Operations - Armenia

Last Updated:  December 1, 2009

DENO GOLD OPERATIONS
Kapan

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The Deno Gold operations are situated in the town of Kapan, approximately 320 kilometres south east of Yerevan, the capital city of the Republic of Armenia.  Deno Gold’s principal underground mining operation is located on the Shahumyan concession.  A second underground operation, located on the Centralni concession, was placed on care and maintenance in August 2008 as it was deemed uneconomic and the concession was returned to the Armenian government in March 2009.  The complex also includes two primary crushing stations, a processing plant and various infrastructure facilities that were built to support the operation.

The processing plant produces two concentrates, a copper, gold, silver concentrate and a zinc concentrate, by staged flotation. Both concentrates are transported by road to the town of Ararat (60 kilometres south of Yerevan) where they are offloaded onto a rail system for transport to the Black Sea via Georgia.  Neither of the deposits contains material quantities of deleterious elements which would incur penalties in the treatment of concentrate. 

In response to the global economic slowdown and the significant decrease in metal prices in the second half of 2008, the Company suspended operations and exploration activity at Deno Gold in November 2008, pending an economic and metal price recovery.  

While on care and maintenance, the Company proactively worked to enhance overall efficiencies through training of underground mine and process plant personnel and the refurbishment of plant and equipment.  In response to the very positive regulatory and operational advances made by Deno Gold in the five month period (ended March 2009) it was on temporary care and maintenance, including (i) the finalization of its agreement with the Armenian government on the extension of its Shahumyan mine license and other critical aspects of its License Agreement, (ii) increased mine productivity and associated economies of scale related to improved mining methodology, (iii) higher ore grades alongside improved dilution control, (iv) improved metal recovery rates, and (v) lower unit operating costs (in part, due to the devaluation of the Armenian Dram), DPM elected to restart its operations at the Kapan facilities and mining operations recommenced on April 1, 2009.

Mineral and Resource Estimate

Production, Costs, Deliveries and Net Revenue
[Click To View Data Table]

In the fourth quarter of 2008, the Company received an updated mineral resource estimate for the Shahumyan Deposit from Coffey. The mineral resource estimate was prepared using an historical database containing approximately 291 kilometres of historical diamond drilling, 18 kilometres of development channel sampling, 40 kilometres of vein channel sampling and 6 kilometres of more recent non-DPM small diametre diamond drilling. In addition, 12,833 metres of diamond drilling, completed and supervised by DPM, was used as a reference data set in statistical analysis during the resource estimate. Coffey used a series of estimation constraints including an initial mineralization indicator kriging estimation pass to identify blocks containing mineralization, followed by ‘cutting’ of ‘outlier’ grade samples (7% Cu, 25g/t Au, 20% Zn and 300g/t Ag) and a multi pass estimation process wherein the higher grade population (defined as greater than 3.5% Cu, 10g/t Au, 10% Zn and 120g/t Ag) was omitted from all but the initial close range estimation pass. The grade estimate was classified as a Mineral Resource in accordance with the Canadian Institute of Mining (“CIM”) guidelines and reported in accordance with NI 43-101. The Coffey resource estimate shows that a very significant open pit polymetallic resource exists at Shahumyan.

The Mineral Resources below are reported in an independent and NI 43-101 compliant technical report entitled “Technical Report for the Kapan Project, Kapan Armenia”, dated March 30, 2009, prepared by Brett L. Gossage and Brian R. Wolfe of Coffey Mining Pty Ltd., both of whom are QPs under NI 43-101, and filed on Sedar at www.sedar.com on March 31, 2009.

Mineral Resource Estimate

10mE x 10mN x 10mRL Block Size – 5m Capped Input Composite Data

Note: AuEq US$ price assumptions: Cu $5,511.6/t ($2.50/lb), Au $850/oz, Ag $16/oz and Zn $2,204.6/t ($1.00/lb).