Terra Aurum : Annual Report and Accounts

China Nonferrous Gold Limited 中国有色黄金有限公司 (AIM: CNG), the mineral exploration and development company currently developing the Pakrut gold project in the Republic of Tajikistan, today announces its final results for the year ended 31 December 2015.

The results below are extracted from the Company's audited Annual Report and Financial Statements. Copies of the Annual Report will be posted to shareholders today and are available on the Company's website (www.cnfgold.com) and from the Company's office at Unit 2.24, The Plaza, 535 Kings Road, London SW10 0SZ.

For further information please visit the Company's website (www.cnfgold.com) or contact:

China Nonferrous Gold Limited

David Tang, Managing Director

Tel: +86 10 8442 6681

Investec Bank Plc

Jeremy Ellis, George Price

Tel: +44 (0)20 7597 5970

Blytheweigh

Tim Blythe, Nick Elwes

Tel: +44 (0)20 7138 3204

Notes

The Pakrut gold project, of which CNG has 100 per cent ownership, is situated in Tajikistan approximately 120km northeast of the capital city Dushanbe. Pakrut is located within the Tien Shan gold belt, which extends from Uzbekistan into Tajikistan, Kyrgyzstan and Western China, and which hosts a number of multi-million ounce gold deposits.

CNG is currently in a construction phase with mining contractors on site constructing the mine, plant and tailings dam.

Tajikistan is a secular republic located in Central Asia. The country is a member of the Commonwealth of Independent States and the Shanghai Cooperation Organisation. Tajikistan hosts numerous operating precious metal mines as well as the largest aluminium smelter in Central Asia. CNG's management team has extensive experience in the mining industry in Tajikistan.

Chairman's Statement

As the Chairman of the Board, it gives me great pleasure to present the Chairman's Statement at a time when the Group has made significant progress. The year ending 31 December 2015 witnessed two significant milestones for our company with the completion of the project construction and first gold poured at our Pakrut Project.

Construction

In the first half of the year, work continued at a fast pace and by September we were able to report significant progress on the Main Decline, the West Ventilation Access Decline and the Ore Extraction Ramp. Furthermore, in the first half of the year we completed the connection Ramp between 2,170 and 2,350 metres.

The Connection Ramp at the levels of 2,292, 2,230, 2,170 and 2,110 metres reached 4,943 metres by the end of the year and the mining preparation and cutting work continued over the course of the year with 4,545 metres of tunneling completed across all sublevels. At the same time, we finished 47 metres of the West Ventilation Shaft and 33.4 metres tunnelling to the adit of the East Ventilation shaft.

We continued to make considerable progress on mine engineering and development work in the second half of the year. Construction for nearly all of the workshops, the processing plant and most of the supporting facilities were completed during the course of the year and the processing plant was commissioned at the end of September 2015. Construction of the smelting plant was also completed in 2015 and the plant was commissioned in October 2015, as planned.

The construction and installation of 73 kilometres of external power lines up to sites and construction of two electrical substations at Pakrut and Hamza have been completed. From July 2015, electricity from the national grid began to be supplied to both the Pakrut processing plant and the smelting plant in Vahdat.

Trial Production

The mining of the ore started in the second half of the year at the 2,292 metre level and, by the end of the year, 98,445 tonnes of ore had been mined. Including ore accumulated during the construction period, we have a stock pile of more than 160,000 tonnes of ore as at the end of 2015. On 1 October, we were able to announce that trial production had started and on 29 December the first gold ingots were poured. In total, 2.45 Kg of gold bars were produced from the trial.

Financial Results

As progress on the Pakrut project accelerated, the amount of expenditure incurred by the Group on development and construction work during the year increased from the previous year and stood at US$ 112,592,000 (2014: US$81,488,000). Administration expenditure was US$3,166,000 (2014: US$4,968,000). The overall loss incurred by the Group was US$6,150,000 (2014: US$15,680,000).

The principal balance of the shareholder loan for the RMB tranch and USD tranches at the end of the period was US$20,864,188 (2014: US$47,059,863) and US$44,999,900 (2014: US$8,333,300) respectively, with the lender providing flexibility over the course of the year on the currency of draw down. The total balance outstanding under the Shareholder loan including accrued interest amounted to US$69,224,000 at the end of the period (2014: US$55,594,000). Loan repayments were made in accordance with the loan repayment schedule and financed from existing facilities.

In May 2015, the Group continued to draw down the final US$40,000,000 tranche of a bank term loan facility totalling US$120,000,000 from the Industrial and Commercial Bank of China (Macau) Limited, which was secured by standby letters of credit. A total of US$54,030,000 was drawn down during 2015. Interest is charged at a rate of 2.9% above the 3 month LIBOR rate. Loan repayments commenced in January 2016, post period end, in accordance with the relevant agreements and have been paid utilising the Company's existing facilities.

It is the opinion of the board of directors that the Group has sufficient funds to continue as a going concern, after taking into account revenue from projected gold sales. Shareholders attention is also drawn to the auditor's opinion which contains an emphasis of matter in relation to approval of Pakrut reserves by Tajik Department of Geology.

Post year end

On 6 May, 2016 the Company has signed documentation with CNMC International Capitals Company Limited ("CNMC"), an associate of China Nonferrous Metals International Mining Co., Ltd ("CNIMIM"), the Company's 38.36% shareholder, for a loan facility of USD$120 million ("CNMC Loan"). The CNMC Loan will be used to refinance the loan facility with the Industrial and Commercial Bank of China (Macau) Limited ("ICBC"), under which USD$115 million was drawn at the time of announcement, and for working capital. The CNMC Loan is repayable on 31 December 2018 and includes an annual fixed interest rate of 4% on the amount drawn down, payable half yearly in arrears. The Company is also in discussions to refinance its 2012 loan with China Nonferrous Metals Int'l Mining Co., Ltd.

Outlook

The transformation of the Pakrut Gold Project from construction to production is now almost complete and this remains the immediate focus of the management. Issues from trial mining have been resolved and the Company is on course to reach nameplate capacity for phase one of the project of 2,000 tonnes per day during the fourth quarter of 2016. The plant is currently processing 1,300 tonnes of ore per day.

During the course of the next 12 months the Company plans to construct a permanent camp at site, replacing the temporary one currently in use and relocate the tailings dam. The current tailings dam was always expected to be temporary in nature and the Company expects to complete the construction of a new permanent tailings dam in the first half of 2017. The current site has sufficient capacity until this time.

I would like to take this opportunity to thank all of our employees, management and advisors for their continued effort in 2015 and thank our shareholders for their continued support of our Group. I very much look forward to updating our shareholders on the mine developments and production levels.

Xiang Wu

Chairman

Director

30 June 2016

Independent Auditor's Report to the Members of China Nonferrous Gold Limited

We have audited the Financial Statements of China Nonferrous Gold Limited for the year ended 31 December 2015 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Accounting Policies and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the Company's members, as a body. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone, other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and Auditor

As explained more fully in the Statement of Directors' Responsibilities, the Directors are responsible for the preparation of the Financial Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Financial Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

Scope of the audit of the Financial Statements

An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed, the reasonableness of significant accounting estimates made by the Directors, and the overall presentation of the Financial Statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited Financial Statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on Financial Statements

In our opinion:

• the Financial Statements give a true and fair view of the state of the Group's affairs as at 31 December 2015 and of the Group's loss for the year then ended; and
• the Financial Statements of the Company and Group have been properly prepared in accordance with IFRSs as adopted by the European Union.

Emphasis of matter - Approval of Pakrut reserves by Tajik Department of Geology

In forming our opinion on the Financial Statements, which is not modified, we have considered the adequacy of the disclosures made in Note 2 - Critical Accounting Estimates, Assumptions and Judgements, concerning the expected successful approval of the increased JORC compliant resources from the Tajik Department of Geology and the Scientific and Technical Counsel, which includes the results of all exploration and evaluation activities undertaken by the Group between 2009 and 2013. The application is currently subject to that approval process and, whilst the approval process remains ongoing and has not yet been finalised, the Directors are not aware of any legal or other impediments which would prevent approval of their application and therefore permit the Group to mine the increased resources. No provision for any impairment that may result if approval is not obtained has been made in the Financial Statements.

PKF Littlejohn LLP 1 Westferry Circus

Chartered Accountants and Registered Auditor Canary Wharf

London E14 4HD

30 June 2016 United Kingdom

Consolidated Statement of Statement of Comprehensive Income

Year ended 31 December 2015

All of the activities of the Group are classed as continuing.

Consolidated Statement of Statement of Financial Position

Year ended 31 December 2015

These Financial Statements were approved and authorised for issue by the Directors on 30 June 2016 and are signed on their behalf by

Mr Weili Tang Mr Li Li

Managing Director Finance Director

Consolidated Statement of Statement of Changes In Equity

Year ended 31 December 2015

Attributable to owners of the parent

Other reserve comprises the capital reorganisation reserve under the scheme of arrangement.

Consolidated Statement of Statement of Cash Flows

Year ended 31 December 2015

Major non-cash transactions

Year ended 31 December 2015

During 2015 the Group made drawdowns from its loan facility with CNMIM of USD 10,470,925, and made drawdowns from ICBC loan facilities of USD 100,000,000, which under the agency arrangement were paid directly to suppliers and contractors in order to settle the Group's liabilities for mine construction, power line construction and the provision of processing plant equipment and materials.

Year ended 31 December 2014

During 2014 the Group made drawdowns from its loan facility with CNMIM under the RMB tranche of RMB274,409,000 (equivalent to US$43,557,000), which under the agency arrangement were paid directly to suppliers and contractors in order to settle the Group's liabilities for mine construction, power line construction and the provision of processing plant equipment and materials.

1.Basis of Preparation

The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRSIC) as adopted by the European Union. The Financial Statements have been prepared on a historical cost basis.

2.Critical Accounting Estimates, Assumptions and Judgements

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are set out below. Estimates and assumptions are continually evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets and liabilities affected in future periods.

The Group has identified the following areas where significant estimates, assumptions and judgements are required. The most significant judgement for the Group is the assumption that exploration and development at its sites will ultimately lead to a commercial mining operation. Failure to do so could lead to the write-off of the intangible assets and property, plant and equipment relating to the particular site.

Approval of Pakrut reserves by Tajik Department of Geology

In November 2011, the Government of the Republic of Tajikistan issued the Pakrut Gold Project mining licence to LLC Pakrut. According to the terms of the licence, the amount of ore that can be mined is variable depending upon the mine plan. The plan submitted by the Group envisages an initial processing capacity of 660,000 tons of ore per annum, increasing to 1,320,000 tons per annum. The mining licence is valid until 2 November 2030.

The mining licence issued in November 2011 currently entitles the Group to mine JORC compliant resources (measured, indicated and inferred) of 904,000 ounces out of total JORC compliant resources of 4,383,000 ounces at Pakrut, excluding the Eastern Pakrut, Rufigar and Sulfidnoye ore zones. The JORC compliant resources include the results from the Group's exploration and evaluation work subsequent to the mining licence issue date.

LLC Pakrut has sought approval of the increased JORC compliant resources from the Tajik Department of Geology and the Scientific and Technical Counsel which includes the results of all exploration and evaluation activities undertaken by the Group between 2009 and 2013. The application is currently subject to that approval process and the Directors are not aware of any legal or other impediments which would prevent approval of their application and therefore permit the Group to mine the increased resources. However, the approval process currently remains incomplete.

The mine design and construction work undertaken to date, together with the assessment of the recoverable amount of 'Mines under Construction' (see below), is based upon the total quantity of JORC compliant resources of which part falls outside the area covered by the mining licence and still subject to formal approval, as noted above. Failure to obtain this approval would lead to an impairment of 'Mines under Construction', together with inventories, and also impact the going concern basis of preparation of the Financial Statements. No provision for impairment has been recognised in these Financial Statements relating to this uncertainty.

Estimated impairment of exploration and evaluation assets and mines under construction

The Group tests annually whether exploration, evaluation and licensing assets and mines under construction have suffered any impairment. The recoverable amounts of the cash generating units ("CGUs") have been determined based on value in use calculations which require the use of estimates and assumptions such as long-term commodity prices, discount rates, operating costs, future capital requirements and mineral resource estimates (see below). These estimates and assumptions are subject to risk and uncertainty and therefore there is a possibility that changes in circumstances will impact the recoverable amount. Management has assessed its CGUs as being individual exploration and mine sites, which is the lowest level for which cash inflows are independent of those of other assets or CGUs.

In assessing the carrying amounts of its exploration, evaluation and licensing assets and mines under construction at Pakrut, the Directors have used an independently prepared and Director approved bankable feasibility study. The assessment period used in the report is the anticipated life of the mine to the expiration of the licence in 2030, which consists of 2 years to prepare for full production, and 13 years of full production. Gold revenues have been estimated over that period at a price of US$1,100 per ounce to US$1,210. These estimates are based on, and are consistent with, external sources of information. The calculation assumes a mining capacity of 2,000 tonnes of ore daily increasing to 4,000 tonnes per day. The total cost per ounce including royalties, taxes, depreciation and amortisation is US$698, after taking into account external information available and adjusted according to prevailing market prices and forecasts over the period of production. Royalties have been calculated at 6% of sales revenues and corporate income tax at 15%, according to the relevant laws in Tajikistan. A discount rate of 10% has been utilised.

The calculations have been tested for sensitivity to changes in the key assumptions. The most sensitive inputs in the calculation of the value in use are operating costs, the gold price, and the discount rate. An impairment to the mine value would occur if gold prices fell to the five year low, costs were to increase by 10%, and the discount factor used were to increase to 12%.

Certain of the Group's other exploration and evaluation projects are at an early stage of development and no JORC compliant resource estimates are available to enable value in use calculations to be prepared. The Directors therefore undertook an assessment of the following areas and circumstances which could indicate the existence of impairment:

• The Group's right to explore in an area has expired, or will expire in the near future without renewal.
• No further exploration or evaluation is planned or budgeted for.
• A decision has been taken by the Board to discontinue exploration and evaluation in an area due to the absence of a commercial level of reserves.
• Sufficient data exists to indicate that the book value will not be fully recovered from future development and production.

The rights of LLC Pakrut to carry out exploration and evaluation activity at the Pakrut deposit expired on 1 April 2014. The Exploration Licence area includes the Pakrut, Eastern Pakrut, Rufigor and Sulfidnoye gold and mineral deposits. The renewal application by the Group to extend the Exploration Licence is being considered by the Government of Tajikistan. Although the Directors are not aware of any legal or other impediments which would ultimately prevent approval of the licence extension, the Directors fully impaired the carrying value of the exploration and evaluation assets relating to Eastern Pakrut, Rufigar and Sulfidnoye during 2014 due to non-renewal of the Exploration Licence as at 31 December 2014. The licences remain unapproved as at 31 December 2015. Exploration and evaluation activities can continue at the Pakrut Gold Deposit in the area covered by the Mining Licence.

Mineral resource and reserve estimates

Reserves are estimates of the amount of resources that can be economically and legally extracted from the Group's mining properties. The Group estimates its mineral resources based on information compiled by appropriately qualified persons relating to the geological and technical data on the size, depth, shape and grade of the ore body and suitable production techniques and recovery rates. This analysis requires complex geological judgements to interpret the data. The estimation of the recoverable amount is based upon factors such as estimates of commodity prices, future capital expenditure and production costs along with geological assumptions made in estimating the size and grade of the resources.

The Group estimates and reports mineral resource estimates in line with the principles contained in the Australasian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves (December 2004), which is prepared by the Joint Ore Reserves Committee (JORC) of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia, known as the "JORC Code". The determination of a JORC resource is itself an estimation process that involves varying degrees of uncertainty depending on how the resources are classified (i.e. measured, indicated or inferred).

As additional geological information is produced during the operation of a mine and through additional exploration activity, mineral resource estimates may change. Such changes may impact on the Group's reported financial position which includes the carrying value of mines under construction, property, plant and equipment and inventories.

Mine rehabilitation provision

Rehabilitation costs will be incurred by the Group at the end of the operating life of the Pakrut mine and some of the processing facilities. The Group assesses its rehabilitation provision at each reporting date. The ultimate rehabilitation costs are uncertain and cost estimates can vary in response to various factors, including estimates of the extent and costs of rehabilitation activities, regulatory changes, inflation rates and changes in discount rates. These uncertainties may result in future actual expenditure differing from the amounts currently provided and there could be significant adjustments to the provisions established which would affect future financial results. The provision as at 31 December 2015 represents management's best estimate of the present value of future rehabilitation costs required.

Production start date

The Group assesses the stage of the Pakrut mine under construction to determine when it moves into the production phase, this being when the mine is substantially complete and ready for its intended use. The criteria used to assess the start date are determined based on the unique nature of the mine construction project, the complexity of the project and its location. The Group considers various relevant criteria to assess when the production phase is considered to have commenced. At this point, all related amounts are reclassified from 'Mines under construction' to 'Mine Properties' and 'Property, plant and equipment'. Some of the criteria used to identify the production start date include:

• Level of capital expenditure incurred compared to the original construction cost estimate;
• Completion of testing of the mine plant and processing equipment; and
• Ability to produce metal in a saleable form.

When the mine development and construction project moves into the production phase, the capitalisation of certain costs ceases and costs are either regarded as forming part of the cost of inventory or expensed, except for costs that qualify for capitalisation. It is also at this point that depreciation commences.

Contingencies

By their nature, contingencies will be resolved only when one or more uncertain future events occur or fail to occur. The assessment of contingencies inherently involves the exercise of significant judgement and the use of estimates regarding the outcome of future events.

Functional currency

The functional currency for the parent entity and each of its subsidiaries is the currency of the primary economic environment in which the entity operates. The parent company has determined the functional currency of each entity is the US dollar. Determination of functional currency may involve certain judgements to determine the primary economic environment and the parent company reconsiders the functional currency of its entities if there is a change in events and conditions regarding the primary economic environment.

3.Going Concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement and the Business Review in the Report of the Directors. The accounting policies include the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposure to liquidity risk.

In 2012, CNMIM provided a secured loan facility on commercial terms to the Company for US$10 million and RMB530 million (approximately US$83.5 million) that is being utilised to finance the development of the Pakrut Gold Project. US$65.86 million of that secured loan facility was utilised as at 31 December 2015, being the latest available drawdown date. The Group has made repayments since that date in accordance with the terms of the loan agreement.

On 19 June 2014, the Group obtained a bank term loan facility of US$120,000,000 from Industrial and Commercial Bank of China (Macau) Limited ("ICBC"), secured by standby letters of credit. The loans advanced under the facility cannot exceed 95% of the value of the standby letters of credit. Standby letters of credit were issued on 24 June 2014 and 18 June 2015 in order to enable the Group to drawdown US$80 million and US$40 million respectively under the facility. The principal loan repayments commence on 30 January 2016. As at 31 December 2015, the Group had fully drawn down the loan facility extended.

On 6th May 2016 the Group obtained a loan with CNMC International Capitals Company Limited ("CNMC"), an associate of CNMIM of US$120 million ("CNMC Loan"). This loan has been used to refinance the loan facility with ICBC. The CNMC Loan is repayable on 31 December 2018 and includes an annual fixed interest rate of 4% on the amount drawn down, payable in arrears.

On 27th June 2016 the Group drew down a further loan of US$19,114,809 from CNMIM for working capital purposes.

As at the date of approval of these Financial Statements, and based upon the budgeted levels of expenditure and Board approved cash flow forecasts and expected production dates, the Directors are satisfied that the Group has sufficient cash and loan facilities to finance the Group's operating expenses and any further development and construction of the Pakrut Gold Project that is required.

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least 12 months from the date of signing these Financial Statements. Thus they continue to adopt the going concern basis of accounting in preparing the Financial Statements.

4.Finance Income and Costs

5.Earnings per Share

The basic earnings per share is calculated by dividing the loss attributable to equity holders after tax of US$6,150,000 (2014 - loss US$15,680,000) by the weighted average number of shares in issue and carrying the right to receive dividend. For the year ended 31 December 2015 this was 382,232,000 (2014 - 381,500,100) shares.

As the Group has incurred a loss for the year, no option or warrant is potentially dilutive, and hence the basic and diluted earnings per share are the same. At year end there were 5,625,000 (2014 - 8,475,000) share options and no warrants outstanding that are potentially dilutive in future.

6.Mines under Construction

Mining rights comprise exploration and evaluation assets up to the date the Pakrut Gold Project was determined to be technically feasible and commercially viable. All subsequent exploration and evaluation expenditure at this site is capitalised within mining rights. Mining rights also includes the subsoil contract signature bonus, a share based payment for securing the Pakrut Mining Licence and payments to obtain land use rights.

The decrease in mining rights during the year is a result of foreign exchange losses recognised in the amount of US$2,238,417, which was offset by additions to the Pakrut asset of US$1,665,417 during the period.

Construction in progress comprises the mine, power lines and road construction work carried out at the Pakrut Gold Project by contractors and directly by the Group. It also includes the borrowing costs associated with the loan to finance the mine construction from China Nonferrous Metals Intl Mining Co. Limited ("CNMIM") and Industrial and Commercial Bank of China (Macau) Limited ("ICBC"), together with associated legal, professional and consultancy costs.

Mines under construction are not depreciated until construction is completed and the assets are available for their intended use, signified by the formal commissioning of the mine for production.

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China Nonferrous Gold Limited

Source: China Nonferrous Gold Limited