PMI Gold Corporation : QUARTER ACTIVITY UPDATE For the period ended 30 September 2012

October 27, 2012 at 02:08 am

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Highlights:

Obotan Gold Project (SW Ghana, West Africa)

Independent NI 43-101 compliant Feasibility Study confirms a financially and technically robust mining operation at Obotan, with key outcomes including:
- Pre-tax NPV of US$614M and Post-tax NPV of US$387M, assuming a US$1,300/oz gold price, 5% discount rate and contract mining scenario (consistent with the January 2012 Pre-feasibility Study):
  - Pre-tax IRR of 35% and post-tax IRR of 28%
  - Capital payback period of 2.9 years
- At a gold price of US$1600/oz:
  - Pre-tax NPV rises to US$1.07B and post-tax NPV to US$686M
  - Pre-tax IRR increases to 54% and post-tax IRR to 43%
  - Capital payback period reduced to 2.0 years
- Average gold production of 221,500oz pa over the first five years
- Total production of 2.26 million recovered ounces of gold over the 11.5-year mine life
- Life-of-mine Project Revenue of US$2.9 billion
- Estimated average life-of-mine cash operating costs of US$626/oz
- Increased Proven and Probable Ore Reserves of 34.2Mt at 2.21g/t for 2.43Moz of gold across four deposits - an increase of 170,000oz from the January 2012 Pre-feasibility Study
- Capital cost estimate of US$296.6M including a pre-strip mining cost of US$82.2M
Minerals Commission of Ghana has favorably recommended that the Mining Leases for the Obotan Gold Project be granted.

Regional Exploration

Encouraging results from first-pass aircore drilling at the Afiefiso Project, 12km SW of Obotan, including:
- 16m @ 1.73 g/t Au from 11m (including 3m @ 7.58 g/t Au from 19m)
- 15m @ 1.16 g/t Au from 48m (including 2m @ 4.99 g/t Au from 48m)
- 3m @ 13.64 g/t Au from 12m (including 1m @ 40.57 g/t Au from 12m)
First-phase drilling completed at the Fromenda Prospect, 15km SW of Obotan, intersecting high-grade gold mineralization of up to 38.18g/t Au.
Encouraging results from diamond drilling at Kubi South, 1.5km south of the Kubi Main Deposit, including:
- 5m @ 3.33 g/t Au from 103m (including 2m @ 5.3 g/t Au from 103m)
- 8m @ 1.39 g/t Au from 116m (including 2m @2.56 g/t Au from 119m)
- 4m @ 1.55 g/t Au from 98m (including 1m @ 5.23 g/t Au from 101m)
- 2m @ 2.40 g/t Au from 120m (including 1m @ 4.1 g/t Au from 121m)

Acquisitions & Business Development

Government approval received for the acquisition of a strategically located Mining Lease from Midras Mining Co. This important Mining Lease is contiguous with the southern boundary of the Obotan Gold Project.

Corporate and Finance

Optimum Capital Pty Ltd engaged to assist PMI to identify and secure appropriate debt finance for development of the Obotan Project.
Decision to apply for listing on the Toronto Stock Exchange.
US$30M standby funding facility secured with Macquarie Bank Ltd while full funding facility for Obotan development is completed.
C$100 million equity financing announced subsequent to Quarter end.
The Company's cash position at the end of the September 2012 Quarter was C$26,667,749.

Summary

Since the completion of the Pre-feasibility Study on its flagship Obotan Gold Project at the beginning of 2012, PMI Gold Corporation (TSX-V: PMV; ASX: PVM) has implemented a growth strategy encompassing activities on three fronts in Ghana, West Africa, namely:

Completion of a Feasibility Study to enable a development decision to be made for the Obotan Gold Project, paving the way for PMI to join the ranks of gold producers in West Africa;
Ongoing regional exploration of a series of targets on its extensive tenement holdings to identify new resources, both additional sources of oxide ore to feed the Obotan gold plant and potential future standalone gold production centres; and
To identify and implement strategic acquisitions to strengthen the Company's regional position in the highly prospective Asankrangwa Gold Belt of SW Ghana.

PROJECT DEVELOPMENT

Obotan Gold Project

The Obotan Gold Project is an advanced gold development project in south-west Ghana, with established resources located within the Company's Abore-Abirem and Adubea concessions. These concessions lie within the northern 15km of the total 70km strike length of contiguous concessions the Company holds in the Asankrangwa Gold Belt (Figure 2).

The Obotan Project comprises four known deposits (see resource estimates below) - the larger Nkran Deposit and the smaller satellite deposits at Abore, Adubiaso and Asuadai. The Obotan Project was previously operated by Resolute Mining Ltd; mining ceased in 2002 after producing a total of 730,000oz at an average grade of 2.2g/t, when the gold priced averaged about US$350/oz.

Unlike the other Obotan deposits, the Asuadai deposit has not previously been mined.

Feasibility Study

During the September 2012 Quarter, PMI reported positive results from an independent NI 43-101 Feasibility Study on the Obotan Project, through its wholly-owned subsidiary Adansi Gold Company Ghana Limited ("Adansi"). The Feasibility Study outlined a strong and viable gold project based on a gold price of US$1,300/ounce that will form the cornerstone of PMI's emerging West African gold production strategy.

The strong economics of the Obotan Project provide a solid investment case for financing and development of the Obotan Project with the commencement of construction targeted during Q1 of 2013 to achieve first gold production from Obotan in 2014, conditional on obtaining all statutory approvals, Board Approval, and the finalization of financing arrangements.

The Feasibility Study, which commenced in the January 2012 Quarter, was completed by GR Engineering Services Limited ("GRES") with support and input from a range of internationally renowned consultancy groups including SRK, Orelogy, Knight Piesold and AERC. Cost estimates were based on quotes from five mining contractors and firm tenders received from suppliers.

Key highlights of the Feasibility Study include:

Increased Proven and Probable Reserves of 34.2Mt at 2.21g/t for 2.43Moz of contained gold were calculated as part of the Feasibility Study. This represents a 13% increase in tonnage and 8% increase in contained gold compared with the maiden Proven and Probable Ore Reserve in the January 2012 Pre-feasibility Study (30.3Mt at 2.32g/t for 2.26Moz of gold). A 4.7% reduction in grade has been offset by the conversion of additional Inferred Resources to Indicated Resources then into reserves as a result of successful in-fill drilling programs. There are additional Inferred Resources within the open pit which have not been included in the Ore Reserve but which may be converted in future.
Life-of-mine production of 2.26Moz of recovered gold over an initial 11.5-year production life (exclusive of 1 year pre-strip operations). The waste-to-ore ratio has been reduced from 7.6 in the Pre-feasibility Study to 6.4 (including the pre-strip). Post pre-strip, the life-of-mine strip ratio drops to 5.6:1.
Life-of-mine average cash operating costs are estimated at US$626/oz (excluding royalties, refining costs and pre-strip). Total cash operating costs are estimated at US$722/oz including royalties and refining costs, (excluding pre-strip).

Mineral Resources & Ore Reserves

The previously-reported JORC / NI43-101 compliant Mineral Resource inventory for the Obotan Gold Project was estimated by SRK Consulting and reported to the ASX/TSX on 11 April 2012, as outlined below:

	NI43-101/JORC Code Compliant: SRK Resource Estimate (March 2012), based on 0.5 g/t Au lower cut-off grade
	Deposit		Measured				Indicated				Measured & indicated			Inferred
	Deposit	Tonnes (million)		Grade (g/t Au)		Ounces (million)		Tonnes (million)		Grade (g/t Au)		Ounces (million)	Tonnes (million)		Grade (g/t Au)	Ounces (million)	Tonnes (million)	Grade (g/t Au)	Ounces (million)
Nkran	11.74	2.55	0.96	20.41	2.12	1.39	32.15	2.28	2.35	14.47	2.21	1.05
Adubiaso	1.50	2.98	0.14	2.67	2.41	0.21	4.17	2.59	0.35	1.25	1.91	0.08
Abore	2.33	1.78	0.13	3.70	1.53	0.18	6.03	1.60	0.31	3.92	1.50	0.19
Asuadai	n/a	n/a	n/a	2.44	1.28	0.10	2.44	1.28	0.10	2.00	1.33	0.08
TOTAL	15.57	2.47	1.23	29.21	2.00	1.88	44.79	2.16	3.11	21.91	1.99	1.40

(All resource numbers are rounded to 2 decimal places - 10,000 tonnes).

Following completion of mine optimization and planning, an updated Ore Reserve statement was completed by Orelogy Mining Consultants, as outlined below:

	NI43-101/JORC Code Compliant: Feasibility Study Obotan Ore Reserve
	Class		Tonnes (Mt)	Grade (g/t Au)	Contained Gold (Moz)
Proven	14.8	2.39	1.14
Probable	19.4	2.08	1.30
Total	34.2	2.21	2.43

This compares to the previous Ore Reserves (below) as reported in the Pre-feasibility Study announcement:

	NI43-101/JORC Code Compliant: Pre- Feasibility Obotan Ore Reserve
	Class		Tonnes (Mt)	Grade (g/t Au)	Contained Gold (Moz)
Proven	14.0	2.36	1.06
Probable	16.3	2.28	1.20
Total	30.3	2.32	2.26

(Any inconsistencies due to rounding.)

Key Project Parameters

The Feasibility Study results demonstrate a technically robust mining operation with anticipated life-of-mine (LOM) parameters as follows:

	Item	Description / Estimate
Mining method	Open Pit Mining
Processing rate	3Mtpa primary ore, 3.8Mtpa oxide ore
Metallurgical recovery	92.8% average
Total recovered gold	2.26 million oz
Mine Production Life	11.5 years
Cash operating costs	$626/ oz
Pre-Production Capital Cost	$296.6M
Pre-tax operating cashflow	$953M
Life of Mine sustaining mine capital	$56.2M
Construction commencement*	1st Quarter 2013
First production*	End of 1st Quarter 2014

*Subject to Financial Investment Decision (FID) timing

Capital Cost Breakdown

	Cost Area	US$ Million
Process Plant Direct	$ 83.6
Infrastructure	$ 49.2
Indirect	$ 26.1
Spares and First Fills	$ 8.9
Owners Costs	$ 26.2
Pre-Strip	$ 82.2
Mining Establishment	$ 20.3
Initial Capital	$ 296.6
Deferred & Sustaining Life of Mine Capital	$ 56.2

Operating Cost Breakdown

	Costs		Total Cost US$ Million	US$/t Milled (excl. pre-strip)	US$/oz Au Recovered (excl. pre-strip)
Mining	$ 850.4	$ 24.84	$ 376.5
Processing	$ 473.1	$ 13.82	$ 209.4
General & Administration	$ 90.6	$ 2.65	$ 40.1
Sub Total	$ 1414.0	$ 41.31	$ 626.0
Bullion and Refining	$ 12.1	$ 0.35	$ 5.3
Royalties	$ 205.6	$ 6.01	$ 91.0
Total Operating Cost	$ 1631.7	$ 47.67	$ 722.3

Financial Evaluation

			@ U$1300 / ounce	@ U$1600 / ounce
Project revenue	$ 2.9 B	$ 3.61 B
Project pre-tax cash flow	$ 953 M	$ 1.58 B
Project pre-tax NPV (5% discount rate)	$ 614 M	$ 1.07 B
Project pre-tax NPV (8% discount rate)	$ 472 M	$ 856 M
Project pre-tax IRR	35%	54%