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La Colosa Goes World Class

Inferred resource upgraded to 24 Moz Au

La Colosa, AngloGold Ashantis (AGA) flagship project in Tolima, has gone from big to huge. In

the presentation for its 1Q12 financial results the company reported that the resource at La

Colosa now stands at 24 Moz Au at an average grade of 0.9-1.0 g/t Au, a 48pc increase from

its former 16 Moz Au size, putting it into the World Class category of gold deposits.

The size of the gold resource is astonishing: less than 2pc of gold projects have a resource of

over 10 Moz Au, and La Colosa has now grown to become one of the most important gold

projects in the world, and the most important discovery in recent times, making it by far

Colombias largest and most important gold project. According to a list of major gold projects,

La Colosa is now the seventh largest undeveloped gold project in the world.

This growth in the inferred resources ... implies that, if viable, the project would be an

interesting project, with valuable contributions for the region and the country especially in fiscal

aspects, generation of employment and development of productive chains. But we must

continue with the exploration phase to confirm the viability of the project from the economic and

technical point of view, but also from the social and environmental point of view, Rafael Herz,

President of AGA Colombia told CGL.

The resource seems likely to continue to grow as, drilling continues to show relatively high

grade intercepts in the NW of the concession over long widths, said the presentation, and at

good grades: AGA reported 25m @ 1.9 g/t Au and 352m @ 1.45 g/t Au in hole COL166. The

Colosa district has potential to grow the existing resource substantially and some believe it

could eventually be akin to the highly productive Yanacocha gold mine in Peru.

The project is still a few years out from production and has at least two more years of

exploration ahead of it to complete the exploration phase. The project has been plagued by

delays in obtaining environmental and other permits from local government officials, which has

extended the project timescales. AGA originally expected to start production in 2016 but this

has been pushed back at least until 2019.

The project continues in the exploration phase and will continue in pre-feasibility studies until

the third quarter of 2013 and in feasibility until at least the middle of 2015. Only then will we

know if the project is viable technically and economically, as well as environmentally and

socially. In the next three years, we will be investing around US$300M of risk capital the

exploration phase of the La Colosa project, said Herz.

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With three more years of exploration still to come, the company currently believes La

Colosa could produce between 800,000 to 1.2M oz/y Au for 20 years.

A resource of 24 Moz Au represents an in situ value of US$38.4Bn at US$1,600/oz Au.

Assuming that 80pc of the gold could be extracted and mines can never economically extract

all the gold in the resource - that represents over US$800M in royalty payments alone to the

government.

Assuming a net cash cost of production of US$600/oz (please note that AGA has not given any

guidance on this) and using the estimated 67.7pc effective tax burden figures faced by gold

miners in Colombia for open pit operations from a study by Ernst & Young (CGL May 2012 p7),

the tax take for Colombia would be in the region of US$16Bn! This includes income tax, roy-

alties, patrimony tax, payroll taxes, duties, VAT charges and other charges.

Based on an independent analysis of the government take, this [project] signifies more than

US$500M a year in fiscal income during at least 20 years, said Herz.

The La Colosa resource has now grown to the extent that it has become a project of national

interest for Colombia and one that perhaps merits that its development should be overseen by

central government.

The revenue generation potential of La Colosa means that there are enormous possibilities for

social and infrastructure projects in the region and country. Effectively, this project

encapsulates everything Colombia hoped for when former President Uribe welcomed

explorers back to the country almost a decade ago.

If we remember that the government has declared mining as a motor for development, a

project that, by its size, the trajectory of our company and the seriousness with which we have

developed the studies, would convert into a model of this modern, responsible, committed and

inclusive mining that the country wants to promote, we consider that it is a project that requires

the attention of the national government as a partner in favour of sustainable development. In

this sense, the main call is to be able to advance the exploration phase without obstacles or

delays to be able to take the viability decisions in the future, said Herz.

AGA was the first major to enter Colombia and begin exploring despite the perceived securityrisks in the early 2000s. AGAs first mover advantage is showing increasing prescience as the

companys main projects mature. In April, an updated resource of 3.9 Moz Au was reported for

the Gramalote project in Antioquia that is a JV between AGA and B2Gold Corp (TSX: BTO).

AGA also reported that its Quebradona project in Antioquia, another JV with BTO, continues to

show results, with potential for third discovery in country. Exploration highlights from the

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Chaquiro zone in Quebradona include 580m @ 0.18g/t Au, 0.48pc Cu & 175ppm Mo in hole

CHA019.

Colombia Adolescent

The La Colosa resource upgrade announcement brings the number of ounces discovered inColombia in recent times to 76 Moz Au. Colombia is far from having a mature gold mining and

exploration sector but exploration projects are maturing to the stage when production decisions

are coming closer.

La Colosa represents the possibility of large open-pit gold mining in Colombia. At the other end

of the scale are projects such as Seafield Resources (TSXV: SFF) Miraflores in Quinchia that

will have a smaller footprint and more modest capex due to their more petite size, yet also

providing attractive economics. Could small be beautiful?

Juniors like SFF face the transitional hurdle of switching from pure exploration to a

development mode and mindset. Crucially, it has to transition its investors through these quite

different concepts. Exploration is about piling up a big number of ounces at an economic grade

and people tend to invest in the possibility of achieving a high number. Miraflores has a

reported resource of 2 Moz Au in all resource categories. As mentioned above, a mining

project can never economically recover or mine all the resources, which can lead to investor

disappointment when the number of recoverable ounces is reported in a PEA (Preliminary

Economic Assessment). The transition for investors is to detach themselves from the ounces in

the ground number to the project economics, which requires some thinking on their part.

SFF is in this position. From the 2 Moz Au at Miraflores, it reported that it can economically

extract 709,000 oz Au, much less than half. At face value, this may be disappointing. However,

the company says that exploiting those 709,000 oz Au will give an IRR of 50pc and payback in

about two years and an overall productive life of 14 years with a 4,000 tpd operation at an

average cash operating cost of US$524/oz Au during the first eight years of production.

Miraflores could be an highly profitable project, albeit smaller than the headline grabbing

projects like La Colosa. It also has an estimated initial capex of US$93.7M, which could be

more palatable to investors than the +US$4Bn that AGA may have to invest to build La Colosa.

CGL