Gascoyne Resources : December 2016 Quarterly Report, 4.7 MB

DALGARANGA PROJECT:

57 139 522 900

During the quarter significant progress was made towards development of the Company's 100% Dalgaranga Gold Project, including completion of the Feasibility Study as well as continuation of an ongoing aggressive exploration and resource drilling programme.

Additionally Gascoyne moved to 100% ownership of the Dalgaranga Gold Project through completion of the purchase of the 20% balance of the Mining Lease and Miscellaneous licences that were owned by our JV Partner. The consideration paid for the 20% interest was $4.5 million in cash and 11 million Gascoyne shares, with a deferred cash payment of $1.5 million to be paid after 30,000 ounces have been produced from the project.

The Feasibility Study (FS) was also completed and concluded that a viable project could be developed at Dalgaranga. Key outcomes were:

• FS outlines a technically and financially robust project with an initial 6 year life of mine (LOM) with undiscounted pre-tax operating cash surplus of A$373 million from revenue of A$866 million1

• Development based on two open cut mines, and a new conventional SAG milling circuit, gravity and carbon in leach processing plant with a nameplate throughput of 2.5Mtpa, with low Operating Cash Cost (C1) of A$869/oz2 and all in sustaining cost (AISC) of A$931/oz3

• Pre-production Capital Cost for processing plant and associated Infrastructure of A$86 million (including contingencies of $6.1m) - payback within 18 months of production

• Production of 105,000ozpa in first two years

• 592,500 ounces within the initial mine plan 4 (14.1Mt @ 1.31 g/t gold), with exceptional potential for Resource growth

• Proved and Probable Ore Reserve of 552,000 ounces (13.3Mt @ 1.29 g/t) a 25% increase over PFS

  The FS excludes the exploration potential at the project, in particular the Gilbeys South and Sly Fox Prospects, where drilling during the quarter intersected significant mineralisation including:

  Gilbeys South:

  • 22m @ 5.7 g/t gold, including 6m @ 18 g/t gold
  • 22m @ 2.5 g/t gold
  • 8m @ 11.5 g/t gold including 1m @ 83.7 g/t gold
  • 5m @ 10.7 g/t gold
  • 12m @ 2.0 g/t gold, including 4m @ 5.5 g/t gold
  • 23m @ 1.2 g/t gold o 5m @ 5.2 g/t gold o 14m @ 1.4 g/t gold o 12m @ 1.7 g/t gold o 19m @ 1.2 g/t gold o 13m @ 1.2 g/t gold

    Sly Fox:

  • 36m @ 2.3 g/t gold from 16m including 16m @ 4.2 g/t
  • 39m @ 1.1 g/t gold from 8m to EOH
  • 47m @ 0.5 g/t gold from surface to EOH

GLENBURGH PROJECT:

Soil sampling of a number of regional targets was undertaken during the quarter. Results are currently being assessed with the aim to be drill testing the priority targets in the first half of 2017.

CORPORATE:

During the quarter 2.8 million unlisted employee options were exercised and a further

Figure 2: Dalgaranga Site Layout

The FS excludes the exploration potential at the project, in particular the Gilbeys South and Sly Fox Prospects (see below for a summary of recent exploration drilling) where strong gold mineralisation has been intersected, and the Company is highly confident of defining additional Resources which it expects will expand the existing 6 year life of mine of the Dalgaranga Project.

See ASX announcement 25th November 2016 titled "Feasibility Confirms Dalgaranga as a Low Cost / High Margin Project" for full details of the Feasibility Study.

Cautionary Statement:

The Company advises that while the FS is based on Proved and Probable Ore Reserves (93%), it is partly based on Inferred Mineral Resources (7%). There is a lower level of geological confidence associated with Inferred Mineral Resources and there is no certainty that further exploration work will result in the determination of Indicated Mineral Resources or that the Inferred Mineral Resources will add to the economics of the project. Currently the drill spacing in the Inferred portion of the resource is too sparse to allow the material to be classified as Indicated. There has historically been very good conversion of Inferred Resources into Indicated Resources as the structures and geological units that host the mineralisation at Dalgaranga can be traced along strike and at depth. however there is no assurance that the economic evaluation outlined above will be realised.

1 Based on production of 541,000oz at US$1,200 gold price, A$/US$ exchange rate of 75c. All amounts in A$ unless otherwise stated

2 C1 operating costs include all mining and processing costs, site administration, refining and site rehabilitation costs

3 AISC includes C1 costs + royalties, sustaining capital, but excludes head office corporate costs.

4. 93% of the material in the mine plan is classified as an Ore Reserve, the remaining 7% is classified as Inferred Mineral Resource.

Table 1 - Key Project Statistics

DEVELOPMENT UPDATE

Following completion of the Feasibility Study, the board has, subject to obtaining a suitable financing arrangement, approved the project to proceed to construction. A large amount of work has already been undertaken towards development. These activities include:

Staffing

Two key management appointments have been made with appointment of a Development Manager, Mr Ian Kerr and Mr David Lim to the role of Chief Financial Controller (CFO).