the mineralization. The other zones are sufficiently horizontaland do not require this adjustment.

54

internal or external dilution, perfect selectivity during mining, and no sample error onindividual assays.

11.3.4 Variography

The grade continuity of the bench composites was tested with correlograms, showingthe decrease of the coefficient of correlation between bench composites withincreasing distance. The correlograms were constructed in the four principalhorizontal6 directions (N-S, NE-SW, E-W, NE-SW) and the vertical. The nugget effectfor all zones and in all directions is modest at 35%, a first spherical range in thehorizontal is typically isotropic, i.e., there is no preferred direction, and clusters from25 to 30 metres except for Zone 5 where it is about one-half of that number. Zone 2is somewhat anisotropic with better continuity northeast-southwest than in the otherdirections. The first spherical range in the vertical is generally around 10 metres. Thesecond spherical component represents 15% of the variability and has horizontalranges of 60 to 80 metres.

The results of the variography would appear to confirm the observation that thepronounced elongation apparent in the grade-thickness contours (Figure 9) is mainlycaused by the thickness variations.

11.3.5 Grade Interpolation

The capped bench composites were used to interpolate the gold grade into the blocksof the block model by ordinary kriging, using the variography models described earlier.Kriging was completed in three steps, each step using a larger search ellipsoid. Aminimum of three composites in three different octants was generally required for asuccessful grade interpolation. Because nearly all of the blocks had been estimatedafter the second step, only the first two passes are summarized in Table 7.


55

Table 7 Grade Interpolation Parameters

First-Pass Search Ellipsoid (metres) Second-Pass Search Ellipsoid (metres)

Zone NE-SW NW-SE Vertical Blocks estimated NE-SW NW-SE Vertical Blocks estimated

2 25 15 12 37% 60 40 20 99%

3 30 30 8 70% 80 80 15 100%

5 60 60 6 88% 120 120 12 97%

6 30 30 8 57% 80 80 15 100%

The search distances closely match the variogram ranges except for Zone 5 wherea range of 15 x 15 x 3 metres would not have allowed successful grade interpolationsatisfying the criteria for minimum number of composites per octant. This reflects thelack of drill hole coverage in parts of Zone 5.

11.3.6 Developing a Realistic Grade-Tonnage Curve and Dilution Factors

The results of the grade interpolation by kriging were adjusted three times, as follows:

1. The over-smoothed kriged gold grades need to be adjusted to the steeper grade-tonnage curve of the actual block dimensions. This “change of support” wasaccomplished by first simulating likely bench composite grades on a very fine gridof 1 x 1 metre and then to calculate the grade of 5 x 5 metre areas from theresults.

2. The next step was to take into account the “information effect”, the future dataavailable to the grade control geologist. This supposed a blasthole pattern of 5 x 5metres and assigned a sample error of 30% by increasing the variability of thesimulation results. With actual operating experience, the sample error assignedto the blasthole results should be reviewed for the next resource estimate.

3. The final step was to take into account what is called “contact dilution” in Geostat,2003 a. This was set at one metre on each contact over which distance the blockabove cut-off grade (1.2 g/t) is diluted to the grade of the neighbouring low-gradeblock.

The individual steps are shown in Table 8 which summarizes Table 9 in Geostat,2003 a. The final result is a theoretical diluted tonnage of 13.9 million tonnes with anaverage grade of 3.1 g/t gold. The overall tonnage dilution, compared to the initialgrade-tonnage curve for the capped composites, is 15%, the gold grade is reducedby 18%, and the contained gold by 5%.


56

Table 8 Development of Dilution Factors*- thousands of tonnes of ore and of contained ounces of gold -

Zone 2 Zone 3 Zone 5 Zone 6 All Zones

Ore Gold Ore Gold Ore Gold Ore Gold Ore Contained Gold

tonnes g/t tonnes tonnes g/t tonnes tonnes g/t tonnes tonnes g/t tonnes tonnes g/t tonnesounces(000s)

No Cut-off Grade 4 742 1.7 8.2 17 265 1.9 32.1 2 294 4.4 10.2 1 615 2.2 3.5 25 916 2.1 53.9 1 750

1.2 g/t Cut-off on Bench Composites 2 033 3.3 6.6 7 527 3.5 26.3 1 642 5.9 9.7 882 3.4 3.0 12 084 3.8 45.6 1 477

1.2 g/t Cut-off on Blocks 2 569 2.6 6.7 8 530 3.1 26.3 1 954 5.1 9.9 1 047 2.9 3.0 14 101 3.3 45.9 1 496

After Information Effect 2 523 2.5 6.3 8 430 3.0 25.3 1 938 5.0 9.7 1 028 2.9 3.0 13 920 3.2 44.3 1 432

After Contact Dilution 2 523 2.4 6.0 8 430 2.9 24.6 1 938 5.0 9.7 1 028 2.8 2.9 13 920 3.1 43.2 1 388

Overall Dilution 24% -27% -9% 12% -17% -6% 18% -15% 0% 17% -18% -3% 15% -18% -5%

* From Geostat (2003 a).

The overall dilution is calculated on the basis of the 1.2 g/t gold cut-off on bench composites (line 2).


57

The grade-tonnage curve for 5 x 5 metre blocks that result from these three steps isused as a target for the grade-tonnage curve of the final, diluted resource model. Thecomparison of the theoretical and actual model tonnages above cut-off, and theiraverage gold grades, are reasonably close, as shown in Table 9.

Table 9 Simulated Composites and Kriged Blocks Above 1.2 g/t Cut-off Grade

ZoneTonnage at Zero

Cut-off Grade000's

Target Results Final Kriged Blocks

Percent AboveCut-off Grade

Mean Gradegold g/t

Percent AboveCut-off Grade

Tonnes000's

Mean Gradegold g/t

2 4 742 53.2 2.39 50.7 2 398 2.50

3 17 265 48.8 2.92 47.4 8 175 3.00

5 2 294 84.5 4.98 84.9 1 947 5.00

6 1 615 63.7 2.83 63.4 1 020 2.85

Total 25 916 53.7 3.10 52.3 13 540 3.19

The approach taken by Geostat is prudent as it attempts to provide a fully dilutedblock model for pit optimization and pit planning. Mining experience will determine thevalidity of the magnitude of the assumptions made in implementing the variousadjustments. Comments on the possible accuracy of the mineral resource estimateare offered in Section 13.1. Block model cross- sections, the same as used earlierfor the geology (Figure 9), are shown in Figures 11 a to c.

11.4 Resource Classification

The classification of mineral resources as required by NI 43- 101 is spelled out in theCanadian Institute of Mining, Metallurgy and Petroleum (CIM) Resource and ReserveDefinitions, that read in part as follows:

A ‘Measured Mineral Resource’ is that part of a Mineral Resource for whichquantity, grade or quality, densities, shape, and physical characteristics are sowell established that it can be estimated with confidence sufficient to allow theappropriate application of technical and economic parameters, to supportproduction planning and evaluation of the economic viability of the deposit.

-

-

-

-

--

--

-

-

-

-

BR

C00086

BR

C00085

BR

C00084

BR

C00083

MR

C269

MR

C268

MR

C267

MR

C020

JE

101

JE

053

JE

052

JE

050

JE

023

JE

014

JE

004

JE

003

950m. elev.





7100m.E7000m.E6900m.E6800m.E

Surface

Top ofFresh Rock

0.8g/t AuEnvelope

Base ofOxide

ULTIMATE PITDESIGN


MRC158

Legend:

Drillhole trace

Grade histogram

Drillhole number

Drillhole collar

Top of fresh rock

Base of oxideLess than 1.2g/t Au

5.0 - 9.9g/t Au

Greater than 10.0g/t Au

1.2 - 4.9g/t Au

Resource Blocks

1.2 - 4.9g/t Au


5.0 - 9.9g/t Au

Less than 1.2g/t Au

Grade Histogram Drillhole

10g/t Au

50


Scale 1:1,250

0 10 50

Metres

Map Source: Resource blocks and drillhole contents from Centerra Gold Inc.

TITLE


TORONTO - CANADA

File:


H.T.

04Sect14120N_blk.cdr Figure 11a

March 2004DATE



CLIENT

Block Model SectionZone 2

(Looking North)

-

-

-

-

-

-

-

-

-

-

-

-

--

--

MR

C335

MR

C330

MR

C141

MR

C140

MR

C136

MR

C09

0

MR

C050

MR

C049

MR

C048

MR

C047

MR

C046

MR

C045

JE

091


1050m. elev.

1100m. elev.


1100m. elev.

1050m. elev.

7000m.E6900m.E6800m.E6700m.E6600m.E

ULTIMATE PITDESIGN

Surface

Base ofOxide

Top ofFresh Rock

0.8g/t AuEnvelope

Scale 1:1,250

0 10 50

Metres

MRC158

Legend:

Drillhole trace

Grade histogram

Drillhole number

Drillhole collar

Top of fresh rock


5.0 - 9.9g/t Au


1.2 - 4.9g/t Au

Resource Blocks

1.2 - 4.9g/t Au


5.0 - 9.9g/t Au

Less than 1.2g/t Au


10g/t Au

50



TITLE


TORONTO - CANADA

File:


H.T.

04Sect13360N_blk.cdr Figure 11b

March 2004DATE



CLIENT


(Looking North)

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

--

--

BR

C00250

BR

C00042

BR

C00041

MR

C159

MR

C158

MR

C154

MR

C149

MR

C147

MR

C146

MR

C124

MR

C11

5

MR

C11

4

MR

C11

2

MR

C108

MR

C107

MD

D07

JE

346

JE

322

JE

211

1100m. elev.

1150m. elev.

1200m. elev.

1250m. elev.

1100m. elev.

1250m. elev.

1200m. elev.

1150m. elev.

6600m.E6500m.E6400m.E6300m.E

ULTIMATE PITDESIGN


Surface

Base ofOxide

Base ofOverburden

Top ofFresh Rock

0.8g/t AuEnvelope

MRC158

Legend:

Drillhole trace

Grade histogram

Drillhole number

Drillhole collar

Top of fresh rock


5.0 - 9.9g/t Au


1.2 - 4.9g/t Au

Resource Blocks

1.2 - 4.9g/t Au


5.0 - 9.9g/t Au

Less than 1.2g/t Au


10g/t Au

50


Scale 1:1,250

0 10 50

Metres


TITLE


TORONTO - CANADA

File:


H.T.

04Sect12680N_blk.cdr Figure 11c

March 2004DATE



CLIENT


(Looking North)


61

An ‘Indicated Mineral Resource’ is that part of a Mineral Resource for whichquantity and grade or quality, densities, shape, and physical characteristics canbe estimated with a level of confidence sufficient to allow the appropriateapplication of technical and economic parameters, to support mine planning andevaluation of the economic viability of the deposit.

An ‘Inferred Mineral Resource’ is that part of a Mineral Resource for whichquantity and grade or quality can be estimated on the basis of geological evidenceand limited sampling and reasonably assumed, but not verified, geological andgrade continuity.

In somewhat re-defining the boundaries of the mineralized envelopes, Geostat(2003 a) have excluded areas with a drill hole spacing of more than 40 metres fromthe envelopes. Statistics provided in their report show that between one-half and two-thirds of all resource blocks are within 15 metres of a composite, and that more than90% of all resource blocks are within 25 metres of a composite. On this basis Geostat(2003 a) conclude that all of the mineral resources summarized in Table 9 can beclassified as indicated.

We agree that the classification by Geostat is, for the most part, in accord with thesereporting standards, with the following annotations:

1. Geostat (2003 a) includes in the indicated resources in the northern part of Zone5, an area that contains 6.5% of the gold content of this zone but which has a verywide drill hole spacing. Because the resources in this area have excellent grade,this area has an important effect on the configuration of Pit 5. This area couldhave been placed in the inferred resources category pending in-fill drillingrecommended by Geostat and planned for 2004.

2. Geostat (2003 a) has properly assigned the inferred category to resource blocksthat fall outside of the 0.8 g/t gold mineralized envelopes but satisfy the cut-offgrade of 1.2 g/t. These blocks have remained undiluted and were estimated usingthe nearest-neighbour grade interpolation with a search radius limited to 20metres. The blocks total almost 0.9 million tonnes at an average gold grade of 3.0g/t and represent some of the exploration potential of the Boroo project in theimmediate vicinity of the planned open pits.

3. Geostat has also placed in the inferred resource classification those gold ouncesthat were removed from the assay population by the process of capping, whichamounts to nearly 100 000 ounces. We do not agree with this treatment of the“surplus” gold, as the capping is done to limit the undue influence of high values,


62

a process that is standard in most other gold mines. Only a comprehensive mine-mill reconciliation will show whether the capping levels need to be adjusted, andthat might result in an adjustment either up or down. Centerra does not publishthese inferred resources “created” by the capping process.

12. MINERAL RESERVES AS OF DECEMBER 31, 2003

The CIM Reserve Definitions required by NI 43-101 read in part as follows:

A ‘Mineral Reserve’ is the economically mineable part of a Measured or IndicatedMineral Resource demonstrated by at least a Preliminary Feasibility Study. ThisStudy must include adequate information on mining, processing, metallurgical,economic and other relevant factors that demonstrate, at the time of reporting, thateconomic extraction can be justified. A Mineral Reserve includes diluting materialsand allowances for losses that may occur when the material is mined.

A ‘Probable Mineral Reserve’ is the economically mineable part of an Indicated,and in some circumstances a Measured Mineral Resource demonstrated by atleast a Preliminary Feasibility Study. This Study must include adequateinformation on mining, processing, metallurgical, economic, and other relevantfactors that demonstrate, at the time of reporting, that economic extraction can bejustified.

A ‘Proven Mineral Reserve’ is the economically mineable part of a MeasuredMineral Resource demonstrated by at least a Preliminary Feasibility Study. ThisStudy must include adequate information on mining, processing, metallurgical,economic, and other relevant factors that demonstrate, at the time of reporting,that economic extraction is justified.

12.1 Procedures and Parameters

Mineral reserves are that part of a mineral resource that can be profitably mined givena specific set of technical and economic parameters. These include the gold price,mine and mill operating costs, metallurgical recovery, the forecast geotechnicalbehaviour of the rocks in the future pit walls, and equipment size parameters.Computer software “optimizes” the resource model of the deposit by interrogatingeach block of the block model as to its ability to pay its own way plus the incrementaltonnage of waste that must be removed to mine the block. This process results in oneor more “pit shells” which recover the economic part of the mineral resources and


63

which are then engineered in detail by adding ramps for mining access and bysmoothing of the pit walls.

The current open-pit design for each zone was engineered by Boroo mine staff basedon the Geostat resource model. The final pit shells were passed back to Geostat(Geostat 2003 a) who then produced mineral reserves for each zone. Mine planningand scheduling resulting in the current life-of-mine (LOM) plan are based on thisestimate and were undertaken by Boroo staff. The main economic parameters for thispit design (Boroo Gold Company, 2003 a) are summarized and compared to the 2004budget figures in Table 10. The 2004 budget figures are based on an improvedunderstanding of the overall scope of the project, and on limited actual operatingexperience.

Table 10 Boroo Pit Design Parameters

2004 LOM Plan Pit Optimization

Gold Price per ounce $375 $325

royalty 2.5% 2.5%

Operating Costs

Mine per tonne ore mined $0.76 $1.16

per tonne waste mined $0.76 $1.16

Mill per tonne milled $7.53 $7.60

General & Admin. per tonne milled $4.67 $2.72

Haulage Ramps width (metres) 20 reducing to 13 metres

grade 10%

Minimum Mining Width 25 metres (E–W) and 35 metres (N–S)

Metallurgical Oxidized ore 95.0%

Recoveries Transition ore 90.5%

Fresh ore 77.0%

The operating cost parameters in the 2004 budget, with the exception of the millingcosts, are quite different from the pit optimization assumptions. The budgeted mineoperating costs are lower than had been assumed while the general andadministration costs in the 2004 budget are substantially increased compared to costsused in the pit design.


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Comparative optimization results at gold prices of $400 per ounce and $250 perounce show that Zones 2 and 3 are sensitive to a lower gold price, while the high-grade Zone 5 is relatively insensitive.

12.2 Open Pit Design

All of the open pits designed for the Boroo mineralized zones (Figure 12) will berelatively shallow, with a maximum depth of 130 metres below the original surface.

Geotechnical wall design parameters were developed at the time of the initial AGRfeasibility study (C. M. Orr, 1999). Rock conditions are described as generally “good”in the intrusive rocks and “fair” in the sediments. The pits are simple, shallow and thedesign used a recommended face bench angle of 60° with catch berms ranging inwidth from three to five metres. The bench heights are from five to ten metres. All ofthe pits will be asymmetrical, with a highwall where each deposit dips underneath theoverlying topography, while ramp access is maintained on the up-dip side. Theultimate pit outlines in section are shown in Figures 11 a to c.

The overall pit wall angle in the lower parts of the highwalls for each zone is 43°, withthe upper, near-surface parts of the highwalls being generally flatter. Berms are fromthree to five metres wide which, given the short pit lives, is judged to be sufficient tocatch loose rocks from the upper parts of the pits. This may become a temporaryissue for the highwall of the pit for Zone 5 where the steeply dipping sediments maybe subject to ravelling as a result of the thaw-and-freeze cycle.

Compared to the original pit shells produced by the pit optimization, the final designedBoroo pits recover essentially the same amount of ore but mine 10% more tonnage,increasing the overall strip ratio from 3.6 to 4.1.

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Map Source: Pit and infrastructure information from Centerra Gold Inc.

Ultimate pit design

Actual pit (December 31, 2003)


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7 There are very slight differences between the Geostat and the Boroo mineral reserve figures due to thedifferent software used. They amount to a variance of 8000 tonnes and 3000 ounces, with the mine figuresbeing higher.

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12.3 Boroo Mineral Reserve Estimate

The estimate of the Boroo mineral reserves at a gold price of $325 per ounce andavailable for mining as of December 31, 2003 is based on the initial estimate byGeostat (2003 a) adjusted for the initial production in the last few weeks of 20037.Table 11 summarizes the figures by mineralized zone and by weathering regime:

Table 11 Boroo Mineral Reserves at December 31, 2003

Category Tonnes000's

Percent%

Goldg/t

Contained GoldOunces Tonnes

000's

By Mineralized Zone

ProvenStockpiles 33 – 4.2 4 0.1

ProbableZone 2 1 667 16 2.8 149 4.6Zone 3 6 478 64 3.3 683 21.2

Zone 5 1 572 15 5.3 268 8.3

Zone 6 419 4 4.0 54 1.7

Total Mineral Reserve 10 169 100 3.5 1 158 36.0

By Weathering Regime

Proven & ProbableOxide 4 007 39 3.7 479 14.9

Transitional 4 550 45 3.5 516 16.1

Fresh 1 612 16 3.1 162 5.0

Total Mineral Reserve 10 169 100 3.5 1 158 36.0

Waste

Sub-grade 931 1.1 33 1.0

Waste 38 651

Total Waste 39 582 Strip Ratio 3.9

Note: Totals may not calculate exactly because of rounding

The mineral reserves are reported at incremental cut-off grades that take into accountthe changes in metallurgical recovery with the degree of oxidation, calculated at 1.10g/t gold for oxide ore (0.9 g/t for oxide sub-grade), 1.15 g/t for transitional ore (0.95


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g/t) and 1.35 g/t (1.1 g/t) for fresh ore. These figures were recently reviewed due tothe increase in general and administration costs (Table 10) (Boroo Gold Company2003 d). The study concludes that a value of 1.2 g/t gold be used for both oxide andtransition ore for the daily grade control. Given the sharp ore/waste contacts in Zone 2currently being mined, this change will have little impact.

12.4 Mineral Reserve Classification

In accordance with the classification of the resources by Geostat (2003 a), all of thein-situ reserves of the Boroo project as summarized in Table 11 are classified asprobable. The small tonnage in the 2003 year-end stockpile is in the proven category.The mineral reserve classifications are appropriate.

12.5 Life-Of-Mine (LOM) Plan

Based on the estimate of probable mineral reserves as of December 31, 2003(Table 11) adjusted for 2004 first quarter production, BGC staff have developed aLOM plan that is summarized in Table 12. A substantial amount of pre-stripping ofall pits except for Zone 2 is required which means that the strip ratio remains higherthan the LOM average of 3.9 until 2007. The amount of gold produced assumes millgold recoveries of 95%, 90.5% and 77% for oxide, transition and fresh ore,respectively, as described in more detail in Section 15.2.

A total of nearly one million tonnes of sub-grade mineralization with an anticipatedaverage grade of 1.1 g/t gold will be accumulated in a separate stockpile. While thismaterial is currently counted as waste, the economic conditions at the end of the minelife will determine whether it can be processed with an economic benefit.

Mining activities at Boroo were initiated in the second half of 2003, and 3.6 milliontonnes of waste were mined during 2003, along with initial oxide ore from Zone 2.Milling operations commenced in November with 113 000 tonnes of ore being milledby year-end during the commissioning period including 18 000 tonnes of sub-gradematerial. The ore grade was 2.9 g/t with gold recovery of 97% during that start-upperiod and reflects the oxidized nature of the near-surface ore allowing for good goldrecovery in a simple process circuit with one-half of the gold being recovered in thegravity circuit. Metallurgical recovery of gold was 10 400 ounces with 4300 ouncesproduced as doré and the balance retained in process circuits. Mine and millproduction for 2003 is not included in Table 12.


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Table 12 Boroo Life-Of-Mine Plan and Production Forecast-thousands of tonnes of ore and waste and ounces of gold-

2004 2005 2006 2007 2008 2009 LOM

Tonnes Au Tonnes Au Tonnes Au Tonnes Au Tonnes Au Tonnes Au Tonnes Au

(g/t) (g/t) (g/t) (g/t) (g/t) (g/t) (g/t)

Pit 2 Oxide 451 3.3 39 2.6 490 3.2

Transition 360 3.2 470 2.5 830 2.8

Fresh 1 1.7 364 3.1 365 3.1

Waste 1 975 446 2 422

Pit 3 Oxide 71 2.5 811 3.6 899 3.2 448 3.6 341 4.7 56 2.9 2 626 3.5

Transition 45 3.1 320 2.8 715 3.1 1 099 3.4 697 3.2 2 874 3.2

Fresh 127 2.6 247 2.9 603 2.8 978 2.8

Waste 384 5 314 7 124 7 117 3 692 1 058 24 688

Pit 5 Oxide 630 5.3 116 3.1 746 5.0

Transition 110 5.7 332 5.0 118 9.5 560 6.1

Fresh 243 4.3 24 4.7 266 4.3

Waste 7 255 2 433 105 9 794

Pit 6 Oxide 109 4.4 21 5.3 130 4.5

Transition 29 6.7 258 3.4 287 3.8

Fresh 3 1.5 3 1.5

Waste 1 441 306 1 747

Total Oxide 1 261 4.3 947 3.6 938 3.1 448 3.6 341 4.7 56 2.9 3 992 3.8

Transition 498 3.9 635 4.2 908 3.5 715 3.1 1 099 3.4 697 3.2 4 551 3.5

Fresh 1 1.7 245 4.3 388 3.2 127 2.6 247 2.9 603 2.8 1 612 3.1

Total Ore 1 760 4.2 1 827 3.9 2 233 3.3 1 291 3.2 1 687 3.6 1 356 3.0 10 154 3.6

Sub-grade 39 1.0 169 1.1 182 1.1 151 1.1 210 1.1 180 1.1 931 1.1

Waste 11 056 8 053 7 675 7 117 3 692 1 058 38 651

Total Waste 11 095 8 222 7 857 7 268 3 902 1 238 39 582

Waste–to–ore Ratio 6.3 4.5 3.5 5.6 2.3 0.9 3.9

Stockpile

Changes

Oxide 36 4.0 68 2.4 299 3.1 -415 3.1 - -24 2.9 -37

Transition 1 1.2 7 3.1 184 2.8 -44 3.4 -60 3.4 -88 3.5 0

Fresh 1 1.7 3 1.5 - - -4 1.6 - 0

Total 37 3.9 77 2.5 483 3.0 -459 3.3 -63 3.3 -113 3.4 -37

Mill Feed Oxide 1 226 4.4 880 3.6 639 3.1 863 3.4 341 4.7 81 2.9 4 029 3.8

Transitional 497 3.9 628 4.2 723 3.7 759 3.1 1 159 3.4 785 3.3 4 551 3.5

Fresh - 243 4.3 388 3.2 127 2.6 251 2.9 603 2.8 1 612 3.1

Total 1 723 4.2 1 750 3.9 1 750 3.4 1 750 3.3 1 750 3.6 1 469 3.1 10 191 3.6

Average Recovery 93.8% 90.6% 89.2% 92.1% 90.1% 85.7% 90.6%

GoldRecovered

Ounces 220 201 170 168 180 124 1 064

Tonnes 6.8 6.3 5.3 5.2 5.6 3.9 33.1


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13. COMMENTS ON THE BOROO RESOURCE AND RESERVE ESTIMATES

A summary of observations with respect to the accuracy of the existing estimates ofthe Boroo mineral resources and mineral reserves is provided in this section, alongwith a forward look to the updating of these estimates later in 2004.

13.1 Accuracy of the Current Resource and Reserve Estimates

13.1.1 Database

The uncertainties in the Boroo assay database, which could have some impact, eitherpositive or negative, on the projected mine production versus mineral reserveestimates, have been noted in Sections 9.4 and 10.3 and may be evaluated asfollows:

1. Individual assay results have poor precision or high variance due to the erraticdistribution of relatively coarse gold in the Boroo mineralization. This variancecould have been reduced using larger samples and screen metallics assays onhigher-grade samples. The main effect is to make local gold grade estimationbased on only a few assays unreliable. However, there is no effect on theresource grade estimate, as the individual variances during gold grade estimationusing many individual assays should be offsetting;

2. There is a lack of QA/QC as now practised affecting the assay database createdprior to 2001. A rigorous check assaying program is reported from the JE holesdrilled during the DDR/MPR period, 1982 to 1988 (Table 3). Only indirectevidence exists for the reliability of the 1999 AGR assay results in the form ofquality control programs undertaken coincidentally at the same laboratory by CGMon samples from other programs, and by a certain amount of check assaying atindependent laboratories. The available information does not suggest that theaccuracy of the assay results is in doubt.

3. There is a low bias for the calculated grade of some samples from the original JEdrill holes (Table 3) as the result of the preferential loss of gold in intervals with nocore recovery, as discussed in Section 10. This could result in the current goldgrade estimate also being biased low as is currently being experienced with orefrom Pit 2 (Section 13.1.5) . Geostat (2003 b) came to the conclusion that Zone2 in particular, and Zone 3 to a lesser extent, will show an increased gold gradeas a result of the detailed in-fill drilling (Figure 5). Conversely, the in-fill drilling inthe near-surface part of Zone 5 has resulted in a small loss of grade, accordingto Geostat (2003 b).


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4. The oxide tonnages (both ore and waste) in the Boroo deposits may be over-estimated by a small factor due to a possible small reduction in the bulk density,as discussed in Section 10.3 but this problem would not have a significant effecton mineral reserve tonnages.

13.1.2 Grade Estimation Methodology

The data presented in the lower part of Table 4 show that the 2002 SRK mineralreserve estimate, and the 2003 Cameco and Geostat estimates, have resulted indivergent grade and tonnage predictions that reflect mainly the different treatment ofthe same database during grade estimation, including the treatment of high outlierassay values and the amount of dilution included in the model. The Geostat andCameco estimates appear more reasonable and defensible than the SRK estimate.Resource Service Group has commented on the SRK methodology (used also for anearlier SRK estimate for Boroo) as follows: “RSG considers the resource modelscompiled by SRK overstate the likely recovered grade but conversely understate thepotential tonnes available, with the overall recovered metal being similar.” (ResourceService Group (2001), page 3). We agree with this assessment.

13.1.3 Data Density

As noted in Table 3, a significant amount of drill hole data was created after thecurrent resource model was produced, and the in-fill program is ongoing. A non-quantitative review suggests that the drill hole results not yet incorporated into theresource database appear to corroborate the resources, and maybe expand them, aswill be discussed in Section 14.1.

In the northern part of Zone 5 the drill hole spacing is quite open, and there are a fewbenches where projected gold grades are considerably higher than the drill holecomposite grades which are overwhelmed by high-grade information from other drillholes. This area may show a loss of gold grade upon in-fill drilling, affecting perhapsone or two percent of the total contained gold at Boroo.

13.1.4 Economic Factors

Some of the economic factors such as the gold price, and some of the unit operatingcosts used for the pit optimization process (Section 12.2), are now out of date. Thedatabase for the prediction of the metallurgical gold recovery in the freshmineralization (14% of the total contained gold in the current mineral reserveestimate) is small and the results are quite variable, so that the gold recovery factorof 77% used for the pit optimization is not well documented and based on test data.


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13.1.5 Actual Performance and Conclusions

The resource and reserve estimation approach adopted by Geostat (2003 a) isreasonable and realistic. The accuracy of the Boroo reserve estimate can beassessed on the careful reconciliation between mineral reserves and mill production.Because of the short operating history, no firm judgment is as yet possible, but theinitial results in Zone 2 are encouraging, as summarized in Table 13 for the period ofproject inception in November 2003 to the end of March 2004.

Table 13 Zone 2 Reconciliation as of March 31, 2004

Ore Sub-grade Waste Total

Tonnes Gold (g/t) Gold (oz) Tonnes Gold (g/t) Tonnes Tonnes

Mined 575 500 4.26 78 800 63 300 0.84 6 396 200 7 035 000

Block Model 635 200 2.73 55 800 19 600 1.01 6 606 000 7 260 800

Milled 493 300 4.19 66 500 19 200 0.45

Stockpiles 102 300 4.18 13 700

Total Ore 595 600 4.19 80 200

Note that mined figures are by survey for tonnes and from blasthole assays for goldgrades. The waste mined includes Pit 5.

There was a small shortfall in tonnage mined versus the block model estimate (3%for waste and 7% for ore), but a very significant increase in gold grade by some 50%,compared to the grades predicted by the block model, and the contained ounces ofgold were more than 40% higher than forecast. The trend, if not the extent of thegrade difference, was predicted by the Geostat (2003 b) study on the influence of thelost core intervals in the JE holes, but is expected to diminish in size as fresher rocksare mined below the oxide zone. The difference in ore tonnage may be the result ofless dilution predicted than experienced.

The uncertainties affecting the Boroo mineral reserve estimate as discussed aboveare typically found in projects at the beginning of their production cycle. This isexpressed in the classification of all of the reserves as probable rather than a portionas proven. The JE lost core question does result in an under-stated grade predictionfor some of the reserves. As Section 18 demonstrates, the Boroo project iseconomically robust, and the other uncertainties addressed in this section will notchange this assessment.


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13.2 Updating the Boroo Mineral Reserve Estimate

As the previous section shows and as normal for new mining projects, the Boroomineral resource and mineral reserve estimates need to be adjusted to take intoaccount new information as mining progresses. It is anticipated, that the Borooresource and reserve estimates will require a substantial update later in 2004 thatwould take into account the following items:

For the Diluted Resource Model

• Additional drilling completed in 2003 (Table 3) and not incorporated into thecurrent resource estimate, plus the drilling conducted in 2004;

• An improved geological model that defines the mineralized envelope based onalteration information in addition to the gold grade, and that models separately themajor quartz veins and the various intensities of beresite alteration;

• The results of the large-scale bulk density test provided by the mining and millingof oxide ore from Zone 2;

• The cautious removal of only those JE drill holes from the database that have avery large amount of lost core. For the rest of the JE drill holes, the lost-coreintervals should be handled based on the reconciliation between mineral reservesand mill production. In addition, those RC hole intervals that were designated“damp” or “wet” should be scrutinized for sample contamination and possiblyremoved from the drill hole database;

• The very useful basic approach by Geostat of estimating diluted resources shouldbe maintained. However, a thorough review of the various dilution and gold gradeadjustment parameters used in the current resource estimate is required basedon a comprehensive reconciliation between the current resource model and actualmining and milling experience.

For the Reserve Estimate

• Additional bottle roll testing on existing assay rejects should be completed tosystematically document the expected mill gold recoveries in the lower transitionaland fresh ore domains;

• The gold price should reflect the actual blend of the price for the quantity that hasbeen hedged to date and the price used for financial modelling for the balance offorecast production;


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• Pit shells at a suitably higher gold price will determine the quality of the resourcesthat are not included in the new pit designs and that can be reported as additionalmineral resources;

• The accumulated actual operating cost experience will give a firmer and moredetailed basis for the pit optimization, including the use of different haulage costsfor the individual pits reflecting the distance to the mill.

It is not anticipated that such a process, would necessarily alter the current mineralreserves and Boroo mine plan to a great extent. However, the Boroo mineral resourceand mineral reserve estimates as well as the forecast project economic performancewill be based on a larger technical database and more operating experience.

14. POSSIBLE MINERAL RESERVE ADDITIONS

The possibility of mineral reserve additions at Boroo will come from three sources,including extensions of the current pits, additional zones of mineralization from thearea immediately surrounding the Boroo mining licences, and ore from identifiedresources in the region under Centerra control and within economic transportdistance. The favourable economic provisions of the Stability Agreement describedin Section 3 would only apply to additional reserves for the current Boroo golddeposits.

14.1 Pit Extensions

Not all of the mineral resources within the 0.8 g/t gold mineralization envelope devel-oped by Geostat were “depleted” by the mineral reserve estimation process. What isleft beyond the pit walls from the Geostat block model constitutes the currentadditional mineral resources at Boroo. For the indicated mineral resource class, thisis simply the difference in tonnage originally included in the class, minus what hasbeen shown to be economically mineable and is now included in the mineral reserve.In contrast, all of the inferred mineral resources are outside the 0.8 g/t gold envelopeand remain undepleted. Table 14 is a summary, developed from data provided inGeostat 2003 a:


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Table 14 Boroo Mineral Resources Additional to Mineral Reserves

Zone

Oxide Transition Fresh Total Contained Gold

Tonnes000's

Gold g/t

Tonnes000's

Goldg/t

Tonnes000's

Goldg/t

Tonnes000's

Goldg/t

Ounces000's Tonnes

Indicated Mineral Resources (diluted)

2 73 1.7 172 1.6 357 1.6 602 1.6 31 1.0

3 88 1.7 552 2.0 1 151 1.8 1 791 1.9 108 3.4

5 9 2.7 111 3.6 266 4.0 386 3.9 48 1.5

6 10 3.8 309 2.2 289 2.0 608 2.1 41 1.3

Total 180 1.8 1 144 2.1 2 063 2.1 3 387 2.1 228 7.1

Inferred Mineral Resources (undiluted)

Total 869 3.0 83 2.6

Of the 13.5 million tonnes contained in the Geostat resource model for the Boroomineralized zones before mining (Table 9), the mineral reserve estimation processdepletes about 75%, with depletion figures for the three weathering zones being 96%,80% and 46% for oxide, transitional and fresh ore, respectively. The depletion is moreefficient yet with respect to the contained ounces, where the figures are 98%, 83%and 55% for the three weathering zones, and 82% for the entire resource. Themineral resources left beyond the pit outlines thus tend to be of lower grade than theore recovered within the pits. The higher proportion of fresh mineralization with itspartially refractory quality also influences the determination of the additionalresources.

The in-fill and exploration drilling in 2002 and 2003 (holes with prefixes BRC and BX,Table 3) have shown ore-grade material to extend beyond the limits of the 0.8 g/t goldmineralized envelope as used in the current resource and reserve estimate that wascompleted in mid-2003. Together with a higher gold price, this would be expected toresult in a somewhat higher reserve estimate. At a gold price of $325 per ounce, thesame as used for the reserve estimation, most of the ore tonnage increase, however,would be within the pits as currently designed, with a corresponding decrease in thestrip ratio. At a higher gold price, the economic pits for Zones 3 and 5 might increasein size. According to Geostat (2003 b) who evaluated the new drilling and comparedit to the existing reserve estimate: “However, if gold price can increase to US$375/oz,there is some indication that part of the material around the BX holes on the west sideof pit#3 and in the transition zone between pit#3 and pit#5 may be included in the finalshell of pit#3 and pit#5 respectively. Hence those "hot spots" constitute excellent


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targets for additional exploration drilling...” (Geostat 2003 b, page ii). Quantification ofthis effect awaits the completion of the 2004 drill program and of the subsequentresource and reserve update.

Any increase of the Boroo mineral reserve base in the areas between andimmediately surrounding the current open pits from the additional mineral resources,or on the basis of the additional drilling completed since the reserve estimate, willlikely be of modest size.

14.2 Areas Adjacent to Boroo

14.2.1 Ikh Dashir Placer Deposit

The most obvious possible addition to mineral reserves in the immediate Boroo areawould be from the Ikh Dashir placer deposit, transferred to BGC by Altai in 1998. Asoutlined in Section 5.3.1, some 60% of the original volume of 2.8 million cubic metreswith an average gold grade of 1.7 g/m3 (or about 0.8 to 0.9 g/t, just at the level of thecut-off grade for sub-grade material) estimated by the DDR-MPR expedition in 1989is thought to be still available for mining. While this estimate has not been preparedin accordance with current mineral reserve reporting requirements, this colluvial placerrepresents a potential resource of 90 000 ounces of gold as parts of the placer willhave to be removed during pre-stripping of Zone 3. Investigations into the goldcomportment within the various size fractions of the placer deposit should beundertaken that might indicate ways for increasing the gold grade of the material priorto processing. Detailed grade control drilling at the time of mining will determine whatportion can be used as mill feed.

Note that any gold production from this source is subject to a 50% profit royaltypayable to Altai.

14.2.2 Exploration around the Boroo Deposit

Field investigations undertaken by CGM in the last two years show that the Boroogold mineralization is characterized by a pronounced stream geochemical response,including the development of alluvial and colluvial placer deposits. The fresh andtransitional mineralization responds well to induced polarization surveys showing anincreased chargeability coupled with a decrease in resistivity. The oxidized portionsof the deposits do not show such a response, given the destruction of any sulphides.Overall, the mineralized zones appear to occupy magnetic lows, which may, in thegranitic rocks at least, be interpreted to indicate the destruction of the primarymagnetite in these rocks by the mineralizing solutions.


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In the immediate Boroo area, the stream geochemical, induced polarization (IP) andmagnetic coverage is complete. The chargeability results and the existing drill holesare shown in Figure 13. The area within a distance of two kilometres from the pitsplanned for production has been drilled fairly extensively, if on a relatively openpattern, and most of the obvious geophysical targets have been tested. The resultsdo not indicate the likelihood of an undiscovered major zone of mineralization inproximity to the known deposits, a conclusion confirmed by the results ofcondemnation drilling to the north of Zones 2 and 5 that did intersect the mineralizedlow-angle fault but found only a few, discontinuous assay intervals with a grade above1.2 g/t gold.

There remain few IP targets in the immediate surroundings of the present open pitsthat remain untested by drilling, which will be undertaken in 2004. One apparenttarget is the large positive chargeability anomaly at the southern edge of Figure 13.This area, based on its high resistivity and its magnetic response, is interpreted to becaused by a specific rock type rather than by mineralization.

14.3 Regional Exploration and Possibilities

14.3.1 General

Regional exploration pertinent to the Boroo project has been undertaken since 1999in two different corporate settings and on two sets of mining and exploration licencesthat are shown in Figure 3. The northern Mongolia exploration licences held by BGCform the Boroo project. This land package was introduced in Section 3, is shown inred in Figure 3, and is summarized in Table 2.

Cameco has also been involved with the Noyon project since 1997. The originalNoyon land position, centred on the Gatsuurt deposit, was assembled by CascadiaChemicals and Minerals Corporation, which later became Cascadia Minerals Inc.(Cascadia) during 1996 and 1997, with Cameco assuming a role in the project in1997.

In August 1997, Cameco Resources (Mongolia) Inc. entered into a subscription andearn-in agreement with Cascadia pursuant to which Cameco acquired an ownershipinterest in Cascadia through exploration funding in the spring of 1998. The interest inthe project was held by wholly-owned Cameco Gold Investments Inc. (CGII), aCayman company. CGII earned an additional interest in Cascadia in the fall of 1998,increasing its Cascadia interest to 41.78%. In October 2001, CGII acquired CascadiaLLC, Cascadia’s Mongolian subsidiary, that held the licences to the Noyon project,

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Zone 3Zone 3

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Drill hole location / Number

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Chargeability Results andDrill Hole Coverage, Boroo Area


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04Chargeability_Map.cdr Figure 13

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Map Source: Drill hole and chargeability information from Centerra Gold Inc.


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in exchange for the surrender of the Cascadia shares held by CGII and $2.5 million.Cascadia LLC is now Centerra Gold Mongolia Limited.

In December 2002, Cameco Gold satisfied a $4.8 million promissory note owing toAGR by transferring a 61% interest in CGII to AGR (now owned 56.4% by Centerra),and retaining a 39% holding in CGII. Thus, the Centerra effective interest in theNoyon project is 73.4%. CGM is the project operator.

The Noyon project land position is continually changing with large mature licensesbeing reduced in size and new licenses being acquired. As of December 31, 2003 theproject consists of mining licenses totalling 3 222 hectares and exploration licensestotalling 215 537 hectares as shown in yellow in Figure 6. A portion of the landposition covers non-contiguous blocks over a 200-kilometre strike length of theYeroogol regional fault system (Figure 5). Most of the remaining exploration licensesare along the trend of the Boroo deposit. Tables 15 and 16 provide a summary of theproperty holdings within the Noyon project.

Noyon represents a very substantial licence area comprising 2150 km2 in a region thathas not been subjected to much surface exploration employing modern concepts andmethods.

Table 15 Noyon Project Mining Licences - December 31, 2003

Licence No. Note(s)Licence

NameArea

(hectares)Issue Date 2004 Fees Expiry

Date

194 A 1, 2 Sujigtei 600 Dec 7, 2001 $6 000 Dec 7, 2056

372 A 1, 3 Gatsuurt 416 Dec 7, 2001 4 160 Dec 7, 2056

431 A 1, 3 Gatsuurt 1 820 Dec 7, 2001 18 200 Dec 7, 2056

1400 A 1, 4 Yalbag gol 2-1 17 Dec 7, 2001 173 Dec 7, 2054

1401 A 1, 4 Yalbag gol 3-1 9 Dec 7, 2001 89 Dec 7, 2054

5082 A 1 Biluut 360 Nov 1, 2002 1 800 Nov 1, 2062

Total 3 222 $30 422

Notes to Tables 15 and 16

1 All mining and exploration licenses in Mongolia are encumbered by a 2.5% Royalty to theGovernment of Mongolia pursuant to Article 38.3 of the Minerals Law of Mongolia (1997). Inaddition to this royalty, there are the following encumbrances:

2 Sujigtei licence – 7% net profits interest (NPI).

3 Gatsuurt licences – 3% net smelter royalty (NSR) Royalty on all hard-rock gold produced, held orsold.


79

4 Yalbag gol licences – 1.5% NSR.

5 Haraa gol licences – 5% NPI.

Table 16 Noyon Project Exploration Licences - December 31, 2003

Licence No. Notes Licence Name Area(hectares)

Issue Date 2004 Fees Expiry Date

193 X, X-2, X-3 1, 5 Haraa gol 17 524 Jun 14, 1997 – Oct 1, 2004

193 X-1 1 Shivert 886 Jun 14, 1997 $1329 Oct 1, 2004

2825 X 1 Nariin 34 Dec 7, 2001 34 Dec 7, 2008

4077 - 79 X 1 Haraa 2-4 1 600 Jan 21, 2002 160 Jan 21, 2009

4156, 57 X 1 Haraa 6, 5 721 Feb 18, 2002 72 Feb 18, 2009

4271 X 1 Haraa 7 42 Apr 13, 2002 4 Apr 13, 2009

4662 X 1 Shaazgait 2 829 Jul 19, 2002 283 Jul 19, 2009

5199 X 1 Chandagatai-2 1 851 Dec 10, 2002 185 Dec 10, 2009

5311 X 1 Chandagatai 11 999 Jan 16, 2003 1 200 Jan 16, 2010

5572, 73 X 1 Davkhar Uul, Bayansydal 14 663 Jan 1 2003 1 466 Jan 1, 2010

5847, 48 X 1 Ganga undurt Uul, Munglulug Uul 6 738 May 26, 2003 674 May 26, 2010

5864 X 1 Toli Sair Uul 16 510 Jun 2, 2003 1 651 Jun 2, 2010

5924 X 1 Buureg Uul 11 184 Jun 12, 2003 1 118 Jun 12, 2010

6075, 76, 77 X 1 Zuun Orgon Uul & 2, Airag Uul 52 978 Jul 22, 2003 5 298 Jul 22, 2010

6258, 60, 61, 62 X 1 Lun, Ikh Borolzoi 1, 2, Bayan 44 161 Sep 1, 2003 4 416 Sep 1, 2010

6265, 66, 67 X 1 Halzan Uul, Tarni, Bayangol 31 817 Sep 2, 2003 3 182 Sep 2, 2010

Total 215 537 $21 072

14.3.2 Gatsuurt Project

The Gatsuurt project is by far the most important within the Noyon holdings. Extensiveplacer operations have historically taken place, and a bedrock gold deposit isindicated by the drilling completed. The following is a summary project descriptionbased on data supplied by Centerra. We have not visited this property but havereviewed the information available at the Centerra exploration office in Mongolia andbelieve it to be reliable.

Location

The Gatsuurt prospect is located 90 kilometres north of Ulaanbaatar and 35kilometres southeast of the Boroo mine site (Figure 4). Access to Gatsuurt is via a


80

14-kilometre dirt road from the town of Tunkhel. A railway station is located at Tunkheland a 100-kV power line passes within 25 kilometres of the area. Local topographyis gentle to moderately steep.

Property

The Gatsuurt deposit is within mining licenses 372A and 431A, which expire in 2058and 2059, respectively, at the end of the original 60-year term. Upon expiration,mining licenses can be extended once for an additional 40-year term.

History

Placer operations have taken place at Gatsuurt beginning in 1995 and endingrecently. Total production is uncertain but believed to be in the order of 1.5 tonnes ofgold. From 1996 to 1998, reconnaissance exploration programs were completed toevaluate the large land position. Gold mineralization was intersected in the Gatsuurtarea in 1998 during a small drill program to test geochemical anomalies in the activegold placer mining area. Subsequent drilling and trenching programs successfullydelineated continuous mineralized zones at the Gatsuurt Central Zone and theGatsuurt Main Zone areas. Most of the data for the two deposits was obtained bydrilling. Table 17 provides a summary of drilling by zone, by year and by drillingmethod. Drilling is generally restricted to the upper 75 to 100 metres of the deposits.A few deeper holes demonstrate the continuation of the Central Zone in that direction,and the Main Zone is also “open” at depth.

Table 17 Summary of Gatsuurt Drill Programs

YearCentral Zone Drilling Main Zone Drilling

DDH RC Metres DDH RC Metres

1998 3 594 1 277

1999 3 342 5 749

2000 13 1 796 3 425

2001 28 2 738

2002 52 4 814

2003 2 6 1 162 11 435

Totals 101 6 11 446 9 11 1 886


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Geology

The regional structural zone transecting the Gatsuurt area is the Sujigtei fault, anelement of the Yeroogol fault zone. It is a northeasterly trending, high-angle faultsystem that can be traced for over 200 kilometres along strike (Figure 5). Outside ofthe Noyon project licences, the Sujigtei and Yalbag bedrock gold prospects andnumerous placer gold workings occur along the fault system.

In the Gatsuurt area, the Sujigtei fault separates two profoundly differing geologicsettings. To the northwest, the bedrock is constituted by Permian felsic volcanic rocksassociated with the Dzuun Mod caldera. To the southeast, the Lower Paleozoic clasticmetasedimentary rocks of the Haraa Formation are intruded by intermediate membersof the Boroo Intrusive Complex. Figure 14 shows the geologic setting.

Mineralization

Gold mineralization at Gatsuurt occurs immediately adjacent to the Sujigtei fault. Thefault and the mineralized zones are sub-vertical. The Main Zone is hosted by thePermian felsic volcanic rocks in the footwall (northwestern side) of the fault while theCentral Zone is hosted mostly by the intrusive rocks and, to a lesser extent, byenclosed meta-sedimentary xenoliths. It is likely that the two zones once formed asingle deposit, and that the Sujigtei fault displaced the Main Zone from the CentralZone by a left-lateral offset of some 750 metres (Figure 14).

At the Central Zone, continuous gold mineralization has been traced over a strikelength of 900 metres and over widths that vary from three metres to more than 70metres. It comprises a broad lower grade shell (>1.0 g/t gold ) containing higher grade(>3.0 g/t gold) lenses with variable lateral and vertical continuity.

In both zones, the host rocks are variably altered to a quartz-sericite-potassiumfeldspar-pyrite-arsenopyrite assemblage. Gold is associated with three styles ofmineralization:

• The most important style of mineralization is contained in fracture-controlledstockwork zones of quartz-sericite alteration with quartz and sulphide veinlets.Predominant sulphides are pyrite and acicular arsenopyrite in equal amounts.Sulphide concentrations reach 10%, and tend to be higher in the intrusive rockscompared to the sedimentary rocks. The gold grade is positively correlated withthe amount of sulphides present, but native gold has been observed in this faciesof mineralization also, amounting to perhaps 20% of the total gold content.Petrographic studies have identified micron-size gold as discrete particles within

Sujig

tei F

ault

PLACEROPERATIONS

48°3

7'55

"48

°37'

30"

48°3

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"106°34'22.5" 106°35'0.00"

1150m.

1250m.

1300m.

1200m.

A A'

B B'

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B'

Trench 01-211GT-06

GT-17GT-55

GT-98 GT-100 GT-111

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Base of Oxide

Devonian rhyolite, rhyolite-porphyry(Drh), Dzuun Mod SeriesDiorite

Sediments, alluvium

Diluvium


Siltstone, sandstone, and graywacmetamorphosed), Haraa Series

ke(partly

Fault (observed)

Fault (approximate)

Mineralized zone(>1g/t Au)

Selected drill holes

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PaleozoicPaleozoic

Qal

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Geological Setting, Gatsuurt Deposit


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Some “lattice-bound” gold within arsenopyrite is also suspected – especially in theMain Zone; pyrite grains.

• Pervasive silicified zones lack the abundant sericite of the quartz-sericite type ofmineralization. Sulphides in addition to pyrite and arsenopyrite are raretetrahedrite, stibnite, sphalerite, scheelite and galena. Free gold is common in thissetting, and the so-called Black Quartz Zones can attain very high gold values ofup to several hundred grams per tonne. This type of mineralization, because of itsdistinctive mineralogical character, is interpreted to be a younger event, possiblyre-mobilizing some of the gold from the existing quartz-sericite mineralization;

• Discrete white quartz veins with variable sulphide content and occasional visiblegold are generally restricted to the sedimentary inclusions in the intrusive rocks.

Due to its location beneath a valley floor the oxide zone is typically only 5 metres to15 metres thick, much of it having been eroded and re-deposited given rise to theplacer deposits in the local valley. The boundary between the transition zone andfresh rock is erratic, but most material below a depth of 60 metres is in the fresh(sulphide) zone.

Metallurgical Testwork

The Central Zone mineralization is variably refractory. The metallurgical testwork wasmost recently reviewed by Young (2003). A total of 49 standardized bottle-roll testswere performed on a wide range of samples that cover the entire deposit. Excluding

two samples of strongly silicified material, samples from the oxide zone yield goldrecoveries in the 80% to 99% range. Material from the transition and fresh zones,however, yields gold recoveries that range from 30% to 70%.

A metallurgical test was performed on a composite of mineralized intercepts thatgraded 3 g/t gold and consisted of transition zone and fresh zone material from ninedrill holes. The flowsheet consisted of gravity separation, flotation, and cyanideleaching of the flotation concentrate that contained 89% of the gold. The flotation tailswere not leached. The concentrate was leached at three different grind sizes, at theoriginal 110 microns, and at 10 microns and 5.5 microns, respectively, afterregrinding. The overall gold extraction for the samples, including the gravityconcentrate, was 52% for the 110-micron sample, 57% for the 10-micron sample and60% for the 5.5-micron sample. The ultra fine grinding thus improved the goldrecoveries only marginally.


84

Based on this poor performance, CGM have begun to explore the possibility oftreating the Gatsuurt refractory mineralization by bulk sulphide flotation followed bybio-oxidation of the concentrate to make the entrapped gold available for cyanidedissolution.

Initial bottle roll tests on transitional and fresh mineralization from the Main Zoneresulted in gold recoveries of only 13 to 15%, while bottle roll recoveries on oxidizedmaterial averaged 60%.

Resource Estimation

A preliminary estimate of the mineral resources in the Central Zone has beencompleted by the Cameco mining resources group following the 2002 drilling season.No resources were estimated for the insufficiently-drilled and refractory Main Zone.The parameters and methods were as follows:

• The mineralized zones were modelled with solids defined by gold distribution,lithology and assay composites;

• Assays were composited observing a minimum of 1 g/t over 3.5 metres down-hole(to give approximately two metres true thickness) including up to 1 metre ofinternal waste;

• Grade interpolation was by ordinary kriging on a block model with 10 m x 4 m x5 m blocks;

• High-grade assays were capped at 60 g/t Au; and

• A bulk density of 2.7 t/m3 was used to translate volume into tonnage.

The estimated mineral resources for the Central Zone at a 1.2 g/t cut-off grade aresummarized in Table 18.

Table 18 Central Zone Mineral Resource Estimate, Gatsuurt Deposit- thousands of tonnes of resources and ounces of gold -

Indicated Resources Inferred ResourcesTonnes Gold Contained Gold Tonnes Gold Contained Gold

g/t ounces tonnes g/t ounces tonnes

Oxide 967 3.0 92 2.9

Transition & Fresh 4 262 3.2 444 13.8 906 2.7 77 2.4

Total 5 229 3.2 536 16.7 906 2.7 77 2.4


85

The mineral resource estimate summarized in Table 18 was performed using the CIMbest practice guidelines for mineral resource and mineral reserve estimation, and theclassification meets the appropriate CIM standards.

Outlook

There are two main scenarios that would allow exploitation of the Gatsuurt goldresources. The simpler (and smaller) approach is currently being subjected to afeasibility study by BGC (Boroo Gold Company, 2004 a & b) and involves mining ofthe oxide mineralization only and trucking the ore to the Boroo mill for processing. Themain capital item is the haul road to Boroo, a distance of some 40 km. One of thealternate options to be investigated is to heap leach the oxide material at Gatsuurt.The total cost of the feasibility study that will also address all environmental andpermitting questions is estimated at $0.6 million, including a provision for 6000 metresof RC in-fill drilling and additional, systematic metallurgical characterization work. Theexpected completion date is early 2005. Scoping-level investigations (Boroo GoldCompany, 2004 a) indicate that the economics of this solution should be positive, andthat an addition to the Boroo milling operation of up to one year of production ispossible.

For the sulphide, refractory part of the Gatsuurt deposit, an alternate approach beinginvestigated would involve a treatment facility at Gatsuurt that would produce a bulksulphide concentrate to be bio-oxidized with the gold recovered from the concentrateat Boroo. Much testwork remains to be completed before this option can be fullyevaluated, but given the size of the deposit, the potential for expansion of the sulphideresources at depth, and the possible operational synergies, this approach is worthpursuing in parallel to the oxide pre-feasibility study and is the subject of a separatescoping study currently underway.

With the current drill coverage extending to a depth of less than 100 metres, four orfive widely-spaced holes are planned to be drilled at the Central Zone in 2004 to testthe continuation of the zone to a depth of 150 to 200 metres. In addition, a newly-identified mineralized area to the southeast of the Central Zone will be tested bysurface drilling.

14.3.3 Other Targets

The broader region around the Boroo and Gatsuurt deposits has been covered bystream sediment sampling since 1999, targeting second and higher order streams.The area involved is roughly centred on the Boroo deposit and extends for a total of250 km along the northeast-southwest strike and with a width that varies from 30 to


86

80 km, covering two structural lineaments, one interpreted to be associated with theBoroo deposit, the other with Gatsuurt (Figure 15).

Within this overall area, some 5000 samples had been collected in the period 1999to 2003 by Cascadia, BGC and CGM personnel. The method works well in areas oflow overburden with gold and arsenic being the main elements of interest, but givesa subdued response in areas of deep loess cover. Similarly, soil geochemicalresponses are adversely affected in areas of substantial loess cover which acts as animpermeable blanket.

A large number of target areas indicated by the stream geochemical results, and thelarge number of exploration licences acquired by CGM in 2003 was in response tomore recent stream sediment survey results (Table 16). Reconnaissance work hasbeen undertaken on licences acquired in earlier years, and detailed follow-up work(prospecting, soil geochemical sampling, geophysical surveys and test drilling) hastaken place on a number of others, as indicated in Figure 15. The best results to datehave been obtained at the following prospects:

• At Ulaan Bulag, located 14 km to the southeast of Boroo, drilling has encountereda mineralized system similar to Boroo in altered granitic rocks of the BorooIntrusive Complex (compare Section 6.2). Initial drill results generally returnedvalues of 1 to 2 g/t gold over lengths of two to ten metres, with one betterintersection grading 7 g/t gold over six metres. Additional drilling is planned tomore fully investigate this mineralized system;

• The Argal prospect (Figure 15), located some 100 km to the southwest of Boroo,occurs in Boroo-type intrusive rocks and minor Haraa sediments. Surfaceexposures consist of a system of sheeted quartz veins that form a zone at least200 metres wide, surrounded by quartz-sericite-pyrite alteration. The system isgold bearing, with initial surface sampling results indicating the possibility of ore-grade mineralization. Soil geochemistry indicates anomalous conditions over atotal strike length of eight kilometres. Drilling is currently in progress.

Beyond the two identified targets, follow-up work remains to be completed on manyindividual target areas, a process that will require several years of field work to beaccomplished.

14.4 Planned Development and Exploration Programs

Development programs in 2004 are planned for Boroo and Gatsuurt. The Borooprogram consists of detailed in-fill drilling within and immediately around the

600000m.E500000m.E 700000m.E

5400

000m

.N53

0000

0m.N

Khar Tavag

Red Pit(Tsagaan Uul)

Sair

SalkhitSalkhit

Enger

Asgat

Dund UrtKhadinDavaa

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BayanTsogtBayanTsogtBayanTsogt

KhurgaKhurga

Agit

DavkharUul

October

TsagaanChuluutTsagaanChuluutTsagaanChuluut

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Tarni

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Ulan Bulag(Belkh)

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Gatsuurt DepositGatsuurt Deposit

Boroo MineBoroo Mine

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ent

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ULAANBAATAR

UTM WGS84 Zone 48N

0 10 50

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Legend:

Khoshig

ArgalArgal


BGC (Boroo Gold Company)

CGM (Cameco Gold Mongolia LLC)

Railroad

Prioprity exploration targets

Roads

Stream sediment anomalies

N

Map Source: Stream sediment survey contents from Centerra Gold Inc.

TITLE

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mineralized zones scheduled for mining and will take place in two phases, the secondbeing dependent on the results of the first. At Gatsuurt, detailed near-surface RCdrilling is planned as part of the oxide project pre-feasibility study described inSection 14.3.2.

The exploration programs planned by CGM for the combined Boroo and Noyonprojects for 2004 consist of further regional and detailed follow-up geochemical andgeophysical surveys and include a provision for drill testing.

Table 19 summarizes the substantial drilling planned for development and explorationpurposes in northern Mongolia for 2004.

Table 19 Planned 2004 Development and Exploration Drilling, NorthernMongolia

Area Number of Holes Metres

Development and In-Fill Drilling

Boroo Phase 1 62 8 740

Phase 2 30 3 760

Gatsuurt Oxide Pre-Feasibility Study 100 6 000

Sub-total 192 18 500

Exploration Drilling

Boroo mine area, west of pits 6 1 000

Ulaan Bulag 20 2 500

Argal 10 1 200

Gatsuurt Central Zone 12 2 300

Other targets 1 000

Sub-total 48 8 000

Total 240 26 500

The regional exploration programs in northern Mongolia will require a sustained effortover several years to systematically cover the current substantial explorationconcessions and any new concessions that BGC is likely to acquire in future. Suchprograms are warranted given the presence of the Boroo operation in the area thatlowers the economic threshold for new discoveries.

The within-pit drill program in 2004 at Boroo estimated to cost $0.4 million will befunded from the mine operating budget. The other exploration programs on the Boroo


89

project will be funded by BGC. The Noyon programs will be funded by Centerra as to39% and AGR as to 61% in accordance with their direct interests in the Noyonproject. The cost for 2004 for Boroo programs outside the mining pits, and the Noyonprograms, is $2.0 million.

14.5 Discussion

While the possibilities of adding mineral reserves in the immediate Boroo mine areaappear to be modest, the Gatsuurt Central Zone represents potential additional goldresources for Centerra in northern Mongolia, either as a supplementary operation byadding perhaps one year of oxide ore to the Boroo mine life, or as a more substantialstand-alone project, if the metallurgical challenges for gold recovery can besuccessfully overcome.

Beyond the Boroo and Gatsuurt deposits that have been known for a long time andhave given rise to placer operations, the surrounding area in northern Mongolia has,prior to the arrival of western-based companies, not been systematically explored atthe “grass-roots” level using modern concepts and exploration technologies. Thisprocess is still in the early stages.

The Centerra predecessor companies have assembled a very large land packagecovering what could turn out to be a new gold district, and have already identified twodrill targets. Future exploration activities and expenditures as summarized in Table20 are warranted, but the timing of these should be integrated into the overall BorooLOM plan so that any additional mineral reserves resulting from the explorationactivities becomes available for mining before the mineral reserves at Boroo areexhausted.

15. CURRENT OPERATIONS

15.1 Mining

The Boroo mining operations are based on conventional open-pit methods to mine anominal 5000 tonnes per day (tpd) of ore. The waste tonnage is initially higher thanindicated by the average waste-to-ore ratio of 3.9 over the mine life, but will declinefrom 30 000 tpd in 2004, to near 20 000 tpd in the years 2005 to 2007, to 11 000 tpdin 2008, and 3000 tpd in 2009.

Mining commenced in 2003 with the initial ore for processing coming from Zone 2 (Pit2) while the waste removal program for the higher-grade Zone 5 (Pit 5) was in


90

progress. Mining is done with bench heights of five metres, with ore mined on half-benches for improved grade control in the flat-lying ore. Figure 16 is a panoramicview of mining operations in Pit 2, with the milling facilities nearby.

Blasthole drilling is carried out with two rotary-percussion drill rigs, with holes of 115mm diameter drilled on a 3.5 x 3.5-metre pattern, with wider spacing in the waste .Bulk explosives trucks blend ammonium nitrate with fuel oil as each hole is loaded,and explosives consumption is 0.35 kg per cubic metre of ore or waste.

The principal rock handling equipment is supplied by Caterpillar and includes two7.6 m3 hydraulic excavators and eight 50-tonne haul trucks. Additional haul trucksare to be temporarily added to the fleet in 2004 for tailings dam construction. Thewaste rock mined is deposited on waste dumps immediately adjacent to the individualpits.

Additional mining equipment includes two large front-end loaders for ore handling andblending, three tracked dozers for the maintenance of waste dumps and benches, andtwo graders maintain the roads and bench floors.

Current mining operations are well above the water table. Drill hole informationindicates that water is first encountered some 30 to 40 metres below surface, andmay occur in individual perched lenses rather than as a continuous water table.

Grade control in mining is by manual sampling of the blasthole cuttings. Two separatesamples are taken for each blasthole, one for the initial 2.5 metres, one for the second2.5 metres, which allows ore and waste selection to occur for those short verticalintervals. The mine plans to purchase automatic sampling devices for the blastholerigs similar to those being used in mineral exploration on reverse circulation drills.Sorting of ore in the pit is done as per the following grade ranges:

Designation Gold Grade (g/t) DestinationOre >1.2 Oxide & Transition

>1.5 FreshCrusher or temporary stockpiles forblending

Sub-grade >0.8 and < ore cut-off Stockpile, not scheduled for milling, countedas waste for the calculation of the strip ratio

Waste <0.8 Waste dumps adjacent to pits

The cut-off grades were reviewed in November 2003 (Olson, 2003) because of higheroperating costs for administration than earlier estimates. As a result, the grade control

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cut-off grades currently used in mining are slightly higher than those used for theGeostat mineral reserve estimate (Section 12.3) that were set at 1.1 g/t gold foroxide, 1.15 g/t for transitional and 1.35 g/t for fresh ore. Once a more solid base ofoperating cost experience has been gained, the question of incremental cut-off gradeswill be reviewed. The mining experience in Zone 2 to date shows a very sharp gradecontrast between ore and waste, and the exact level of the cut-off grade may havelittle impact on definition of ore and waste boundaries.

The blasthole assay data are determined at a laboratory in Ulaanbaatar. A largeproportion of each sample needs to be pulverized, and the metallics screen methodis required to obtain results that are both accurate and precise (reproducible) andallow grade control decisions to be made based on few samples. A laboratory will beinstalled at Boroo in 2004 that will result in sample assays being available morerapidly to assist grade control in mining operations.

The blasthole assay data are combined into an ore control model that is being usedto determine the boundaries for the various grade categories and to estimate themonthly pit production. The blasthole cuttings are logged, and a geological map isproduced for each bench mined. The grade and geological maps produced as a resultof the grade control work are assembled into packages that can be readily used inmining operations and are of excellent quality.

15.2 Mineral Processing

15.2.1 Metallurgical Testwork

The current Boroo ore processing flowsheet is the result of a number of pastmetallurgical test programs. Two bulk samples from underground excavations wereused for pilot scale metallurgical testing during the period when the Boroo depositswere being examined by the DDR-MPR technical personnel. Initial bench scale testswere conducted in Freiberg, East Germany, and were followed by pilot scale testingby Irgiredmet, Irkutsk, Russia, in 1987 (USSR All Union Export and Import Association(Tsvetmetpromexport), 1987). The Irgiredmet study developed a flow sheet forprocessing of Boroo ore involving semi-autogenous and ball milling to 80% passing74 microns, recovery of 50 to 55 % of the gold by gravity concentration, followed byflotation and leaching of a gold and sulphide mineral concentrate. Total gold recoveryobtained in pilot scale testing exceeded 90 %.

McClelland Laboratories Inc. of Sparks, Nevada in 1991 recommended to MorrisonKnudsen Company Inc. a heap-leach facility for oxide ore and a flotation facility for


93

fresh, high-grade ore that would produce a bulk sulphide concentrate to be re-groundfollowed by cyanidation.

As part of the initial BGC due diligence in 1997, a composite bulk sample of drill coreweighing 160 kg that represented various types of Boroo ores was collected for bottleroll tests to assess the feasibility of heap leaching and was sent to AMMTEC Limited,Balcatta, Australia. Later, more exhaustive testwork on chips from reverse-circulationdrilling at AMMTEC included testing on different composites representing theoxidized, transitional and fresh, sediment-hosted ore types. This work resulted in thedetermination of the basic Boroo processing flowsheet of a combination of gravityseparation and cyanidation. The excellent metallurgical behaviour of the oxidized oreand of the upper part of the transitional ore with gold recoveries in the 90% to 95%range was indicated, and somewhat lower recoveries for the lower part of thetransitional zone (85%). Little work was completed on the primary or fresh material,and the few test results were highly variable.

Comminution testing was undertaken by Orway Mineral Consultants of Mt. Pleasant,Western Australia in 1999 and indicated ball mill work indices of 12.2 and 13.0 foroxidized and fresh “granite”, respectively, while the figures for the Haara sediments(hornfels) were much higher in the range of 22.3 to 24.6. Several options for thedesign of a comminution circuit were evaluated.

Additional bottle roll testwork at a grind of 80% passing 75 microns on ore within theplanned open pits that had not been adequately covered earlier was undertaken in2002 (Chapman, 2003), using ore from the lower transitional or fresh material. Again,the results in the fresh ore were very variable, averaging 75% gold recovery, butranging from 57% to 90%.

The testwork to date has confirmed the gold recovery predictions for the oxidized andtransitional zones at 95% and 90%, respectively. However, there is a variation inmetallurgical response for the primary or fresh ore at Boroo, and the current expectedaverage gold recovery at 77% is not as well-founded. Only about 15% of total Boroomill feed will be primary ore based on current mine plans. Further testing will beundertaken on samples from the lower transitional and primary zones during theplanned in-fill drilling program that is underway, including an investigation into themineralogical reason(s) for the relatively low recoveries in the fresh mineralization.


94

15.2.2 Process Flowsheet

The selected flowsheet for Boroo ore (Figure 17), based on the test results describedabove, is a standard layout that consists of crushing, grinding, gravity concentration,cyanide leaching and gold recovery in a carbon-in-pulp (CIP) circuit.

A jaw crusher reduces the ore to 100% minus 20 centimetres. The crushed ore is feddirectly to a semi-autogenous (SAG) mill (8.5-metre diameter) or to a temporarycoarse ore stockpile from which it can be reclaimed during crusher maintenance.

Limefor pH control is added ahead of the SAG mill which, together with a ball mill,reduces the particle size to 80% passing 75 microns. Cyclones part the ore into twostreams, with the cyclone underflow reporting to the ball mill. About 17% of the totalcyclone underflow reports to the gravity circuit, which consists of two 750-mm Knelsonconcentrators followed by an Acacia reactor where the gravity-recovered gold isleached in high cyanide solution.

The cyclone overflow is thickened prior to the leaching circuit that consists of two pre-leach tanks where air is injected, followed by six CIP tanks. Gold in solution from theleaching circuit is recovered on the carbon in the CIP circuit and subsequentlystripped from the carbon and again put in solution to be recovered by electrowinning,followed by smelting and the production of a doré bar.

The tailings after processing of the ore have an average grade of 0.1 g/t gold and arethickened and detoxified to meet a target cyanide level of one part per million (ppm)using a modified INCO air-sulphur-dioxide process. Heavy metals are removed bytreatment with ferric sulphate. The tailings are discharged by gravity to the permanenttailings facility, five kilometres from the process plant (Figure 4). The tailings storageis designed for no discharge, with all of the water being reclaimed for re-use in themill, and will have an ultimate capacity of ten million cubic metres, sufficient for thetonnage to be mined as per the life-of-mine plan (Section 12.5). The height of thedams retaining the tailings will be increased yearly until 2007 and can be furtherexpanded as required.

The Boroo mill was designed with a capacity to process 1.8 million tonnes of ore peryear (5000 tpd). Throughput in December 2003 was 94 000 tonnes or 3000 tpd, andnormal plant commissioning issues were addressed. The first quarter of 2004 saw asteady improvement in the mill tonnage processed, rising to 153 000 tonnes or 4900tpd in March 2004. The gravity circuit has, to the end of March 2004, recoverednearly50% of the gold contained in the ore, and the overall gold recovery has been96%, in accordance with the expectations based on the metallurgical testwork.

Mill Building

NO DISCHARGE

ELECTROWINNING

DORE

TAILINGS POND

CARBON - IN - PULP

LOADED CARBON

STRIPPING

CYCLONES

GRAVITY CONCENTRATION

INTENSE CYANIDATION

PRIMARY CRUSHER

CRUSHED ORE STOCKPILE

SAG MILL

BALL MILL

THICKENER

CYANIDATION

TAILINGS DETOXIFICATION

CARBON REGENERATION

TITLE

Mill Flowsheet


TORONTO - CANADA

File:


H.T.

04MillFlowSheet.cdr Figure 17

March 2004DATE



CLIENT

Map Source: Flowsheet contents from Centerra Gold Inc.


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15.3 Human Resources

The Boroo operation employed a total of 453 permanent and 118 seasonalemployees, distributed by department as shown in Table 20.

Table 20 Boroo Employees December 2003

Department MongolianNationals Expatriates Total Employees

Mining 127 10 137

Milling 47 13 60

Maintenance – Mine 15 4 19

– Mill 37 6 43

Camp Operation 72 3 75

Site Administration 81 5 86

Ulaanbaatar Office 29 4 33

Sub-total 408 45 453

Seasonal 118 - 118

Total 526 45 571

The proportion of Mongolian nationals in the permanent work force at Boroo is about90%, and training programs have been implemented to further the capabilities ofthose employees in their current placements, and to prepare them for careeradvancement, and reflects the Centerra policy of involving the residents of Mongoliato the maximum extent.

The language used for communications between senior and supervisory staff isEnglish, but all manuals, policies and instructions are maintained in the Mongolianlanguage as well as English. A number of translators are employed at the operationto permit collaboration between local and expatriate employees. As in many othermining operations in the start-up phase, turn-over in the labour force is still relativelyhigh, but is expected to improve as the operation matures.


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16. PERMITTING, ENVIRONMENTAL MANAGEMENT AND CLOSURE PLAN

16.1 Permits and Licences

The required operating permits for the Boroo mine have been issued to BGC. Someof these permits are with Mongolian state agencies, some with the local agencies ofthe aimag (province) Selenge, and others are with the governors of the two counties(soums) of Bayangol and Mandal on which the Boroo facilities are located. The majoroperating permits are briefly characterized as follows:

1. The Mineral Resources Authority of Mongolia (MRAM) has granted the variousmining licences as described in Section 3;

2. The Environmental Impact Assessment document prepared by JEMR ConsultingCo., Ltd., 1999 and updated by SENES Consultants Limited, 2002, and theEnvironmental Monitoring and Protection Plans have been approved by theMongolian Government. Recent addenda include specific sections dealing with arevised tailings storage design, addition of a tailings detoxification plant, increasedproduction and the sewage system;

3. The State Special Inspectorate Agency, Mining Division (SSIA) and MAM haveapproved the mining plan for 2003 and 2004 (Boroo Gold Company, 2003 b).Future annual mine plans are also required to be submitted for approval;

4. Contracts are in place for land use with the Byangol and Mandal Soumadministrations, including the operation of the permanent camp, reagent storage,mining of aggregate materials, fuel storage, operation of a fuel dispensing station,and the building of the tailings dam;

5. Licences for the import, storage, use, and disposal of reagents and chemicals arein place, and include permits for the import, transport, use and on-site storage ofcyanide;

6. The BGC Health and Safety plan has been accepted by the SSIA.

Some of the permits that have been issued for the Boroo mine are for the forecastmine life, others are for three years, and others have to be renewed annually. Amongthe latter are the provincial licences for the import, storage, use, and disposal ofreagents and chemicals, environmental monitoring reports and plans, the mine planand the health and safety plan. Permits that are issued by the Mongolian stateagencies for an initial period of three years include the letter of authorization to mine,and the permits for the importation, transport, storage and use of cyanide.


98

BGC have confirmed that all required licences and permits for the development andoperation of the Boroo mine have been secured. The Mongolian authorities havebeen cooperative in providing permits as required and it is anticipated that thiscooperation will continue given the importance of the Boroo mine for the localeconomy.

16.2 Environmental Management System

An Environmental Management System has been developed by BGC with theassistance of Cameco to address the impacts of the Boroo operation on theenvironment and to monitor compliance with the various permits issued by the stateand provincial authorities. The system provides scheduled monitoring, engineeringcontrols and reporting on the following areas:

• tailings management facility

• mill site and mine waste dumps effluents

• acid generation potential testing

• dust control

• spill incidents on-site and off-site

• hazardous materials handling

• environmental impact monitoring

• planning for site decommissioning and rehabilitation

• potable water treatment system

• sewage operation

• landfill operation and inventory

The tailings management facility is designed for zero discharge and is located in theIkh Dashir river valley (Figure 4). It consists of a tailings line, tailings dam and adecant water reclaim system to pump the reclaimed water from the tailings pond backto the mill process water tanks. These facilities received government approval in2003. The tailings pipeline is approximately five kilometres in length and is inclined1.7%. The tailings dam was designed by, and constructed under the supervision ofGolder Associates and Mongolian engineering and design consultants to assurecompliance with quality requirements. The dam has a current footprint of 500 by 600


99

metres and is up to ten metres in height. The bottom of the tailings storage area wassealed with a compacted clay liner and an HDPE liner on all embankments.

In April 2004, the Mongolian government approved an extension to the tailings dam,which is estimated to cost $2.5 million.

AMMTEC (1999 d) undertook acid mine drainage testing of tailings composites duringtheir metallurgical testwork and report that “The above results indicate that theBlended Composite # 2 leach residue possess no acid generating potential, but ratherhave significant acid consuming potential.” (AMMTEC 1999 d, page 4), and thereforeno concerns have been indicated for acid generation from the tailings storage areas.

An Environmental Protection Plan and an Environmental Monitoring Plan for 2004were formulated and submitted to the state ministry for the environment, and writtenapproval has been received.

16.3 Closure Provisions

There has not been as yet an approved closure plan prepared for the Boroo mine.However, BGC have advised that the firm of Gazar Eco of Ulaanbaatar will beretained to develop a conceptual decommissioning plan, with a completion date ofJune 2004. The plan will have to be submitted to the Mongolian authorities for reviewand approval. The initial estimate of the costs of decommissioning and reclamationfor the Boroo mine by JEMR Consulting is $2.7 million.

A reclamation trust fund has not yet been established for the Boroo property but BGChave commenced discussions with governmental authorities about putting such anarrangement in place. Funding would be funded from gold sales at a rate of about$500 000 per year. In addition funds would be available at the end of the mine lifefrom reduction in working capital requirements.

16.4 Occupational Health and Safety

New employees at Boroo receive general safety orientation, hazard identification andemergency response courses including basic first aid within two days of starting work,as well as safety training specific to the job before being allowed to workunsupervised. The rules to be followed are outlined in a detailed brochure entitledOccupational Health and Safety Handbook that addresses such items as chemicaltoxic elements, transportation and machinery, blasting, fire prevention and control, thesafe handling of electricity and includes detailed emergency response plans.


100

Safety elements are incorporated in the design and operational procedures of majorfacilities of the mine. The open-pit operation is carried out under safe blastingprocedures. The pit slopes are designed with a 1.5 failure factor and stability isconstantly monitored for safety. Pit design has incorporated rock fall catchmentberms. The in-pit ramps and the haulage road between the pits and the mill areconstructed 25 metres wide to allow two haul trucks to pass safely and are equippedwith safety berms and drainage ditches. Dumping berms and procedures are in placeto avoid incidents with equipment. Pit operators are properly trained in the safehandling of heavy equipment.

Process and effluent treatment facilities were designed to address issues of dustcontrol, noise, toxic chemicals, moving pieces of stationary equipment, potentialelectrical and fire hazards.

The camp complex providing accommodation, kitchen, dining and recreation facilitiesis equipped with smoke detectors, fire hose reels and hand-held fire extinguishers.

The transportation of materials and personnel, both on- and off-site, is undertakenunder accident prevention and safety procedures that include speed limitations andcontrol signs as required. All transport equipment units are under a preventivemaintenance program. The mine site is under security with authorized entry policyenforced by specialized personnel.

At the mine site, two doctors and one certified nurse provide first aid, routine medicalservices and operate a fully equipped first aid clinic centre. An ambulance equippedto accommodate a stretcher and with appropriate medical supplies, is on standby.

17. GOLD SALES AND TAXATION

17.1 Gold Sales

All gold doré produced by BGC at the Boroo mine is currently exported and refinedunder a contract with Johnson Matthey plc (JM). The terms provide that:

• gold is delivered to JM at the mine site with JM assuming the risk relating tosecurity and transport, and responsibility for insurance from Boroo to the JMrefinery in the United Kingdom;

• gold is refined by JM to meet purity and impurity specifications; and


101

• BGC may elect to take physical delivery of the refined gold, or to sell it to JM withan early payment provision to receive 95% of the value based on the mine siteassay within two working days of delivery to the refinery, and the balance followingagreement on assays.

17.2 Taxation

BGC entered into a Stability Agreement with the Mongolian Government in 1998, asamended in 2000, and which expires in 2013. The Stability Agreement stabilizes allexisting Mongolian taxation legislation as it was in effect on December 31, 1998,unless more favourable laws take effect. The agreement provides for an exemptionfrom income tax for the first three years from the commencement of production, andfor 50% tax relief for the next three-year period. For the final period, until theagreement expires, the tax rate is specified to be 15% for annual taxable income upto 100 million tugriks (approximately $90 000 as of December 31, 2003), and 40% ontaxable income above that level.

17.3 Corporate Income Tax

BGC is resident in Mongolia where, until the beginning of 2004, tax on corporateincome was at the rate of 40%, with the tax rate applicable to BGC modified inaccordance with the Stability Agreement as noted in Section 17.2. Subsequent to thesigning of the Stability Agreement, amendments to Mongolian income tax laws havereduced the corporate income tax rate from 40% to 30%, effective January 1, 2004.BGC may make an application to the Mongolian Government to be subject to thereduced rate. If successful this reduction will have the effect of decreasing theincome tax rate for BGC from 20% to 15% for the second three-year period, andthereafter from 40% to 30% on taxable income exceeding 100 million tugriks, until theexpiry of the Stability Agreement.

17.4 Royalty

A 2.5% royalty will be paid to the Mongolian Government on the revenue from thesale of gold and silver, valued at market prices.

17.5 Value Added Tax

Mongolia levies a value-added tax (VAT) of 15% on goods and services produced in,as well as goods imported into Mongolia. The Stability Agreement provides for a VATat 10% on goods imported into Mongolia by BGC. In addition, the Stability Agreementprovides for VAT obligations to be credited against certain taxes as provided for in theValue Added Tax Law of Mongolia, including corporate income tax.


102

18. ECONOMIC ANALYSIS

The following economic analysis is based on mining the current Boroo mineralreserves (Table 11), which will support mining operations at the rate of 1.7 milliontonnes per year with an average gold grade of 3.6 g/t for the period 2004-2009.Centerra plans to continue exploration programs on the Boroo property and otherexploration licences in northern Mongolia, and is currently reviewing the options fortreating mineral resources from the Gatsuurt property, which may extend theproduction period for Boroo.

18.1 Production Forecast

Table 21 summarizes the forecast of gold production from Boroo over the next sixyears based on the current LOM plan (Section 12.5).

Table 21 Boroo Production Forecast 2004 - 2009- thousands of tonnes of ore and waste and ounces of gold -

2004 2005 2006 2007 2008 2009 TotalMining

Ore tonnes 1 760 1 827 2 233 1 291 1 687 1 356 10 154Waste tonnes 11 095 8 222 7 857 7 268 3 902 1 238 39 582Waste-to-ore ratio 6.3 4.5 3.5 5.6 2.3 0.9 3.9Stockpiles tonnes 37 77 483 -459 -63 -113 -37

MillingOre tonnes 1 723 1 750 1 750 1 750 1 750 1 469 10 191Grade g/t 4.2 3.9 3.4 3.3 3.6 3.1 3.6

Gold recovery % 93.8 90.6 89.2 92.1 90.1 85.7 90.6

Gold recovered ounces 220 201 170 168 180 124 1 064

Gold sold ounces 212 201 170 168 180 132 1 064

18.2 Revenue Estimates

The annual average gold price over the period 1990 to 2003 along with the firstquarter of 2004 is presented in the following chart:


103

260

300

340

380

420

$ pe

r oun

ce

1990 1992 1994 1996 1998 2000 2002 2004

Gold Price 1990 - 2004

A portion of future gold production from Boroo is hedged using forward salescontracts. As at March 31, 2004, a total of 200 000 ounces of gold were designatedagainst hedge contracts at an average expected price of $316 per ounce, with 10 000ounces having been delivered against those commitments in April 2004. The balanceof the gold production will be sold at the prevailing market price at the time of delivery.The expected sales revenues based on average gold prices for the six-year period of2004-2009 of $300, $350 and $400 per ounce, and taking into account the existinghedged portion are shown in Table 22.

Table 22 Gold Sales 2004 - 2009

2004 2005 2006 2007 2008 2009 Total

Forward Sales Commitments

Quantity - ounces 000’s 81.5 60.5 49.0 9.0 - - 200.0

Gold - $ per ounce 311 314 323 329 - - 316

Revenue Including Forward Sales - $ millions

Gold - $300 per ounce 64.5 61.2 52.0 50.8 54.1 39.5 322.1

350 71.1 68.2 58.0 58.7 63.2 46.1 365.3

400 77.6 75.3 64.1 66.7 72.2 52.6 408.5


104

18.3 Cash Production (Operating) Costs

18.3.1 Operating Costs

The estimated operating costs cover open-pit mining and milling at the Boroo minesite, including on-site administration and the costs administered from the officelocated in Ulaanbaatar (Table 23).

Table 23 Boroo Operating Cost Forecast 2004 - 2009

2004 2005 2006 2007 2008 2009 Total

Annual Operating Costs -$ millions Mining $9.7 $7.6 $7.6 $6.5 $4.3 $2.0 $37.7

Milling 12.9 13.1 13.1 13.1 13.2 11.3 76.7

Site administration 3.0 2.7 2.7 2.9 2.9 1.7 15.9

Off-site administration 5.9 5.2 5.2 5.2 5.2 5.1 31.7

Sales royalties1 1.9 1.7 1.5 1.4 1.6 1.2 9.3

Total operating costs 33.4 30.3 30.1 29.1 27.2 21.3 171.3Unit Operating Costs - $ per tonne Mining 0.76 0.75 0.75 0.76 0.76 0.78 0.76

Milling 7.47 7.51 7.51 7.51 7.53 7.68 7.53

Total operating costs $19.38 $17.36 $17.18 $16.67 $15.50 $14.45 $16.81

1 Sales royalties at gold price of $350 per ounce

The most noteworthy feature about Boroo operating costs is the relatively lowproportion of total operating costs that is represented by mining. Over the period2004-2009 mining is only 22% of total costs, and that is a result of low waste-to-oreratios for the near-surface deposits and minimal quantities of hard rock to be mined.

Initial operating cost experience at Boroo, based only on actual costs for the firstquarter of 2004, indicates that mining costs could be lower than estimated, millingcosts as estimated, but general and administration costs will be higher includingprocurement and transportation of supplies, and catering. Total operating costs forthe first quarter of 2004 were within budget. It is normal to have somewhat higheroperating costs when a mine is in the start-up phase, which then trend lower as thepersonnel and operating procedures stabilize.


105

18.3.2 Royalties and Taxes

All revenue from the sale of gold and silver, valued at market prices, is subject to a2.5% royalty payable to the Government of Mongolia. The royalty is included indetermining the unit cash cost of production.

BGC is subject to corporate income tax as previously described in Section 17.3, withBGC benefiting from a tax-free period for the first three years of production fromBoroo.

Table 24 Royalty and Income Tax 2004-2009- $ millions -

Gold priceper ounce 2004 2005 2006 2007 2008 2009 Total

Royalty

$300 $1.6 $1.5 $1.3 $1.2 $1.4 $1.0 $8.0

350 1.9 1.7 1.5 1.4 1.6 1.2 9.3

400 2.1 2.0 1.7 1.7 1.8 1.3 10.6

Income Tax

$300 - - - $1.1 $2.2 $1.5 $4.8

350 - - - 2.9 4.2 2.7 9.8

400 - - - 4.6 5.9 4.1 14.6

18.3.3 Gold Institute Standard Unit Cost

Unit cash production costs for gold, calculated in accordance with the Gold InstituteStandard, include all cash production costs and production and sales related royalties.Table 25 summarizes the cash production costs per ounce of gold produced at Boroo,which averages about $160 per ounce over the current projected life of the mine withonly minor variations related to the effect of the gold price on the royalty on salesrevenue.


106

Table 25 Gold Cash Production Costs 2004 - 2009- $ per ounce -

Gold priceper ounce 2004 2005 2006 2007 2008 2009 Average

$300 $150 $150 $176 $172 $149 $170 $160350 152 151 177 173 150 172 161400 153 152 178 174 152 173 162

18.4 Project Costs

Project costs for Boroo, shown in Table 26, consist of sustaining capital expendituresand funding of the reclamation trust to be accumulated and used in post-productionreclamation projects.

Capital expenditures include the extension of the tailings storage capacity andsustaining capital and are small in value, relative to operating costs, totalling $14.8million over the projected life of the mine.

The reclamation funding is based on a contribution of $0.26 for every tonne of oremilled, which amounts to approximately $500 000 in annual funding requirements.These funds are expected to be deposited into a separate cash account to be usedto fund reclamation projects once the mineral reserves are depleted.

Table 26 Project Costs 2004 - 2009

Project Costs - $ millions 2004 2005 2006 2007 2008 2009 Total Tailings dam construction $3.5 $1.4 $1.4 $0.7 - - $7.0 Sustaining capital 4.6 1.2 0.9 0.6 0.5 - 7.8 Funding of reclamation trust 0.4 0.5 0.5 0.5 0.4 0.4 2.7Total Project Costs $8.5 $3.1 $2.8 $1.8 $0.9 $0.4 $17.5

18.5 Financing

Financing costs, shown in Table 27, include interest to service the debt facility thatBGC has in place with AGR, which in turn has a debt facility in place with CenterraBarbados Inc. for $70 million. Cash received by AGR will be used to make paymentson the amount outstanding under the Centerra Barbados loan, commencing June 30,2004, based on the following requirements:


107

• principal repayments in 20 consecutive quarters, with three quarterly payments of$1.3 million, followed by 16 quarterly payments of $4 million, and a final paymentfor the balance;

• at least 75% of available cash must be used to make payments of principal andinterest and prepayments of principal under the facility; and

• any excess funds after principal and interest repayment may be distributed to theAGR shareholders as dividends.

In addition to debt financing, cash will be required throughout the life of the Borooproject to fund changes in the levels of working capital, with a release of workingcapital expected in the later years as stockpile and gold concentrate inventories aredepleted, materials and supplies inventories are drawn down and trade receivablesand payables are fully realized.

Other payments in Table 27 refers to the refund of certain exploration expendituresto the Mongolian Government.

Table 27 Financing Costs 2004 - 2009

Financing Costs - $ millions 2004 2005 2006 2007 2008 2009 Total Interest and financing costs $0.3 $0.2 - - $(0.1) $(0.1) $0.3 Other payments 0.9 0.5 0.5 0.3 - - 2.2 Working capital required (released) 4.0 (1.0) 0.3 (0.7) (2.0) (5.0) (4.4)Total Financing Requirements $5.2 $(0.3) $0.8 $(0.4) $(2.1) $(5.1) $(1.9)

18.6 Boroo Mine Cash Flow

Table 28 summarizes the projected Boroo mine cash flows at gold prices of $300,$350 and $400 per ounce, net of operating costs, sustaining capital, reclamation costsand taxes, but before expenditures on exploration, and before repayment of theproject loan of $70 million advanced by Centerra Barbados Inc. together withassociated interest costs.

Exploration expenditures of $0.5 million are planned by BGC in 2004 on the Borooproperty in close proximity to the four zones of gold mineralization in the currentmineral reserves. Expenditures for subsequent years are likely to be for similaramounts dependent upon the results of the exploration programs for prior years. Inaddition an exploration budget of $1.5 million in 2004 has been established for work


108

on other exploration licenses held by BGC and CGM in northern Mongolia (Section14.4).

BGC has also budgeted $0.6 million for a pre-feasibility study on Gatsuurt oxide goldmineralization to be completed in 2004. Funding of the exploration programs, bothon and off the Boroo property, and the Gatsuurt pre-feasibility study is not includedin the summary of Boroo mine net cash flow in Table 28.

Table 28 Boroo Mine Net Cash Flow 2004 - 2009

- $ millions -

2004 2005 2006 2007 2008 2009 Total

Gold price - $300

Sales revenue $64.5 $61.2 $52.0 $50.8 $54.1 $39.5 $322.1 Operating costs 31.5 28.6 28.6 27.7 25.6 20.1 162.0 Project costs 8.5 3.1 2.8 1.8 0.9 0.4 17.5 Financing 5.2 (0.3) 0.8 (0.3) (2.0) (5.1) (1.7) Royalty 1.6 1.5 1.3 1.2 1.4 1.0 8.0 Income tax - - - 1.1 2.2 1.5 4.8 Sub-total 46.8 32.9 33.5 31.5 28.1 17.8 190.6Net Mine Cash Flow $17.7 $28.3 $18.5 $19.3 $26.0 $21.7 $131.5Gold price - $350Sales revenue $71.1 $68.2 $58.0 $58.7 $63.1 $46.1 $365.3 Operating costs 31.5 28.6 28.6 27.7 25.6 20.1 162.0 Project costs 8.5 3.1 2.8 1.8 0.9 0.4 17.5 Financing 5.2 (0.3) 0.8 (0.4) (2.1) (5.1) (1.9) Royalty 1.9 1.7 1.5 1.4 1.6 1.2 9.3 Income tax - - - 2.9 4.2 2.7 9.8 Sub-total 47.1 33.0 33.7 33.3 30.2 19.3 196.7Net Mine Cash Flow $24.0 $35.2 $24.3 $25.4 $32.9 $26.8 $168.6Gold price - $400Sales revenue $77.6 $75.3 $64.1 $66.7 $72.2 $52.6 $408.5 Operating costs 31.5 28.6 28.6 27.7 25.6 20.1 162.0 Project costs 8.5 3.1 2.8 1.8 0.9 0.4 17.5 Financing 5.2 (0.3) 0.8 (0.6) (2.1) (5.1) (2.1) Royalty 2.1 2.0 1.7 1.7 1.8 1.3 10.6 Income tax - - - 4.6 5.9 4.1 14.6 Sub-total 47.3 33.3 33.9 35.2 32.2 20.7 202.6Net Mine Cash Flow $30.3 $42.0 $30.2 $31.5 $40.0 $31.9 $205.9


109

50

100

150

200

250

300

275 300 325 350 375 400 425 450 475 500

Gold Price ($/oz)

NP

V $

mill

ion

0%

5%

10%

NPV of Boroo Mine Net Cash Flow 2004 - 2009

At 0%, 5% and 10% Discount Rates

NPV $ millionGold price 0% 5% 10%per ounce

$300 $131 $111 $95 350 169 142 122 400 206 174 149

18.7 Centerra Economic Interest in Boroo

Centerra receives payments indirectly from BGC and also, therefore, indirectly fromBoroo. After paying for operating, project and other costs, the remaining cash flowfrom the Boroo mine is paid by BGC to AGR in the form of interest payments (whichare subject to withholding tax) and principal repayments on the inter-company loanfrom AGR. The remaining free cash flow is distributed by BGC in the form ofdividends to AGR and Altai. AGR in turn uses some of the cash flow to makepayments on the debt outstanding under the $70 million loan facility provided byCenterra Barbados Inc.

The sum of the loan repayments, plus the Centerra equity interest in the residual cashflows of the Boroo mine through its 56% interest in AGR, results in the Centerraeffective economic interest attributable to the net cash flows from the mine beinggreater than its equity ownership in AGR. From the start of production in 2004,Centerra will be entitled to approximately 88% of the cash flow from the Boroo mineuntil the loan to AGR is repaid, after which its entitlement will be based solely on itsequity ownership through AGR. The Centerra economic interest in the Boroo netcash flow varies from 83% at a $300 gold price, to 71% at a $400 gold price, and is79% at the $325 gold price used in the estimation of mineral reserves. Table 29summarizes the net cash flow attributable to Centerra from the forecast of net minecash flow from the operations of the Boroo mine as presented in Table 28.


110

Table 29 Boroo Net Cash Flow Attributable to Centerra- $ millions -

Gold priceper ounce 2004 2005 2006 2007 2008 2009 Total

$300 $15.9 $25.0 $16.3 $17.0 $23.0 $12.0 $109.2350 21.4 31.0 21.5 21.6 17.6 14.6 127.7400 27.0 37.0 26.7 17.5 21.3 17.3 146.8

For every $50 per ounce change in the price of gold, the net mine cash flow for Borooattributable to Centerra over the period 2004-2009 will change by approximately $19million.

The NPV of the Boroo cash flow attributable to the economic interest of Centerra hasbeen analyzed for sensitivity to changes in the key parameters of gold price, operatingcosts and mineral reserves over the life of the Boroo project based on the currentmineral reserves. The resulting NPV values are tabulated in Table 30 and presentedin Figure 18. As with all gold mine projects, the Boroo mine cash flow is mostsensitive to changes in the gold price.

Table 30 NPV of Boroo Net Cash Flow Attributable to CenterraAt 0%, 5% and 10% Discount Rates

- $ millions -

Gold price$ per ounce 0% 5% 10%

$300 $109 $93 $80 350 128 110 95 400 147 126 110

Operating Costs 10% Decrease 10% Increase Gold price 0% 5% 10% 0% 5% 10%

$300 $116 $100 $86 $102 $86 $74 350 135 116 101 120 103 89 400 155 133 116 139 120 104

Mineral Reserves 10% Increase 20% IncreaseGold price 0% 5% 10% 0% 5% 10%

$300 $114 $96 $83 $119 $100 $85 350 134 115 99 141 119 103 400 155 133 115 164 139 120


111

50

75

100

125

150

175

200

NPV

$ m

illio

ns

+10% Base Case -10%Operating Costs

0%

5%

10%

Operating Costs

Base Case Gold Price - $375

50

75

100

125

150

175

200

NPV

$ m

illio

ns

275 300 325 350 375 400 425 450 475 500Gold Price ($/oz)

0%

5%

10%

Gold Price

50

75

100

125

150

175

200

NPV

$ m

illio

ns

Base Case +10% +20%Gold Reserves

0%

5%

10%

Base Case Gold Price - $375

Gold Reserves1

Figure 18 Centerra Attributable Cash Flows - NPV Sensitivities

1 Increases in net mine cash flows are based on any ounces of gold in excess of current reserves beingproduced in 2009 or later, at a total cash cost of $165 per ounce, including royalties.


112

The NPV of the Boroo net cash flow attributable to Centerra, or the NPV of theCenterra economic interest, expressed as a percentage of the NPV of the entireBoroo mine net cash flow is presented in the following tabulation.

Centerra Economic Interest in Boroo Net Mine Cash Flow NPV

Gold price per ounce

Discount Rate

0% 5% 10%

$300 83% 84% 84%

350 76 77 78

400 71 73 74


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19. REFERENCES

AGR Limited, 1999Feasibility Study, Boroo Project. Prepared by AGR and Resolute Limited, November 1999.Nine volumes.

AGR Limited, 2001Boroo Project, 1.75 mtpa Feasibility Study Review. Prepared by AGR and ResoluteLimited, April 2001

AMMTEC LTD., 1999 aGravity Separation/Cyanidation Leach Testwork Conducted upon Variability OreComposites from Boroo Gold Deposit. For Resolute Ltd. Report No. A6727 dated May1999 (Appendix 5.3 in AGR Feasibility Study)

AMMTEC LTD., 1999 bGravity Separation/Cyanidation Leach Testwork Conducted upon Six Variability OreComposites from Boroo Gold Deposit. For Resolute Ltd. Report No. A6843 dated July1999 (Appendix 5.4 in AGR Feasibility Study)

AMMTEC LTD., 1999 cAcid Mine Drainage Analysis Conducted upon Samples of Ore from the Boroo GoldDeposit. For African Gold Resources. Report No. A6959 dated September 1999 (Appendixto Appendix 8.6 in AGR Feasibility Study).

AMMTEC LTD., 1999 dCyanidation Leach Testwork/AMD Analysis conducted upon a Composite of Samples ofOre from the Boroo Gold Deposit. For AGR Ltd. Report No. A7100 dated December 1999(Appendix to Appendix 8.6 in AGR Feasibility Study).

Analytical Solutions Ltd., 2002Gatsuurt and Boroo. Memo to Rob Chapman of Cameco Gold Inc. regarding QA/QCresults at Analabs in Ulaanbaatar. Dated June 17, 2002

Boroo Gold Company, 2003 a Whittle Optimization. Internal memorandum, Boroo Gold Co., Ltd. dated June 18, 2003

Boroo Gold Company, 2003 b Boroo Gold Project. Operating Budget 2004. Dated October 6, 2003


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Boroo Gold Company, 2003 c 2004 Boroo Gold Project Mining Plan. Comprehensive Project description submitted forapproval to the State Social Inspectorate Agency (Mining Division), dated September 2003

Boroo Gold Company, 2003 d Ore Cut-Off Grade. Internal company memorandum dated November 13, 2003

Boroo Gold Company, 2003 and 2004Month-End Reports for December 2003 and January to March 2004.

Boroo Gold Company, 2004 aGatsuurt Oxide Feasibility Study – Project Justification. Internal BGC document datedMarch 8, 2004

Boroo Gold Company, 2004 bGatsuurt Oxide Feasibility Study – Project Scope. Internal BGC document dated March8, 2004

Bradley, T., 2004BGC - 2004 Mine Development Drilling Program. Internal BGC memorandum datedFebruary 12, 2004

Cameco Gold Inc., 2001Boroo Gold Project. Technical Due Diligence. Authors M. F. Lindsay and R. Chapman.August 2001

Cameco Gold Mongolia Limited, 2003 aNoyon Project. Exploration Report 2002. Dated February 20, 2003

Cameco Gold Mongolia Limited, 2003 bBoroo Project. Exploration Report 2002. Dated February 26, 2003

Cameco Gold Mongolia Limited, 2004 a Gatsuurt Gold Prospect. Summary of QA Programs 1999 - 2004. Dated January 15, 2004

Cameco Gold Mongolia Limited, 2004 bNoyon Project. Exploration Report 2003. Dated February 8, 2004


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Cameco Gold Mongolia Limited, 2004 cBoroo Project. Exploration Report 2003. Dated February 10, 2004

Chapman, R., 2003 aBoroo Deposit - Metallurgical Test Work Results. Internal Cameco Gold Inc. memo datedFebruary 7, 2003

Chapman, R., 2003 bBoroo Deposit - Summary of Pit Optimizations Completed by James Pearson. . InternalCameco Gold Inc. memo dated February 10, 2003

Canadian Institute of Mining, Metallurgy and Petroleum, 2000Standards on Mineral Resources and Reserves, CIM Bulletin,Vol. 93, No. 1044, pp 53-61, October 2000.

C M Orr, 1999Boroo Gold Project, Mongolia. Assessment of Ground Conditions Influencing Pit WallStability and Excavation Requirements, and Recommended Wall Designs. George, Orrand Associates (Australia) Pty Ltd., September 1999 (Appendix 4.4 in AGR FeasibilityStudy)

D. E. Cooper & Associates Pty. Ltd., 1999AGR Limited. Boroo Gold Project, Tailings Management. Dated 8 December 1999(Appendix 6.11 in AGR Feasibility Study).

Featly Pty Limited, 2003Boroo Gold Project. Pit Optimisations and Design, Model Comparisons. January 2003

Geostat Systems International Inc., 2003 aResource/Reserve Estimation for the Boroo Gold Deposit. Unpublished Report for CamecoGold Corp. Final version dated August 11 2003

Geostat Systems International Inc., 2003 bResource/Reserve Estimation for the Boroo Gold Deposit. Update of December 2003.Unpublished Report for Cameco Gold Corp., dated December 2003

H. A. Simons, 1994MK Gold Corporation. Boroo - Joint Venture in Mongolia - Feasibility Study. November1994


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International Finance Corporation (IFC), 2002Investors’ Forum 2002, Ulaanbaatar, Mongolia, September 2002

JEMR Consulting Co., Ltd., 1999Boroo Gold Project. Environmental Impact Assessment. (Appendix 8.6 in AGR FeasibilityStudy)

Mainville, A. & Chauvet, J-F., 2001Boroo Resources/Reserves Comments. Cameco Inter-Office Memo dated July 17, 2001

Metplant Engineering Services, 1999African Gold Resources, Boroo Project: Mongolian Power System. Ref. 968/AFR448/089dated 15. October 1999 (Appendix 6.9 in AGR Feasibility Study)

Olson, T., 2003Ore Cutoff Grade. Internal memorandum, Boroo Gold Inc., dated November 13, 2003

Orway Mineral Consultants, 1999African Gold Resources Ltd. Boroo Gold Project - Ore Characterization and GrindingCircuit Design. August 1999 (Appendix 5.5 in AGR Feasibility Study)

Resource Service Group, 2000Boroo: Comparative Resource Estimate. Memorandum to Rothschild Australia Limited andto Macquarie Bank Limited dated March 27, 2000

Resource Service Group, 2001Comparative Resource Estimate at Boroo. Memorandum to Resolute Limited dated May14, 2001

SENES Consultants Limited, 2002Addendum No. 1, Environmental Impact Assessment, Boroo Gold Project. Prepared forCameco Gold Inc. Dated July 2002

SRK Consulting, 2000 aReview of Boroo Gold Project (for NM Rothchilds & Sons). February 2000


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SRK Consulting, 2000 bReview of Boroo Gold Project. Project Summary June Update. Prepared for AGR Limited.June 2000

SRK Consulting, 2001 aResolute Limited. Re-estimation of Pit 5 by Uniform Conditioning for the Boroo GoldProject. February 2001. Appendix 1 in AGR Limited 2001

SRK Consulting, 2001 bAGR Ltd. Boroo Pit 5 - Optimisation and Practical Pit Design. Resolute Limited. March2001. Appendix 2 in AGR Limited 2001

SRK Consulting, 2003Updated estimation of the Boroo Gold Project by Uniform Conditioning. January 2003

Stability Agreement, 2000By and between the Government of Mongolia represented by the Minister of Finance andBoroo Gold Company Limited established under the laws of Mongolia (certificate ofregistration 21/498). Originally concluded 6th of July, 1998 and amended 9th of May, 2000.

Unknown Authors, 1991Report on Hydrology of the Boroo area (the English translation does not include the reportcover).

USSR All Union Export and Import Association (Tsvetmetpromexport), 1987Report on Laboratory and Pilot Tests to develop a Rational Technology for Gold Extractionfrom ore of Boroo Deposit (MNR). Executed by the Irkutsk State Research Institute of Rareand Non-ferrous Metals IRGIREDMET. (Appendix 5.2 in AGR Feasibility Study)

Waltho, A.E. 1998Boroo Gold Project Mongolia. Review of Geology, Resources and Previous Work for BorooGold Company Ltd. Mining and Resource Technology Report MRT 0583, Ref 97160, datedJanuary 1998 (Appendix 3.3 in AGR Feasibility Study).

Young, P., 2003Gatsuurt Project – Testwork Review. Memorandum on letterhead of SNC-Lavalin,Engineers & Constructors, to Rob Chapman of Cameco Gold Inc. dated March 18, 2003


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