Proposed acquisition of Lynx Resources Limited

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AND THE INFORMATION CONTAINED IN IT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO DO SO. PLEASE SEE THE FURTHER INFORMATION SECTION WITHIN THIS ANNOUNCEMENT.

This announcement does not constitute an offer of securities for sale or subscription in any jurisdiction.

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014

22 September 2017

CENTRAL ASIA METALS PLC
("CAML" or the "Company")

Proposed acquisition of Lynx Resources Limited for $402.5 million

Creation of a new, diversified, low-cost base metals producer

Central Asia Metals plc (AIM: CAML), is pleased to announce that it has conditionally agreed to purchase a 100 per cent. interest in Lynx Resources Limited ("Lynx"), the owner of the SASA zinc-lead mine in Macedonia, from Orion Co-Investments III L.P. ("Orion") and Fusion Capital AG for $402.5 million (the "Consideration").

Highlights

●          Transformational transaction for CAML, creating an AIM listed, diversified, low cost base metals producer

●          Lynx operates the SASA underground zinc-lead mine, in northeast Macedonia

●          SASA is a low cost operation with strong operating track record and a reserve base supporting production until at least 2032

●          In 2016, SASA produced 783,000 tonnes of ore which generated 22,515 tonnes of zinc in concentrate and 28,955 tonnes of lead in concentrate

●          SASA's H1 2017 C1 zinc equivalent cash cost of $0.39 per pound is at the lower end of the second quartile of the Wood MacKenzie 2017E zinc industry cost curve

●     In the first six months of 2017,  Lynx achieved an EBITDA margin of 61 per cent.  (unaudited)

Rationale

●          The Transaction represents a compelling opportunity for CAML to expand and diversify with the addition of another cash generative asset in a highly prospective jurisdiction

●          The combination of CAML and Lynx is expected to provide commodity, geographic and operational  diversification, which should enable the Group to remain well positioned throughout the commodity cycle

●          The Transaction is expected to be both earnings and cash flow per share accretive in the first full year, underpinning CAML's dividend profile

Funding

●          Total Consideration of $402.5 million to be funded as follows:

●          Debt financing:

            o          $120 million senior debt facility with Traxys (4.75% + LIBOR, 5 year term)

o          Roll over of estimated $67 million of existing Lynx net debt (5% + LIBOR, 5 years remaining)

●          Equity financing:

            o          $153.5 million in CAML ordinary shares via an Accelerated Book Build ("ABB") expected to be launched shortly

            o          $50 million in CAML ordinary shares to Orion via an equity subscription

●          $12 million of deferred consideration

The Transaction

●          The Transaction will be a reverse takeover under the AIM Rules and so will be subject to shareholder approval at a General Meeting scheduled for 11 October 2017, following the publication of an AIM Admission Document for the Enlarged Group

●          The Independent CAML Directors unanimously recommend that shareholders vote in favour of the Transaction at an Extraordinary General Meeting

●          The Company has received irrevocable undertakings from the Directors that they will vote in favour of the Resolutions at an Extraordinary General Meeting representing approximately 23.5 per cent. of the existing ordinary shares

●          It is currently anticipated that the AIM admission document will be posted to shareholders, and trading of CAML shares will recommence, on 25 September 2017

Commenting on the transaction, Nick Clarke, Executive Chairman said: "We believe that this Transaction is an exceptional opportunity for CAML to acquire a high quality asset which complements our existing business. The combination of CAML and Lynx creates an AIM listed, diversified, base metals producer with low cost, long life operations which are expected to generate positive cash flows throughout the commodity cycle. The Transaction is projected to be both earnings and cash flow per share accretive in the first full year, which  is in line with our business development strategy of pursuing value accretive acquisitions in the base metals sector that enable CAML to continue paying one of the leading dividends in the sector."

Oskar Lewnowski, Chief Investment Officer of Orion Mine Finance said: "Orion is impressed with CAML's track record of returning capital to shareholders and I am confident that this transaction will add another chapter to that story, as we combine low-cost, long-life mines. We feel strongly that the combined entity will be well placed to benefit from strong fundamentals in the copper and zinc markets. We look forward to becoming a long-term, supportive shareholder in CAML."

 

Chris James, CEO of Lynx Resources Limited, commented: "Lynx has been proud of SASA's outstanding performance since we acquired it in 2015. We commend our employees on their commitment to safety and the environment, and their contribution to the local communities. We are confident CAML has the expertise to take SASA to the next level, and look forward to SASA making an important contribution to the business going forward."

 

The person responsible for arranging the release of this announcement on behalf of CAML is Louise Wrathall, Investor Relations.

 

Enquiries:

Central Asia Metals plc                                                                     Tel: +44 20 7898 9001

Nick Clarke, Executive Chairman

Nigel Robinson, Chief Financial Officer

Gavin Ferrar, Business Development Director

Louise Wrathall, Investor Relations                                  [email protected]

J.P. Morgan Cazenove                                                            Tel: +44 20 7742 4000

(Financial Adviser to CAML)

Barry Weir

Edward Jack

Nicholas Hall

Peel Hunt                                                                                Tel: +44 20 7418 8900

(Nominated Adviser and Joint Broker to CAML)

Matthew Armitt           

Ross Allister

Chris Burrows

Blytheweigh                                                                             Tel: +44 20 7138 3204

(PR Adviser to CAML)

Tim Blythe

Camilla Horsfall

Megan Ray

Further Information

This announcement is for information purposes only and is not intended to and does not constitute, or form part of, any offer or invitation to purchase, subscribe for or otherwise acquire or dispose of, or any solicitation to purchase or subscribe for or otherwise acquire or dispose of, any securities in the United States, Republic of South Africa, Australia, Canada or Japan or any other jurisdiction in which such an offer or solicitation may lead to a breach of any applicable legal or regulatory requirements. Persons needing advice should consult with  an independent financial adviser authorised under the Financial Services and Markets Act 2000, as amended ("FSMA"), who specialises in advising on the acquisition of shares and other securities, if that person is in the United Kingdom, or any appropriately authorised person under applicable laws, if that person is located in any other jurisdiction. The information contained in this announcement is not for release, publication or distribution to persons in any jurisdiction where to do so might constitute a violation of local securities laws or regulations.

This announcement has been issued by and is the sole responsibility of the Company. The information contained in this announcement is for background purposes only and does not purport to be full or complete. The information in this announcement is subject to change without notice.

This announcement is directed only at: (a) persons in member states of the European Economic Area (the EEA) who are "qualified investors" within the meaning of Article 2(1)(e) of the Prospectus Directive (Directive 2003/71/EC, as amended by the 2010 PD Amending Directive (Directive 2010/73/EU) and including any relevant implementing directive measure in any member state of the EEA to the extent implemented in the relevant member state (the Prospectus Directive) (Qualified Investors); (b) persons in the United Kingdom who are Qualified Investors and who (i) have professional experience in matters relating to investments and who fall within the definition of "investment professionals" in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order); (ii) who are high net worth companies, unincorporated associations and other persons to whom it may lawfully be communicated in accordance with Article 49(2)(a) to (d) of the Order; or (iii) other persons to whom it may lawfully be communicated (all such persons together being referred to as "Relevant Persons"). Any investment activity in connection with this announcement and the Placing is only available to, and will only be engaged with, Relevant Persons. Any person who is not a Relevant Person should not act or rely on this announcement or any of its contents. This "Further Information" section does not itself constitute an offer for sale or subscription of any securities in the Company.

In Australia, this announcement is directed only at persons to whom an offer of securities can be made without disclosure under Part 6D.2 of the Australian Corporations Act 2001(Cth) ("Australian Corporations Act") because they are either a 'Sophisticated Investor' or 'Professional Investor' for the purposes of sections 708(8) or 708(11) (as applicable) of the Act.  Accordingly: (i) this offer is made solely to the recipient in their capacity as a Sophisticated or Professional Investor; (ii) this offer can only be accepted by the recipient if they are a Sophisticated or Professional Investor; (iii) this announcement does not and is not intended to constitute a disclosure document for the purposes of the Australian Corporations Act; and (iv) neither this announcement nor the offer contained herein can be partially or wholly distributed, published, reproduced, transmitted or otherwise made available or disclosed by recipients to any other person in Australia.

In South Africa, only persons who fall within any of the categories envisaged in section 96(1)(a) of the Companies Act, 2008 (the "SA Companies Act") and/or selected persons who subscribe for Placing Shares at a total contemplated acquisition cost equal to or greater than R1 000 000 per single addressee acting as principal (as contemplated in section 96(1)(b) of the SA Companies Act) and to whom the offer of Placing Shares is specifically addressed, are entitled to participate in the Placing and this announcement should not be distributed, published, reproduced, transmitted or otherwise made available in whole or in part or disclosed by recipients to any person in South Africa who does not fall within the aforementioned categories. Accordingly, (i) the Placing is not an offer to the public as contemplated in the SA Companies Act; and (ii) no prospectus has been filed with the Companies and Intellectual Property Commission in respect of the offer of the Placing Shares. Any acquisition by a South African resident of Shares shall be subject  the Exchange Control Regulations, 1961, as amended, issued in terms of section 9 of the South African Currency and Exchanges Act, 1933 (the Regulations), and South African residents who wish to acquire shares shall be responsible for compliance with the Regulations and for obtaining any approvals that may be required in terms of the Regulations.

The Placing Shares have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act") or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, taken up, exercised, resold, transferred or delivered, directly or indirectly to or within the United States or to any US Person, except pursuant to an applicable exemption from, or a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offer in the United States. Any offering of the Placing Shares to be made outside the United States will be made in offshore transactions in accordance with Regulation S. There will be no public offering of the Placing Shares in the United States. The Placing Shares have not been approved or disapproved by the US Securities and Exchange Commission (the "SEC"), any state securities commission or any other regulatory authority in the United States, nor have any such authorities passed upon or endorsed the merits of the Placing or the accuracy or adequacy of this announcement. Any representation to the contrary is a criminal offence in the United States.

The distribution of this announcement in certain jurisdictions may be restricted by law. No action has been taken by the Company, the Selling Shareholder, Peel Hunt, Mirabaud or J.P. Morgan Cazenove that would permit an offering of such shares or possession or distribution of this announcement or any other offering or publicity material relating to such shares in any jurisdiction where action for that purpose is required, other than the United Kingdom. Persons into whose possession this announcement comes are required by the Company, the Selling Shareholder, Peel Hunt, Mirabaud and J.P. Morgan Cazenove to inform themselves about, and to observe, such restrictions. The information contained in this announcement may not be distributed, published, reproduced, transmitted or otherwise made available in whole or in part or disclosed by recipients to any other person and may not be reproduced in any manner whatsoever. Any forwarding, distribution, reproduction, or disclosure of any information contained in this announcement in whole or in part is unauthorised. Failure to comply with these restrictions may constitute a violation of the Securities Act or the applicable laws of other jurisdictions. Subject to certain exemptions, the securities referred to in this announcement may not be offered or sold in the United States, Australia, Canada, Japan, South Africa or certain other jurisdictions or for the account or benefit of any national resident or citizen of certain jurisdictions. No prospectus will be made available in connection with the matters contained in this announcement and no such prospectus is required (in accordance with the Prospectus Directive) to be published. Persons needing advice should consult an independent financial adviser.

No undertaking, representation or warranty or other assurance express or implied, is or will be made as to, or in relation to, and, aside from the responsibilities and liabilities, if any, which may be imposed by FSMA or the regulatory regime established thereunder or any other applicable regulatory regime, no responsibility or liability is or will be accepted by the Company, the Selling Shareholder Peel Hunt, Mirabaud or J.P. Morgan or any of their respective parent or subsidiary undertakings or the subsidiary undertakings of any such parent undertakings or any of their respective directors, proposed directors, officers, partners or employees or any other person as to or in relation to, the accuracy, completeness, sufficiency or fairness of the information or opinions contained in this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers in connection with the Transaction, and any responsibility or liability therefore is expressly disclaimed. In addition, no duty of care or otherwise is owed by any such person to recipients of this announcement or any other person in relation to this announcement.

J.P. Morgan Securities plc, which conducts its UK investment banking business as J.P. Morgan Cazenove ("J.P. Morgan Cazenove"), is authorised by the Prudential Regulatory Authority and regulated by the Financial Conduct Authority and the Prudential Regulatory Authority in the United Kingdom. J.P. Morgan Cazenove is acting as financial adviser exclusively for CAML and no one else in connection with the matters set out in this announcement and will not regard any other person as its client in relation to the matters in this announcement and will not be responsible to anyone other than CAML for providing the protections afforded to clients of J.P. Morgan Cazenove or its affiliates, or for providing advice in relation to any matter referred to herein.

Peel Hunt LLP ("Peel Hunt"), is authorised and regulated in the United Kingdom by the Financial Conduct Authority. Peel Hunt is acting as nominated adviser and broker exclusively for CAML and no one else in connection with the matters set out in this announcement and will not regard any other person as its client in relation to the matters in this announcement and will not be responsible to anyone other than CAML for providing the protections afforded to clients of Peel Hunt or its affiliates, or for providing advice in relation to any matter referred to herein.

Mirabaud Securities Limited ("Mirabaud"), is authorised and regulated in the United Kingdom by the Financial Conduct Authority. Mirabuad is acting as lead manager exclusively for CAML and no one else in connection with the matters set out in this announcement and will not regard any other person as its client in relation to the matters in this announcement and will not be responsible to anyone other than CAML for providing the protections afforded to clients of Mirabaud or its affiliates, or for providing advice in relation to any matter referred to herein.

Certain statements contained in this announcement or incorporated by reference into it constitute, or may be deemed to constitute, "forward-looking statements" with respect to the financial condition, results of operations, business achievements and/or investment strategy of the Group and, upon completion of the Acquisition, the Enlarged Group and certain plans and objectives of the directors of the Company with respect thereto. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use forward-looking terminology including words such as "anticipate", "target", "expect", "estimate", "intend", "aim", "plan", "predict", "projects", "continue", "assume", "goal", "believe", "will", "may", "should", "would", "could" or, in each case, their negative, or other variations thereon or words of similar meaning, which  identify certain of these forward-looking statements. Other forward-looking statements can be identified in the context in which the statements are made. In particular, any statements regarding the Company's strategy, plans, objectives, goals and other future events or prospects are forward-looking statements.

An investor should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are in many cases beyond the Company's control. Such forward looking statements are based on assumptions and estimates and involve risks, uncertainties and other factors that may cause the actual results, financial condition, performance or achievements of the Group, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. By their nature, forward-looking statements involve risk and uncertainty, and any forward-looking statements relating to the Acquisition reflect the Company's view with respect to future events as of the date of the relevant statement and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the condition of the Acquisition being satisfied, management's maintenance of the business and the process of integrating the Acquisition following completion of the Acquisition including the retention of certain key Lynx Group management, foreign exchange risks related to the price of the Acquisition, the successful realisation of the Enlarged Group's growth strategy, the successful realisation of the anticipated synergies and strategic benefits, an adequate return on its investment from the Acquisition and foreign exchange rate fluctuation between the US dollar and pound sterling, as well as the principal risks and uncertainties facing the business as described in the risk factors highlighted in the Company's 2016 annual report and in its announcement of the proposed Acquisition. The factors described in the context of such forward-looking statements in this announcement could cause the actual results, financial condition, performance or achievements of the Company, the Target and the enlarged group following the Acquisition or the success of their investment strategies to be materially different from any future results, performance or achievements expressed or implied by such statements.

New factors may emerge from time to time that could cause the Group's business not to develop as it expects, and it is not possible for the Company to predict all such factors. Given these uncertainties, the Company cautions investors that forward-looking statements are not guarantees of future performance and that its actual results of operations and financial condition, and the development of the industry in which it operates, may differ materially from those made in or suggested by the forward-looking statements contained in this announcement and/or information incorporated by reference into it.

Each forward-looking statement speaks only as of the date it was made and is not intended to give any assurances as to future results. Furthermore, forward-looking statements contained in this announcement that are based on past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Except as required by FSMA, the AIM Rules and/or the Disclosure Guidance and Transparency Rules of the FCA (the Disclosure Guidance and Transparency Rules), none of the Company, the Selling Shareholder, J.P. Morgan Cazenove, Mirabaud or Peel Hunt undertakes any obligation to update or revise these forward-looking statements, and will not publicly release any revisions it may make to these forward- looking statements that may result from new information, events or circumstances arising after the date of this announcement. The Company will comply with its obligations to publish updated information as required by FSMA, the AIM Rules and/or the Disclosure Guidance and Transparency Rules or otherwise by law and/or by any regulatory authority, but assumes no further obligation to publish additional information.

Any indication in this announcement of the price at which Ordinary Shares have been bought or sold in the past cannot be relied upon as a guide to future performance. No statement in this announcement is intended to be a profit forecast and no statement in this announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company.

The Enlarged Group's Competent Person in respect of the Kounrad asset in Kazakhstan, Phil Newell of Wardell Armstrong, has reviewed the Company's Kazakh Mineral Resources in accordance with the JORC Code (2012), which is an internationally recognised standard. The Enlarged Group's Competent Persons in respect of its Macedonian assets, Guy Dishaw and Chris Bray, both full-time employees of SRK Consulting (UK) Ltd., have reviewed the Enlarged Group's Macedonian Mineral Resources and Ore Reserves in accordance with the JORC Code (2012). The JORC Code (2012) sets out minimum standards, recommendations and guidelines for Public Reporting in Australasia of Exploration Results, Mineral Resources and Ore Reserves. The JORC Code (2012) has been drawn up by the Joint Ore Reserves Committee of The Australasian Institute of Mining and Metallurgy, the Australian Institute of Geoscientists and the Minerals Council of Australia.

The data, statistics and information and other statements in this announcement regarding the markets in which the Enlarged Group is expected to operate are based on the Company's and the Lynx Group's records or are taken or derived from statistical data and information derived from the other sources described in this announcement. In relation to these sources, such information has been accurately reproduced from the published information and, so far as the Directors are aware and are able to ascertain from the information provided by the suppliers of these sources, no facts have been omitted which would render such information inaccurate or misleading. Various figures and percentages in tables in this announcement have been rounded and accordingly may not total exactly. Certain financial data has also been rounded. As a result of this rounding, the totals of data presented in this announcement may vary slightly from the actual arithmetical totals of such data. All times referred to in this announcement are, unless otherwise stated, references to time in London, England.

Unless  otherwise stated,  financial information relating  to  the  Group  has  been  extracted  from  the  audited financial statements for the years as at and for the years ended 31 December 2014, 2015 and 2016 and the unaudited interim condensed financial statements for the six months ended 30 June 2017. Unless otherwise stated, financial information relating to the Lynx Group has been extracted from the unaudited financial information as at and for the years ended 31 December 2014, 2015 and 2016 and the unaudited condensed financial information for the six months ended 30 June 2017 set out in this announcement. Unless otherwise stated, financial information in this announcement relating to the Group has been prepared in accordance with IFRS.

In this announcement, any reference to "pro forma" financial information is to information which has been extracted without material adjustment from the unaudited pro forma financial information contained in this announcement. The unaudited consolidated pro forma statement of net assets set out in this announcement has been prepared for illustrative purposes only and on the basis of the notes set out herein. The unaudited pro forma statement of net assets has been prepared to illustrate the effect of the Acquisition, the Debt Financing and the Company Placing on the net assets of the Company as if they had occurred on 30 June 2017. Due to its nature, the unaudited consolidated pro forma statement of net assets addresses a hypothetical situation and, therefore, does not represent the Company's actual financial position or results following the Acquisition, the Debt Financing and the Company Placing. The unaudited consolidated pro forma statement of net assets is compiled from the unaudited interim balance sheet of: (i) the Company at 30 June 2017; and (ii) the unaudited interim balance sheet of Lynx at 30 June 2017, as set out in the historical financial information on Lynx. The unaudited consolidated pro forma statement of net assets takes no account of trading activity or other transactions since the respective dates.

No statement in this announcement is intended as a profit forecast.

The document includes non-IFRS measures and ratios, including EBITDA, which are not measures of financial performance under IFRS. The Company defines EBITDA as profit or loss for the period before net finance costs, income taxes, depreciation and amortisation, gains/(losses) from discontinuing operations, foreign exchange differences, impairment losses and gains/(losses) on disposal of financial instruments and other non-recurring (exceptional) costs/income. EBITDA-based measures and the related ratios are used by management as indicators of our operating performance. The Company is not presenting EBITDA-based measures as measures of the Group's or the Lynx Group's results of operations. EBITDA-based measures have important limitations as an analytical tool, and should not be considered in isolation or as substitutes for analysis of the Group's or the Lynx Group's results of operations. Some of these limitations are:

-           EBITDA-based measures do not reflect the impact of significant interest expense or the cash requirements necessary to service interest or principal payments in respect of any borrowings, which could further increase if the Enlarged Group incurs more debt.

-           EBITDA-based measures do not reflect the impact of income tax expense on the Group's or the Lynx Group's operating performance.

-           EBITDA-based measures do not reflect the impact of depreciation of assets on the Group's or the Lynx Group's performance.

-           EBITDA-based measures remove the impact of non-recurring items from the Group's or the Lynx Group's performance.

The assets of the Group's and the Lynx Group's business that are being depreciated will have to be replaced in the future and such depreciation expense may approximate the cost to replace these assets in the future. By excluding this expense from EBITDA-based measures, these measures do not reflect the Enlarged Group's future cash requirements for these replacements. EBITDA and other non-IFRS measures should not be considered in isolation or as an alternative to profit from operations, cash flow from operating activities or other financial measures of the Lynx Group's results of operations or liquidity derived in accordance with IFRS. They have not been prepared in accordance with SEC requirements, IFRS or the accounting standard of any other jurisdiction. The Company has included EBITDA and other non-IFRS measures in this announcement, because it believes that they are useful measures of the Group's or the Lynx Group's performance and liquidity. Other companies, including those in the Group's and the Lynx Group's industry, may calculate similarly titled financial measures in a manner different to that of the Group or the Lynx Group. Because all companies do not calculate these financial measures in the same manner, the Group's and the Lynx Group's presentation of such financial measures may not be comparable to other similarly titled measures of other companies. EBITDA is not audited.

Unless otherwise indicated, all references in this announcement to "£", "pounds sterling", "pounds", "sterling", "pence", or "p", are to the lawful currency of the United Kingdom, all references to "Euros", "euros" or "€" are to the single currency of the Eurozone, all references to "ден", "Macedonian Denar", "MKD" or "denar" are to the lawful currency of Macedonia, all references to "Tenge", "Kazakhstan Tenge" or "KZT" are to the lawful currency of Kazakhstan and all references to "US dollars", "US$", "$" or "dollars" are to the lawful currency of the United States. Unless otherwise stated, the rate of exchange of £1.00:US$1.3580 has been used in this announcement.

The information that a prospective investor provides in documents in relation to a purchase of Placing Shares or subsequently by whatever means which relates to the prospective investor (if it is an individual) or a third party individual ("personal data") will be held and processed by the Company (and any third party to whom it may delegate certain administrative functions in relation to the Company) in compliance with the relevant data protection legislation and regulatory requirements of the UK. Such information will be held and processed by the Company (or any third party, functionary or agent appointed by the Company) for the following purposes:

-           verifying the identity of the prospective investor to comply with statutory and regulatory requirements in relation to anti-money laundering procedures;

-           contacting the prospective investor with information about products and services, or its affiliates, which may be of interest to the prospective investor;

-           carrying out the business of the Enlarged Group and the administering of interests in the Company;

-           meeting the legal, regulatory, reporting and/or financial obligations of the Enlarged Group in England and Wales, Kazakhstan, Macedonia, Bermuda or elsewhere; and

-           disclosing personal data to other functionaries of, or advisers to, the Enlarged Group to operate and/or administer the Enlarged Group.

Where appropriate it may be necessary for a member of the Enlarged Group (or any third party, functionary or agent appointed by a member of the Enlarged Group) to:

-           disclose personal data to third party service providers, agents or functionaries appointed by a member of the Enlarged Group to provide services to prospective investors; and

-           transfer personal data outside of the UK to countries or territories which do not offer the same level of protection for the rights and freedoms of prospective investors as the UK.

If a member of the Enlarged Group (or any third party, functionary or agent appointed by a member of the Group) discloses personal data to such a third party, agent or functionary and/or makes such a transfer of personal data it will use reasonable endeavours to ensure that any third party, agent or functionary to whom the relevant personal data are disclosed or transferred is contractually bound to provide an adequate level of protection in respect of such personal data. In providing such personal data, investors will be deemed to have agreed to the processing of such personal data in the manner described above. Prospective investors are responsible for informing any third party individual to whom the personal data relates of the disclosure and use of such data in accordance with these provisions.

In making an investment decision, prospective investors must rely on their own examination of the Group and of the Enlarged Group, this announcement and the terms of the Acquisition and Placing, including the merits and risks involved, and should inform themselves as to:

-           the legal requirements within their own countries for the purchase, holding, transfer or other disposal of Ordinary Shares;

-           any foreign exchange restrictions applicable to the purchase, holding, transfer or other disposal of Ordinary Shares which they might encounter; and

-           the income and other tax consequences which may apply in their own countries as a result of the purchase, holding, transfer or other disposal of Ordinary Shares.

Prospective investors must rely upon their own representatives, including their own legal and financial advisers and accountants, as to legal, tax, financial, investment or any other related matters concerning the contents of this announcement and an investment in Ordinary Shares. An investment in the Company should be regarded as a long-term investment. All Shareholders are entitled to the benefit of, are bound by, and are deemed to have notice of, the provisions of the Articles, which prospective investors should review.

Save to the extent explicitly indicated, neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement.

Timetable

Latest time and date for receipt of form of proxy	11.00 a.m. on 9 October 2017
Extraordinary General Meeting	11.00 a.m. on 11 October 2017
Expected time and date of Admission and issue of the Placing Shares	8.00 a.m. on 12 October 2017
CREST accounts credited (where applicable) in respect of the Placing Shares	8.00 a.m. on 12 October 2017
Despatch of definitive share certificates (where applicable) in respect of the Placing Shares	on or around 20 October 2017
Expected completion of the Acquisition, issue of the Consideration Shares and Readmission and commencement of dealings in the Enlarged Share Capital on AIM	Q4 2017

All references to times in this timetable are to London times.

Completion of the Acquisition, issue of the Consideration Shares and Readmission is expected to occur 6 business days after the satisfaction or waiver (if applicable) of the conditions set out in the Acquisition Agreement. The long stop date for satisfaction of such conditions is 15 December 2017.

Each of the times and dates set out above and mentioned elsewhere in this announcement may be subject to change at the absolute discretion of the Company and the Joint Bookrunners without further notice. If any of the above times and/or dates change, the revised times and/or dates will be notified by an announcement through a regulatory information service.

1.             Introduction

The Company has today announced that it has entered into an agreement to acquire, subject to certain conditions being satisfied, the entire issued share capital of Lynx Resources Limited, a holding company for a group of companies that owns the SASA Mine. As the Acquisition constitutes a  "reverse takeover" under the AIM Rules, it is conditional upon, among other things, the approval of Shareholders at an extraordinary general meeting. A reverse takeover also involves the cancellation of Existing Ordinary Shares from trading on AIM and a new application for the Enlarged Share Capital to be admitted to trading on AIM.

Under the terms of the Acquisition Agreement, the Company has agreed to acquire the entire issued share capital of Lynx Resources Limited for a total consideration of US$402.5 million on a debt-free cash-free basis. The consideration payable for the Acquisition will be satisfied by the payment of US$340.5 million in cash on Completion (subject to a net debt and net working capital adjustment) and US$50 million to be applied by Orion in subscribing for the Consideration Shares. The Company will also pay the Sellers US$12 million of deferred consideration, payable in six equal monthly installments commencing on the first anniversary of Completion.

The Company will also announce shortly its intention to undertake the Company Placing and the intention of the Selling Shareholder to undertake the Selling Shareholder Placing. The proceeds of the Company Placing will be used to part-finance the Acquisition and satisfy certain related costs and expenses. The Placing is, amongst other things, conditional upon Shareholders approving the Acquisition and the issue of the Placing Shares in respect of the Company Placing but it is not conditional on Completion or Readmission.

In addition to the proceeds of the Company Placing, the cash consideration payable for the Acquisition will also be financed by US$120 million in new debt facilities provided by Traxys, details of which are summarised below. Approximately US$67 million of existing Lynx Group net debt is expected to remain in place on Completion.

Accordingly, an extraordinary general meeting of Shareholders is being convened at which the Resolutions will be proposed, inter alia, to approve the Company Placing and the Acquisition. The Independent Board unanimously considers that the Resolutions are in the best interests of the Company and its shareholders as a whole. Accordingly, the Independent Board unanimously recommends that the Shareholders vote in favour of the Resolutions at the Extraordinary General Meeting. The Directors, whose shareholdings in aggregate represent 23.5 per cent. of the issued ordinary share capital of the Company (excluding treasury shares) as at 21 September 2017, have given irrevocable undertakings to vote in favour of the Resolutions.

2.             Reasons for the Acquisition

Background

The Board has a stated intention of expanding and diversifying CAML's business through value accretive acquisitions that would enable it to continue to manage profitable mineral projects with low cost operations and provide a significant dividend to its shareholders.

The Directors believe that the Acquisition is in line with this strategy and represents a compelling opportunity for the Group to expand and diversify with the addition of another cash generative asset with low production costs, a resource base supporting a long mine life and a proven operational track record.

The SASA Mine

The SASA Mine is located in northeastern Macedonia, approximately 150km east of the capital city, Skopje, and 10km north of the local town, Makedonska Kamenica. The SASA Mine comprises an operating underground zinc and lead mine and a processing facility that produces both zinc and lead concentrate. These concentrates are currently trucked to smelters in the surrounding region.

The Directors believe that the SASA Mine is an attractive asset, which has the following benefits:

●    Proven operational track record: The deposit was originally discovered in the 1950s and commercial mining commenced over fifty years ago. In 2016, the mine produced approximately 23,000 tonnes of zinc in concentrate and approximately 29,000 tonnes of lead in concentrate. These production levels are broadly consistent with production during the previous eight years.

●    Low cost of production: At an estimated C1 cash cost of US$0.39 per pound for zinc and US$0.29 per pound for lead in 2017E, the SASA Mine's costs are expected to be at the lower end of the second quartile of the zinc industry cost curve and in the lowest quartile of the lead industry cost curve (source: Wood Mackenzie).

●    Long production life: Based on the SASA mine's current Probable Ore Reserves, production can be maintained until at least 2032. The mine has additional Inferred Mineral Resources within the existing mining licence at both Svinja Reka and Golema Reka, which the Directors believe offer the potential to increase the life of the operation to 2038. There is also additional resource potential in the Kozja Reka deposit area, which was previously mined between 1966 and 1989.

Strategic benefits for the Group

The Directors believe that the Acquisition has a number of strategic benefits, which include:

●    Geographical, operational and commodity diversification: The acquisition of the Macedonian SASA Mine, when added to the Group's existing principal operations at Kounrad, Kazakhstan, should provide the Enlarged Group with two low operating cost, long life and cash generative base metal mines in two highly prospective jurisdictions. The Directors believe that this diversification will offer investors exposure to a range of base metals with attractive fundamentals, and that the low cost nature of these combined operations should ensure the Group remains well positioned throughout the commodity cycle.

●    Cash generative asset to support dividend policy: The Enlarged Group's operations at Kounrad and the SASA Mine are expected to be highly cash generative and should enable the Company to remain one of the leading dividend payers in the sector.

●    Operational growth opportunities: The SASA Mine has significant Inferred Mineral Resources and other brownfield exploration targets that offer potential for growth in terms of production levels and the life of the mine. This compliments the Group's Kounrad operation, which is highly cash generative but which does not offer growth potential.

●    The creation of an attractive AIM quoted mid-tier base metals producer: The Directors believe that the Enlarged Group will be a larger, diversified producer that is likely to be attractive to investors seeking to invest in a range of base metals, including zinc where there is a limited number of alternative listed investment opportunities.

The Directors also believe that the significant increase in the size of the Group as a result of the Acquisition will enable it to source lower cost capital to fund the organic growth of the Enlarged Group or to pursue further accretive acquisitions.

3.             Information on the Group

CAML is an AIM quoted copper producer which wholly owns the Kounrad operations in central Kazakhstan and has begun exploration of the 80 per cent. owned Shuak property in the Akmola region of northern Kazakhstan.

CAML's senior management team has a proven track record of developing and commercialising mining opportunities, with over 100 years of combined mining experience. The team is supported by non-executive directors who, together, have extensive experience in the natural resources and financial sectors.

Further information on the Group is set out below.

4.             Information on the Lynx Group

Lynx Resources Limited is a private company registered in Bermuda established by Fusion Capital and Orion Co-Investments III L.P. in June 2015 for the purpose of acquiring the SASA zinc-lead mine in Macedonia from the Solway Sellers.

Orion Mine Finance Group (which manages Orion Co-Investments III L.P.) is a leading mining focussed private equity business with an active presence in Europe and with approximately US$3 billion in assets under management. Fusion Capital is a Swiss-based mining management team with extensive experience in significant zinc and lead mining operations.

Lynx Resources Limited owns an effective 100 per cent. interest in the SASA Mine. Lynx Resources Limited currently has offices in Macedonia, Switzerland and Bermuda.

Further information on the Lynx Group is set out below.

5.             Summary Financial Information

Set out below is a summary of the audited consolidated results of the Group as at and for the years ended 31 December 2014, 31 December 2015 and 31 December 2016, which has been extracted from the Company's published audited historical financial information. Investors should read the whole of the Company's published audited historical financial information and should not rely solely on the summarised information set out below.

(US$ million)	31 December 2014	31 December 2015	31 December 2016
Revenue .....................................................	73.1	64.4	66.7
Operating profit ..........................................	37.5	33.0	33.0
Profit for the year....................................... .	59.5	22.2	26.1
Cash and cash equivalents............................	46.3	42.0	40.4
Net assets ..................................................	187.9	114.2	121.5

 

6.             Principal Terms of the Acquisition

Pursuant to the Acquisition Agreement, the terms of which are summarised in this announcement, the Company has conditionally agreed to acquire the entire issued share capital of Lynx Resources Limited. The Acquisition values the Lynx Group at US$402.5 million on a debt-free, cash free basis. Approximately US$67 million of existing Lynx Group net debt is expected to remain in place following  Completion.  The  total equity value of  Lynx  Resources  Limited  is estimated to be approximately US$335.5 million, subject to certain adjustments, which include customary net debt and net working capital adjustments. The net debt and net working capital adjustments will be determined by reference to  an  effective date of  30  September 2017 and, subject to  certain exceptions, the Sellers have agreed to indemnify the Company for any distributions to them from 1 October 2017. As a result, the Group will have the benefit of Lynx Group's trading from 1 October 2017. Interest from 1 October 2017 to Completion is payable at a rate of 9 per cent. of the equity value.

Details of the financing of the Acquisition are set out in paragraph 7 below.

The Sellers have given certain warranties and indemnities in respect of their period of ownership of the SASA Mine, subject to customary limitations and disclosure.

Completion of the Acquisition is conditional, inter alia, on:

●    certain regulatory approvals, including from the Macedonian Competition Commission;

●    if required, the Republic of Macedonia granting an unqualified approval for the transfer of the Sale Shares and the amount of the related transfer fee being agreed (the Minerals Law establishes a fee for the direct transfer of a concession or a change in owner of a concession. The Company has received legal advice that this fee should not apply in the context of the Acquisition);

●    the Placing Agreement and Debt Financing Agreement having become unconditional in all respects (save for any condition relating to Completion);

●    the passing of the Resolutions at the Extraordinary General Meeting; and

●    no authority having jurisdiction over the Company or the Acquisition having commenced any proceedings for the purpose of prohibiting the Acquisition on the terms contemplated.

The Group shall be entitled to take any action relating to the transfer approval referred to above (if any) including but not limited to responding to any assertion that such an approval is required, and agreeing or disputing the terms of any approval or fee. Based on legal advice received to date, the Directors do not currently believe this transfer approval (and payment of the related fee) is required. However, any fee payable would be borne by the Enlarged Group, and as such, the Company has included, within the aggregate costs of the transaction, its reasonable estimate of the amount of the fee that would be payable if it were to be required. Any such fee has been taken into account in the Independent Directors' recommendation that Shareholders vote in favour of the Resolutions, and their belief that the Company Placing and Acquisition promote the success of the Company for the benefit of its Existing Shareholders as a whole.

Orion's undertakings in relation to the Consideration Shares and the Company

Orion has also entered into the Shareholder Participation Agreement with the Company pursuant to which it has undertaken, for a period of 12 months from Completion, not to:

●    acquire shares in the Company, such that their shareholding amounts to 30% or more of the Company;

●    influence the voting of the Consideration Shares;

●    seek to control or influence the Company's management or obtain representation on the Board; or

●    engage in any discussions which may result in Orion gaining control over CAML.

Orion has also undertaken until the earlier of (i) 18 months from Readmission, or (ii) the date on which it holds in aggregate less than 4 per cent. of the issued Ordinary Shares to vote, or cause to be voted at all meetings of the Company's shareholders, in a manner consistent with the recommendation made by management of the Company or the Board in relation to a number of matters, including the election or re-election of directors and auditors, the renewal of, or adoption of certain new, share incentive plans, executive remuneration and certain acquisitions.

In addition, subject to certain exceptions, the Shareholder Participation Agreement requires Orion not to sell any Consideration Shares for the first six months following Completion, and not to sell more than 50 per cent. of the Consideration Shares between six months from Completion and the first anniversary of Completion (without the prior consent of the Company). Any Consideration Shares forming part of the 50 per cent. referred to above that are sold in the second six months must be sold via the Joint Bookrunners in order to maintain orderly markets.

Transitional Services Agreement

In connection with the Acquisition and conditional on Completion, the Company has entered into a Transitional Services Agreement with Fusion Capital pursuant to which it will have limited access to Chris James, Stefan Peschke, Florian Dax and Patrick Henze for the provision of transitional consultancy services for a period of three months following Completion.

7.             Financing the Acquisition

The Company proposes to finance the acquisition via a combination of the following sources:

Placing

The Company will shortly announce its intention to undertake the Company Placing to raise approximately US$153.5 million before expenses. The Company Placing has been underwritten by the Joint Bookrunners.

Consideration Shares

Orion will subscribe for the Consideration Shares for an aggregate value of US$50 million. The issue of the Consideration Shares is conditional on Completion taking place.

Debt Financing

Traxys will provide US$120 million of secured debt financing to the Company. In addition, approximately US$67 million of existing Lynx Group net debt is expected to remain in place following Completion. The existing lenders have agreed to waive their rights to accelerate on a change of control and to waive certain technical defaults, in each case subject to certain customary conditions precedent and with effect from Completion.

The Debt Financing Agreement forms part of a pre-payment arrangement between the Group and Traxys under which Traxys is advancing funds in expectation of acquiring production from the Group's business in Kazakhstan.

Traxys will be funding the advances made under the pre-payment arrangement from its own lenders and the availability of the facility is subject to the availability of such funding to Traxys. The agreement contains other conditions precedent to drawdown which are typical for this type of facility.

Deferred Consideration

The Company will also make a deferred cash payment of US$12 million to the Sellers as part of the consideration for the Acquisition. The cash payment of US$12 million shall be payable in six equal monthly installments commencing on the first anniversary of the completion of the Acquisition.

8.             Details of Readmission

The Acquisition constitutes a reverse takeover for the Company pursuant to the AIM Rules for Companies. As such, it is subject to shareholder approval and upon Completion, the Company proposes to delist the Company's shares from trading and subsequently to relist the Enlarged Share Capital to trading on AIM. The Acquisition and Readmission are subject to the satisfaction of certain conditions which include (among other things) the passing of the Resolutions by Shareholders at the Extraordinary General Meeting. Should Shareholder approval of the Resolutions not be obtained at the Extraordinary General Meeting, neither the Placing nor Acquisition will proceed.

If the Acquisition completes, application will be made to the London Stock Exchange for the Enlarged Share Capital to be admitted to trading on AIM. The Consideration Shares will be issued to Orion upon Readmission.

9.             Financial Effects of the Acquisition

The Acquisition is expected to be earnings and cash flow per share accretive for the Company in the first full financial year following Completion.

As at 30 June 2017, the Company had net assets of US$126,404,000. An unaudited pro forma statement of net assets of the Enlarged Group is set out later in this announcement and has been included to provide an overview of the financial effects of the Company Placing and Acquisition.

The total costs and expenses (including certain possible contingent costs) payable by the Enlarged Group in connection with or incidental to the Acquisition, Placing, Admission and Readmission are set out in section 28.9 below.

10.           Current Trading and Prospects of the Enlarged Group

Kounrad has produced copper cathode since 2012 and output has increased annually to a level that the Directors believe is broadly sustainable for the medium term. The Company's production performance has been reliable and, in 2016, it met the top end of its copper production guidance, producing 14,020 tonnes of copper. The production guidance for 2017 is 13,000 to 14,000 tonnes of copper cathode. In H1 2017 copper production increased by 2 per cent. year on year to 7,027 tonnes (H1 2016: 6,908 tonnes), and therefore the Directors believe that the Company is on track to meet its production guidance for 2017.

While copper production has been robust, the copper price has weakened since production commenced at Kounrad with the average sales price of copper received decreasing from US$7,995 per tonne in 2012 to US$4,994 per tonne in 2016. There has been a subsequent recovery in copper prices since Q4 2016 with spot prices, as at 1 September 2017, approximately US$6,775 per tonne. The average sales price of copper received by the Company in H1 2017 was US$5,659 per tonne. Gross revenue for the year ended 31 December 2016 was US$69.3 million and Group EBITDA was US$39.1 million, resulting in an EBITDA margin of 56 per cent. This EBITDA margin was achieved due to Kounrad's low operating costs.

Kounrad's 2016 C1 cash cost, defined as the industry standard by Wood MacKenzie, was US$0.43 per pound, which was in the lowest 10 per cent. of global copper producers and Kounrad's H1 2017 C1 cash cost was US$0.45 per pound. During 2016, CAML spent US$12.3 million on capital expenditure, the majority of which was related to the Kounrad Stage 2 Expansion project that has enabled the extension the operation into the Western Dumps area and the life of Kounrad to beyond 2030. The Directors believe that this should be the last major capital programme required at Kounrad, with only sustaining capex required going forward.

In 2016, the SASA Mine produced 783,000 tonnes of ore which generated 22,515 tonnes of zinc in concentrate and 28,955 tonnes of lead in concentrate with approximately 85 per cent. and 95 per cent. payability respectively. Zinc and lead head grades have been relatively stable at approximately 3.5 per cent. and 4.0 per cent. respectively over the past three years ended 31 December 2016 and are expected to remain at these levels for the medium term. On average over the three years ended 31 December 2016, the SASA Mine's mining costs have been US$17 per tonne. At an estimated C1 cash cost of US$0.39 per pound for zinc and US$0.29 per pound for lead in 2017E, the SASA Mine's costs are expected to be at the lower end of the second quartile of the zinc industry cost curve and the lowest quartile of the lead industry cost curve (source: Wood Mackenzie). The SASA Mine's production guidance for 2017 is 21,500 tonnes of zinc and 29,000 tonnes of lead. In H1 2017, zinc production was 10,700 tonnes and lead production was 14,900 tonnes, and therefore the Directors believe that the Company is on track to meet its production guidance for 2017.

Global zinc consumption is forecast to grow at a compound average annual rate of 1.7 per cent. over the period from 2017 to 2035. This consumption growth creates a requirement for extra raw material supply to smelters. Whilst some of the extra mine capacity will come from expansions and mine life extensions of existing producers, the majority will be from new mines. Given that it takes 18 months to five years to commission a mine, this is a significant challenge for the zinc industry. Refined market tightness and falling inventories are expected to provide fundamental support to prices and the price is forecast to reach a cyclical high of US$3,875 per tonne in 2018 (source: Wood Mackenzie).

Mine production cuts in 2015 and 2016 caused the rapid draw-down of global lead concentrate inventories last year, leading stocks to fall to the 29 days of consumption last year, from which they are projected to fall further to the critically low level of 25 days in 2017. Undersupply of mined lead is expected to continue to constrain primary output for the next couple of years, thereby maintaining the supply-demand balance in deficit until 2018. The increased mine output encouraged by higher prices is not expected to restore the market fully to balance, or a small surplus, until 2019. Prices are expected to average around US$2,350 per tonne for 2017 and slightly over US$2,400 per tonne in 2018 (source: Wood Mackenzie).

The Directors believe that the Enlarged Group should have combined recoverable copper equivalent mineral resources of 499,000 tonnes[1] and be able to produce in the order of 34,800 tonnes[2] (based upon commodity prices) of copper equivalent metal annually, representing an increase in metal equivalent production of 148 per cent. to 2016 Kounrad production.

11.           Strategy of the Enlarged Group

The Directors believe that the Enlarged Group would be an attractive AIM quoted company as a mid-tier low-cost base metals producer with geographical, operational and commodity diversity. With two, low operating cost, long life assets, the Enlarged Group's strategy would be to remain a highly cash generative business that is focused on maximising shareholder returns, primarily in the form of dividend distributions.

The Directors believe that the Enlarged Group will provide an enhanced platform for growth through both its organic growth potential, including further exploration at the Shuak project and brownfields exploration programmes at the SASA Mine, as well as strategic acquisitions.

12.           Dividend Policy

The Company's dividend policy is currently to return a minimum of 20 per cent. of the attributable revenues generated from the Kounrad Project to shareholders subject to maintaining three times cash cover. The final dividend for the year ended 31 December 2016 of 10 pence per Ordinary Share was paid to Shareholders on 7 June 2017 and brought total dividends paid in respect of 2016 to 15.5 pence (2015: 12.5 pence). On 22 September 2017 the Company announced an interim dividend for the period from 1 January 2017 to 30 June 2017 of 6.5 pence per Ordinary Share. It is expected that this interim dividend will be paid to Shareholders on 27 October 2017.

For the avoidance of doubt, the Placing Shares and Consideration Shares will not be entitled to the interim dividend for the period ended 30 June 2017, declared on 22 September 2017 and expected to be paid on 27 October 2017. Subscribers for new Ordinary Shares and purchasers of the Selling Shareholder Placing Shares will however be entitled to any final dividend in respect of the period ended 31 December 2017, which will be announced in Q2 2018.

In respect of periods commencing on 1 January 2018, the Company's dividend policy is intended to be to return to Shareholders a target range of between 30 per cent. and 50 per cent. of free cash flow (defined as net cash generated from operating activities less capital expenditure). The dividends will only be paid provided there is sufficient cash remaining in the Group to meet the ongoing contractual debt repayments and that banking covenants are not breached.

13.           Extraordinary General Meeting and Summary of the Resolutions

The Acquisition and the Company Placing require Shareholders' approval of the Resolutions.

Both Resolutions are special resolutions. The purpose of the Resolutions is to, inter alia:

●    approve the Acquisition;

●    provide all of the authorities necessary to issue the Company Placing Shares and the Consideration Shares; and

●    provide the Company with certain general authorities, conditional upon Completion, calculated by reference to the Enlarged Share Capital.

14.           Irrevocable Undertakings

The Company has received irrevocable undertakings from the Directors that they will, or will use reasonable endeavours to procure that the legal Shareholders will (where the Directors are not the registered holders of such Ordinary Shares) vote in favour of the Resolutions at the Extraordinary General Meeting in respect of Ordinary Shares, representing, in aggregate, approximately 23.5 per cent. of the Existing Ordinary Shares.

Shareholders should note that if the Resolutions are not passed, the Acquisition and the Placing will not be completed, in which event the Company will continue to pursue its strategy of identifying acquisition targets.

15.           Admission, Readmission, Settlement and Dealings

Application will be made for the Company Placing Shares to be admitted to trading on AIM and, if the Resolutions are passed at the Extraordinary General Meeting, it is expected that Admission will become effective and dealings in the Placing Shares will commence at 8.00 a.m. on 12 October 2017. Admission is not conditional on the Acquisition having completed.

As the Acquisition is classified as a reverse takeover under the AIM Rules for Companies, upon Completion occurring, the admission of the Existing Ordinary Shares (including the Placing Shares) will be cancelled and application will be made for the Enlarged Share Capital to be admitted to trading on AIM. Completion is subject to certain conditions being satisfied (or, if permitted, waived).

If the Acquisition completes, application will be made for Readmission and it is expected that Readmission will become effective and dealings in the Ordinary Shares will commence in Q4  2017.

If the Resolutions are not passed at the Extraordinary General Meeting, the Acquisition will not proceed and the Directors will consider alternative options for the Company.

16.           Risk Factors

YOUR ATTENTION IS DRAWN TO THE RISK FACTORS REFERRED TO BELOW.

17.           Directors' Recommendation

The Directors believe that the proposed Company Placing and the Acquisition promote the success of the Company for the  benefit  of  its  Existing  Shareholders  as  a  whole.  Accordingly,  the  Independent Board unanimously recommend that Existing Shareholders vote in favour of the Resolutions to be proposed at the Extraordinary General Meeting.

By virtue of Kenges Rakishev's interest in the Selling Shareholder Placing as the beneficial owner of the Selling Shareholder Placing Shares, he has not participated in the Directors' recommendation to the Existing Shareholders.

The Directors, whose shareholdings in aggregate represent 23.5 per cent. of the issued ordinary share capital of the Company (excluding treasury shares) as at 21 September 2017, have given irrevocable undertakings to vote (or procure that the relevant registered holders vote) in favour of the Resolutions.

18.           RISK FACTORS

Shareholders should carefully consider the following risk factors in addition to the rest of the information contained or incorporated by reference in this announcement prior to making any decision as to whether or not to vote in favour of the Resolutions.

The Directors consider the following to be the material risk factors relating to the Placing and the Acquisition and to which the Group and, following Completion, the Enlarged Group will be exposed as a result of the Acquisition. If any of the risks described below were to occur, it could have a material adverse effect on the business, results of operations, financial condition and/or growth prospects of the Group and, if Completion takes place, the Enlarged Group, and the value of Shares could decline and Shareholders could lose all or part of the value of their investment in Shares. The risks described below should not be considered to be an exhaustive statement of all the potential risks and uncertainties that the Group and the Lynx Group face and that the Enlarged Group may face if the Acquisition is completed. There may be additional risks, or risks that are considered to be immaterial at the time of publication of this announcement that may become material and adversely affect the Group and, if Completion takes place, the Enlarged Group.

Unless otherwise indicated or the context otherwise requires, references in this section 18 to 'the Group' should be taken as referring to the Enlarged Group if the Acquisition is successfully completed, and the risks summarised below should be considered as applying to the Enlarged Group.

Shareholders should read this announcement as a whole and not rely solely on the information set out in this section.

RISKS RELATING TO THE ACQUISITION NOT PROCEEDING

The conditions of the Acquisition may not be satisfied and the Acquisition may not be completed

Completion of the Acquisition is subject to certain conditions, including but not limited to, the approval of Shareholders at the Extraordinary General Meeting, the Placing Agreement becoming unconditional, the Debt Financing Agreement becoming unconditional (including in respect of the availability of funds to Traxys from its lenders), the consent of the existing Lynx Group lenders to the existing debt facilities becoming unconditional, applicable regulatory approvals being obtained (and associated costs being paid) and Readmission.

There can be no assurance that the conditions to completion of the Acquisition will be satisfied or waived, if applicable) by 15 December 2017 (which is the long stop date specified in the Acquisition Agreement), or that the parties would agree to extend this long stop date, if necessary. If any applicable conditions are not satisfied (or waived) by the agreed long stop date, the Acquisition will not complete. If the Acquisition does not complete, the Company would nonetheless be obliged to pay certain costs (including due diligence and advisory fees) incurred in connection with the Acquisition, Placing, Admission and Readmission.

The Placing is not conditional upon completion of the Acquisition and an investment in Placing Shares may represent only an investment in the existing Group and could give rise to a significant dilution for Existing Shareholders without the benefit of the Acquisition

As the Placing is not conditional upon completion of the Acquisition, the purchase of Placing Shares may simply be an investment in the Company and the Group, and not the Enlarged Group. In particular, the Acquisition may not complete if any of the Acquisition Conditions are not satisfied. Accordingly, in the event the Acquisition is not completed, purchasers of Placing Shares are investing in the Company and the Group on a stand-alone basis, without the business of the Lynx Group, and existing Shareholders would experience significant dilution.

In the event that the Acquisition does not complete following completion of the Placing, the Directors intend to use the funds raised to satisfy the costs of the transaction and to seek other suitable acquisition opportunities. In the event that the Placing proceeds, but the Acquisition does not take place, the Directors intend to use the funds raised by the Company to satisfy the costs of the transaction and to seek other suitable acquisition opportunities. The Company may apply the Placing Proceeds for another acquisition of a company or mineral licence by the Enlarged Group, provided that where such transaction would constitute a Class 1 transaction within the meaning of and applying the requirements of Chapter 10 of the Listing Rules (as if Chapter 10 of the Listing Rules applied to the Company), it will only do so where it has sought and received shareholder approval and complied with the provisions of Listing Rule 10.5.1 as if they applied to the Company. If no other acquisition opportunity can be found on acceptable terms by the time of the Company's 2018 annual general meeting, and unless the Shareholders resolve otherwise it will take steps to return such sums to Shareholders as a whole and not just Placees. In the event that the Placing proceeds, but the Acquisition does not take place, it will not affect the Selling Shareholder Placing and the Selling Shareholder will be entitled to retain all sums paid to it. Such a return could carry financial costs for certain Shareholders such as taxes, withholdings, transaction or advisor costs, will incur costs on the part of the Company and would be subject to applicable securities laws.

RISKS RELATING TO THE PLACING AND ACQUISITION

The Placing and Acquisition are subject to a number of conditions that may not be satisfied or, where applicable, waived

The implementation of the Placing and Admission is subject to the satisfaction (or waiver, where applicable) of a number of conditions, including the passing of the Resolutions, approval by the Kazakh government for the issue of the Company Placing Shares and the Consideration Shares, each of the new debt facility agreements not being terminated prior to Admission, no event having arisen at any time prior to Admission which gives any party a right to terminate the Acquisition Agreement and there not having occurred any material adverse change in relation to the Group or the Lynx Group.

There is no guarantee that these (or any other) conditions of the Placing Agreement will be satisfied (or waived, if applicable), in which case the Placing and the Admission will not be completed.

The implementation of the Acquisition and the Readmission is subject to the satisfaction (or waiver, where applicable) of a number of conditions, including receipt of applicable regulatory approvals, the Placing Agreement having become unconditional and the passing of the Resolutions at the Extraordinary General Meeting.

There is no guarantee that these (or any other) conditions of the Acquisition Agreement will be satisfied (or waived, if applicable), in which case the Acquisition and the Readmission will not be completed. The conditions are summarised in more detail in section 19 of this announcement.

If completion of the Company Placing and/or the Acquisition does not occur, the Company would nonetheless be obliged to pay certain costs (including due diligence and advisory fees) incurred in connection with the Proposals. In anticipation of the Company Placing and Completion, the Company will also have invested significant time and resources (including that of the Directors) and may have, in the meantime, not been able to capitalise on other transaction opportunities.

The Republic of Macedonia may assert that certain provisions of the Minerals Law apply to the Acquisition

The Minerals Law establishes regulatory formalities which have to be obtained when selling and purchasing an exploitation concession and/or selling shares in companies owning exploitation concessions in Macedonia. One such formality includes obtaining the approval of the Ministry of the Economy and paying a fee of 7% of the value of the exploitation concession on the direct transfer of the concession or a change of control of the holder of the exploitation concession. The Sellers and the Company have separately received legal advice that these provisions do not apply, and any such fee would not be payable, in respect of indirect changes of control in companies owning exploitation concessions, such as is the case in the context of the proposed Acquisition. However, the Company is not aware of any prior comparable transactions that involved an indirect change of control of an exploitation concession holder since the Minerals Law was enacted in 2012, and no contractual protections have been provided by the Sellers in this regard. While the Company's position is that this approval (and related fee) is not applicable in the context of the Acquisition, there is a risk that the Republic Of Macedonia may take a different position. If the approval of the Republic of Macedonia were to be required for the Acquisition pursuant to the Minerals Law, there can be no guarantee that such approval would be obtained in a timely fashion, on acceptable terms or at all. While the basis for determining the value of the exploitation concession required to calculate such fee is not prescribed in detail in the Minerals Law, the Directors believe it would be material in the context of the Transaction and have provided within the aggregate costs of the transaction for what the Company believes is a reasonable estimate of the fee would be borne by the Enlarged Group, if it were to be payable. Further, there can be no assurance that any approval would be obtained before 15 December 2017, being the long stop date under the Acquisition Agreement or that any fee borne by the Enlarged Group would be within the estimate provided for by the Company. The Company would not have a contractual right to terminate the Acquisition Agreement by reason of any fee payable exceeding its current estimate.

Existing Shareholders could experience significant dilution as a result of the Proposals

Following completion of the Company Placing and Acquisition, the Existing Shareholders will experience significant dilution as a result of the issue of the Company Placing Shares and (if relevant) the Consideration Shares. As a consequence, voting power which can be exercised and the influence which may be exerted by the Existing Shareholders in respect of the Group or of the Enlarged Group (provided Completion occurs) will be significantly reduced.

There can be no assurance that the Group will realise the anticipated benefits of the Acquisition

If Completion occurs, the Group may not realise the anticipated benefits from the Acquisition or may encounter difficulties in achieving the anticipated benefits. The Group is subject to all of the risks set forth in this "Risk Factors" section which may impact the Group's ability to realise the benefits its Directors believe will result from the Acquisition. In addition, if the future financial performance and cash flows generated by the Group are not in line with the Directors' expectations, it may significantly affect the financial performance of the Group. This could reduce the potential benefits arising from the Acquisition, adversely affect the market price of the Ordinary Shares, or have a material adverse effect on the Group's business, financial condition, operating results and prospects including its ability to pay a dividend.

The due diligence carried out in respect of the Lynx Group may not have revealed all relevant facts or uncovered significant liabilities

While the Company conducted certain due diligence in respect of the Acquisition with the objective of identifying any material issues that may affect its decision to proceed with the Acquisition, there can be no assurance that all such issues have been identified. The Company also used information revealed during the due diligence process to formulate its business and operational planning. During the due diligence process, the Company is only able to rely on the information that was made available to it. Any information that was provided or obtained from available sources may not have been accurate at the time of delivery and/or remained accurate during the due diligence process and in the run-up to the Acquisition. More broadly, there can be no assurance that the due diligence undertaken was adequate or accurate or revealed all relevant facts or uncovered all significant liabilities. If the due diligence investigation failed to identify key information in respect of the Lynx Group, or if the Company considered certain material risks to be commercially acceptable, the Company may be forced to write-down or write-off assets in respect of the Lynx Group, which may have a material adverse effect on the Enlarged Group's business, financial condition or results of operations. In addition, following the Acquisition, the Company may be subject to significant, previously undisclosed liabilities in respect of the Lynx Group that were not known or identified during due diligence and which could have a material adverse effect on the Group's business, financial condition and results of operations including its ability to pay a dividend.

Foreign exchange risk arises as a result of the proceeds of the Company Placing being in pounds sterling and the consideration payable under the Acquisition Agreement being in US dollars.

The proceeds raised by the Group pursuant to the Company Placing will be in pounds sterling, but the payment to the Sellers pursuant to the Acquisition will be made in US dollars. There could be a period of several weeks between Admission and the payment to the Sellers pursuant to the Acquisition, during which time the Group will therefore be exposed to the risk of a significant appreciation in the US dollar against the pound sterling. The Group has entered into currency hedge arrangements in respect of the majority of the anticipated net proceeds of the Company Placing in order to limit its total exposure to adverse currency movements in respect of the Acquisition, although there is no guarantee that such measures will be implemented or be fully effective. The Group will incur additional costs if hedging is secured for this exchange rate risk. Should the US dollar appreciate against the pound sterling and such hedging measures are not implemented or fully effective, the cost of the Acquisition for the Group will increase which could have a material adverse effect on the returns the Group is able to make to its Shareholders and the Group's financial condition.

Acquisition and integration costs may be greater than anticipated

The Company expects to incur a number of costs in relation to the Acquisition, including integration and post-completion costs in order to successfully combine the operations of the Group and the Lynx Group, assuming the Acquisition completes. The actual costs of the acquisition and integration process may exceed those estimated and there may be further additional and unforeseen expenses incurred in connection with the Acquisition. In addition, the Group will incur legal, accounting, financial adviser and transaction fees and other costs relating to the Acquisition, some of which are payable whether or not the Acquisition reaches Completion. Although the Directors believe that the integration and Acquisition costs will be more than offset by the realisation of the benefits resulting from the Acquisition, this net benefit may not be achieved in the short-term or at all, particularly if the Acquisition is delayed or does not complete. These factors could materially adversely affect the business, financial conditions, results of operations and prospects of the Group including its ability to pay a dividend.

The Group will not have full recourse to the Sellers against all potential liabilities in connection with the Acquisition, whether identified or unidentified

Under the terms of the Acquisition Agreement, the Sellers will provide the Group with certain limited indemnities, covenants and warranties in relation to the Lynx Group. However, these indemnities, covenants and warranties may not cover all potential liabilities associated with the Lynx Group, whether identified or unidentified, and they are in certain circumstances limited in scope, duration and/or amount. In particular, the warranties and indemnities are largely limited to matters arising after the Sellers acquired the SASA Mine in November 2015, and therefore the Group will have minimal protection in relation to matters arising prior to this. The Group may not have full recourse against, or otherwise recover in full from, the Sellers in respect of all losses which it may suffer in respect of a breach of those covenants and warranties, or in respect of the subject matter of any of the indemnities, or otherwise in respect of the Acquisition. In addition, the Group will be dependent on the ongoing solvency of the Sellers to the extent it seeks to recover amounts in respect of claims brought under such indemnities, covenants and warranties. The warranties, covenants and indemnities provided by the Sellers do not cover all issues identified by the Group, nor do they cover all fees and costs that may be payable by the Lynx Group in connection with the Acquisition, which may be material. To the extent the Group suffers any losses and is unable to recover such losses from the Sellers it could have a material adverse effect on the Group's business, results of operation, financial condition and ability to pay a dividend.

The Sellers are special purpose vehicles

The Sellers are special purpose vehicles. Although the Acquisition Agreement provides for certain remedies and contractual protections in favour of the Group, and a guarantee from an affiliate of one of the Sellers, in practice the Group may not have successful recourse against the Sellers or their guarantor under the Acquisition Agreement as the entities may not own any other assets and may be wound up in due course following Completion prior to the expiry of the period in which such claims can be made by the Group.

The integration process may result in disruption

Until Completion, the Group and the Lynx Group will continue to operate as two separate and independent businesses. The integration process for these two businesses will only begin following Completion and the success of the Enlarged Group will depend, in part, on the effectiveness of this integration process. The Company does not plan to hire separate integration specialists to manage this process and it will be a time consuming process that will demand a significant amount of involvement on the part of the Directors and senior management of the Company, which may divert focus and resources from the day-to-day management of the Group's business.

In particular, while the Company will enter into the Transitional Services Agreement to ensure certain transitional arrangements are in place following Completion, there can be no assurance that the mining operations at the SASA Mine will continue without disruption. A large number of operational responsibilities and knowledge are concentrated in the Lynx Group management team, all of whom will not be retained on Completion, and the Company will only be provided limited access to certain key individuals for a period of three months following Completion pursuant to the terms of the Transitional Services Agreement. Whilst there is significant mining experience among the Company's senior management team, there is limited underground mining experience. Moreover, whilst the SASA Mine is a standalone asset and it is assumed that it will largely continue to operate as it has done prior to Completion, there are a number of key SASA operational activities that are controlled directly by Orion and the Lynx Group and the change of control on Completion may lead to business disruptions.

There is also limited capability and experience at Lynx for the preparation of financial information in accordance with IFRS and the information required to support public company processes and disclosures. This, coupled with the fact that the existing Lynx Group monthly financial reporting timetable is not aligned with the Company's reporting requirements, could cause delays during the half year and year end financial reporting process of the Enlarged Group. Additionally, many aspects of the Lynx Group and the SASA Mine internal controls and processes are not formally documented and improvements will need to be made in order to align these with the practices generally observed by listed companies in the UK. These include (but are not limited to) the implementation of formal risk management procedures, IT policies, formal KPI reporting and re- forecasting processes.

As a result, the integration process may result in the disruption of ongoing business that may adversely affect the Enlarged Group's ability to achieve the anticipated advantages of the Acquisition. Moreover, some of the potential challenges in combining the businesses may not become known until after Completion.

Management's attention may be diverted from the business of the Enlarged Group by the Acquisition

The Acquisition has required, and will continue to require, substantial amounts of time from the Group's and the Lynx Group's management teams, which could adversely affect their ability to operate the respective businesses. The Enlarged Group's management team will also be required, following Completion, to devote significant attention and resources to integrating the businesses. There is a risk that the challenges associated with managing the Acquisition will result in management distraction and that consequently the underlying businesses will not perform in line with expectations.

The loss of one or more members of the Enlarged Group's key employees following the Acquisition could adversely affect the Enlarged Group's business, prospects, financial condition and results of operation

The performance of the Enlarged Group's management and other key employees, taken together, is critical to the success of the Enlarged Group and, while plans are, or will be put in place, for the retention of management and other key employees, there can be no assurance that the Acquisition will not result in the departure of management and/or other key employees from the Enlarged Group. Such departures may take place either before Completion or during the Enlarged Group's integration process following Completion. Failure of the Enlarged Group to maintain or put in place plans or arrangements or otherwise to incentivise employees appropriately could result in the departure of management and/or other key employees. The departure of a significant number of management or other key employees could adversely affect both the Enlarged Group's ability to conduct its businesses (through an inability to execute business operations and strategies effectively) and the value of those businesses, which could have a material adverse effect on the Enlarged Group's business, financial condition, results of operations and prospects.

Borrowing and interest rate risk

The Acquisition will result in the raising of debt finance, which will significantly increase the overall levels of borrowing in the Enlarged Group. The Enlarged Group's borrowing costs are likely to increase as a result of this additional debt and may also increase further due to increases in interest rates as set by the lending institutions. The Enlarged Group's indebtedness will impose financial and other restrictive covenants that limit the ability of the Enlarged Group to, among other things, borrow additional funds and dispose of assets, and the failure, in the longer term, to comply with such restrictions may result in an event of default, which, if not cured or waived, could have a material adverse effect on the Enlarged Group. The Enlarged Group's leverage may hinder the Enlarged Group's ability to adjust rapidly, if required, to changing market conditions and could make the Enlarged Group more vulnerable in the event of a downturn in economic conditions or its business.

Taxation

Any change in the Company's tax status, the tax consequences of the Acquisition, or in taxation legislation in the UK or in any jurisdiction in which the Enlarged Group operates (as described more fully in the "Risks generally relating to the countries in which the Group operates" section) could affect the Group's profitability and ability to maintain returns to shareholders.

RISKS SPECIFIC TO THE GROUP IN MACEDONIA

The following risk factors will be relevant to the Group if Completion occurs.

Political Instability

Macedonia has been involved in political turmoil in recent years, cumulating in anti-government protests in 2015, 2016 and 2017. An early election was held in December 2016, as part of an EU-mediated multiparty agreement, in order to break a year-long parliamentary deadlock and maintain the country on a path towards formal EU accession talks. However, the election produced an indecisive election result and on 2 March 2017 President Gjorge Ivanov's decided to block the opposition Social Democratic Union (SDSM) leader, Mr Zoran Zaev, from forming a government. On 31 May 2017 Mr Zoran Zaev (with the President's consent) formed a coalition between his own party, the Democratic Union for Integration and the "Alliance for the Albanians" coalition in order to serve as the official government. There may be ongoing political uncertainty during the new coalition government's tenure which could lead to material adverse consequences for the Group's operations in Macedonia.

Construction of a new tailings' storage facility may be delayed

A new tailings' storage facility is currently being built at the SASA Mine ("TSF 4") which will be required for the operation of the SASA Mine once the existing tailings facility reaches its maximum storage capacity, which is expected to occur around October 2018. Construction of TSF 4 could be delayed for a number of reasons, including delays in obtaining the necessary permits and consents. Any such delay could have a material impact on the operations and profits of the Lynx Group and, following Completion, the Enlarged Group.

River Diversion Tunnel

The SASA Mine is undertaking a structural integrity assessment for the two kilometre long tunnel that diverts the Kamenica river around and underneath the existing tailings facility, to advise on any potential requirements for additional support or remediation. The findings of this study could result in additional costs for the remediation of this infrastructure and consequently could have a material impact on the operations and profits of the Lynx Group and, following Completion, the Enlarged Group.

Environmental Permits

The Macedonian environmental inspectorate has found that Rudnik SASA DOOEL's discharge waters have occasionally exceeded the limits prescribed in its A-integrated Permit. Rudnik SASA DOOEL has submitted an application to amend the permitted limits for discharge waters under the A-integrated Permit as the permitted limits are stricter than those permitted under Macedonian environmental law. This application is currently pending before the Macedonian Ministry of Environment and Physical Planning ("MOEPP"). If MOEPP refuses to grant the amendment to the A-integrated Permit requested by Rudnik SASA DOOEL, it would continue to be bound by the current limits in the A-integrated Permit. If that is the case and there are further instances of the discharge waters exceeding the prescribed limits, such breach could have a negative effect on the ongoing operations of Rudnik SASA DOOEL and the Enlarged Group following Completion.

During a recent control environmental inspection, the Environmental Inspectorate determined that Rudnik SASA DOOEL needs to construct certain settlement ponds on Horizon 830 within 90 days of obtaining the construction permits. If the discharge limits are not met following construction of the settlement ponds, the company may need to treat chemically the waters to achieve compliance, or pump the water back to the tailings storage facility. Either of these options would impose additional costs on the Lynx Group and, following acquisition, the Enlarged Group.

Taxation

Rudnik SASA DOOEL is currently the subject of a routine annual tax inspection by the Macedonian tax authorities. Any negative findings in this inspection could have a material adverse effect on the profits and operations of the Lynx Group and, following Completion, the Enlarged Group.

Rudnik SASA DOOEL has also filed a request to obtain a withholding tax exemption in line with existing double taxation treaties in respect of all payments to its existing lenders (being Investec and Société Générale) executed in 2016. In addition, Rudnik SASA DOOEL has requested the authority's opinion in respect of the tax treatment of the silver stream arrangements in order to confirm whether the relevant transactions are tax- neutral. If an adverse ruling is made in relation to either of these requests it could have a material adverse effect on the Lynx Group and, following Completion, the Enlarged Group.

The Lynx Group is currently appealing a tax ruling alleging improper tax practices with respect to historic shareholder loans. Although the Company has been advised that this would be unlikely, there can be no guarantee that the authorities will not initiate a criminal investigation with respect to these allegations, which (if sustained) could have material adverse consequences for the Group's business. Further information on this dispute is set out in paragraph 28.5 of this announcement.

Privatisation Procedure

Rudnik SASA DOOEL has applied for privatisation of certain plots of land which, if successful, would enable it to acquire full ownership over the land concerned. The application is still pending. If the application is refused, Rudnik SASA DOOEL could continue to use the land but it would need to enter into a lease agreement or purchase the land from the Macedonian government. This could lead to the Lynx Group incurring material costs and consequently could have a material impact on the operations and profits of the Lynx Group and, following Completion, the Enlarged Group.

Legalisation Procedure

Due to recent changes in Macedonian law, Rudnik SASA DOOEL was required to retrospectively apply for the legalisation of certain constructions, ranging from sewage networks to various electrical cables. The procedure is ongoing. While the Directors believe that all relevant documentation has been submitted and that the procedure will be completed during 2018, there can be no assurance this will be the case. If the legalisation procedure is not successful, the relevant constructions may be required to be dismantled or removed. This could result in significant costs for Lynx Group and consequently could have a material impact on the operations and profits of the Lynx Group and, following Completion, the Enlarged Group.

Liability for Historic Pollution

There are certain historic events of pollution arising from acid rock drainage and waste rock dumps that occurred prior to Rudnik SASA DOOEL's acquisition of the SASA Mine in 2005. Whilst the Company has been advised that Rudnik SASA DOOEL should not legally be held liable for these historic events of environmental pollution, there is a risk that it could be held liable to the extent that the environmental damage is enhanced, maintained or continued by the activities undertaken pursuant to the current operation of the SASA Mine. In addition, there is a remote risk that, upon expiry of the concession, Rudnik SASA DOOEL could be required to rehabilitate areas affected by historic pollution to the extent that they are located within the concession exploration area or other land used for the operation of the SASA Mine. If Rudnik SASA DOOEL is held liable for the aggravation or continuation of historic pollution or is required to rehabilitate land affected by such pollution in the future, this could have a material adverse effect on the prospects of the Enlarged Group.

RISKS SPECIFIC TO THE GROUP IN KAZAKHSTAN

Liability for Kazakhstan subsidiaries

Under Kazakh law, the Group may be severally liable for the obligations of its Kazakh subsidiaries, if the Group has the ability to make decisions for such Kazakh subsidiaries or as a result of its ownership interest or the terms of a binding contract: (i) the Kazakh subsidiaries concluded the transaction giving rise to the obligations pursuant to the Group's mandatory instructions; and (ii) the Kazakh subsidiaries become bankrupt due to the Group's fault. The Directors do not believe that members of the Group should be liable for the liabilities of their subsidiaries but it is a risk that applies to Kazakh companies, which if a Group member were to become bankrupt could result in the Group being liable for the liabilities of such insolvent company. As a result, there could be a material adverse effect on the Group's business, results of operations and financial condition and the price of the Shares.

Leaching Operations

The nature of in-situ leaching means that there are varying grades and flows of copper bearing solution from the dumps. Should the flow and/or grade drop, this could lead to a reduction in copper cathode produced. During 2017, operations have begun on the Western Dumps where the Company did not previously have operational leaching experience. An interruption to the project's water supply could have an adverse impact on leaching operations. Any interruptions or disruptions of leaching operations could have a material adverse effect on the Group's operations in Kazakhstan.

Kounrad SX-EW Operations

The Kounrad SX-EW operations have a number of critical supplies, particularly reagents and electricity, and the loss of any one may have a significant adverse impact on the production of copper cathode, which could have a material adverse effect on the Group's operations in Kazakhstan.

The SX operations of the Kounrad facility in particular have a significant risk of fire due to the materials used in the extraction of copper, and there can be no assurance that any fire detection or prevention systems will be effective. Any such fire could severely disrupt the Group's operations and therefore materially and adversely affect its financial position and prospects.

The Subsoil Law

The Subsoil Law establishes regulatory formalities which have to be obtained when selling and purchasing the subsoil use rights and/or selling shares in companies owning or directly or indirectly controlling subsoil use companies in Kazakhstan. One of such formalities includes the state waiver of the statutory pre-emptive right, which before January 2015 was applicable to any subsoil use contract, however, today applies only to subsoil use contracts concluded in respect of deposits or subsoil use plots of strategic importance. There is a possibility that transactions which the Group has entered into in the past, and for which waivers have not been obtained, may be deemed to have required such a waiver. Whilst the Directors are of the view that the risk to the Group from the waiver under the Previous Subsoil Law being triggered is low given the stage of development of the assets at that time, and the subsequent granting of such waiver in respect of the Placing and Admission, any breach may have a material adverse impact on the Group's interest.

Since adoption in 2010, the Subsoil Law has undergone a number of amendments. In 2015, the concept of new subsoil use code was introduced (the "Subsoil Code") to supersede the Subsoil Law and related regulations. The draft Subsoil Code has been developed by the Ministry for Investments and Development of the Republic of Kazakhstan, involving experts from the KazEnergy Association, Kazakhstan Petroleum Lawyers' Association (KPLA), Association of Mining and Mining-and-Metallurgical Enterprises (AMME) and employees of the profile ministries and is expected to be enacted in early 2018. The latest draft of the Subsoil Code contains a number of substantial regulatory changes including the introduction of a licensing regime which would entail that new subsoil use rights in respect of minerals will be granted on the basis of licences rather than subsoil use contracts. At the same time, the transitional provisions of the draft Subsoil Code provide that contracts and licences executed before the introduction of the Subsoil Code would remain valid. If, by the time of enactment of the Subsoil Code, this part of the transitional provisions is excluded, the future status of the Company's existing subsoil contract and licence in respect of Kounrad and Shuak will be unknown. A change in subsoil use legislation affecting the Company's current subsoil use right may have a material adverse impact on the Group's finances and results of operations.

The Kazakhstan government has the right to initiate reviews of subsoil use contract terms and to unilaterally terminate subsoil use contracts in respect of deposits of "strategic importance". A list of 361 deposits of strategic importance and criteria for designation of deposits as strategic were approved by Kazakhstan Government decree in October 2011, replacing the previously effective list comprised of 231 deposits. Although the Kounrad mine in Kazakhstan was not included on this list, the Kazakhstan Government is entitled to amend this list and the criteria at any time.

Shuak Subsoil Use Agreement

In November 2016, the Company entered a framework agreement to acquire an 80 per cent. effective interest in the subsoil use contract for the Shuak gold and copper exploration property, with 20 per cent. being held by local partners. The transfer of this subsoil use contract to an entity wholly held by Shuak BV was completed in August 2017. The consideration for this acquisition is an investment in exploration activities of US$2 million over five years, subject to continued positive results from exploration activities and the general economic outlook for commodity prices.

The previous holder of the Shuak subsoil use contract could not achieve full compliance with its contractual and regulatory obligations. Pursuant to Kazakhstan subsoil use legislation, after transfer of the subsoil use right in respect of the Shuak gold and copper exploration property to Shuak BV's subsidiary, the Kazakhstan authorities will retain full discretion to terminate the Shuak subsoil use contract for breaches committed by the previous holder of the contract. Should this occur, this may adversely affect the Enlarged Group in Kazakhstan.

Fluctuations in the Kazakhstan Tenge

In 2015 there was an 85 per cent. devaluation of the Kazakhstan Tenge against the US Dollar. The immediate impact for the Company was positive as the Group's income in Kazakhstan through the export of copper cathode is generated in US Dollars. The Group manages its exposure to foreign currency exchange risk associated with material commercial transactions and working capital requirements by maintaining controlled amounts of cash in the required currencies. The Group does not hedge foreign exchange risk. Further fluctuations in the Tenge may result in foreign exchange losses that have a material adverse impact on the Group's operations in Kazakhstan.

Tax Law

Having adopted the current Tax Code in 2008, the Kazakhstan Government has been developing the new Tax Code to supersede the current one (the "New Tax Code"). Upon a statement made by the President of the Republic of Kazakhstan, the new Tax Code must be developed by the end of 2017. The New Tax Code is being developed under time constraints without extensive discussion with businesses, including subsoil users. Given that the Company's business in Kazakhstan does not enjoy tax stability exemptions, there is no assurance that the New Tax Code will not introduce a tax burden adversely affecting the Group's business, financial condition and results of operations in Kazakhstan.

The President of Kazakhstan, Nursultan Nazarbayev, has been in office since 1991 and should he leave office without a smooth transfer to his successor, the political and macroeconomic situation in Kazakhstan could become unstable

Kazakhstan's President, Nursultan Nazarbayev, has been in office since Kazakhstan became an independent sovereign state in 1991. Under President Nazarbayev's leadership, the foundations of a market economy have taken hold, including privatisation of state assets, liberalisation of capital controls, tax reforms and pension system development. Should President Nazarbayev fail to complete his current term of office for whatever reason or should a new president be elected, Kazakhstan's political situation and economy could become unstable and the investment climate in Kazakhstan could deteriorate. For example, a new government could adopt taxation or subsoil use regimes that would be less favourable to mining companies. Changes to Kazakhstan's property, tax or mining regulatory regimes, or other changes that affect the investment climate in Kazakhstan, could negatively affect the Group's business, financial condition and results of operations.

The Group's export sales in Kazakhstan are subject to domestic transfer pricing regulations

Generally, all cross-border and certain other transactions in Kazakhstan are subject to the domestic transfer pricing regulations, which state that transaction prices for tax purposes are to be determined based on market prices. There are special procedures in Kazakh tax regulations to determine the applicable market price for a given transaction. Where the prices of the Group's exports in Kazakhstan deviate from the applicable market prices, the Kazakh tax authorities are entitled to make tax adjustments and assessments to corporate income tax and any other taxes affected, as well as assess fines and late payment interest if such adjustments lead to an increase in tax payments by an entity. Audits of transfer pricing issues are routinely carried out by the tax authorities in respect of exporters of oil, gas and minerals. Kazakhstan's tax laws are not always clearly expressed, have not always been applied in a consistent manner and continue to evolve. The uncertainty of application and evolution of tax laws creates a risk of additional and substantial payments of tax by the Group, which could have a material adverse effect on the Group's business, results of operations and financial condition and the price of the Shares.

In certain circumstances, the Kazakh tax authorities have conducted tax audits and raised additional tax assessments within the statute of limitation for five years after the end of the relevant tax period.

RISKS SPECIFIC TO THE GROUP IN CHILE

Status of the Copper Bay Project

Although the definitive feasibility study undertaken in 2016 in respect of Copper Bay illustrated that the project would have potentially significant value, the Company is unlikely to progress a development of Copper Bay and the Board has now decided to seek to sell the Group's interest in the project. Ultimately, there can be no certainty that the Group will be able to sell its interests in the project on acceptable terms or at all or that significant value will otherwise be realised in relation to the Group's investment in Copper Bay.

RISKS RELATING TO THE OPERATIONS OF THE GROUP

Exploration, development and operating risks

The exploration for and development of mineral deposits is speculative and involves significant risks which even a combination of careful evaluation, experience and knowledge may not eliminate. While the discovery of an ore body may result in substantial rewards, few properties that are explored are ultimately developed into producing mines. Once a mineral deposit is discovered it can take several years to determine whether Mineral Resources or Ore Reserves exist. During this time the economic viability of production may change.

Substantial expenditure may be required to locate and establish mineral resources or ore reserves through drilling, metallurgical and other testing techniques, to develop metallurgical processes to extract metal from the ore and to construct mining and processing facilities at a particular site. It is impossible to ensure that the exploration or development programmes planned by the Group will result in a profitable commercial mining operation. Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are: (i) the particular attributes of the deposit, such as size, grade and proximity to infrastructure; (ii) metal prices, which are highly cyclical; and (iii) government regulations, including regulations relating to prices, taxes, royalties, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in the Company not receiving an adequate return on invested capital.

Mineral Resource and Ore Reserve estimates

The Group's reported Mineral Resources are only estimates, which are based on a range of assumptions. In addition, Mineral Resource estimates are based on limited sampling and consequently are uncertain because the samples may not be representative. There are numerous uncertainties inherent in estimating Mineral Resources and Ore Reserves, including factors beyond the control of the Group and, following the Acquisition, the Enlarged Group. The estimation of Mineral Resources and Ore Reserves is a subjective process and the accuracy of any such estimates is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, metallurgical testing, production, evaluation of mine plans and exploration activities subsequent to the date of any estimate may justify revision (up or down) of such estimates. There is no assurance that Mineral Resources can be economically mined. Those portions of the Mineral Resources that have not been converted to Ore Reserves do not have demonstrated economic viability. A Mineral Resource is not the equivalent of a commercially mineable ore body or an Ore Reserve. Lower market prices, increased production costs, reduced recovery rates and other factors may render the Group's (and following the Acquisition, the Enlarged Group) Ore Reserves uneconomic to exploit and may result in revision of its Ore Reserve estimates from time to time. Ore Reserve data are not indicative of future results of operations. If in the future, the Group's actual Mineral Resources and Ore Reserves prove to be less than the current estimates, other than as a result of depletion through production, or if the Group fails to develop its resource base through the upgrading of Inferred Mineral Resources to Indicated or Measured Resources, or by realisation of identified new mineralised potential, the Group's results of operations and financial condition may be materially and adversely affected. The Company and the Directors cannot give any assurance that the estimated Ore Reserves will be recovered as the Group proceeds through production or that they will be recovered at the volume, grade and rates estimated.

Dependence on key personnel

The success of the Enlarged Group, in common with other businesses of a similar size, will be highly dependent on the expertise and experience of its Directors and senior management. The loss of any key personnel could harm the business or cause delay in the plans of the Enlarged Group whilst management time is directed at finding suitable replacements. The future success of the Enlarged Group is in part dependent upon its ability to identify, attract, motivate and retain staff with the requisite expertise and experience. Although the Group and the Lynx Group enter into employment arrangements with its key personnel to secure their services, the Group nor the Lynx Group cannot guarantee the retention of such key personnel. Should key personnel leave, the Group's business, prospects, financial condition or results of operations may be materially adversely affected.

Reliance on third parties

The Enlarged Group will be reliant on third party service providers, including Fusion management pursuant to the Transitional Services Agreement and the Sellers pursuant to the terms of a transitional services agreement, and suppliers to provide equipment, infrastructure and raw materials required for the Enlarged Group's business and operations and there can be no assurance that such parties will be able to provide such services in the time scale and at the cost anticipated by the Company.

Mining Risks

The business of mining and mineral processing involves a number of risks and hazards, including industrial accidents, labour disputes, community conflicts, activist campaigns, unusual or unexpected geological conditions, equipment failure, changes in the regulatory environment, environmental hazards, and weather and other natural phenomena such as earthquakes and floods. The Enlarged Group may experience material mine or plant shutdowns or periods of reduced production as a result of any of the above factors. Such occurrences could result in material damage to, or the destruction of, mineral properties or production facilities, human exposure to pollution, personal injury or death, environmental and natural resource damage, delays in mining, monetary losses and possible legal liability, and may result in actual production differing, potentially materially, from estimates of production, including those contained in this announcement, whether expressly or by implication. There can be no assurance that the realisation of operating risks and the costs associated with them will not materially adversely affect the results of operations or financial conditions of the Enlarged Group.

Commodity pricing

The profitability of the Enlarged Group's operations will be dependent upon the market price of copper, zinc and lead. Metal prices fluctuate widely and are affected by numerous factors beyond the control of the Company. The level of interest rates, the rate of inflation, the world supply of mineral commodities and the stability of exchange rates can all cause significant fluctuations in prices. Such external economic factors are in turn influenced by changes in international investment patterns, monetary systems and political developments. The price of mineral commodities has fluctuated widely in recent years, and future price declines could cause commercial production to be impracticable, thereby having a material adverse effect on the Company's business, financial condition and results of operations. A significant or sustained downturn in copper, zinc and lead prices would adversely affect the Enlarged Group's available cash and liquidity and could have a material adverse effect on its business, results of operations and financial condition of the Enlarged Group in the longer term. Furthermore, reserve estimates and feasibility studies using significant lower commodity prices could result in material write-downs of the Enlarged Group's investment in its assets and increased amortisation, reclamation and closure charges. In addition to adversely affecting the Enlarged Group's reserve estimates and its financial condition, declining commodity prices can impact operations by requiring a reassessment of the feasibility of a particular project. Such a reassessment may be the result of a management decision or may be required under financing arrangements related to a particular project. Even if the project is ultimately determined to be economically viable, the need to conduct such a reassessment may cause substantial delays or may interrupt operations until the reassessment can be completed.

Competition

Mines have finite lives and, as a result, one of the ways the Group seeks to replace and expand its reserves is through the acquisition of new mining concessions and properties. There is a limited supply of desirable mining concessions and properties with potential mineralisation available in Kazakhstan and Macedonia, which is where the Group would consider conducting further exploration and/or production activities. Because: (i) the Group faces competition for new mining concessions and properties from other mining companies, some of which may have greater financial resources than the Group; and (ii) the current owners of desirable properties may be unwilling to sell the property to the Group, the Group may be unable to acquire attractive new mining concessions and/or properties on terms that it considers acceptable or at all. As a result, the Group's revenues may decline over time, thereby materially and adversely affecting its results of operations and financial condition.

Future financing and commercial viability of future projects

The capital expenditure plans of the Group and the further development and exploration of mineral properties in which the Group holds interests or which the Group may acquire may depend upon the Group's ability to obtain financing through joint ventures, debt financing, equity financing or other means. The turmoil caused by the global financial crisis has resulted in major financial institutions consolidating or going out of business, the tightening of credit market, significantly lower liquidity in most financial markets and extreme volatility in fixed income, credit, currency and equity markets. No assurance can be given that the Group will be successful in obtaining any required financing as and when needed on acceptable terms or at all, which could prevent the Group from further development and exploration or additional acquisitions.

The Enlarged Group's operations will be located in Kazakhstan and Macedonia, areas that have experienced economic and political difficulties in the past and which may be perceived as unstable. This may make it more difficult for the Group to obtain debt financing from projects or other lenders if it should determine that debt financing is the appropriate method of funding in the future. Failure to obtain additional financing on a commercial and timely basis may cause the Group to postpone its capital expenditure plans, forfeit its rights in properties or reduce or terminate operations. Reduced liquidity or difficulty in obtaining future financing could have a material adverse effect on the Group's business, financial condition, results of operations and prospects.

The Group's growth projects may require greater investment than currently expected or suffer delays or interruptions, which could cause cost overruns. Any such delay, interruption or cost overruns in implementing the Group's planned capital investments could result in the Group failing to complete the projects and a reduction in future production volumes, which could have a material adverse effect on the Group's business, financial condition, results of operations and prospects. In addition, projects may not prove to be commercially viable upon completion.

Infrastructure

Mining, processing, development and exploration activities depend, to a significant degree, on adequate infrastructure. In the course of developing future mines the Group, may need to construct and support the construction of infrastructure, which includes permanent water supplies, tailings storage facilities, power, rail and maintenance facilities and logistics services and access roads. Reliable rail facilities, roads, bridges, power sources and water supply are important determinants, which affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of such infrastructure could materially adversely affect the Group's operations, financial condition and results of operations. Any such issues arising in respect of the supporting infrastructure or on the Group's sites could materially adversely affect the Group's results of operations or financial condition. Furthermore, any failure or unavailability of the Group's operational infrastructure (for example, through equipment failure or disruption to its transportation arrangements) could materially adversely affect the production output from its mines or impact its exploration activities or development of a mine or project.

Uninsured hazards

The Group may be subject to substantial liability claims due to the inherently hazardous nature of its business or for acts and omissions of contractors, sub-contractors or operators. Any indemnities the Group may receive from such parties may be limited or may be difficult to enforce if such contractors, sub-contractors or operators lack adequate resources. The Company believes that the level of the Group's insurance cover (and that of the operators of assets it does not itself operate) is reasonable based on the costs of cover, the risks associated with its business and industry practice. The Company can give no assurance that the proceeds of insurance applicable to covered risks will be adequate to cover expenses relating to losses or liabilities. Accordingly, the Group may suffer material losses from uninsurable or uninsured risks or insufficient insurance coverage. The Group will also be subject to the risk of unavailability, increased premiums or deductibles, reduced cover and additional or expanded exclusions in connection with its insurance policies and those of operators of assets it does not itself operate.

Decline in reserves, resources and production over time

To realise future production growth, extend the lives of its mines and ensure the continued operation of the business, the Group must continue to produce from its existing identified reserves, convert resources into reserves, develop its resource base through the realisation of identified mineral potential, undertake successful exploration and/or acquire new reserves and resources. The Group's reserves and resources decline as copper, zinc, lead and silver are produced by the Group. Mineral Resources may be increased when the Group discovers or acquires rights to new deposits or operations or increases reserves of operating mines via additional exploration. Once mineral deposits are discovered or acquired, it may take a number of years to complete geological surveys to assess whether these deposits are in such form, grade and quantity that there are reasonable prospects for eventual economic extraction and therefore qualify as Mineral Resources. Following technical studies to assess whether production is technically feasible, the economic viability of production may change during that time, which will determine whether or not the Mineral Resources can be converted to Ore Reserves.

Substantial capital expenditure is required to identify and delineate Mineral Resources and Ore Reserves through geological surveying, drilling and sampling to determine the appropriate metallurgical processes to extract the metals from the ore and, in the case of new properties, to construct mining and processing facilities.

Any acquisition that the Group may choose to complete may change the scale of the Group's business and operations and may expose the Group to geographical, political, operating, financial and geological risks. The Group's success in its acquisition activities depends on its ability to identify suitable acquisition candidates, negotiate acceptable terms and integrate the acquired entity successfully into the Group's operations. The volume of production from properties generally declines as reserves are depleted. The Group's future production growth is dependent upon its success in finding or acquiring and developing additional reserves. There can be no assurance that the Group will be able to identify future reserves or continue to extend the mine life of its existing operations. If the Group is unsuccessful in locating and/or securing new reserves, the Group's total reserves and production will decline, which would materially adversely affect the Group's business and the results of its operations.

Processes and chemicals

Mining activities are generally subject to environmental and safety hazards as a result of the processes and chemicals used in extraction and production. In particular, the Group transports, uses and disposes of cyanide and other hazardous substances at its mines, which gives rise to the risk of spillage or seepage in areas where there could be damage or harm caused to the environment and/or to the public. The Group's operations also involve the discharge of materials and contaminates into the environment, the disturbance of land and other potential harm to the environment. Furthermore, the storage of tailings may present a risk to the environment, property and persons. There remains a risk of leakage from, or failure of, the Group's tailings dams during the operating life of the mines or after their closure.

The Group may be liable for losses associated with environmental hazards and rehabilitation, have its licences and permits withdrawn or suspended, face negative reputational consequences or be forced to undertake extensive remedial clean-up action or to pay for government-ordered remedial clean-up actions, even in cases where such hazards have been caused by any previous or subsequent owners or operators of the property, by any past or present owners of adjacent properties or by acts of vandalism by trespassers. Any such losses, withdrawals, suspensions, reputational consequences, actions or payments may have a material adverse effect on the Group's business, results of operations and financial condition and the price of its shares.

Appropriation of land

The Group's operations depend on obtaining rights to access and develop mineral resources, which may require that land be appropriated from land owners and/or users, potentially resulting in their displacement. This may result in opposition to the Group's future plans or pressure from governmental bodies, regional authorities, local community groups or other parties for the Group to amend or cease its land appropriation projects or activities.

The Group may also face negative publicity or law suits as a result of its land appropriation activities, projects or plans. There can be no guarantee that the Group will be able to adequately meet the demands of, or come to a suitable agreement with, these third parties.

Furthermore, the Group cannot rule out the possibility that such opposition may result in the Group being unable to carry out future exploration and/or development projects, or that future applications by the Group for exploration, development or mining permits and licences may be refused as a result of such opposition. If any of these events were to occur, they could have a material adverse effect on the Group's business, results of operations and financial condition and the price of its shares.

Employees

Although the Company believes that the Group's relations with its employees are good, there can be no assurance that a work slowdown or stoppage will not occur at any of the Group's operating units or exploration prospects. Any future work slowdowns, stoppages, disputes with employee unions or other employment-related developments or disputes, including the entry into or renegotiation of collective bargaining agreements, could result in a decrease in the Group's production levels and adverse publicity and/or increase costs, which could have a material adverse effect on the Group's business, results of operations and financial condition and the price of its shares.

Financial, accounting, marketing and other data processing information systems

The Group's operations are dependent on information systems and technology. The cost of maintaining the Group's information systems may increase from its current level. The Group has taken precautions through disaster recovery sites to limit the impact that a disruption to these key offices could cause. Although precautions have been taken and plans are in place, a disaster or a disruption in the infrastructure at a main site and its disaster recovery site that supports the Group's business, including a disruption involving electronic communications or other services used by it or third parties with whom it conducts business, or directly affecting its headquarters or other key offices, could have a material adverse impact on its ability to continue to operate its business without interruption.

In addition, insurance and other safeguards might only partially reimburse the Group for its losses, if at all. Although the Group performs and backs up all key functions of its business internally, it relies on third party products and services providers widely used in the industry for certain aspects of its business, including for certain information systems and technology. Severe interruptions or deteriorations in the performance of these third parties or failures of their information systems and technology could impair the Group's operations.

Limited Diversification

The Group's revenues will be derived from the sale of copper cathode and lead and zinc concentrate produced by the Enlarged Group's facilities in Kazakhstan and Macedonia. Consequently, if there were any change in law or policy or other circumstances arising in Kazakhstan or Macedonia which materially reduced or interrupted or halted mining or processing operations at Kounrad or the SASA Mine then the Enlarged Group's results of operations and financial condition could be materially and adversely affected.

RISKS RELATING TO THE GROUP'S BUSINESS

The Group's mining licences and contracts

No assurance can be given that the governments of Kazakhstan, Macedonia (if the Acquisition is completed) or Chile will not revoke, refuse to transfer, or significantly alter, the conditions of the exploration and development authorisations held by the Group. There can be no assurances that claims by third parties against the Group's title to its mining rights in those jurisdictions or other rights will not be asserted at a future date.

The operations of the Group will in some cases also require renewals of existing concessions, licences and permits from the relevant governmental authority or authorities. The Group's ability to obtain, sustain or renew such concessions, licences and permits or to obtain, sustain or renew such concessions, licences or permits on acceptable terms, including the amount of any associated costs and fees, may be subject to changes in laws, regulations and policies or the interpretation of them, and to the discretion of the applicable government authorities. Licensing authorities in these countries have a high degree of discretion in determining the validity of a licence or whether or not licence holders are in compliance with their legal obligations. The Group's subsoil use rights and licences will also be subject to termination if the Group does not comply with its contractual obligations or legal requirements. There can be no assurance that the Group will be able to achieve compliance with all applicable regulations at all times. If, in any year the Group is unable to meet the minimum required expenditure, it may lose its right to apply for a mining licence, or have an exploration licence revoked. If the Group was unable to obtain a mining licence, or an exploration licence was revoked, this could materially adversely affect the financial performance of the Group.

Termination of Subsoil Use Contract and Concession Agreement

The mining sector and activities in Kazakhstan are principally regulated by the Subsoil Law, a summary of which is set out in section 22.2 of this announcement. The rights to operate the Kounrad mine are contained in the Kounrad Contract. Sary Kazna's subsoil use right shall terminate in case of termination of the Kounrad Contract, adoption by the Kazakhstan Government of a decision to prohibit use of a subsoil use plot on which the operations are carried out or upon liquidation of Sary Kazna. The Kounrad Contract shall terminate upon expiry of its term or may be prematurely terminated by mutual agreement of the parties. In addition, the Kazakh government has the right to unilaterally terminate the Kounrad Contract following the occurrence of certain events, including, inter alia, where: (i) Sary Kazna fails to rectify more than two violations of the obligations under the Kounrad Contract within the time specified by the government; (ii) there is a transfer of a subsoil use right and/or of any Objects without the government's prior consent, where such consent is required; or (iii) Sary Kazna performs less than 30 per cent. of its financial obligations under the Kounrad Contract for a period of two consecutive years. Any termination of the Kounrad Contract, or a material variation of it, may have a material adverse effect on the Enlarged Group's business, financial condition and results of operations.

The mining sector and activities in the Republic of Macedonia are principally regulated by the Law on Mineral Resources, a summary of which is set out in section 23 of this announcement. The rights to operate the SASA Mine are contained in the SASA Concession Agreement. This concession agreement is terminable by the Republic of Macedonia following the occurrence of certain events, including, inter alia, where: (i) prior approval from the Government of Macedonia is not granted, or the payment of the related applicable fee is not made, upon a transfer of the exploitation concession granted to Rudnik SASA DOOEL or a change of ownership in Rudnik SASA DOOEL's shares; (ii) Rudnik SASA DOOEL loses the economical, technical or operative capacities necessary to operation the concession in accordance with law; (iii) applicable environmental permits are withdrawn or terminated; or (iv) there has been an interruption of mining activities for a period exceeding one year. Any termination of the SASA Concession Agreement, or material variation of it, may have a material adverse effect on the Enlarged Group's business, financial condition and results of operations.

Environmental compliance

All phases of the Group's operations in Kazakhstan, Macedonia (if the Acquisition completes) and Chile are subject to environmental regulation in these jurisdictions. Environmental legislation is evolving in a manner that may have a greater impact on the Group's operations. Compliance with environmental laws will require ongoing expenditure and considerable capital commitments from the Group, and non-compliance may subject the Group to significant penalties, including the suspension or revocation of its rights in respect of its licences, concession agreements or assets. The Directors are aware of a number of instances of environmental non- compliance at the SASA Mine. There can be no assurance that the Group will be able to implement the necessary remedial actions without material cost or other adverse consequences. There is no assurance that existing or future environmental regulation will not materially adversely affect the Group's business, results of operations and financial condition and the price of its shares.

Environmental hazards may also exist on the properties on which the Enlarged Group hold interests that are unknown to the Group at present and that have been caused by previous or existing licence holders or operators. The Directors are aware of certain areas of historic contamination at the SASA Mine prior to the Sellers period of ownership. While the Company has been advised that the Group will not inherit liability under applicable law for these historic issues, there can be no assurance that the Group will not suffer losses, liabilities or penalties as a result of this, whether because of a different interpretation of the law, because of difficulties in identifying when the issues arose, or otherwise.

Environmental approvals and permits are currently, or may in the future be, required in connection with the Group's operations. To the extent such approvals are required and not obtained, the Group may be curtailed or prohibited from proceeding with planned exploration or development of mineral properties. Failure to comply with applicable environmental laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations, including the Company, may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil, administrative or criminal fines or penalties imposed for violations of applicable environmental laws or regulations.

Amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementations thereof could have a material adverse impact on the Group and cause increases in exploration expenses, capital expenditures or production costs, reduction in levels of production at producing properties, or abandonment or delays in development of new mining properties.

Health and safety

Certain of the operations of the Group are carried out under potentially hazardous conditions. While the Directors intend to continue to operate in accordance with relevant health and safety regulations and requirements, the Group remains susceptible to the possibility that liabilities might arise as a result of the breaches of these requirements, accidents, fatalities or other workforce-related misfortunes, some of which may be beyond the Group's control. The occurrence of any accidents or any of these situations could delay production, increase production costs and/or result in material liability for the Group.

Internal Controls

The financial reporting processes, audit processes, internal controls and risk management systems that the Group will employ may not be as robust as those that a company of a similar size would employ in a more developed economy. This could harm the Group's operating results and cause investors to lose confidence in reported financial information, which could have a negative effect on the value of the shares. Notwithstanding anything in this paragraph, the risk described should not be taken as implying that the Company will be unable to comply with its obligations as a company with securities admitted to AIM.

Social programmes for, and relations with, local communities

As a condition of certain of its subsoil use licences and contracts, the Group is obliged to maintain certain social programmes for the benefit of local communities. Furthermore, the Group has an obligation under its Kazakhstan subsoil use licences and contracts to invest in training the local workforce. These obligations may increase or become more burdensome in the future and may have a negative impact on the Group's profitability. While the Directors believe that the Group enjoys good relations with local communities, there can be no assurance that these relations will not deteriorate, which could have adverse consequences for the Group.

Taxation and Fee Regulations

The taxation and fee regulations in Kazakhstan and Macedonia are constantly developing. The interpretation and application of tax laws, fee laws and regulations are evolving, which significantly increases the risks with respect to mining and subsoil use operations, and investments in Kazakhstan and Macedonia in comparison with more developed tax systems.

Tax and fee legislation is subject to different and changing interpretations, as well as inconsistent enforcement. Tax and fee regulation and compliance is subject to review and investigation by the authorities who may impose extremely severe fines, penalties and interest charges.

The fact that the tax authorities have conducted an audit of a particular period does not prevent them from revisiting that period and raising an additional assessment. In addition, both Kazakhstan and Macedonia's tax and fee systems do not recognise the concept of tax and fee authorities giving legally binding rulings on tax and fee issues that are put before them.

Moreover, the new Macedonian government's electoral programme provides for many reforms, including changes in the tax system and minimum salary. Macedonia currently has a flat tax system with a 10 per cent. personal income tax rate and a 10 per cent. corporate income tax rate. The new government plans to introduce a reform of the tax system by introducing a progressive tax rate for personal income tax. The new rates would amount 10 per cent. and 18 per cent. The idea is to keep the existing rate of 10 per cent. for the majority of the population, while the 18 per cent. rate will be imposed only on people with a monthly income of over EUR 1,000. Additionally the new government plans remove the maximum upper limit for the payment of salary contributions. The regulations currently in place limit the payment of salary contributions to 12 average monthly salaries (roughly EUR 6,250), whereas all salaries beyond such amount are only taxed in line with the personal income tax rate. By the end of its four year term the new Macedonian government also plans to raise the monthly minimum salary from the currently applicable approximately EUR 160 to approximately EUR 260.

The inconsistent enforcement and the evolution of Kazakh and Macedonian tax and fee laws create a risk of excessive payment of tax or penalties by the subsoil users if they fail to comply with tax and fee legislation. Failure to comply with tax and fee legislation may also result in criminal penalties and/or a termination of the Group's licences and/or concession agreements.

The Lynx Group is currently appealing a tax ruling alleging improper tax practices with respect to historic shareholder loans. Although the Company has been advised that this would be unlikely, there can be no guarantee that the authorities will not initiate a criminal investigation with respect to these allegations, which (if sustained) could have material adverse consequences for the Group's business. Further information on this dispute is set out below.

Further, tax stability arrangements for subsoil users in Kazakhstan have been eliminated. In addition, there can be no assurance that the tax planning implemented by the Lynx Group will not be challenged, and any successful challenge could have adverse consequences for the Group. While the Group has received certain limited tax warranties and indemnities, there is no assurance that the Group would be able to recover the losses incurred by it in such circumstances in full, or at all.

Political and Economic Climate in Kazakhstan and Macedonia

The political and economic environments in Kazakhstan and Macedonia present a number of risks, including:

●    invalidation or rescission of governmental orders, permits or agreements;

●    the effects of local political, labour and economic developments, instability and unrest;

●    (in Kazakhstan) currency fluctuations;

●    significant or abrupt changes in the applicable regulatory or legal climate, limitations on mineral exports, exchange controls and export or sale restrictions, currency fluctuations and repatriation restrictions; and

●    new regulations on taxation, mining, environmental and social issues.

The Group's Kazakh and Macedonian subsidiaries will have entered into contracts with the governments of Kazakhstan and Macedonia or obtained permits or concessions from these governments that enable them to conduct operations or development and exploration activities. Notwithstanding these arrangements, the Group's ability to conduct operations or development and exploration activities is subject to changes in government regulations or shifts in political attitudes over which the Group has no control. Macedonia has experienced political instability in recent years as detailed above which could continue in the future. Future political instability in the region could affect the political or economic stability of Kazakhstan and Macedonia, and could have a material adverse effect on the Group's business, financial condition, results of operations or prospects.

Legal Systems and Legislation Risks

The legal systems in Kazakhstan and Macedonia are not fully developed and have inherent uncertainties that could limit the legal protections available to the Group. The following risks relating to the Kazakh and the Macedonian legal systems create uncertainties, many of which do not exist in countries with more developed market economies:

●    inconsistencies among, and ambiguities in: (a) laws (including mining laws in Kazakhstan and Macedonia); (b) decrees, orders and regulations issued by the Government and ministries; and (c) local rules and regulations;

●    substantial gaps in the regulatory structure due to delay or absence of implementing regulations;

●    the relative inexperience of judges and courts in interpreting new principles of legislation, particularly those relating to business, corporate and securities laws;

●    some lack of judicial independence from political, social and commercial forces;

●    a high degree of discretion on the part of governmental authorities; and

●    bankruptcy procedures that are not well developed and are subject to abuse.

In both Kazakhstan and Macedonia, although the judicial systems can be described as independent, judges have little experience in dealing with complex commercial law issues, which leads to unpredictability as to the outcome of any litigation. Further, it may be difficult to obtain swift and equitable enforcement.

Another risk is that the introduction of new laws and regulations, or changes in legislation and the interpretation or application of legislation, in particular changes having retrospective effect, may have an adverse effect on the Group's business, financial condition, results of operations and future prospects. Policy changes reflecting domestic political or social changes may be reflected in changing legislation and regulation, or their application or interpretation, including with respect to the regulation of mining in Kazakhstan and Macedonia.

As the legal systems develop, there can be no assurance that changes in legislation or interpretation thereof will not have a material adverse effect on the Group's business, financial condition, results of operations and future prospects.

Corruption

In Kazakhstan and Macedonia, the bribery of officials remains at a high level relative to more economically developed markets. The Group's business, results of operations and financial condition could be adversely affected by corruption or by claims, even if groundless, implicating the Group in illegal activities. Social instability caused by corruption could increase support for renewed centralised authority, nationalism or violence and thus materially adversely affect the Group's ability to conduct its business effectively, including as a result of restrictions on foreign involvement in the economy of the countries in which the Group operates. Any of these could restrict the Group's operations and lead to a loss of revenue, which could have a materially adverse effect on the Group's business, result of operations and financial condition.

Governmental approvals, permits and licences

The Group's operations in Kazakhstan and Macedonia require various governmental approvals, licences and permits, and delays or a failure to obtain, maintain or comply with the terms of any such property rights, permits and licenses could result in substantial fines and penalties, interruption or closure of operations, exploration or development on the mines, or revocation of concessions.

Many of the mineral rights, concessions, interests and agreements of the Group are subject to government approvals, licences and permits. In particular the Group's mining operations in Kazakhstan and Macedonia are dependent on the continuing grant of rights to explore and mine the relevant locations, and such continuing grant is dependent on continuing compliance with the terms of the applicable licences, concessions and permits. Such licences and permits are subject to change in various circumstances. In addition, the granting, renewal and continued effectiveness of such approvals, licences and permits are, as a practical matter, subject to the discretion of the applicable government and government officials and may require the payment of fees. No assurance can be given that the Group will be successful in maintaining any or all of the various approvals, agreements, licences and permits in full force and effect without modification or revocation. Any such modification or revocation may have an adverse effect on the Group's business, prospects, results of operations and financial condition. To the extent such approvals are required and not obtained, the Group may incur fines, penalties, be curtailed or prohibited from continuing or proceeding with planned exploration or development of mineral properties, which could have a material adverse effect on the Group's related income, business, result of operations, financial condition and ability to pay a dividend.

The Lynx Group is in the process of constructing a tailings storage facility, and is in the process of applying for the necessary construction permits. There can be no assurance that such permits will be obtained on schedule, or at all, and any resulting delay in construction could have adverse consequences for the Group.

Adverse sovereign action

The Group is exposed to the risk of adverse sovereign action by the Kazakh and Macedonian governments. The mining industry is important to the economies of both Kazakhstan and Macedonia and thus can be expected to be the focus of continuing attention and debate. In similar circumstances in other developing countries, mining companies have faced the risks of expropriation and/or renationalisation, breach or abrogation of project agreements, application to such companies of laws and regulations from which they were intended to be exempt, denials of required permits and approvals, increases in royalty rates and taxes that were intended to be stable, application of exchange or capital controls, and other risks.

Deposits of strategic importance

There can be no assurance that industries deemed of national or strategic importance to Kazakhstan such as mineral production will not be nationalised. Government policy may change to discourage foreign investment, re-nationalisation of mining industries may occur and other government limitations, restrictions or requirements not currently foreseen may be implemented. There can be no assurance that the Group's assets in Kazakhstan will not be subject to nationalisation, requisition or confiscation, whether legitimate or not, by any authority or body. Similarly the Group's operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income taxes, expropriation of property, environmental legislation, mine safety and annual payments to maintain mineral properties in good standing. There can be no assurance that the laws of Kazakhstan or Macedonia protecting foreign investments will not be amended or abolished or that these existing laws will be enforced or interpreted to provide adequate protection against any or all of the risks detailed above. There can be no assurance that any agreements with the governments of Kazakhstan or Macedonia will prove to be enforceable or provide adequate protection against any or all of the risks described above.

Currency fluctuations

Currency fluctuations may affect the costs that the Group incurs in its operations. A proportion of the Group's capital and operating expenditure is incurred in currencies other than the US Dollar. The Group does not currently hedge its foreign exchange risk and, in future, the opportunities to hedge any foreign exchange exposure in these currencies may be limited and currency fluctuations may result in unrealised foreign exchange gains or losses that materially adversely affect the financial results of the Group. See also "Fluctuations in the Kazakhstan Tenge".

Exchange control risks

The Group will operate in countries that may impose foreign exchange controls, which may prevent local companies from paying dividends or repatriating profits to their foreign shareholders. Additional administrative procedures and requirements, such as the retention of a portion of foreign currency holdings in local banks, may also be imposed on local companies.

GENERAL RISKS RELATING TO THE ORDINARY SHARES

Suitability

An investment in the Company is only suitable for investors capable of evaluating the risks and merits of such investment and who have sufficient resources to bear any loss which may result. A prospective investor should consider with care whether an investment in the Company is suitable for him in the light of his personal circumstances and the financial resources available to him. Readers are accordingly advised to consult a person authorised under FSMA who specialises in investments of this nature before making any investment decisions.

Emerging markets risk

Investors in emerging markets, such as Kazakhstan and Macedonia, should be aware that these markets are subject to greater risk than more developed markets, including, in some cases, significant legal, fiscal, economic and political risks. Accordingly, investors should exercise particular care in evaluating the risks involved in an investment in the Company and must decide for themselves whether, in the light of those risks, their investment is appropriate. Generally, investment in emerging and developing markets is suitable only for sophisticated investors who fully appreciate the significance of the risks involved.

Readmission may not occur when expected

As the Acquisition is classified as a reverse takeover under the AIM Rules, it will result in the cancellation of Existing Ordinary Shares from trading on AIM (the "Cancellation") and a new application will be made for the Enlarged Share Capital to be admitted to trading on AIM, which is intended to take effect simultaneously with the cancellation becoming effective. There is no assurance that such admission will take place when anticipated.

Share price volatility and liquidity

The share price of quoted companies can be highly volatile and shareholdings can be illiquid. There can be no assurance that an active or liquid trading market for the Ordinary Shares will develop or, if developed, that it will be maintained. The Placing Price may not be indicative of prices that will prevail in the trading market, and investors may not be able to resell the Placing Shares at or above the price they paid for them. The price of the Ordinary Shares may fall in response to market appraisal of the Group's, or, if the Acquisition completes, the Enlarged Group's business, financial condition, operating results and prospects, or in response to regulatory changes affecting its operations. The price at which the Ordinary Shares are quoted and the price which investors may realise for their Ordinary Shares will be influenced by a large number of factors, some specific to the Group, or, if the Acquisition completes, the Enlarged Group and its operations and others which may affect quoted companies generally. These factors could include the performance of the Group, or, if the Acquisition completes, the Enlarged Group, large purchases or sales of the Ordinary Shares, currency fluctuations, legislative changes and general economic, political, regulatory or social conditions including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and trends and tax laws. Shareholders should therefore be aware that the value of the Ordinary Shares can go down as well as up. Past performance is not necessarily a guide to the future. The market value of the Ordinary Shares can fluctuate and may not always reflect the underlying net asset value or the prospects of the Group, or, if the Acquisition completes, the Enlarged Group. Investment in the Company should not be regarded as short-term in nature. There can be no guarantee that any appreciation in the value of the Company's investments will occur or that the investment objectives of the Company will be achieved. Investors may not get back the full or any amount initially invested.

Dilution

On the completion of the Acquisition and the Company Placing, the holders of the Existing Ordinary Shares will experience significant dilution in their proportionate ownership and voting interests in the Group, or, if the Acquisition completes, the Enlarged Group. The Company will need to raise further capital in the future to be able to achieve its stated goals which could potentially be through public or private equity financings or by raising debt securities convertible into Ordinary Shares, or rights to acquire these securities. Any such issues may exclude pre-emption rights pertaining to the then outstanding shares. If the Company raises significant amounts of capital by these or other means, it will likely cause dilution for the Company's existing Shareholders. Moreover, the further issue of Ordinary Shares could have a negative impact on the trading price and increase the volatility of the market price of the Ordinary Shares. The Company may also issue further Ordinary Shares, or issue options over Ordinary Shares under the share option plan or any other scheme put in place by the Company, as part of its employee remuneration policy, or issue further Ordinary Shares or warrants over Ordinary Shares to third parties in respect of services provided to the Company, which could in aggregate create a substantial dilution in the value of the Ordinary Shares and the proportion of the Company's share capital in which investors are interested.

Dividends

There can be no assurance as to the level of future dividends, if any. Subject to compliance with the Act and the Articles, the declaration, payment and amount of any future dividends are subject to the discretion of the Directors, and will depend on, inter alia, the Company's earnings, financial position, cash requirements, availability of profits and the Company's ability to access, and repatriate within the Group, or, if the Acquisition completes, the Enlarged Group, cash flow and profits generated outside of the UK. In addition, the Company is reliant on receiving dividends from its subsidiaries in order to generate future distributable reserves and to enable it to pay dividends. In forming their dividend policy, the Directors have taken into account, inter alia, the trading outlook for the foreseeable future, recent operating results, budgets for the following financial year, financial gearing, banking covenants and current capital requirements of the Group, or, if the Acquisition completes, the Enlarged Group. Any material change or combination of changes to these factors may require a revision of this policy, including curtailing or cessation of dividends. The Company can give no assurance that it will be able to pay a dividend on its Ordinary Shares in the future.

Expiry of lock-in arrangements

Subject to or following the expiry of any undertakings given pursuant to lock-in agreements or similar arrangements with significant shareholders, such shareholders could sell a substantial number of Ordinary Shares in the public market following Admission. Such sales, or the perception that such sales could occur, may materially adversely affect the market price of the Ordinary Shares. This may make it more difficult for Shareholders to sell the Ordinary Shares at a time and price that they deem appropriate and could also impede the Company's ability to issue equity securities in the future.

19.           Summary of the Terms of the Acquisition

Under the terms of the Acquisition Agreement, CAML MK Limited, a wholly owned subsidiary of CAML, (the "Purchaser") will purchase 100 per cent. of the issued share capital of Lynx Resources from the Sellers. Lynx Resources owns 100 per cent. of Lynx Mining, which in turn owns 100 per cent. of Lynx Europe, which in turn owns 100 per cent. of Rudnik SASA DOOEL. Rudnik SASA DOOEL is the concessionaire under the SASA Concession Agreement. CAML incorporated CAML MK Limited on 5 September 2017 to act as the purchaser under the Acquisition Agreement. The Company will guarantee the Purchaser's obligations under the Acquisition Agreement and Orion Fund JV Limited shall guarantee the Sellers' obligations under the Acquisition Agreement.

The value attributed to the Lynx Group under the Acquisition Agreement is a total of US$402.5 million on a debt-free cash-free basis. This is comprised of a cash sum of US$340.5 million payable on Completion which is subject to a net debt and net working capital adjustment and US$50 million to be applied by Orion in subscribing for the Consideration Shares on Completion. The Purchaser is also required to pay deferred consideration of US$12 million plus a debt prepayment adjustment (the "Deferred Consideration"). The Deferred Consideration is payable by the Purchaser in six equal monthly installments beginning on the first anniversary of Completion. The net debt and net working capital adjustments will be determined by reference to an effective date of 30 September 2017 and, subject to certain exceptions, the Sellers have agreed to indemnify the Company for any distributions to them from 1 October 2017. As a result, the Group will have the benefit of Lynx Group's trading from 1 October 2017. Interest from 1 October 2017 to Completion is payable at a rate of 9 per cent. of the equity value, estimated to be approximately US$335.5 million, as approximately US$67 million of existing Lynx Group net debt is expected to remain in place following Completion.

Completion of the Acquisition is conditional on satisfaction of the following conditions, among others:

(a)  certain regulatory approvals, including from the Macedonian Competition Commission;

(b) unless (in the opinion of the Purchaser) no approval is required under the Minerals Law for the Acquisition (and accordingly, no associated fee is payable), the Republic of Macedonia granting an unqualified approval for the transfer of the Sale Shares and the amount of the related transfer fee being agreed;

(c)  the Placing Agreement and Debt Financing Agreement having become unconditional in all respects (save for any condition relating to Completion);

(d)  the passing of the Resolutions at the Extraordinary General Meeting; and

(e)  no authority having jurisdiction over the Company or the Acquisition having commenced any proceedings for the purpose of prohibiting the Acquisition on the terms contemplated.

The Group shall be entitled to take any action relating to the transfer approval referred to above (if any) including but not limited to responding to any assertion that such an approval is required, and agreeing or disputing the terms of any approval or fee.

The Purchaser has agreed to use all reasonable endeavours to procure the satisfaction of conditions (a) to (e). If the conditions to Completion are not satisfied by 15 December 2017 (or such later date as the parties may agree) then the Acquisition Agreement will lapse.

The Sellers have provided certain warranties and indemnities in relation to, inter alia, the SASA Mine and the transfer of the shares being sold under the Acquisition Agreement, subject to customary limitations and disclosure. The Acquisition Agreement contains customary warranties relating to the Sellers' ownership and title to their shares, as well as limited business and commercial warranties as well as a tax covenant given by the Sellers in respect of certain tax liabilities, principally in relation to their period of ownership only, and certain specific indemnities from the Sellers. The Acquisition Agreement also contains customary limitations on the Sellers' liability under the Acquisition Agreement, including time and financial limitations. Claims for breach of warranty must be brought within 12 months of Completion, save in respect of tax claims which must be brought within five years of Completion and claims relating to certain fundamental warranties which must be brought prior to expiry of the applicable statute of limitations. The aggregate maximum cap on the Sellers' liability is the final amount of the consideration that they receive under the Acquisition Agreement. Within this overall cap, the Sellers' liability is limited to 10 per cent. for warranty claims, a separate 10 per cent. for tax claims and a separate 10 per cent. for claims for breach of certain operational, interim period covenants.

Pursuant to the Acquisition Agreement, the Sellers have also agreed to enter into certain documents on Completion including, amongst others, deeds of novation in respect of the Third Party Offtake Agreements pursuant to which Lynx Metals will transfer its rights and obligations to Lynx Mining. In the event that such deeds of novation are unlikely to be executed prior to Completion, Lynx Metals will continue to be the counterparty but all payments received by Lynx Metals pursuant to the Third Party Offtake Agreements will be held on trust for the Purchaser and such payment shall be transferred to the Purchaser.

The Acquisition Agreement is governed by the laws of England and Wales.

Orion has also entered into the Shareholder Participation Agreement with the Company pursuant to which it has undertaken, for a period of 12 months from Completion, not to:

●    acquire shares in the Company, such that their shareholding amounts to 30 per cent. or more of the Company;

●    influence the voting of the Ordinary Shares;

●    seek to control or influence the Company's management or obtain representation on the Board; or

●    engage in any discussions which may result in Orion gaining control over CAML

Orion has also undertaken until the earlier of (i) 18 months from Readmission, or (ii) the date on which they hold in aggregate less than 4 per cent. of the issued Ordinary Shares to vote, or cause to be voted at all meetings of the Company's shareholders, in a manner consistent with the recommendation made by management of the Company or the Board in relation to a number of matters, including the election or re-election of directors and auditors, the renewal of, or adoption of certain new, share incentive plans, executive remuneration and certain acquisitions.

In addition, subject to certain exceptions, the Shareholder Participation Agreement requires Orion not to sell any Consideration Shares for the first six months following Completion, and not to sell more than 50 per cent. of the Consideration Shares between six months from Completion and the first anniversary of Completion (without the prior consent of the Company). Any Consideration Shares forming part of the 50 per cent. referred to above that are sold in the second six months must be sold via the Joint Bookrunners in order to maintain orderly markets.

In connection with the Acquisition and conditional on Completion, the Company has also entered into a Transitional Services Agreement with Fusion Capital pursuant to which it will have limited access to Chris James, Stefan Peschke, Florian Dax and Patrick Henze for the provision of transitional consultancy services for a period of three months following Completion.

20.           Information on CAML

20.1         Introduction

CAML is an AIM quoted copper producer which wholly owns the Kounrad copper operation in central Kazakhstan and, together with partners, Aksu-Esil, and has begun to explore the 80 per cent. owned Shuak property in the Akmola region of northern Kazakhstan. The Company also owns a 75 per cent. interest in a private company, Copper Bay Limited, which has a definitive feasibility study stage project in Chañaral Bay, Chile. The Company's remaining Mongolian asset, Ereen, is fully written off and is currently held for sale.

CAML was incorporated in England and Wales on 9 September 2005 and is the UK parent company of the Group.

CAML's senior management team has over 100 years of combined mining experience. The team is supported by non-executive directors who, together, have extensive experience in the natural resources and financial sectors. A detailed resource and reserve statement and related compliance information on CAML is set out in section 20.3.2 below.

20.2         History and Background on CAML

CAML acquired a 60 per cent. interest in the Kounrad Project in 2007 and in May 2014, the Company completed the acquisition of the remaining 40 per cent. of the project for a total consideration of 20 per cent. of the Company's shares in issue at the time of the acquisition.

The Group employs approximately 356 people on site in Kazakhstan, almost all of whom have been recruited locally. This operational team is supported by the London based headquarters.

In 2010, CAML raised US$60 million at its initial public offering. The proceeds were used to construct a nominal 10,000 tonne per annum SX-EW plant at Kounrad in order to leach copper and produce cathode from the dumps on the eastern and western sides of the historic Kounrad copper mine located near Balkhash, central Kazakhstan. This construction process was completed ahead of schedule and US$8 million below budget, and LME quality copper cathode was first produced in Q2 2012.

The Company has been producing copper from Kounrad for over five years and, to 30 June 2017, has produced over 61,000 tonnes of copper cathode, and paid US$96 million in dividends and share buybacks to shareholders. It has also self-funded two expansions at Kounrad totalling US$26 million, paid US$90 million in taxes in Kazakhstan and funded a number of social causes in the local community.

When the Company's shares were admitted to trading on AIM in 2010, the Company was active in both Kazakhstan and Mongolia. However, in 2013 a strategic decision was taken to exit Mongolia and, to that end, all assets in that jurisdiction have been, or are in the process of being, divested.

In November 2013, CAML invested US$3.2 million to acquire a 50 per cent. interest in private company, Copper Bay Ltd. CAML subsequently invested a further US$3 million to increase its interest in Copper Bay to 75 per cent. in June 2015. The Company worked with the Copper Bay management team to complete a definitive feasibility study on its Chañaral Bay tailings retreatment project in northern Chile in December 2016. While the definitive feasibility study results illustrated a valuable project (with a net present value of US$34 million at a copper price of US$3.00 per pound), the Board has now decided to seek to sell the Group's interest in the Copper Bay project.

In November 2016, CAML announced that it had signed a framework agreement to acquire an 80 per cent. interest in the Shuak copper exploration property in northern Kazakhstan, which completed in August 2017.

20.3         Overview of CAML

20.3.1      Background information on Kounrad

CAML is the sole owner and operator of the SX-EW copper recovery plant at the Kounrad mine site, near the city of Balkhash in central Kazakhstan. The Kounrad SX-EW plant and associated infrastructure was commissioned in April 2012. More detailed information on Kounrad can be found in the Kazakh Competent Person's Report available on the Company's website.

CAML also owns the subsoil use contract in respect of the waste rock dumps surrounding the Kazakhmys- owned Kounrad open pit, which is now closed. These waste rock dumps were generated through over 70 years of mining activity, predominantly during Soviet times. Over time, waste dumps containing copper oxides and sulphide minerals formed a significant tonnage deposited at the mine site. Technology has advanced, as has the use of SX-EW chemistry in treating copper ores, and CAML no longer views these dumps as waste.

CAML has two operating subsidiaries in Kazakhstan, Sary Kazna, which is responsible for leaching activities and Kounrad Copper Company, which operates the SX-EW facility and produces copper cathode.

Based on the Company's 2017 Wardell Armstrong JORC resource estimate, CAML now estimates that there remain approximately 194,000 tonnes of copper that should be extracted and produced from Kounrad, which should ensure a life of operation past 2030.

Producing Kounrad's copper

Kounrad's production of copper is far less cost intensive than traditional mining, as there is no need to drill, blast or transport ore - the waste dump rocks can be leached in-situ. This allows the company to produce copper cheaply.

The leaching process consists of delivering the weak sulphuric acid solution (termed "raffinate") to the top of the waste dumps and irrigating the surface of the dump, through a pump and pipeline system. The solution is distributed evenly and at a controlled rate via an extensive network of dripper pipes, which are similar to those used by market gardeners for irrigation purposes.

Copper contained in the rock is dissolved by the raffinate that slowly percolates through the dump until it reaches the natural ground level, and then flows out from under the dump, following the natural bedrock gradient, into a plastic lined collector trench which runs along the edge of the dump.

From the collector trench, the solution (termed "pregnant leach solution" or "PLS") is pumped into storage ponds within the plant's perimeter. These ponds not only act as a large buffer store but also assist with settling out any fine clay or rock particles, which can adversely affect the solvent extraction phase ("SX") process if not removed.

From the ponds, the copper-bearing PLS is pumped through the SX stage of the process, where it is mixed with an organic reagent to strip the copper from solution, into a copper-rich organic phase and a low-grade acidic aqueous phase. The aqueous solution, or raffinate is then recycled back to the dumps to dissolve more copper, whilst the organic reagent is treated further to increase the copper content in a high-strength acid solution.

This copper-rich organic phase, known as rich electrolyte, is then pumped to the nearby electro winning (EW) building where it is plated by electrolysis in cells that are similar in appearance to a large car battery. Placed inside these cells are lead anode plates and stainless steel cathode sheets.

As the electric current runs through the electrolyte the copper molecules attach themselves to the cathodes and sheets of at least 99.99 per cent. purity copper are formed. Every three days on a planned schedule a third of the stainless steel cathodes are lifted from the cells and the copper is removed (stripped) from them. Once the copper is removed, the cathodes are returned to the cells and the cycle is repeated.

The leaching, SX and EW processes run simultaneously and continuously and the copper cathode plates that are harvested are stored in a secure area, prior to being delivered from the Kounrad site by rail and sea to end consumers, predominantly in Turkey. The Company has an offtake agreement with metal trader, Traxys, which will purchase a minimum of 90 per cent. of the copper cathode from Kounrad through an agreement with CAML that is in place until the end of 2018. This has been extended to 2022 pursuant to the Debt Financing Agreement.

Operations commenced on the Eastern Dumps in 2012 and, to date, CAML has produced over 60,000 tonnes of copper cathode from that area.

Year	2012	2013	2014	2015	2016	H1 2017
Copper Production	6,586	10,509	11,136	12,071	14,020	7,027

Stage 1 and Stage 2 Expansion

Since the initial construction of the copper production facilities on site, CAML has undertaken two self-funded expansions. The Stage 1 Expansion was completed on schedule and under budget in Q2 2015, and involved enhancing the throughput and copper plating capacity of the processing plant so as to be able to increase copper output to 50 tonnes of copper cathode per day.

In 2016, the Company undertook the Stage 2 Expansion, which has extended the site infrastructure to the Western Dumps so as to enable the leaching of copper from this larger resource area and, in doing so, has extended the life of the operation to beyond 2030. CAML commenced irrigation of the Western Dumps in April 2017 and PLS has subsequently flowed out of the dumps and into the collector trenches, and copper cathode has been produced from this area of the site.

Kounrad C1 cash costs

Kounrad's copper is produced at industry leading costs. The global copper industry measures 'C1 costs' graphically on a cash cost of operations curve and, at US$0.45 per pound for H1 2017, Kounrad's costs are firmly within the lowest cost quartile as indicated by the C1 cost curve for Q2 2017 below. This enhances Kounrad's ability to remain in production even at depressed copper prices. Costs are aided by the particular geological characteristics of the Kounrad dumps, as the largely impermeable bedrock has meant that rock does not have to be moved in order to extract the copper and that the material itself is amenable to being irrigated and leached.

Costs have also been aided in the last 18 months by a marked devaluation of the local currency, the Kazakh Tenge (KZT). In H2 2015, the KZT was allowed to float and devalued against the US Dollar by 85 per cent. Approximately 60 per cent. of CAML's local costs are KZT denominated, so this devaluation had a marked reduction in the Company's in-country cost base. The average C1 cash cost of production since production commenced in 2012 is US$0.57 per pound which is in the lowest quartile of industry costs (source: Wood Mackenzie).

20.3.2      Kounrad Mineral Resource

Kounrad's JORC (2012) compliant resources, as estimated by Wardell Armstrong in 2017, and derived from the Kazakh Competent Person's Report available on the Company's website:

Kounrad Dump Mineral Resource (Global Estimate), (WAI, 30 June 2017)

In accordance with the Guidelines of the JORC Code (2012)

Classification	Dump	Tonnage (kt)	Cutotal(%)	Cuacid(%)	CUtotal(t)	Cu Production 2012-2017 (t)	RemainingCU (t)
			Eastern Dumps
	2	21,470	0.07	0.04	15,641	-
	3	-	-	-	-
	5	33,896	0.08	0.04	27,246
Indicated	6	12,328	0.10	0.04	10,086
	7	12,328	0.10	0.04	11,938
	9 and 10	10,555	0.20	0.07	20,890
	Total	89,653	0.10	0.04	85,799
	2	13,775	0.07	0.04	9,659
	3	1,033	0.22	-	2,285
	5	35,058	0.1	0.05	33,528
Inferred	6	3,442	0.11	0.04	3,641
	7	22,989	0.11	0.04	25,501
	9 and 10	3,350	0.21	0.09	7,126
	Total	79,646	0.1	0.05	81,740
Indicated ＋ Inferred...........	Total	169,299	0.10	0.04	167,539	60,048	107,491
			Western Dumps
	1	36,942	0.18	0.1	65,193
	1a	-	-	-	-
	15 and 16	189,953	0.08	0.04	152,687
	21	10,398	0.2	0.1	20,788
Indicated	21a	858	0.17	-	1,433
	22	37,276	0.1	0.05	36,057
	13	6,472	0.03	0.01	1,750
	20	14,452	0.03	0.01	4,478
	Total	296,351	0.10	0.05	282,386
	1	19,751	0.14	0.07	26,958
	1a	1,467	0.04	0.02	651
	15 and 16	114,701	0.08	0.04	94,670
	21	6,870	0.18	0.08	12,321
Indicated	21a	4,452	0.17	-	7,559
	22	22,167	0.08	0.04	18,108
	13	4,705	0.03	0.01	1,534
	20	7,408	0.03	0.02	2,488
	Total	181,521	0.09	0.04	164,289
Indicated + Inferred...........	Total	477,872	0.09	0.04	446,675	1,300	445,375
			Northern Dumps
Indicated.........	Northern	2,973	0.04	0.01	1,277
Inferred............	Northern	2,856	0.05	0.02	1,455
Indicated + Inferred...........	Total	5,829	0.05	0.01	2,732	0	2,732

 

20.3.3      Future Development Strategy of Kounrad

Almost US$74 million has been invested at Kounrad in initial capital, expansionary capital (for the Stage 1 and Stage 2 Expansions) and sustaining capital. Aside from an estimated US$2 million sustaining capital annually, CAML is now fully invested at Kounrad. The result of this is that the future annual production is not expected to increase. 2017 copper production guidance is for between 13,000 tonnes and 14,000 tonnes production.

20.3.4      Copper Bay

The Copper Bay project is a site of historic tailings disposal on the beach at Chañaral Bay. This resulted from the Potrerillos and El Salvador copper mines releasing tailings residues from their respective mineral processing operations into the Rio Salado, which outflows into Chañaral Bay. Between 1938 and 1975, it is believed that some 250 million tonnes of tailings were discharged and now sit in the beach, surf and bay zones.

The Group holds eight exploitation licences in relation to the Copper Bay Project, all of which run indefinitely and together cover a total area of 15.25 square kilometres.

Following the completion of the pre-feasibility study in 2015, CAML undertook a definitive feasibility study on its 75 per cent. owned Copper Bay tailings project in the Atacama Region of northern Chile.

However, the Board has now decided to seek to sell the Group's interest in the Copper Bay project.

20.3.5      Shuak

In November 2016, CAML signed a framework agreement to acquire an 80 per cent. effective interest in an early  stage  exploration  project  called  Shuak  in  the  Akmola  Oblast  region  of  northern  Kazakhstan.  The acquisition completed in August 2017. The consideration for the Shuak acquisition was an investment in exploration activities of US$2 million over five years, subject to continued positive results from exploration activities and the general economic outlook for commodity prices. The project is approximately 300 kilometres north of the capital city, Astana, and 40 kilometres north east of the regional centre, Stepnogorsk.

The licence area is 197km² and the area hosts two mineralisation styles that are of particular interest to CAML. These are:

●    saprolite hosted oxide and enriched copper, gold and molybdenum mineralisation that may be amenable to copper production by SX-EW processing; and

●    copper, molybdenum and gold bearing dissemination and stockwork mineralisation of a porphyry nature. In  addition, there are widespread copper, gold, silver and molybdenum geochemical anomalies within the licence area.

The Shuak property was explored between 1973 and 1991, with historic work including geochemistry, geophysics, trenching and drilling at the site. During this time, over 45,000 metres were drilled and resource estimation to historic Soviet standards was undertaken.

Around 8km²  of metalliferous saprolite has been identified within the licence area, with thicknesses varying from minimal to potentially in excess of 60 metres in depth. Most recently, former owners of the property undertook small scale mining at Mongol V and sampling of the stockpile generated from these mining activities demonstrated copper oxide grades in excess of 2 per cent. in several cases. Column leach testing of this saprolitic material at CAML's Kounrad facility has shown it to be amenable to processing by leaching with dilute sulphuric acid, with copper recoveries of over 90 per cent.

Together with partners, Aksu-Esil, CAML has been undertaking geological mapping and is nearing completion of a TEM-FAST geophysics programme, which has been designed primarily to ascertain the depth and extent of the saprolite weathering horizon. The 2017 diamond drilling programme of approximately 4,700 metres has recently commenced, together with an initial 7,000 metre core hydrotransport (CHT) drilling campaign. In total, 22,000 metres of drilling are planned for 2017 and the total exploration budget for Shuak is approximately US$1.8 million which the Company intends to fund from existing cash resources.

20.4         CAML Competent Person's Report

The Mineral Resource estimate for  Kounrad was prepared by  Mr.  Phil Newell of  WAI. Mr.  Newell is  a managing director of WAI with 30 years' experience in the mining industry and sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to quality as "Competent Person" as defined by the JORC Code (2012). The Kazakh Competent Person's Report is available on the Company's website.

20.5         Kazakh Licence Table

Company	Asset	Holder Interest%	Licence Expiry Date	Licence Area Sq. Km	Status (Exploration or Development & Comment)
Sary Kazna LLP	Kounrad	100	20 August 2034	22.5	Exploration and processing
Ken Shuak LLP	Shuak	80 (effective)	8 May 2019	197	Exploration

 

21.           Information on the Lynx Group

21.1         Introduction

Lynx Resources Limited holds, via its wholly owned subsidiary Lynx Mining, 100 per cent. of Lynx Europe, which in turn holds 100 per cent. of Rudnik SASA DOOEL, through which the relevant mining licences in respect of the SASA Project are held. Pursuant to the Acquisition Agreement, the Company is proposing to acquire the entire issued share capital of Lynx Resources Limited, and thereby the SASA Project, from the Sellers for a total consideration of US$402.5 million. Rudnik SASA DOOEL has Ore Reserves and Mineral Resources established in accordance with the guidelines as embodied in the JORC Code (2012).

Further information on  the  Acquisition Agreement is disclosed in section ‎19 above and further information on the SASA Mine is set out in section 21.3 below. Please refer to the Macedonian Competent Person's Report available on the Company's website for a detailed resource and reserve statement and related compliance information for the Lynx Group.

21.2         History and Background to the Lynx Group

Lynx Resources is a Bermudan holding company that was formed on 19 June 2015. In November 2015, Lynx Europe acquired the entire share capital of Rudnik SASA DOOEL from Solway Industries Ltd and Solway Industries Eesti AS.

Rudnik SASA DOOEL was incorporated for the purpose of taking over the business activities of mining and processing of lead and zinc exploited from the SASA Mine. This mine was operated by the state-owned company SASA JSC, incorporated in Macedonia, until 2005 when it was declared bankrupt and the assets of the bankrupt JSC were sold pursuant to a tender. Following completion of the tender procedure, all assets of "SASA JSC in bankruptcy" were transferred to Rudnik SASA DOOEL.

21.3         Overview of the SASA Mine

21.3.1      Background information on the SASA Mine

The SASA deposit was discovered during a period of exploration between 1954 and 1960. Trial mining commenced in 1965 and, in 1966, the mine commenced commercial production as a state-owned entity. The mine closed in 2002 and was subsequently placed into bankruptcy due to lack of operating capital from the Macedonian government which owned the mine. The Solway Sellers subsequently purchased the mine, invested in new equipment and operations resumed in 2006. The Solway Sellers later sold the mine to Fusion Capital and Orion in 2015.

The SASA Mine is located in north eastern Macedonia, approximately 150km east of the capital city, Skopje, and 10km north of local town, Makedonska Kamenica. Geographically, the mine is located within the Osogovo Mountains, at an altitude of between 975 metres and 1,600 metres above sea level, experiencing average annual precipitation of approximately 600mm, some of which is in the form of snow.

The assets comprise an operating underground lead, zinc and silver mine. The current underground mine is a sub-level caving operation, which utilises the geotechnical characteristics of the weak hanging wall to allow the rock to cave naturally into the void remaining after ore has been blasted. Mined ore is either transported to ore passes and hoisted out of the Golema Reka mineshaft or loaded directly onto underground trucks, where it is driven up the decline.

The mine produces approximately 780,000 tonnes of ore each year, feeding a processing plant with crushing capacity of 1 million tonnes of ore each year. The processing plant uses froth flotation technology to produce a zinc concentrate and a lead concentrate, which can be trucked to smelters in the surrounding region.

 

Year	Units	2008	2009	2010	2011	2012	2013	2014	2015	2016
Plant Feed
Feed tonnes............................	dmt	854,319	864,592	811,383	758,252	754,153	774,007	780,285	777,121	779,231
Ore moisture..........................	%	3.34	3.36	3.39	3.66	3.98	3.71	3.56	3.26	3.00
Pb - mill head grade................	%	4.68	4.43	4.05	3.83	3.93	4.13	4.16	4.04	3.95
Zn - mill head grade...............	%	4.08	4.14	3.81	3.43	3.35	3.47	3.48	3.52	3.41
Tonnes Pb in feed..................	t Pb	39,983	38,276	32,878	29,036	29,658	31,982	32,475	31,375	30,761
Tonnes Zn in feed..................	t Zn	34,896	35,820	30,905	26,009	25,280	26,858	27,192	27,370	26,599
Lead Concentrate
Pb concentrate - Production..	dmt	49,146	47,634	41,298	37,148	38,025	40,996	41,631	40,162	39,507
Pb recovery to Pb conc..........	%	91.60	94.20	94.39	95.07	94.42	94.37	94.51	94.10	94.13
Zn recovery to Pb conc.........	%	4.15	3.81	3.77	3.79	3.65	3.95	3.96	4.20	4.02
Pb concentrate - Pb grade	%	74.53	75.70	75.15	74.31	73.64	73.62	73.73	73.51	73.29
Pb concentrate - Zn grade......	%	2.94	2.86	2.82	2.66	2.43	2.59	2.59	2.86	2.70
Pb in Pb conc.........................	t	36,627	36,058	31,034	27,604	28,003	30,181	30,693	29,524	28,955
Pb concentrate - Moisture....	%	6.09	5.46	5.47	5.77	6.01	5.94	5.77	5.50	5.80
Zinc Concentrate
Zn concentrate - Production.	dmt	57,950	61,030	52,783	44,550	43,140	46,228	46,920	47,159	45,548
Pb recovery to Zn conc.........	%	1.99	2.04	1.82	1.61	1.57	1.53	1.92	2.47	1.97
Zn recovery to Zn conc.........	%	82.25	85.45	86.01	86.60	86.20	86.31	86.50	85.77	84.64
Zn concentrate - Pb grade......	%	1.37	1.28	1.13	1.05	1.08	1.06	1.33	1.64	1.33
Zn concentrate - Zn grade......	%	49.53	50.16	50.36	50.56	50.51	50.15	50.13	49.78	49.43
Zn in Zn conc........................	t	28,706	30,610	26,583	22,524	21,789	23,182	23,522	23,476	22,515
Zn concentrate - Moisture....	%	9.24	8.77	8.89	8.69	8.74	8.51	8.37	8.51	8.43

For 2016, the mining cost was US$17.1/t of ore and processing cost was US$10.5/t of ore. Recoveries of 84.6 per cent. for zinc and 94.1 per cent. for lead were achieved. The C1 cash cost at the SASA Mine is estimated to be US$0.39 per pound for zinc and US$0.29 per pound for lead. This is in the lower end of the second quartile of global producers for zinc and the lowest quartile of global producers for lead (Source: Wood Mackenzie).

The SASA Mine run of mine production guidance for 2017 is over 770,000t. The lead grade range is between 3.37 per cent. and 4.03 per cent. whilst the zinc grade range is between 2.65 per cent. and 3.27 per cent.

21.3.2      Regional and Local Geology

The SASA Mine lies within the Serbo-Macedonian Massif, which hosts a  large number of lead and zinc deposits and extends through Serbia, Macedonia, Bulgaria, eastern Greece and into Turkey.

The SASA Mine Svinja Reka and Golema Reka deposits are located on the eastern flank of a copper molybdenum porphyry deposit at Osogovo.

The SASA Mine lead zinc silver mineralisation occurs as stratiform deposits hosted predominantly by quartz-graphite schist and marbles of Lower Palaeozoic age at Svinja Reka and by gneisses at Golema Reka. Hydrothermal and bedding parallel faulting are responsible for the metasomatism of the host sediments that produce skarn and base metal mineralisation of the Svinja Reka and Golema Reka deposits.

The deposits are well defined lenses of lead zinc silver mineralisation, which dip at about 35 degrees to the south west and range in true thickness from 2 metres to 30 metres.

21.3.3      The SASA Mine Mineral Resource

SRK has estimated the Mineral Resource as at 1 July 2017 in line with the JORC Code (2012) and included it in the Macedonian Competent Person's report available on the Company's website. The Mineral Resource is shown below inclusive of reserves.

Mineral resource classification	Tonnage	Metal Grade			Metal Content
	Mt	% Pb	% Zn	g/t Ag	kt Pb	kt Zn	t Ag
Indicated..........................................................	13.3	4.59	3.68	22.0	611	490	9,403
Inferred.............................................................	10.1	3.55	1.67	18.1	357	168	5,849
Total..................................................................	23.4	4.14	2.81	20.3	968	658	15,252

 

Ore Reserves are as stated on 1 July 2017, in line with the JORC Code (2012). Ore Reserves have been classified as Probable Ore Reserves, on the basis that the relevant Mineral Resources are in the Indicated Mineral Resource category.

Ore reserve classification	Tonnage	Metal Grade			Metal Content
	Mt	% Pb	% Zn	g/t Ag	kt Pb	kt Zn	t Ag
Probable...........................................................	10.9	3.85	3.08	18.4	421	337	6,447
Total.................................................................	10.9	3.85	3.08	18.4	421	337	6,447

 

21.3.4      Future Development Strategy of the SASA Project

Future mine development

On the basis of the mine's current Probable Reserves, production can be sustained at the SASA Mine until at least 2032. However, the mine has additional Inferred Mineral Resources at both Svinja Reka and Golema Reka which are expected to increase the life of the operation to 2038.

There is additional resource potential in the mine and licence area, and particularly in the Kozja Reka deposit area, which was previously mined from between 1966-1989. There are no current mineral resources for this deposit,  which  is  located  between  Svinja  Reka  and  Golema  Reka,  but  a  diamond  drilling  programme is currently underway there.

A new chief geologist has recently been hired with more than 15 years' experience, who is responsible for growing the resource base and increasing the confidence category of Inferred Mineral Resources into Indicated Mineral Resource around the SASA Mine. In particular, areas of geological prospectivity are Svinja Reka North from level 990, Svinja Reka from level 830-750, Kozja Reka and the upper section of Golema Reka.

Tailings Storage

The Company is currently obtaining the necessary permits and is constructing TSF 4 which is expected to be completed in Q2 2018 and which will be required for mining activities once the existing tailings facility reaches the maximum storage capacity, which is expected to occur in Q4 2018.

Water Quality

Further to a recent inspection, the permitting is in process for construction of a settlement pond to improve water quality for Horizon 830. The Company is also seeking an amendment to its A-Permit. Further details are set out in the Macedonian Competent Person's Report available on the Company website.

21.4         Lynx Group Competent Person's Report

The Mineral Resource estimate for the SASA Mine was prepared by Mr Guy Dishaw of SRK. Mr Dishaw has sufficient experience which is relevant to the style of mineralisation and the type of deposit under consideration and to the activity which he is undertaking to qualify as a "Competent Person" as defined by the JORC Code 2012.

The Competent Person who has reviewed the Ore Reserves and the Life of Mine Plan ("LoMp") as reported by Lynx Resources is Mr Chris Bray of SRK. Mr Bray is a Mining Engineer with 20 years' experience in the mining and metals industry, including operational experience in underground lead-zinc mines, and as such qualifies as a Competent Person as defined in the JORC Code (2012).

21.5         Licence Table

Company	Asset	Holder Interest%	Licence Expiry Date	Licence AreaSq. Km	Status (Exploration or Development & Comment)
Rudnik SASA DOOEL	SASA Mine	100	28 September 2030 (for exploitation)	4.22 (exploitation)	Current annual run of mine production is 780 kt, producing lead and zinc concentrates
Rudnik SASA DOOEL	SASA Mine	100	13 December 2017	1.42 (exploration)	Application for renewal of the licence is already in progress

 

22.           INFORMATION ON KAZAKHSTAN AND KAZAKH MINERAL POLICY & LAW

22.1         Overview of Kazakhstan

22.1.1      Geography and Population

Kazakhstan is the ninth largest country in the world by land area. It is located in Central Asia and is bordered by Russia to the north and west, China's Xinjiang-Uigur Autonomous Region to the east, Kyrgyzstan, Uzbekistan and Turkmenistan to the south and the Caspian Sea to the west. The country covers an area of approximately 2.7 million square kilometres (approximately the same size as Western Europe) and spans two time zones from the Caspian Sea in the west to the Altai Mountains in the east. In December 1997, the capital moved from Almaty to Astana, which is located in central Kazakhstan, and most of the state bodies have relocated to Astana. However, Almaty remains the financial capital and the largest city in Kazakhstan. As at 8 January 2017, the population of Kazakhstan was approximately 18 million people, which makes it a very sparsely populated country with an average population density of 6.49 people per square kilometre.

22.1.2      Government

Kazakhstan is a constitutional republic with a presidential form of governance. The president is both the head of state and commander-in-chief of the armed forces. President Nursultan Nazarbayev, who has been in office since Kazakhstan became independent in December 1991, was re-elected in April 2015 with an overall voting majority of almost 98 per cent. The Kazakhstan constitution provides for separation of powers, but the president wields considerable control over all three branches of government and determines national policy priorities. He may also veto legislation that has been passed by the Parliament. In March 2017, the constitution of Kazakhstan (the "Constitution") was amended to pass certain authorities from the president to the government and the Parliament and restrict the power of the president with respect to certain issues, but, in practice, the amendments did not significantly reduce the president's power.

Bakhytzhan Sagintayev, who has been prime minister since 8 September 2016, was appointed by the president and approved by the Parliament and is Kazakhstan's head of government. There are two deputy prime ministers and 16 ministers in the government.

Kazakhstan has had two different parliamentary structures since the end of the Soviet era. The current structure has a bicameral Parliament, with the Mazhilis (the lower house) comprised of 107 members and the Senate comprised of 47 members. In the Mazhilis, 98 members are elected by direct party-list vote and nine members are appointed by the Assembly of Nations of Kazakhstan. Two senators are selected by each of the elected assemblies (maslikhats) of Kazakhstan's sixteen principal administrative divisions (fourteen regions plus the cities of Astana and Almaty). Half of the senators are re-elected every three years. Mazhilis deputies and the government both have the right to initiate legislation, though the government proposes most legislation considered by the Parliament.

22.1.3      Economic overview

Kazakhstan is an industrial country, with mining and oil and gas operations as its main prospects for economic growth. Over the past two years, Kazakhstan has faced a decline in trade due to a fall in oil prices, a recession in neighbouring Russia and a slowdown in Chinese growth. In order to address the worsening economic situation, the government of Kazakhstan has responded with a number of initiatives to try to stimulate the economy.

These range from a widespread planned privatisation programme to some fundamental proposals for changes in the law aimed at attracting increased foreign investment into the country. Currently, it is estimated that the Kazakhstan state owns approximately 70 per cent. of businesses and the country targets reducing this to 15 per cent. by 2021 through the privatisation programme. One such proposal to increase foreign direct investment in Kazakhstan is to introduce a new mining code that looks set to replace the existing subsoil use law. It is anticipated that the new mining code expected to be enacted in 2018 will be based on the existing regulatory approach in the mining sectors in Western Australia and will simplify regulation and improve the investment climate.

Following an 85 per cent. devaluation of Kazakhstan's currency, the Tenge, against the US Dollar in 2015, the Tenge remained broadly stable throughout 2016, showing a slight appreciation to 333 KZT/USD (31 December 2015: 340 KZT/USD) towards the end of the year. This appears to have been largely related to the recovery in oil prices to US$55 per barrel following OPEC's agreement in November 2016 to cut output to 32.5 million barrels a day in order to improve supply-demand fundamentals.

The 2016 official rate of inflation in Kazakhstan was 8.5 per cent. (2015: 13.6 per cent.) which, although at the top end of the forecast range for the year, appears to be a solid achievement in monetary control given such a marked devaluation in the currency in the previous year. During 2017, the Directors' believe that the stability of Kazakhstan's economy and the local currency is likely to continue to be dependent on the strength of oil prices.

Looking to the medium term, the Directors' believe that Kazakhstan is well placed to benefit from China's initiative to revive the ancient "Silk Road" with economic corridors to Europe. Kazakhstan expects China to invest US$26 billion between 2016 and 2021 in the country, both in infrastructure and industry, in conjunction with liberalising bilateral trade. In addition, during 2016, Exxon Mobil, Chevron and Lukoil agreed to a US$37 billion investment in the Tengiz oil field to increase output by almost 50 per cent. by 2022 and the Kashagan oil fields, the largest in Kazakhstan, commenced production of oil in November 2016.

The legacy of the Soviet Union resulted in the model of a highly state regulated economy in Kazakhstan including price control for many state-owned monopolies. In 2017, the government has committed to reviewing some of these price controls. While the removal of these controls may result in near term higher prices for consumers, the proposed changes are expected to improve competition and increase the interest of foreign investors in those industries.

The eventual replacement of long serving president, Nursultan Nazarbayev, is arguably one of the biggest uncertainties facing the Kazakhstan economy in the longer term. In order to plan for this, Nazarbayev launched his "100 concrete steps" initiative in May 2015, listing 100 measures aimed at making improvements to the legal system, improving the civil service, ensuring economic growth, boosting national unity and making the state more accountable.

22.2         Mineral Policy and Law in Kazakhstan

General

Regulation of the mining sector can be divided into three broad areas:

●          regulation in relation to subsoil use rights and operations, including local content;

●          regulation in relation to environmental matters; and

●          anti-monopoly regulation

22.2.1      Subsoil use regulation

In Kazakhstan, the subsoil and minerals contained in the country are owned by the state in accordance with the Constitution. The state ensures access to the subsoil mostly by entering into subsoil use contracts for exploration or mining (or a combination of the two) on terms and conditions and within the limits provided for by Kazakhstan law. Unless otherwise stipulated by Kazakhstan laws and subsoil use contracts, mineral raw materials must be owned by a subsoil user. Most types of subsoil use operations must be carried out on a temporary and payable basis. Subsoil use rights are normally granted as a result of competitive procedures in the form of a tender or auction or, by way of exception, as a result of direct negotiations between a proponent and the competent body.

The Ministry for Investments and Development of the Republic of Kazakhstan has been assigned by the government of Kazakhstan to exercise the function of the competent body (the "Competent Body") in the mining sector and grants exploration and mining contracts for all minerals except for uranium and coal on behalf of the state. Subsoil use contracts are granted for a specific period but may be extended before the date of expiration subject to certain limitations and conditions. Subsoil use contracts may be unilaterally terminated by the Competent Body if, amongst other things, subsoil users do not satisfy their contractual obligations, which may include operational obligations (exploration drilling, mining and/or processing of certain amount of minerals), minimal expenditure obligations set out in a contract, payment of taxes and satisfaction of other exploration and mining, environmental, and health and safety requirements.

The Kounrad Contract was concluded pursuant to the Law No. 2828 "On Subsoil and Subsoil Use" of 27 January 1996 (the "Previous Subsoil Law") that was superseded by the new Law No. 291-IV "On Subsoil and Subsoil Use" dated 24 June 2010 (the "Subsoil Law").

The following important provisions were retained in the Subsoil Law from the Previous Subsoil Law:

Issuance of New Shares

Under the Subsoil Law, the consent of the Competent Body is required for the issuance of new shares by a subsoil user or its parent company.

Priority Right to Acquire Minerals

The state shall have a priority right to acquire a subsoil user's minerals, at prices not exceeding those applied by the subsoil user to third parties that prevail on the date of the relevant transaction, minus transportation and selling costs.

Right to Requisition Minerals

In the event of martial law or a state of emergency, the Kazakhstan government may requisition some or all of the minerals owned by a subsoil user. Requisition may be in any amount necessary to cover the needs of the state during the entire period of martial law or the state of emergency. Minerals may be requisitioned from any subsoil user regardless of the form of ownership. The state shall guarantee compensation for requisitioned minerals either by payment in kind, or by paying their monetary value to a foreign subsoil user in freely convertible currency and to a domestic subsoil user in the national currency at prices not exceeding those applied by subsoil users in transactions related to the relevant minerals that prevail on the date of requisition, minus transportation and selling costs.

The State's Pre-Emptive Right

The Subsoil Law differentiates between subsoil use rights and the objects related to the subsoil use rights (the "Objects"). Objects are participatory interests (shares, securities confirming title to shares and securities convertible into shares) in a legal entity holding the subsoil use right, as well as a legal entity which may directly and/or indirectly determine and/or influence decisions adopted by a subsoil user, if the principal activity of such entity is related to subsoil use in the Republic of Kazakhstan (the "Controlling Legal Entity").

The concept of the state's pre-emptive right, being the right of the Republic of Kazakhstan to acquire any subsoil use right (or its part) or shares in a subsoil user company or its Controlling Legal Entity which are being alienated (the "State's Pre-Emptive Right"), was first introduced in the Previous Subsoil Law in 2004 and was transferred to the Subsoil Law in respect of both the subsoil use rights and the Objects. Although the State's Pre-Emptive Right does not currently apply to the Company, this right gives the state a right of first refusal in respect of any such transfers on terms "no worse than those offered by other prospective purchasers" and the Company may become subject to it in the future.

Prior to the amendments to the Subsoil Law introduced on 29 December 2014 (enacted 11 January 2015), the State's Pre-Emptive Right applied retroactively to all existing contracts, as well as prospectively to future contracts. Following the above-mentioned amendments, the State's Pre-Emptive Right now applies to those contracts (whether existing or future) related to the deposits and subsoil use plots of strategic importance. With certain limited exemptions, the State's waiver of its pre-emptive rights would need to be obtained for any transfer of the subsoil use rights or the Objects related to those deposits and subsoil use plots, including any initial and secondary public offerings of shares on organised securities markets. The deposits and subsoil use plots of strategic importance are designated by the Kazakhstan government and the current list includes 361 hydrocarbon, minerals and underground water deposits categorised as strategic. While the Kounrad mine in Kazakhstan is not currently included on the list, the Kazakhstan government is entitled to amend this list at their discretion.

For a copper deposit to be designated as a strategic deposit, one of the following criteria must be satisfied:

A.        the deposit is part of a group of deposits which are developed by one person or a group of affiliated persons under one or several subsoil use contracts, the aggregate amount of recoverable resources of which exceed 5 million tonnes; or

B.         the deposit is important from the state's national security and defence perspective and development of which:

i)          could pose or poses a threat to the economic interest of Kazakhstan;

ii)         leads to decrease of the defence capacity of the state or a threat of state borders a inviolability; or

iii)         leads to sharp deterioration of ecological situation, including the quality of potable water, natural disasters and other force-majeure circumstances of natural and technogeneous nature and/or epidemic.

The Consent for Transfers of Subsoil Use Rights and Objects

Subsoil use rights (or a share therein) and the related Objects can only be transferred, including in cases of foreclosure (including a pledge), with the consent of the Competent Body in accordance with the procedure established by Article 37 of the Subsoil Law.

A credit facility secured by a pledge of the subsoil use right shall only be allowed for the purposes of furthering is subsoil use, or for further processing, provided that such processing is stipulated in the relevant subsoil use contract and is carried out within the territory of Kazakhstan by the subsoil user itself or by a wholly-owned subsidiary.

The admission to trading of any Objects which are shares or other securities confirming title to shares or convertible securities on an organised securities market, including through an initial public offering or an additional placement of such Objects, requires prior consent of the Competent Body.

The Subsoil Law, however, provides that the Competent Body's consent shall not be required in the following instances:

A.        transactions for alienation of shares or other securities confirming title to shares, or securities convertible into shares which are traded on an organised securities market and are issued by a subsoil user legal entity or a Controlling Legal Entity;

B.         the transfer, in full or in part, of the subsoil use right and/or an Object:

i)          to a subsidiary in which at least a 99 per cent. participatory interest (shareholding) is held directly or indirectly by the subsoil user, provided that such subsidiary is not registered in a jurisdiction with a preferential tax treatment (the so-called "black listed offshore jurisdictions"); and

ii)         between legal entities in each of which at least a 99 per cent. participatory interest (shareholding) is held directly or indirectly by one and the same person, provided that the acquirer of all or part of the subsoil use right and/or the Objects is not registered in a jurisdiction with a preferential tax treatment; or

iii)         the transfer of shares in a subsoil user legal entity if, as the result of such a transfer, an entity acquires the right to directly or indirectly dispose less than 0.1 per cent. of the participatory interests in the charter capital of the subsoil user or the Controlling Legal Entity.

C.         transfer of shares in a subsoil user legal entity if, as the result of such a transfer, an entity acquires the right to directly or indirectly dispose less than 0.1 per cent. of the participatory interests in the charter capital of the subsoil user or the Controlling Legal Entity.

In these instances, the state's waiver of its pre-emptive rights (if applicable) shall not be required either.

Any transactions or other related actions effected without the required consent of the Competent Body are null and void.

Termination of Subsoil Use Contracts

According to Article 72.3 of the Subsoil Law, the Competent Body may prematurely and unilaterally terminate a subsoil use contract:

A.        if the subsoil user fails to eliminate more than two violations of obligations under its subsoil use contract within the time set in the Competent Body's notice;

B.         in the event of a transfer of a subsoil use right and/or of an Object by the subsoil user without the Competent Body's prior consent when such consent is required; and

C.         if the subsoil user performs less than 30 per cent. of its financial obligations under the contract during two consecutive years.

Treatment of Subsoil Use Contracts in Relation to Deposits and Subsoil Use Plots of Strategic Importance

The Competent Body has the right to initiate reviews of the terms a subsoil use contract related to deposits and subsoil use plots of strategic importance and to require amendments and/or additions to such contracts in circumstances where the activities of the subsoil user in the contract area lead to material changes in the economic interests of the state which create a threat to national security. In this regard the Subsoil Law entitles the Competent Body to unilaterally terminate the subsoil use contract related to a strategic deposit if: (i) within two months from the date of the Competent Body notification, the subsoil user does not provide its written consent, or refuses, to negotiate the amendments and/or additions to the subsoil use contract; (ii) within four months from the date when the subsoil user provided its consent to start negotiations, the parties fails to reach an agreement on the subsoil use contract amendment; or (iii) the parties fail to execute the respective amendments and/or additions to the subsoil use contract within six months from the date when an agreement was reached with the Competent Body to restore the state's economic interests. Since the enactment of the Subsoil Law, according to publicly available information, the Kazakhstan government has never officially invoked this provision with respect to any of the strategic deposits. In any event, Kounrad is currently not listed as a strategic deposit.

Procurement Rules

The Subsoil Law generally requires subsoil users to comply with certain local content requirements to procure Kazakhstan produced goods, works and services from local suppliers, as well as employ Kazakhstan citizens. The share of local content is detailed in subsoil use contracts, including those executed prior to the enactment of the Subsoil Law.

In connection with Kazakhstan's accession to the World Trade Organization a number of amendments to Kazakhstan legislation, including the Subsoil Law, were introduced modifying, inter alia, the procurement and local content regulation regime. For instance, according to the said amendments, subsoil users party to contracts executed prior to 1 January 2015, are obliged to procure Kazakhstan produced goods until the earlier of:

A.        1 January 2021; or

B.         expiration of the subsoil use contract,

provided, however, that if the subsoil use contract's duration term is modified, the local content obligations in respect of procurement of locally produced goods shall be excluded from the contract.

22.2.2      Environmental regulation

The mining sector is heavily regulated from an environmental perspective and the conduct of mining operations requires a number of permits and approvals. An environmental permit ("EP") is a special permit that grants a subsoil user a temporary right to emit or disburse emissions into the atmosphere and discharge waste substances into surface and underground waters. EPs contain the conditions governing the subsoil user's impact on the environment. Companies which have an impact on the environment (through pollution, discharging waste, etc.) are required to obtain an EP. An EP is normally issued for up to ten years or until there is a change in either the technology used by the EP holder or the terms and conditions set forth in the EP. Environmental compliance is monitored either by regional executive authorities or by the Ministry of Energy of the Republic of Kazakhstan, whose Committee of Environmental Regulation and Control is in charge of enforcing environmental legislation. Fees for pollution of the environment are established by the tax code and may be increased (within certain limits) by local representative bodies (maslikhat). The holding of an EP does not exempt a subsoil user from liability to pay compensation for damage to the environment caused by its activities, or from any administrative or criminal liability. Annual renewal is subject to compliance with the permit's terms and conditions, and applicable environmental laws.

In February 2009, Kazakhstan ratified the Kyoto Protocol to the United Nations Framework Convention on Climate Change. Ratification of the Kyoto Protocol, which is intended to limit or discourage emissions of greenhouse gases such as carbon dioxide, had an impact on environmental regulations in Kazakhstan.

Following the ratification, the Kazakhstan Environmental Code (dated 9 January 2007, as amended) (the "Environmental Code") was amended to set out a framework for climate change control in Kazakhstan, which came into force on 1 January 2013, including in relation to obtaining quotas for greenhouse gas emissions by legal entities emitting more than 20,000 tonnes of carbon dioxide in a year, quota trading and development of the national quota allocation plan. However, in response to industry complaints on the imperfections of the legal mechanism put in place for the allocation of quotas and trading, and difficulties with adherence to the same, in April 2016 Kazakhstan suspended the application of a number of provisions of the Environmental Code related to greenhouse gas emissions until 1 January 2018. The application of the national allocation plan for 2016 to 2020 and the quotas distributed among the companies were also suspended until 1 January 2018. The Ministry of Energy is currently reconsidering the mechanisms in place under the greenhouse gas emissions regulation.

In November 2016 Kazakhstan ratified the Paris Agreement under the United Nations Framework Convention on Climate Change. The impact of the ratification remains to be seen.

Water use permits

The Water Code, dated 9 July 2003, No. 481 (the "Water Code") aims at implementing governmental policy in relation to the utilisation and protection of water resources. The Water Code sets out obligations for the use of water and discharge of certain materials into the water, on the basis of water use permits ("WUP"). A WUP can be suspended if the terms specified in the relevant WUP are breached, and may be withdrawn if the violations are not cured. Such terms include monitoring the quality of underground water, submitting statistical reports and monitoring reports, complying with requirements relating to water protection during mining operations and regular checking of equipment.

Enforcement

Enforcement of environmental requirements is effected by various officials of the Ministry of Energy and its territorial divisions who have the authority to supervise environmental compliance and initiate judicial proceedings. Pursuant to the Environmental Code, state officials, in their enforcement of environmental protection measures, are entitled to, inter alia:

•           inspect facilities and take measurements and/or samples for analysis;

•           request and receive documentation, results of analysis and other materials;

•           initiate procedures relating to the: (i) recalling of licences; (ii) termination of contracts for the use and taking of natural resources; and (iii) suspension and annulment of environmental and other permits in the event of violation of the terms of such permits;

•           issue orders to individuals and legal entities on elimination of violations of environmental laws;

•           file claims to courts with respect to violations of Kazakhstan laws; and

•           propose to the Competent Body to suspend or terminate a subsoil use contract in certain circumstances.

22.2.3      Anti-monopoly regulation

Anti-monopoly regulation in Kazakhstan is evolving and has undergone significant changes in the recent years shifting from strict and heavy pricing and tariffs regulation to being more focused on the supervision and monitoring of fair competition.

Certain transactions that qualify as economic concentration are subject to the prior notification to or approval by the Committee for Regulation of Natural Monopolies, Competition Protection and Consumers' Rights Protection of the Ministry of National Economy (the "Anti-Monopoly Committee"). The following transactions qualify as economic concentration:

A.        company reorganisation through merger or consolidation;

B.         acquisition by a person of voting shares (or participation interests in charter capital or participatory shares) of a company where such person gains the right to dispose of more than 50 per cent. of such shares if prior to the acquisition such person did not possess shares in the company or possessed 50 per cent. of the voting shares or less. This, however, does not apply to the formation of a new company;

C.         acquisition by a person of another company's fixed production assets and/or intangible assets into ownership, possession and use, including in payment of charter capital, if the book value of the property in question exceeds 10 per cent. of the book value of the fixed production assets and intangible assets of the company alienating or transferring the property;

D.        acquisition by a person (including on the basis of a trust management agreement, joint operation agreement or agency agreement) of rights which allow such person to issue binding instructions to the other person for the conduct of its business activities or to perform the functions of its executive body; or

E.         participation of the same individuals in the executive bodies, boards of directors, supervisory boards or other management bodies of two or more companies, provided that such individuals determine the terms of business activities conducted by such companies.

Approval or the notification of the Anti-Monopoly Committee is required when the aggregate book value of assets or goods turnover for the previous year of companies involved in the transaction exceed ten times the monthly calculation index (which is currently approximately US $70 million). Either of the above transactions being effected within one group of entities does not require approval or notification to the Anti-Monopoly Committee. Transactions conducted in the absence of the Anti-Monopoly Committee's consent, where such was required, and which result in the creation or enhancement of a dominant or monopolistic position of a market participant and/or the restriction of competition may be invalidated by the court on the basis of an action brought by the Anti-Monopoly Committee.

A company is deemed to occupy a dominant position if its market share is equal to or exceeds a threshold of 35 per cent., provided that all of the following circumstances are true in respect of such entity: (i) possibility of unilaterally determining the prices and having a decisive influence on the general conditions of a product's sale in the market; (ii) the lasting duration of the entity's ability to have a decisive influence on the general conditions of a product's sale in the market; and (iii) if there are economic, technological, administrative or any other restrictions to access the market. Notwithstanding the above-mentioned circumstances, an entity would be considered to occupy a dominant position if its market share is 50 per cent. or more.

In addition, if three or fewer entities in a relevant market hold an aggregate market share of 50 per cent. or more, or if four or fewer entities in a relevant market hold an aggregate market share of 70 per cent. or more, each is deemed to hold a dominant market position, provided that such entities meet all of the following criteria: (i) the market share remains the same for a year or longer (or for the term of a certain market's existence); (ii) the product sold or purchased by such entity cannot be replaced with another product; and (iii) the pricing information for such product or the conditions of its sale are available to the general public. If an entity holds a market share not exceeding 15 per cent. of the relevant market, such entity shall not be deemed to hold a dominant market position.

22.3         Summary of Key Agreements

22.3.1      The Kounrad Contract

The Kounrad Contract was entered into by and between MEMR and Saryarka on 20 August 2007 and governs the subsoil use terms in respect of the Kounrad asset. The Kounrad Contract was duly approved by the necessary competent authorities and registered with MEMR under registration number 2447.

On 6 September 2007, Sary Kazna Limited Liability Partnership ("Sary Kazna") and Saryarka entered into: (i) a joint operating agreement, which was replaced by a joint operating agreement dated 16 August 2010 (the "Kounrad JOA") and (ii) the agreement for transfer of the subsoil use rights. Those two agreements provided for the transfer of 60 per cent. of the subsoil use rights under the Kounrad Contract to Sary Kazna.

On 23 May 2014, another agreement for transfer of the subsoil use rights was entered into between Sary Kazna and Saryarka whereby Sary Kazna acquired the remaining 40 per cent. of the subsoil use rights under the Kounrad Contract.

The initial term of the Kounrad Contract is 27 years from the date of its registration, i.e. until 20 August 2034. This term comprised two years of exploration and 25 years of production.

22.3.2      Amendments to the Kounrad Contract

As at the date of this announcement the Kounrad Contract includes nine amendments. Amendment No. 1 dated 15 November 2007 formalised the transfer of 60 per cent. of the subsoil use right under the Kounrad Contract from Saryarka to Sary Kazna.

Amendment No. 2 dated 14 April 2009 was concluded in connection with the adoption of the new Tax Code on 10 December 2008 which introduced a new tax regime and taxes applicable to subsoil users, including Sary Kazna and Saryarka under the Kounrad Contract.

Amendment No. 3, executed on 2 September 2010, extended the exploration period for a further two years to expire on 20 August 2011 while reducing the production period from 25 to 23 years. In addition, amendments in respect of new reporting procedures in relation to local content in goods, works and services and Kazakhstan personnel were introduced. Amendment No. 3 also formalised that the Ministry of Industry and New Technologies became the successor of MEMR in respect of the mineral sector.

On 08 November 2013 Amendments No. 4, No. 5 and No. 6 were concluded relating to: (i) commercial discovery; (ii) extension of the exploration period; and (ii) partial assignment of the Kounrad Contract in connection with transfer of 40 per cent. stake in the project from Saryarka to Central Asia Investment Consulting Company LLP, respectively. In accordance with these amendments, it was agreed to:

1)         subject the Kounrad Contract to the effect of, at that time, the newly introduced Subsoil Law;

2)         approve a new work programme for the first five years of the production period;

3)         extend the exploration period for two years to 20 August 2013 and approve a new work program for the extended exploration period; and

4)         introduce a new requirement to finance research and development works by Kazakhstan producers in the amount of not less than 1 per cent. of the aggregate annual income derived from operations under the Kounrad Contract.

Amendment No. 7 made on 20 March 2014 reflected the partial assignment of the Kounrad Contract in connection with the transfer of 40 per cent. in the Kounrad Contract from Central Asia Investment Consulting Company LLP to Mr Kenges Rakishev.

Amendment No. 8 dated 6 May 2014 reflected further sale of the 40 per cent. stake in the Kounrad Contract from Mr Rakishev to Sary Kazna, thus Sary Kazna became the sole holder of the Kounrad Contract.

Amendment No. 9 executed on 28 November 2015 reflected the approval of full reserves of the Kounrad mine and full transition to the production stage with the new work program. In addition, amendments were made to reflect that the Ministry for Investments and Development became the successor of the Ministry of Industry and New Technologies.

22.3.3      Financial obligations

The main financial obligations under the Kounrad Contract are as follows:

A.        Sary Kazna is required to invest not less than approximately US$195,576,220 during the production period, starting from 2015;

B.         Sary Kazna is required to allocate not less than 1 per cent. of the total expenditures during the production period to professional training of local personnel involved in the works under the Kounrad Contract. In the event the amounts to be spent exceed the actual demands for the professional training of local personnel, Sary Kazna is required to use the remaining amount to finance the priority objectives of the secondary education system of Kazakhstan;

C.         Sary Kazna is required to participate in the Karaganda region's social infrastructure development by contributing US$30,000 each year during the exploration period and US$40,000 each year during the production period;

D.        Sary Kazna is required to finance research and development works by Kazakhstan producers in the amount of no less than 1 per cent. of the aggregate annual income derived from operations under the Kounrad Contract; and

E.         Sary Kazna is required to form, and make deductions to, a relinquishment fund the aim of which is to finance the restoration of the land which is the subject of subsoil use operations under the Kounrad Contract. The relinquishment fund is formed by means of opening a deposit account in a commercial bank, and the annual deductions shall be equal to 1 per cent. of the amount of investments during the exploration period and 1 per cent. of operational costs during the production period.

22.3.4      Tax Obligations

Pursuant to the Kounrad Contract (as amended), Sary Kazna is required to pay taxes and other obligatory payments to the budget in accordance with the laws in force as at the time the tax obligations arise. The current tax laws provide for, inter alia, the following specific taxes related to subsoil use:

A.        a commercial discovery bonus at the rate of 0.1 per cent. is required to be paid on the value of the recoverable reserves determined by the Competent Body. Such value will be determined on the world prices in the Metal Bulletin published by Metal Bulletin Journals Limited, or the Metal-pages published by Metal-pages Limited;

B.         an excess profits tax is payable on a scale ranging from 10 per cent. to 60 per cent. depending on the ratio between net income and applicable deductions during a tax year. Excess profit tax is payable if the net profit exceeds 25 per cent. of applicable deductions in a reporting period;

C.         a mineral extraction tax will be payable at the rate of 5.7 per cent. of the market value of copper existing in the mined minerals. Such value will be based on the world prices in the Metal Bulletin published by Metal Bulletin Journals Limited, or the Metal-pages published by Metal-pages Limited; and

D.        historical expenses are payable in accordance with the tax laws of Kazakhstan. In accordance with the Agreement on Acquisition of Information concluded between the Geological and Subsoil Use Committee of MEMR and Saryarka on 18 June 2007, no historical costs will be charged for the state geological information

22.3.5      Other material provisions of the Kounrad Contract

The Kounrad Contract relates to the exploration and production of the mineral copper. Sary Kazna is obliged to use new technologies in exploration and mining in accordance with best international mining practice. After completion of the exploration, the contract area was required to be returned to the state except for the areas where commercial discovery has been made. Following completion of the exploration period, Sary Kazna was required to arrange for the explored copper resources to be approved by the State Committee for Reserves, GKZ (Republic of Kazakhstan) and this approval was obtained.

The state has a pre-emption right to acquire copper from Sary Kazna. The terms, volume and price of the acquired copper will be determined by a separate agreement between the parties. Sary Kazna may not assign its rights and obligations under the Kounrad Contract to a third party without the prior approval of the Competent Body.

Sary Kazna is required to comply with certain local content requirements in respect of the purchase of goods and engagement of personal.

Sary Kazna must evaluate the long term ecological effect of its subsoil use activity.

22.3.6      Land lease under the Kounrad Contract

Pursuant to the Decision of the Karaganda Region Akimat No. 08/05 of 6 April 2009 (as amended on 11 July 2011), Sary Kazna was granted a temporary land use right for a land plot of 1,865.58 hectares for a fee until 20 August 2034. The purpose of this land lease is to explore and produce copper at the Kounrad mine. On 27 April 2009, Sary Kazna entered into Land Plot Lease Agreement No. 82-08/05 (as amended on 20 July 2011) with the Land Relations Department of Karaganda Region. The agreement has been registered with the relevant justice authorities.

22.3.7      Shuak Framework Agreement

On 22 November 2016, CAML signed a framework agreement to acquire an 80 per cent. effective interest in the subsoil use contract for the Shuak exploration property in northern Kazakhstan. Under the terms of the framework agreement, on 22 February 2017, CAML reduced its interest in Shuak BV to 80 per cent., with 20 per cent. effectively being held by local partners. The transfer of the subsoil use contract to an entity wholly held by Shuak BV completed in August 2017. The consideration for this acquisition is an investment in exploration activities of US$2 million over five years, subject to continued positive results from exploration activities and the general economic outlook for commodity prices.

22.3.8      Traxys Offtake Agreement

On 21 October 2016 KCC LLP (as seller) entered into an offtake agreement with Traxys (as buyer). Pursuant to this agreement, the seller gave the buyer the right to buy copper cathode from its Kazakh plant. The buyer is entitled to a minimum of 90 per cent. of production from 1 November 2016 to 31 December 2018.

The price payable for the offtake is calculated by reference to market prices or three month seller quotations, less a discount. A quality discount may also be applicable depending on the copper content in the cathode.

Pursuant to, and as a condition of, the Debt Financing, with effect from Completion, the term of this agreement will be extended to five years from Completion and the buyer will be entitled to approximately 95 per cent. of annual production.

23.           Information On Macedonia And Macedonian Mineral Policy & Law

23.1         Overview of Macedonia

23.1.1      Geography and Population

Macedonia is located in the central part of the Balkan Peninsula and shares common borders with Albania to the west, Bulgaria to the East, Greece to the South and Serbia and Kosovo to the North. The country's total area is 25,713 square kilometres and, in January 2017, it had a population of approximately 2.08 million people. The capital, Skopje, is the largest urban centre with over 500,000 inhabitants.

23.1.2      Government

Macedonia is a republic and its current constitution was adopted on 17 November 1991. The president is the head of state and commander-in-chief of the army. The President is directly-elected, by secret ballot, for a maximum of two five-year terms. The current President, Mr Gjorge Ivanov, is within his second term, which began in May 2014. The national legislative body is the Parliament of Macedonia and is comprised of up to 123 members elected by popular vote who serve a four-year term. The most recent parliamentary elections were held in December 2016.

Executive power rests with the government. The government is headed by a Prime Minister, who is appointed by the parliamentary majority. The current prime minister is Mr Zoran Zaev who has served since May 2017.

Macedonia has 80 municipalities headed by mayors elected every four years, 10 of which constitute the city of Skopje, a distinct unit of local self-government. Municipal councils, the local legislative bodies, determine the mayors' executive functions.

Macedonia has been in political turmoil in recent years, fuelled by tension between the two major political parties, the conservative, Christian democratic VRMO-DPMNE party (the major party in the coalition government from 2006-2016), and the Social Democratic Union of Macedonia (SDSM). Following a snap election in December 2016 and a protracted period of political uncertainty, on 31 May 2017, the leader of the Social Democrat party, Mr Zoran Zaev, formed a coalition between his own party, the Democratic Union for Integration and the "Alliance for the Albanians" coalition in order to serve as the official government. The election of the new government has brought stability to the political situation in the country, and the policy focus of the new coalition government includes progressing Macedonia's EU and NATO accession processes, encouraging economic development, and raising living standards.

23.1.3      Economic Overview

The real GDP growth in 2015 was 3.8 per cent. compared to 3.5 per cent. in 2014. The real GDP growth for 2016 and 2017 is estimated to be 3.2 per cent. per year, putting the country in the top five in Europe in terms of economic growth. In 2016, the average inflation rate was -0.2 per cent. The current account deficit in 2016 was 3.1 per cent. of the GDP, compared to 2 per cent. in 2014, caused by the widening primary income deficit.

The historically high official unemployment rate has slightly decreased to 22.9 per cent. in 2017 from 24 per cent. in 2016, 26.8 per cent. in 2015 and 28 per cent. in 2014 (although it is widely assumed that the actual unemployment is lower due to the importance of the informal economy).

Despite a series of political challenges during the past two years, the economy grew and benefitted from accommodative policies, low commodity prices, sustained foreign investment and improving labour market conditions. An extended period of accommodative fiscal policy has helped support domestic demand, but has also depleted policy space to counter further shocks.

23.2         Mineral Policy and Law in Macedonia

23.2.1      General

The mining sector and activities in the Republic of Macedonia are mainly regulated by the Minerals Law. The Minerals Law serves as the overriding law with respect to mining related legal issues.

Apart from the Minerals Law and its bylaws, the following laws and their corresponding bylaws amongst others also regulate certain aspects of the mining sector in Macedonia:

(A)       the Law on Concessions and Public Private Partnerships ("Concessions Law");

(B)       the Law on Trade Companies;

(C)       the Law on General Administrative Procedure;

(D)       the Law on Safety and Health at Work; and

(E)       the Law on the Environment.

23.2.2      Minerals Law

The Minerals Law differentiates three general phases for the purposes of mining regulation:

(A)       the surveying geological explorations phase;

(B)       the exploration phase;

(C)       the exploitation phase.

The first two phases have been completed at the SASA Mine and the operations have been in the exploitation phase for some time now. Any company that intends to perform exploitation of mineral resources within the Republic of Macedonia must first obtain an exploitation concession. The term as well as the surface area of such exploitation concessions vary depending on the type of mineral resource in question. Exploitation concessions for metal minerals can be given for a period of up to 30 years, with a possible extension period of another 30 years. The surface area covered by exploitation concessions for metal minerals may be up to 30 square kilometres.

The exploitation concession allows the entity that has been awarded such concession and has concluded an exploitation concession agreement with the Ministry of Economy ("MoE") to exploit the mineral resources (that are otherwise owned by the government of the Republic of Macedonia) within a certain surface area for a specified period of time at the expense and risk of the concessionaire. The MoE can award exploitation concessions at the request of an interested party (i.e. the owner of the results contained in an exploration report from a completed exploration) or after publishing a public call and holding an electronic auction.

The concessionaire needs to initiate the procedure and obtain the following property rights, depending on the owner of the land for which the concession was awarded:

(A)       for land owned by legal entities and individuals, the concessionaire needs to initiate an expropriation procedure and obtain ownership of such land; and

(B)       for land that is owned by the Republic of Macedonia, the concessionaire must request and obtain a right of use.

Concessionaires also have various obligations with respect to labour and health and safety at work matters as well as environmental issues.

Once an entity obtains a concession, it must also obtain an exploitation licence from the MoE before commencing any exploitation activities. The concessionaire must apply for an exploitation licence within four years after the conclusion of the exploitation concession agreement. The concessionaire is obliged to begin the exploitation activities within three years as of the issuance of the exploitation licence. If a concessionaire intends to further explore a certain surface area in order to broaden the concession area with an area neighbouring the original concession area, it can request that the MoE issues a license for geological exploration.

Lastly, a concessionaire can perform the following activities only after obtaining an additional mining project licence issued by the MoE:

(A)       mining activities on new horizons or ponds;

(B)       construction of new export, ventilation and researching shafts;

(C)       significantly changing the method of excavation;

(D)       reconstruction of mines and new dumpsites;

(E)       reconstruction of large landslides; or

(F)        changes in terms of land reclamation.

An annual fee is payable for use of the location or the surface amounting MKD 180,000 per square kilometre (approximately EUR 3,000 per square kilometre) for surface and/or underground exploitation of metallic minerals. Furthermore, a royalty amounting 2 per cent. of the market value of the metal per tonne for each tonne of metal concentrate exploited must also be paid.

The Minerals Law prescribes an obligation to obtain a prior approval and payment of a fee in the case of a transfer of an exploitation concession or a change of ownership in the exploitation concessionaire's shares. The fee payable in connection with obtaining approval for the concession transfer fee and/or the share transfer is equal to 7 per cent. of the value of the exploitation concession. The basis on which the value of the exploitation concession is determined is not prescribed in detail in the Minerals Law.

23.2.3      Environmental regulation

Given the environmental impact of mining activities, they are subject to strict regulation and inspection in Macedonia. The basic law which applies to environmental issues is the Macedonian Law on the Environment ("Environment Law"). It regulates the rights and duties of the Republic of Macedonia ("RoM"), the municipalities, the City of Skopje and the municipalities in the city of Skopje, as well as the rights and duties of the legal entities and natural persons in providing conditions for protection and improvement of the environment. The Environment Law prescribes that if a proposed project might have a significant impact on the environment, then an Environmental Impact Assessment Study ("EIAS") must be prepared and submitted it to the Ministry of Environment and Physical Planning ("Ministry of Environment"). The Ministry of Environment ultimately needs to approve any such project after a report and public hearing in relation to the relevant EIAS.

Certain activities can be performed only if the installation obtains an integrated environmental permit. This permit can be either (i) an A-Integrated Environmental Permit ("A-Permit"); or (ii) B-Integrated Environmental Permit ("B-Permit"). The A-Permit is issued by the Ministry of Environment and the B-Permit is issued by the relevant municipality, the city of Skopje or the Ministry of Environment. Mining activities can be performed only after an A-Permit has been obtained for the operation of an installation performing one or more activities stated in the Environmental Permit Decree and only up to the level approved in the A-Permit. The A-Permit contains data for the operator and the installation, as well as mandatory conditions related to emission levels, protection measures of individual media and areas of the environment, and the manner of performing monitoring by the operator of the installation.

The emissions of the installation specified in the A-Permit must not exceed the prescribed emission levels. During the validity of the A-Permit and for five years after its expiration, the operator must keep all documents and data related to the request, issuance and monitoring provided by the mandatory conditions in the A-Permit and make them available at the request of the Ministry of Environment and the State Environmental Inspectorate. Also, the operator must regularly notify and report to the Ministry of Environment. An A-Permit may be modified ex officio or at the request of the operator or may be transferred fully or in part under certain conditions. The A-Permit can be revoked if the operator (i) breaches more than three times the mandatory requirements contained in the A-Permit, as determined by the State Environmental Inspectorate; (ii) has made changes to the installation without obtaining permission from the competent body; or (iii) it does not perform the activity to the extent and at the time specified in the A-Permit. The holder of the permit must pay yearly fees in respect of the permit.

Moreover, if certain activities are performed in a system in which hazardous substances are present in quantities greater than or equal to the prescribed levels, the operator must take all measures necessary to prevent accidents and to limit their consequences on the environment and on human life and health, and prepare a Plan for the prevention of major accidents.

In 2004 RoM ratified the Kyoto Protocol to the United Nations Framework Convention on Climate Change which sets internationally binding emission reduction targets. In order to implement the National Climate Change Mitigation Plan ("National Plan"), and involve RoM in global efforts to reduce climate change and implement the commitments under the Kyoto Protocol, the Ministry of Environment evaluates and approves projects under the clean development mechanism established in the KP.

Water use permits

The Macedonian Law on Waters ("Waters Law") regulates the issues pertaining to surface waters, lakes, accumulations and springs, groundwaters, waterside land and water habitats and their management, water resources management facilities and services; organisational set up and financing of water resources management, as well as the conditions and the procedures under which the waters can be used and discharged.

For the purpose of achieving the public interest in water use, as well as for the purpose of exercising the rights and obligations of the legal entities and natural persons to use or discharge waters, the right of water use from bodies of waters and the right to discharge into the bodies of waters, a water right is granted to the legal entities and natural persons. The holder of water right shall have the right to freely and fully use and dispose with the water over which it has acquired the water right. This water right is acquired on the basis of a water use permit and water discharge permit which is issued for a period not longer than 10 years, unless provided otherwise. The water right that derives from and is exercised under the conditions and in the manner determined in the permit can be temporarily restricted if it (i) endangers human health; (ii) endangers the natural balance of the aquatic ecosystems and the water dependent ecosystems; (iii) restricts the general water use; and (iv) has a harmful impact on the protected areas determined by the regulations on protection of nature.

The operators who discharge wastewater are obliged to install instruments for measuring the discharged quantities of water and analysing their quality and to maintain the instruments in proper condition, to keep records of the performed measurements and to submit these data to the Ministry of Environment.

Water consents are issued for construction of new, or reconstruction or extension of existing, facilities that are located in or beside the surface waters, facilities that cross above or under the surface waters or facilities that are located in vicinity of surface waters or waterside lands and which may affect the water regime. They determine the water management conditions that must be realised during the construction. Only after obtaining this consent, the competent authorities may issue a construction permit for the concerned facility.

Supervision

The competent environmental supervision authority in RoM is the Ministry of Environment, while the inspection supervision is conducted by the State Environmental Inspectorate. Among other matters, the state inspector has the following responsibilities:

(A)       to determine whether installations that meet the prescribed norms and standards from the environmental protection system are being constructed or reconstructed;

(B)       to determine whether pollutants and substances in the environment that exceed the prescribed norms are produced and released, as well as whether they are handled in the prescribed manner and order their withdrawal from the market;

(C)       to determine whether monitoring of the sources of emission and the technological process that pollutes one or more environmental media, emissions, or the utilisation of natural resources;

(D)       to determine whether monitoring is carried out in accordance with the A-Permit;

(E)       to determine whether the emissions of the substances specified in the A-Permit are discharged according to the specified limit values; etc.

If the environmental inspector finds that an operator has breached its environmental obligations, it can issue a decision prescribing measures to eliminate the causes of such environmental pollution and establishing certain obligations for the operator. For some misdemeanours, an applicable misdemeanour procedure is conducted and a misdemeanour fine and/or sanction is issued by the Ministry of Environment. If an operator's actions cause ecological damage, the operator may face claims in civil proceedings. Finally, if there is significant environmental damage, the operator could face criminal charges.

23.3         SUMMARY OF KEY AGREEMENTS-THE SASA MINE

23.3.1      Concession Agreement

A concession agreement was entered into between Rudnik SASA DOOEL and the Republic of Macedonia on 12 December 2014 (the "SASA Concession Agreement"). The SASA Concession Agreement regulates the rights and obligations of Rudnik SASA DOOEL and the Macedonian government arising from the award of the concession to exploit lead and zinc ore mineral resources at the SASA Mine near the town of Makedonska Kamenica. The concession is valid until 28 September 2030, with a possibility to be extended for a further 30 years.

Pursuant to the terms of the SASA Concession Agreement, Rudnik SASA DOOEL was obliged to resolve certain issues pertaining to the use of the land on which the mineral resources were located, such obligations now having been fulfilled. The SASA Concession Agreement also imposes a number of ongoing environmental and health and safety obligations on Rudnik SASA DOOEL.Rudnik SASA DOOEL is required to pay MKD 758,800 in fees per annum (payable on a quarterly basis) for the use and exploitation of the concession area, plus an additional exploitation fee of 2 per cent. of the market value of lead/zinc per tonne of metal concentrate produced.

The Republic of Macedonia performs continuous and regular supervision of Rudnik SASA DOOEL's concession activity and its compliance with its legal and contractual obligation. The Rudnik SASA Concession Agreement automatically becomes invalid upon expiry of the concession term, bankruptcy or liquidation of Rudnik SASA DOOEL, unilateral termination by either party or otherwise in accordance with the law.

A concession agreement is terminable by the Republic of Macedonia following the occurrence of certain events, including where: (i) prior approval from the Government of Macedonia is not granted, or the payment of the related applicable fee is not made, upon a transfer of the exploitation concession granted to the concessionaire or a change of ownership in the concessionaire's shares; (ii) the concessionaire loses the economical, technical or operative capacities necessary to operation the concession in accordance with law; (iii) the applicable environmental permits are withdrawn or terminated; or (iv) there has been an interruption of mining activities for a period exceeding one year.

The concession agreement is also terminable by the Republic of Macedonia following the occurrence of the following events: (i) the activity is carried out in an inappropriate or low quality manner; (ii) the concessionaire has committed a material violation of the provisions of the contract or of the laws and regulations applicable to the contract; (iii) the concessionaire has terminated or has caused the termination of the performance of the activity; (iv) the concessionaire undergoes a merger, acquisition and division without a written consent of the Government of Macedonia; (v) the concessionaire gives the subject of the concession under lease; (vi) the concessionaire starts the exploitation of minerals before a permit for exploitation is granted; (vii) the concessionaire does not act upon the measures imposed in the procedure for supervision under the law; (viii) the concessionaire does not submit a request for issuance of an exploitation permit within the period prescribed by law; (ix) the concessionaire does not start the exploitation of minerals within the period set out in the law (unless due to force majeure event); (x) the concessionaire has not made a geodetic survey and has not prepared a geodetic survey report with calculation of the dug quantities of minerals or has not submitted the geodetic survey report to the relevant state administrative body for two consecutive years; (xi) the concessionaire does not submit a report on the conducted testing of the exploitation facilities for exploitation of the minerals for two consecutive years; (xii) the concessionaire does not deliver authentic data on the contents of the minerals in the concentrates, i.e. the metals that are received in the processing process; or (xiii) the concessionaire does not comply with the decision and the measures in relation to environmental protection set out in the environmental regulations.

23.3.2      Offtake Agreements

Lead and Silver Offtake Agreement

Lynx Metals entered into a lead concentrate sales agreement executed on 19 December 2016 in its capacity as seller of lead concentrates at the SASA Mine. This agreement provides for the sale of an approximate total quantity of 44,000 wet metric tons (plus or minus 10 per cent. at Lynx Metals' option) of lead concentrate. This amount equates to approximately 3,666 wet metric tons per month, plus or minus Lynx Metals' option.

Under the agreement, the buyer has an obligation to make a 90 per cent. provisional payment against Lynx Metals' provisional invoice value on a bi-monthly basis, with final settlement within three business days of presentation of the final invoice by Lynx Metals.

Under the agreement, the buyer pays for a percentage of the payable metals (being lead and silver) minus the charge for the treatment of the lead and a charge for refining the Silver.

Pursuant to the Acquisition Agreement, the Sellers have also agreed to enter into certain agreed form documents on Completion including, amongst others, a deed of novation in respect of this agreement pursuant to which Lynx Metals will transfer its rights and obligations to Lynx Mining. In the event that such deed of novation is unlikely to be executed prior to Completion, Lynx Metals will continue to be the counterparty but all payments received by Lynx Metals pursuant to this agreement will be held on trust for the Purchaser and such payment shall be transferred to the Purchaser.

First Zinc Offtake Agreement

Lynx Metals entered into a zinc concentrate sales agreement executed on 19 December 2016 in its capacity as seller of zinc concentrate at the SASA Mine. This agreement provides for the sale of an approximate total quantity of 33,000 wet metric tons (plus or minus 10 per cent. at Lynx Metals' option) of zinc concentrate. This amount equates to approximately 2,750 wet metric tons per month, plus or minus Lynx Metal's option.

Under the agreement, the buyer has an obligation to make a 90 per cent. provisional payment against Lynx Metals' provisional invoice value on a bi-monthly basis, with final settlement within three business days of presentation of the final invoice by Lynx Metals to the buyer.

Under the agreement the buyer pays for a percentage of the payable metal (being zinc) minus the charge for the treatment of the zinc.

Pursuant to the Acquisition Agreement, the Sellers have also agreed to enter into certain agreed form documents on Completion including, amongst others, a deed of novation in respect of this agreement pursuant to which Lynx Metals will transfer its rights and obligations to Lynx Mining. In the event that such deed of novation is unlikely to be executed prior to Completion, Lynx Metals will continue to be the counterparty but all payments received by Lynx Metals pursuant to this agreement will be held on trust for the Purchaser and such payment shall be transferred to the Purchaser.

Second Zinc Offtake Agreement

Lynx Metals entered into a second zinc concentrate sales agreement executed on 19 December 2016 in its capacity as seller of zinc concentrate at The SASA Mine. This agreement provides for the sale of approximately 12,000 wet metric tons (plus or minus 5 per cent. at Lynx Metals' option) of zinc concentrate.

Under the agreement, the buyer has an obligation to make a provisional payment of 100 per cent of Lynx Metals' provisional invoice at the later of 14 days after the load date or Lynx Metals' presentation of the provisional invoice, certificate of analysis and certificate of weight and moisture. Final payment settlement must be made within three working days of receipt of the final invoice and written notice of final weights, assays and prices. The agreement also provides for an adjustment mechanism following the determination of a benchmark price.

Under the agreement the buyer pays for a percentage of the payable metal (being zinc) minus the charge for the treatment of the zinc.

Pursuant to the Acquisition Agreement, the Sellers have also agreed to enter into certain agreed form documents on Completion including, amongst others, a deed of novation in respect of this agreement pursuant to which Lynx Metals will transfer its rights and obligations to Lynx Mining. In the event that such deed of novation is unlikely to be executed prior to Completion, Lynx Metals will continue to be the counterparty but all payments received by Lynx Metals pursuant to this agreement will be held on trust for the Purchaser and such payment shall be transferred to the Purchaser.

Silver Purchase Agreement

On 1 September 2016, SASA DOOEL (as seller) entered into a silver purchase agreement with Lynx Metals (as buyer). Lynx Metals' rights and obligations under this agreement were novated to a third party on 31 July 2017. The agreement governs the sale of refined silver from SASA DOOEL to the third party and such refined silver need not be physically produced at the SASA Mine and may be purchased on the open market.

The agreement has a term of 40 years with automatic ten year extensions thereafter. In consideration for the refined silver to be delivered under the agreement, Lynx Metals paid US$22,064,374.42 to SASA DOOEL in advance. Deliveries of silver by SASA Mine to Lynx Metals (and following novation, the third party) are offset against the prepayment.

24.           EXECUTIVE SUMMARY ON THE KOUNRAD MINE

A Competent Person's Report in respect of the Company's Kounrad mine has been prepared by Wardell Armstrong International and is available on the Company's website, https://www.centralasiametals.com/investors/proposed-acquisition/. The executive summary of the Competent Person's Report is set out below.

Historically, copper ore was mined from the porphyry deposit at Kounrad from 1936, originally by Balkhashtsvetmed and more recently by Kazakhmys, which still owns the open pit mine and the liabilities associated with restoration of the site. Importantly, over the decades of production, detailed mining and processing records have been maintained relating to the classification and grades of the various waste dumps.

The sulphide ores were treated by conventional flotation, whilst oxide ores and low‐grade sulphide ores were stockpiled around the site, to the eastern and western margins of the pit, namely the Eastern and Western Dumps.

Currently, CAML operate an in situ dump leach operation from the Eastern and Western Dumps that were left by the Soviet mining operations, and CAML irrigate these dumps with acidic solutions "in situ" and transport the copper pregnant leach solution to the SX‐EW plant for copper mineral processing and metal recovery.

In‐situ acid leaching, is where acidic solutions are irrigated on top of the dumps in order to recover soluble copper as a pregnant solution. The copper pregnant solution flowing from the base of the dumps is collected and pumped to a solvent extraction and electro‐winning (SX‐EW) plant which is located at the Eastern Dumps.

The higher‐grade oxide ores which are restricted to the Eastern Dumps provided the focus for initial production during 2012‐2016. Testwork on the potential methods for the extraction and recovery of copper from the various waste dumps and leaching of the dumps has been undertaken since the 1970s.

In 2006 CAML, through its Kazakhstan wholly owned subsidiary Sary Kazna LLP, acquired 60% ownership of the sub‐soil use contract (contract number 2447) covering the Kounrad waste dumps from the State Entrepreneurial Corporation Saryarka (SEC Saryarka).

Having raised US$60 million at IPO in September 2010, CAML completed construction of the Kounrad SX‐EW copper plant in 2012, on schedule and US$9m below budget. The plant began producing copper in late April 2012.

CAML completed the acquisition of the remaining 40% of the project in 2014.

Summary of Assets

Asset	Holder	Interest (%)	Status	Licence Expiry Date	Licence Area
Kounrad	CAML	100%	Exploration and Processing	20th August 2034	22.5 Km2

 

Since operations on the Eastern Dumps commenced, CAML has increased annual production each year and has now produced approximately 61,000 tonnes of copper cathode.

Year	2012	2013	2014	2015	2016	H1 2017
CU (t)	6,586	10,509	11,136	12,071	14,020	7,027

 

In May 2015, CAML successfully completed the Kounrad Stage 1 Expansion, on schedule, and under budget, which involved increasing the PLS handling facilities, boiler capacity and copper plating capacity.

The Stage 2 Expansion project (covering the Western Dumps) was materially completed in Q4 2016 and copper production from this area commenced in Q2 2017.

In terms of the Mineral Resource model, WAI prepared a Mineral Resource Estimate in accordance with the JORC Code (2004) in 2013 based on work carried out using CAE Studio 3® (Datamine) software. The base data for this work included the large volume of historical data from open pit mine records, and the more recent reverse circulation drilling works carried out in 2011 and 2012.

Subsequently the JORC Code has been updated to the JORC Code (2012) which took full effect as of 01 December 2013, and the Mineral Resources reported within this CPR have therefore been amended to meet the guidelines of the JORC Code (2012).

Summary of Eastern, Western and Northern Mineral Resources

Category	Gross			Net attributable			Operator
Kounrad Mineral Resources	Tonnes (kt)	Grade (%)	Contained metal	Tonnes (kt)	Grade (%)	Contained metal
Indicated	388,977	0.10	372,546	388,977	0.10	372,546	CAML
Inferred	264,023	0.09	237,175	264,023	0.09	237,175	CAML
Sub-total	653,000	0.09	609,722	653,000	0.09	609,722
Total	653,000	0.09	609,722	653,000	0.09	609,722

 

Between the commencement of production at Kounrad and the end of H1 2017, circa 61,000t of copper cathode have been produced. Due to the leaching method, it is not possible to specifically define where within the dumps copper mineralisation has been leached, with leached solutions potentially propagating through several contiguous irrigation blocks before being sent to the process plant.

To account for the depletion of the Mineral Resource as of end of H1 2017, the updated Mineral Resource statement includes columns for the recovered copper "Cu Production 2012‐2017 (t)" and the remaining copper "Remaining Cu (t)".

The results of this work are summarised in the table below, and demonstrate a close correlation with previous historical Mineral Resource Estimates.

An important factor that has been noted during the 2011‐2012 exploration as well as production is that many of the assumptions pertaining to the makeup of the material identified as "mixed" (10 to 20% acid soluble copper) and "sulphides" (less than 10% acid soluble species) are no longer correct. Assay results show that acid soluble assays in "mixed" dump 15‐16 were higher than expected and averaged around 45% and with similar values being determined in the "sulphide" dumps such as 1, 1a, 21.

It is highly likely that these higher than anticipated levels of soluble copper are due to the historic and ongoing (continuously active) natural oxidation conditions occurring within the dumps, over a 70‐80 year time frame.

Such changes can be accelerated by near surface oxidation, species conversion related with ferric iron leaching; and both being accelerated by the presence of naturally occurring bacteria. Visually, it is very clear to see such natural activity having occurred, with extensive plumes of copper oxide colouration seen on large areas of the dump side walls.

Consequently, and in particular for the Western Dump Mineral Resources, this has implications for potential enhanced recoveries.

24.1         Processing

In terms of processing, a considerable amount of testwork, pilot scale testing together with the last five years operational data, has been compiled for the leaching of the Eastern and Western Dumps at Kounrad. The quantity of material remaining in the dumps (most notably the Western Dumps), the copper content, and its amenability to leaching, all confirm the continued viability of the CAML Kounrad project.

The oxide waste was dumped entirely on the eastern margin of the open pit and has been the initial operational focus of the project. The sulphide, and the bulk of the mixed waste, are located in the Western Dumps area and have been subjected to metallurgical testing in the period 2009‐2012 to verify copper recoveries and acid consumptions.

24.2         Summary of Testwork

In addition to a pilot scale trial undertaken at the Eastern Dump, a pilot scale trial was also performed at the Western Dumps in 2011‐2012. The pilot plant trial had demonstrated the feasibility of producing saleable copper cathode from the Eastern Dumps.

From the Western Dumps, the pilot plant ran from June 2011 to the end of September 2012, but was stopped during the severe winter of 2011‐2012. Two cells of Western Dump material were subject to leaching during this period, with the second test cell being curtailed early due to some operational issues regarding solutions return connected with unknown ground topography.

Although the trial did not deliver the same quantity of specific metallurgical data as generated when running at the Eastern Dump, it had however shown that the copper was recoverable via acid leaching with a recovery approaching 50% being obtained from Western Dump material.

The required FS design data was subsequently enhanced from undertaking large diameter column tests at site, this was also used to develop a realistic kinetic model for leaching. It is known, and expected, that this can only be a best approximation, based upon the data presently available. Two leach recovery curves were produced, one for lower grade material (<0.05% TCu) with a final recovery of 35%, and a higher grade (>0.5% TCu) terminating at 42% total Cu recovery, both at 20 months.

In 2012, the SX‐EW Plant was commissioned and later expanded in 2015. In 2013, BGRIMM completed a Feasibility Study as part of the expansion. BGRIMM detailed the leaching schedule and designed a plant capable of treating a range of flow rates and solution grades to produce up to 50 tonnes of copper cathode per day at 99.99% quality. The plant design has taken the extremes of climate into consideration, especially the operability through the winter period.

For the Eastern Dumps, CAML has adopted recovery levels of 51% for Dumps 6,7,9 and 10, while a leach recovery level of 42% was adopted for Dumps 2 and 5.

The Eastern Dumps are expected to recover a further 25,136t (from 79,843t originally available) of leached copper during its remaining operational life. Leaching of the Western Dumps has only recently commenced (Q2 2017) following the installation of solution ponds, pumps, 3 boilers and two overland pipelines, which transport the PLS and raffinate between the western facility and the SX‐EW Plant at the Eastern Dump. The site is now supplied with technical water from the nearby Lake Balkhash via an overland pipeline at a flow rate of up to 200m3/hr.

Over the life of operation for the Western Dumps, it is expected that some 173,173t of copper will be recovered to the PLS. This is significantly higher than the copper to be recovered from the Eastern Dump because the Western Dumps contain significantly more material.

In summary, production from the Eastern Dumps has demonstrated that CAML has successfully leached copper from the low‐grade copper waste dumps, and early indications suggest that the Western Dumps will continue this process for the long‐term.

WAI has reviewed the environmental and social performance of the Kounrad operations based on a review of documentation provided by CAML.

The operation is compliant with local Kazakh legislation, and a considerable amount of work has been undertaken to bring it in line with International Best Practice. A document register is maintained for all Environment and Social, and Health and safety policies, plans and procedures; and

WAI considers the Environmental and Social performance is well managed, and to a high standard.

Studies show that there is potential for Acid Mine Drainage ("AMD") and Pregnant Leach Solution ("PLS") migration down gradient of the Dumps due to "historic" contamination. CAML has instigated a number of studies to develop a detailed understanding of these issues, and continues to monitor closely to manage the risk. WAI is satisfied that historical liability is not the responsibility of CAML, and furthermore, WAI believes this aspect of the operations is given sufficient consideration, and the risks associated with potential contamination are well managed.

24.3         Financial Analysis

WAI has performed a technical valuation of the Kounrad copper dump leach project using a Discounted Cash Flow (DCF) analysis. The operating costs and sustaining capital requirements were estimated by CAML based on the actual operation results and approved Company budgets. WAI finds these costs to be reasonable for the scale and the location of the operation.

Based on the financial analysis performed by WAI, the Kounrad Project generates a strongly positive Net Present Value (NPV) of US$355M at a 10% discount rate (Base Case). As a part of a sensitivity analysis, NPVs based on various discount rates ranging between 8% and 20% were also calculated. A summary of the Project NPVs at various discount rates is shown in the table below:

Project NPV Summary
NPV @ Discount Rate of 8%	US$ M	401
NPV @ Discount Rate of 10%	US$ M	355
NPV @ Discount Rate of 15%	US$ M	271
NPV @ Discount Rate of 20%	US$ M	215

 

Total average life of mine C1 project cash costs were estimated at US$0.54 per pound.

A Base Case metal price forecast used for the financial analysis is presented below:

Selected Project Copper Price Forecast*
Cu Price	Units	2017E	2018E	2019E	2020E	2021E	LT
	US$/t	5,401	5,512	5,908	6,393	6,415	6,283
	US$/lb	2.45	2.50	2.68	2.90	2.91	2.85

*Broker consensus copper price forecasts, supplied CAML

Based on the sensitivity analysis performed, the project is mostly sensitive to the change in copper price. None of the assessed sensitivity analysis parameters were observed to bring the project to negative results.

25.           EXECUTIVE SUMMARY ON THE SASA MINE

A Competent Person's Report in respect of the SASA Mine has been prepared by SRK and is available on the Company's website, https://www.centralasiametals.com/investors/proposed-acquisition/. The executive summary of the Competent Person's Report is set out below.

25.1         Background

For the 12-month period ended 31 December 2016, Lynx Resources reported the following key operating statistics for the Mineral Assets: saleable products comprising: 39,507 dmt Pb concentrate and 45,548 dmt Zn concentrate from 782,823 dmt mined and 779,231 dmt processed. For the first 6 months of 2017 ("H1 2017") these statistics are: 20,301 dmt Pb concentrate and 21,719 dmt Zn concentrate from 391,043 dmt mined and 392,257 dmt processed.

The current Life of Mine Plan ("LoMp") (starting H2 2017, limited to end-2037) assumes ore production of 15.98 Mt ore to the process plant, with saleable products comprising 357.2 kt Zn in concentrate, 559.8 kt Pb in concentrate and 6,949 koz Ag in concentrate.

25.2         The Mineral Assets

The SASA Mine is located in northeastern Macedonia, approximately 150 km from the capital city of Skopje and 10 km to the north of the small village of Makedonska Kamenica.

SASA Mine comprises an operating underground lead-zinc mine and flotation plant, which allows for the production of separate zinc and lead concentrates. Concentrates are currently transported by truck for treatment in smelters in the surrounding region.

The mine is located in the Osogovo Mountains of eastern Macedonia at the head of the deeply incised Kamenica River valley, with an elevation range of approximately 975 to 1,600 m above sea level. The mine site is subject to continental and Mediterranean climatic influences, with hot dry summers and cold winters. Underground mine infrastructure is extensive, with many historic worked out areas. A number of restored and operational tailings storage facilities ("TSF") are located in the valley below the processing plant. A new TSF, TSF 4, is currently under construction, immediately downstream of the active TSF 3.2. Active and legacy waste rock dumps are located around the property. Waste rock from the active mine is transported to the surface for capping of the TSFs as part of the rehabilitation plan or is stored for future use in TSF construction.

A summary of all licences related to the SASA Mine is included in Table ES 1. Whilst the current exploration licence expires on 13 December 2017, the application for renewal is already in progress. SRK has every reason to expect that the licence will be renewed as a matter of course within the allowable 12-month period following the expiry of the licence.

Table ES 1:     Summary Table of Mineral Assets

Asset	Holder	Interest	Status	Licence expiry date	Licence area	Comments
SASA Mine, Macedonia	Rudnik SASA DOOEL	100%	Production	28 September 2030	4.22 km2	Current annual run of mine production is 780 kt, producing lead and zinc concentrates.
SASA Mine, Macedonia	Rudnik SASA DOOEL	100%	Exploration	Expires on 13 December 2017	1.42 km2

 

25.3         Historical Mining

The initial mining and geological surveys of the Osogovo Mountains' ore-bearing massif and the SASA Mine locality date from 1954. The period between 1954 and 1960 was a period of exploration and the mine construction took place between 1960 and 1965. In November 1965, the mine was opened for trial processing with a projected production capacity of 0.3 Mtpa of lead-zinc ore.

The SASA Mine commenced operation from 1966 as a state-owned entity. During the 1990s, ore production levels at SASA Mine were roughly 0.5 Mtpa and, in 2002, the mining and milling operation was shut down due to lack of operating capital on the part of the Macedonian government, which owned the mine. Subsequently, the mine was put into bankruptcy and closed. The Solway Group subsequently purchased the mine and operations were restarted in 2006.

Table ES 3 provides a summary of the recent annual mine and processing production at the SASA Mine.

Table ES 3:     Historical Production at the SASA Mine

Description	Units	2010	2011	2012		2013	2014	2015	2016	H1 2017
Mine Performance
Total Ore Mined	(kt wet)	838	788	784		807	809	806	807	402
	(kt dry)	809	759	753		777	780	780	783	391
Lead grade	(% Pb)	4.05	3.83	3.93		4.13	4.16	4.04	3.95	4.01
Zinc grade	(% Zn)	3.81	3.43	3.35		3.47	3.48	3.52	3.41	3.20
Process Plant Performance
Ore Processed	(kt wet)	840	787	785		804	809	803	803	404
	(kt dry)	811	758	754		774	780	777	779	392
Lead grade	(% Pb)	4.05	3.83	3.93		4.13	4.16	4.04	3.95	4.01
Zinc grade	(% Zn)	3.81	3.43	3.35		3.47	3.48	3.52	3.41	3.20
Lead Concentrate
Lead Concentrate	(kt dry)	41.3	37.1	38.0		41.0	41.6	40.2	39.5	20.3
Lead Recovery	(%)	94.4	95.1	94.4		94.4	94.5	94.1	94.1	94.6
Lead Grade	(% Pb)	75.15	74.32	73.64		73.62	73.73	73.51	73.29	73.29
Zinc Grade	(% Zn)	2.82	2.66	2.43		2.59	2.59	2.86	2.71	2.56
Lead Contained	(kt)	31.0	27.6	28.0		30.2	30.7	29.5	29.0	14.9
Zinc Concentrate
Zinc Concentrate	(kt dry)	52.8	44.6	43.1		46.2	46.9	47.2	45.5	21.7
Zinc Recovery	(%)	86.0	86.6	86.2		86.3	86.5	85.8	84.6	85.6
Lead Grade	(% Pb)	1.13	1.05	1.08		1.06	1.33	1.64	1.33	1.10
Zinc Grade	(% Zn)	50.36	50.56	50.51		50.14	50.13	49.78	49.43	49.45
Zinc Contained	(kt)	26.6	22.5	21.8		23.2	23.5	23.5	22.5	10.7

 

25.4         Mineral Tenement and Land Tenure States

The exploitation concession (24-5550/1) covers an area of 4.22 km² and comprises sub-areas labelled by year, which relate to expansions of previous licence boundaries. The current exploitation concession was most recently issued to Lynx Resources on 13 November 2014 and is valid until 28 September 2030, with the possibility of extending for another 30 years.

The exploration concession (24-4971/1) covers an area of 1.42 km², was issued to Lynx Resources on 13 December 2013 and expires on 13 December 2017. Lynx Resources is currently in the process of applying to renew the exploration concession. A study detailing the results of exploration between 2013 and 2017 is going to be submitted by October 2017, and following revision of the study by the Geological Department of the Ministry of Economy, Lynx Resources will apply for an extension of the mining concession to include the current exploration concession area. Once this extended mining concession is approved, a new application for an exploration concession area will be submitted. Lynx Resources has 12 months from the date of expiration in which to complete the applications for both the extension of the mining concession and the new exploration concession.

12% of the Inferred Mineral Resources of the Svinja Reka deposit fall outside the current exploitation licence, but within the exploration licence. A total of 2.1 Mt of material is to be mined at Svinja Reka from the Inferred category from 2029 to 2034, 12% of which corresponds to only 0.25 Mt of material outside the exploitation licence area. There is potential to extend the mine life by further defining and potentially extending the Svinja Reka and Golema Reka resources at depth, and by delineating and quantifying extents of the Kozja Reka deposit, combined with further licence extensions, and that such studies are ongoing or planned.

25.5         Mineral Resources Statement

25.5.1      Regional and Local Geology, Deposit Type and Mineralisation

SASA Mine comprises the Svinja Reka, Golema Reka and Kozja Reka lead-zinc-silver deposits, which lie within the Serbo-Macedonian Massif, a belt which extends through Serbia, Macedonia, Bulgaria, and eastern Greece into Turkey and hosts a large number of lead-zinc deposits. The mineral deposits are located on the eastern flank of a Tertiary intermediate intrusive complex and related porphyry Cu-Mo system, within which a northwest striking stockwork alteration zone is developed. Lead-zinc-silver mineralisation occurs as stratiform deposits hosted predominantly by quartz-graphite schist and marbles of Lower Palaeozoic age at Svinja Reka and by gneisses at Golema Reka. The mineralisation is considered to relate to the intrusion of Tertiary volcanics. High-temperature hydrothermal fluids and bedding-parallel faulting are responsible for metasomatism of the host sediments, producing skarn and base metal mineralisation.

The well-defined, partially exploited, lenses of lead-zinc-silver mineralisation dip at approximately 35° to the south-west and typically range in true thickness from between 2 and 30 m. The mineralised lenses are present in parallel sheets (typically two or three bodies, namely the hanging wall, central and footwall orebodies), separated by an interburden with thicknesses of 1 to 10 m. The lenses pinch and swell along strike and down-dip. The mineral deposits are considered to be metasomatic skarn-hydrothermal deposits with replacement and bedding-parallel fault controlled mineralisation. The skarns occur in the form of replacement of marble, whereas the hydrothermal lead-zinc-silver mineralisation appears as replacements and as open-space fillings. The hydrothermal association, which is superimposed onto the skarn assemblages, contains argentiferous galena, sphalerite, pyrite and minor chalcopyrite.

Only Svinja Reka and Golema Reka form part of the Mineral Resources as described in this report. Kozja Reka was mined previously but has not been further evaluated at this stage.

25.5.2      Mineral Resource Estimation

The SASA Mine has been explored since 1954 including geophysics, mapping, trenching, and drilling from both surface and underground excavations. The Mineral Resource models at the SASA Mine consider 1,442 underground and surface diamond drillholes and 15 underground channels conducted between the years of 1974 and 2016 for the Svinja Reka deposit and 104 underground and surface diamond drillholes and 51 underground channels conducted between the years of 1974 to 2010 for the Golema Reka deposit. The resource database was reviewed and verified by SRK before use in the Mineral Resource Estimates.

Whilst no routine external assay Quality Assurance/Quality Control ("QAQC") procedures are currently implemented, SRK has previously completed an independent check by selecting 400 duplicate pulp samples, from SASA Mine drilling intercepts, which were submitted to the Eurotest Control Sofia laboratory. Analysis of the results indicates in general the reasonable quality of results, albeit with a slight bias toward lower grade. The SASA Mine laboratory is annually audited by the Macedonian Accreditation Institute and also acts as control for the plant concentrate shipment. The SASA Mine laboratory also regularly submits check samples to a laboratory in Sofia, Bulgaria as part of its own internal QAQC programme.

A number of historical Mineral Resource Estimates, in accordance with the JORC guidelines, have been completed by international consulting groups (SRK in 2006, Wardell Armstrong in 2011 and MRA in 2015).

In addition, SASA Mine is required to undertake reporting of Reserves in accordance with the Macedonian State Reporting System every four years. The State Reporting for the SASA Mine is prepared by a local design institute and was last completed as at 01 April 2015. Classification and categorisation of State Reserves is defined by the Macedonian Law for mineral raw materials and is prescriptive, with many similarities to other resource and reserve reporting systems developed in Eastern Europe and the Former USSR. Silver grade estimates are not provided in the State Resources and Reserves.

Block model tonnages and grade estimates for the Svinja Reka and Golema Reka deposits have been classified in accordance with the guidelines of the JORC Code (2012). In addition to the quality and quantity of exploration data supporting the estimates, the confidence in the geological continuity of the mineralised structures and the confidence in the tonnage and grade estimates is considered in assigning the Resource classification. Depletion due to mining has been accounted for in the models.

The geological interpretation used to generate the Mineral Resource is generally considered to be robust; however, there are areas of lower geological confidence which may be subject to further revision in the future.

At Svinja Reka, SRK considers that the quality and spatial distribution of the data used, the geological continuity of the mineralisation and the quality of the estimated block model is sufficient for the reporting of Indicated and Inferred Mineral Resources. At Golema Reka, Mineral Resources have been limited to the Inferred category due to the lower confidence in the geological model and absence of any historical core or accessible mineralisation exposures. Areas of mineralisation in Golema Reka that contain less than 2% Pb+Zn over a 3.5 m width, remain unclassified and are excluded from the Mineral Resource.

To determine that the Mineral Resources have reasonable prospects for economic extraction by underground mining methods, they have been evaluated based on a minimum Net Smelter Return ("NSR") cut off value based on Pb, Zn, and Ag credits, using a Pb price of USD2,550/t, a Zn price of USD2,800/t and a silver price of USD25/oz. These prices are based on typical long-term consensus forecasts with a 30% premium (to reflect the requirement for "reasonable prospects" for eventual extraction) and a set of assumed technical and economic parameters, which were selected based on the current mining operations. The Mineral Resources comprise volumes that are generally considered to be wider than the minimum mining width (3.5 m).

SRK considers that the blocks with a NSR value greater than USD30/t at Svinja Reka and USD35/t at Golema Reka have "reasonable prospects for eventual economic extraction" and can be reported as a Mineral Resource according to the definitions of the JORC Code (2012).

Table ES 4:     SRK Mineral Resource Statement for Combined Svinja Reka and Golema Reka Deposits, SASA Mine, as at 01 July 2017 reported at USD30/t and USD35/t NSR cut-off, respectively

Classification/ Deposit	Density	Tonnage	Pb		Zn		Ag			NSR		Pb + Zn
	(t/m3)	(Mt)	Grade (%)	Metal (kt)	Grade (%)	Metal (kt)	Grade (g/t)		Metal (koz)		(USD/t)		Grade (%)
Indicated Mineral Resources
Svinja Reka	3.4	13.30	4.59	611	3.68	490		22.0	9,403		126		8.28
Golema Reka	0	-	0	0	0	0		0	0		0		0
Total Indicated	3.4	13.30	4.59	611	3.68	490		22.0	9,403		126		8.28
Inferred Mineral Resources
Svinja Reka	3.2	2.67	3.16	84	2.08	56		16.6	1,426		82		5.24
Golema Reka	2.9	7.4	3.69	273	1.52	112		18.6	4,424		94		5.21
Total Inferred	3.0	10.07	3.55	357	1.67	168		18.1	5,849		91		5.22
Total Indicated and Inferred Mineral Resources	3.2	23.37	4.14	968	2.81	658		20.3	15,252		111		6.96

 

In reporting the Mineral Resource Statements, SRK notes the following:

●    Mineral Resources have an effective date of 1 July 2017. The Competent Person for the declaration of Mineral Resources is Guy Dishaw, P.Geo., of SRK Consulting (UK) Ltd. The Mineral Resource estimate was prepared by a team of consultants from SRK considering drilling data up to 01 October 2016 and has been depleted by excavation by volumes representing mining to 1 July 2017;

●    Mineral Resources are reported within the Exploitation and Exploration Licences only;

●    Mineral Resources are reported as undiluted. No mining recovery has been applied in the Statement; and

The Indicated Mineral Resources are inclusive of those Mineral Resources modified to produce Ore Reserves, i.e. they are reported on an 'inclusive basis'.

SRK has made a number of recommendations to improve the quality of the Mineral Resource Estimates going forwards, including:

●    Routinely assay for Ag in future drilling programmes to improve confidence in the local-scale variability of the Ag grades in block model which may, in places, be independent from Pb grade. There may be locally secondary controls on silver mineralisation that are not currently realised due to the limitations of sampling.

●    Regularly collecting additional density samples and increasing the size of the database to add confidence to the modelled density values.

●    Implementation of full assay QAQC procedures for sampling and assay (including blanks, duplicates and standards) for all future drilling campaigns.

●    An underground mapping programme by a structural geologist to investigate the potential for additional controls on mineralisation, to better understand the distribution and exploration implications for the high grade lead-zinc-silver mineralisation.

SRK is aware that SASA Mine has planned a campaign of surface, and possibly underground drillholes at the Golema Reka deposit to confirm the current model, and add additional intersections to improve the confidence in the geological model. The drilling programme has been submitted for permitting and is expected to commence in late H2 2017 or early H1 2018.

25.6         Geotechnical

SRK has undertaken a geotechnical assessment of the SASA mine using empirical and preliminary two dimensional finite element numerical modelling. The analysis has confirmed the appropriateness of the current mine design parameters being used.

The assessment has also shown that the rock mass lies at the boundary of a caving and marginally caveable material and SRK recommends that horizontal mining front is maintained across all orebodies in order to reduces the magnitude of mining induced stresses down dip of the mining front.

In order to improve the geotechnical model, actual mine performance will need to be compared to results of the 2D modelling and the input parameters and/or the mining sequence modified to better reflect the actual mine performance.

SRK has undertaken a review of rock support and geotechnical practices at SASA Mine. Whilst generally the support of permanent development is being carried out to a satisfactory level, the stability of temporary ore drives could be further improved. SRK has made a number of suggestions for improvement to ore drive stability. Improvements to the support methods and materials used can be made to assist the mine to work towards international best practice standards and some progress has already been made.

25.7         Mining

From a mining method perspective, the approach used at the SASA Mine has been successful in achieving in excess of the planned production rate in the current LoM plan. Due to the low level spacing there are reasonable opportunities to achieve the mining dilution and loss parameters used in the mine plan.

The defined stope shapes extend from the 1,054 mRL to a lowest elevation of 797 mRL on a level spacing of 7 m, over a strike length of 835 m. The main lower access of the existing mine development is an exploration decline ramp some 24 m below the 830 mRL (approximately 837 mRL in the vicinity of the orebody) which is only 20 m above the lower elevation of the stope shapes considered in the mine design.

The mine benefits significantly from having access development to upper and lower levels of the planned stoping areas as well as established materials handling systems. This existing development also allows for easy management of water ingress into the mine, although water ingresses were not observed to be significant during the March 2017 site visit.

The sub-level caving method currently in use at the SASA Mine, utilises a top-down approach without the use of backfill with development and production drilling being undertaken using single boom.

Whilst this method is one of the few underground mining methods that can be applied to this type of shallow dipping, stacked, variable thickness lead-zinc-silver lens system, the cut and fill method (which was historically used on the Golema Reka deposit) should be re-assessed in selected future mining areas to determine whether this is a more suitable method for the mine from a dilution, recovery, safety, production rate, and economic perspective.

The mine development and production physicals have been reported on 3.5 m levels from the design and block model, with the modifying factors applied prior to scheduling with the Deswik software. The LoMp relies predominantly on the Indicated Resources at the Svinja Reka deposit (to support the declaration of Ore Reserves), but also includes Inferred Resources from Svinja Reka and Golema Reka deposits. The LoMp schedule extends over a period of just under 22 years (H2 2017 to Q1 2038), commencing at an ore production rate of 770 ktpa (dry) in 2017, followed by 20 years (2018 to 2037) at 780 ktpa (dry) and a small amount of production in 2038 (approximately one month). The historical production indicates that there is typically an average moisture content of 3.6%.

The underground waste development (including rehabilitation) has been categorised and is scheduled annually over the mine life. Development waste generated from mining activities is estimated to total 1,395 kt over the LoMp with maximum annual tonnage of 83 kt (in 2017) and average annual tonnage of 65 kt (or 8.7% of total material mined annually). All development waste generated underground is transported to the surface.

Since reopening in 2006, the SASA Mine has used a similar mining method approach as that proposed for the LoMp going forward and the planned production rate of 780 ktpa (dry) is conservative, given that the mine production has averaged 797 ktpa over the last 8 years, with a peak of 860 ktpa in 2009. SRK notes that in the last 8 years the mine achieved less than 780 ktpa in two of those years (759 kt in 2009 and 753 kt in 2010); however, this is not considered a material difference (less than 3%).

The sub-level cave mining method has been utilised for many years at the SASA Mine and, given the low level spacing (7 m), there are reasonable opportunities to achieve the mining dilution and loss parameters used in the mine plan.

SRK recognises that the LoMp includes material from the Inferred category of Mineral Resources, both in the lower levels of the Svinja Reka deposit and also the Golema Reka deposit, and that achievement of the LoMp is based on the conversion of Inferred Resources to Indicated or Measured Resources. At Svinja Reka, given the continuation of the sub-level caving method and the similar development profile, there do not appear to be any technical impediments to mining this material, assuming that additional drilling and sampling and geological analysis improves the Resource category to at least Indicated.

At the Golema Reka deposit, a cut and fill method will be adopted. This historically used method is geotechnically acceptable and the existing backfill plant can be recommissioned. In addition, the cost of backfill has been considered in the operating costs and subsequent NSR cut-off estimate for Golema Reka, therefore exploitation of the final years of the LoMp at Golema Reka are considered to be technically feasible, again assuming that the Inferred Resources in this deposit are converted to either Indicated or Measured category through additional geological investigations and analysis.

SRK considers it likely that the additional Inferred portions of the Svinja Reka and Golema Reka deposits will be converted to Indicated during the LoM operations and that the full LoMp will be delivered, on the understanding that the appropriate technical investigations and studies are undertaken in advance of proposed mining of these areas.

25.8         Mineral Processing

The process plant is conventional and the metallurgy for both lead and zinc, based on historical performance, is straightforward and well understood.

Ore from Golema Reka has been processed historically and the metallurgy is known. As with any mine, if new ore zones are to be mined and processed, metallurgical testwork should be performed to establish circuit operating parameters and to ascertain specific metallurgical performance.

The forecast plant throughput of 780 ktpa is conservative and is not a limiting factor in terms of mine output. The plant has proved that it can process up to 850 ktpa.

The lead metallurgy recovery of 94% is close to the historical performance of the plant and considered by SRK to be above the average typically achieved by similar operations.

The new zinc regrind mill should alleviate the issues with some overloading of the pumping systems in the zinc cleaner circuit and should increase the overall zinc recovery to the projected 87.5%.

A silver recovery to lead concentrate of 80% is used in the assessment. This is in line with recent historical performance. The calculated silver content of the lead concentrate is 287 to 320 g/t Ag and payable as part of the NSR. The silver grade in lead concentrate is below that historically achieved and is dependent on the tonnage of lead concentrate produced.

The zinc concentrate grade has been set at 49.3% in the model. SRK considers this to be conservative as it is lower than historical performance. A lower zinc grade in concentrate is likely to be beneficial for zinc recovery to zinc concentrate, as would be expected with a typical grade-recovery relationship. The zinc recovery included in the model assumes the installation of the new zinc regrind circuit during 2017 and includes an increased zinc recovery to zinc concentrate of 2% from 85.5% up to 87.5%, supported by recent lock-cycle testwork. Based on the predicted head grade and typical losses of zinc to the lead concentrate this zinc recovery would result in a final concentrator tailings of 0.3% Zn. This is lower than historically achieved, average 0.4% Zn since 2010, but reflects the tailings that would have been achieved if an additional recovery of 2% had been achieved. SRK considers that the higher recovery is reasonable, based on the testwork performed. The zinc feed grade is predicted to fall from 2028 and SRK recommends a reduction in zinc recovery based on a fixed tail calculation from this year to the end of the LoMp.

Historical performance would suggest that the lead grade in the zinc concentrate will not be an issue and should be less than 2% Pb.

A silver recovery to zinc concentrate of 10% included. Historically, this has been around 11%. The silver content of the zinc concentrate is typically around 40 g/t Ag and is not payable.

The operating costs included in the model for the process plant are based on actuals and are split in to fixed and variable costs, for electricity, reagents and consumables, labour, maintenance materials and miscellaneous costs, and are considered reasonable.

The new zinc SMD mill package has been included in the 2017 budget, with SMD mill capital of EUR597k out of the total 2017 plant budget of EUR1.4m (with EUR0.5m spent during H1 2017). It is estimated the SMD mill will be commissioned in Q4 2017.

From 2018 onwards, only sustaining capital has been provided for. This totals EUR12.9m over the remaining life of the mine for the processing plant alone, of which EUR150,000 per year from 2019 onwards has been allocated as a contingency. SRK considers the capital expenditure provided in the model to be appropriate.

25.9         Tailings Storage Facilities

The TSF complex has been operational since the 1960s, with the successive development of TSF 1, TSF 2, TSF 3.1 and TSF 3.2. All the TSFs are located within the steep sided valley of the Kamenica River. The Kamenica River is carried below the TSF within an engineered river diversion structure.

TSF 1, TSF 2, and TSF 3.1 are inactive and have been rehabilitated with soil cover and vegetation. TSF 3.2 is currently active. Progressive development of the dam comprises downstream raising using cyclones, with coarse underflow to the dam shell and finer grain-size slimes to the impoundment void. Waste rock is transported via the mine access road and deposited at the downstream toe to form a buttress. Seepage water from TSF 3.1 and from the toe area of TSF 3.2 is captured in a sedimentation pond located at the toe of the downstream dam slope. Surplus water in the TSF 3.1 overflows via an overflow concrete collector pipe, which is used to manage the water level in the pond. An emergency spillway will be constructed when the dam reaches its design height at closure. A specific slope stability assessment has been completed for the active facility and in general terms, the methodologies, parameters and scenarios modelled are reasonable in the context of the stated report requirements. Also, recent work undertaken by Golder Associates indicates there to be no credible risk of overtopping in the critical storm-flow condition.

TSF 4 was designed to international standards by the Faculty of Engineering, Skopje, in March 2015. As with TSF 3.2 a specific slope stability assessment has been completed for the proposed facility and the methodologies, parameters and scenarios modelled are considered reasonable and thorough in the context of the stated report requirements. TSF 4 is currently under construction and is designed to provide sufficient containment for requirements between October 2018 and 2026 (predicted lifetime at current processing rate), and will be located directly downstream of TSF 3.2. Construction of the entire facility is planned to be completed by May 2018. TSF 4 will be developed adopting similar waste delivery, placement and operational management methodologies to those that have been adopted for the active TSF 3.2; however, the downstream slope will include a granular rock fill toe buttress that is progressively raised in line with tailings progression.

TSF 4 requires an extension to the Kamenica River diversion structure as a tunnel in the western rock abutment of the dam, which is partiality constructed as well as an open channel diversion of the Petrova stream along the eastern side of the valley. A contractor (Strabag) is currently installing the concrete lining of the tunnel, which is on schedule for completion in Q4 2017. Construction permits have been received for the diversion tunnel and the channel works, and construction is in progress. The approval for the construction of the dam is in progress, including modifications to the design for the lining.

As part of the EIA approval process, the Ministry of Environment and Physical Planning ("MEPP") recommended that the Minister for Environment approve the EIA, subject to SASA modifying the design to include a liner. SASA Mine management will install a liner to address this request.

The river diversion structure entrance portal is located at the northern end of TSF 1 at the plant site and the exit is located immediately downstream of the TSF 3.2 dam slope toe. The tunnel has been extended progressively in advance of tailings deposition development and comprises a concrete structure for about 40% of its length constructed under the tailings (culvert section) and 60% constructed in the in situ rock (tunnel section). A new section of tunnel has been constructed beyond the toe of TSF 3.2 to further divert the river around TSF 4. SRK considers that the TSF 4 extension tunnel in its existing condition and the outlet portal area and have been constructed with appropriate support for a long-term structure. Once concrete lined, the tunnel is expected to be very secure.

In 2003, whilst the mine was under State ownership and was not operational, failure of an ancillary structure that diverted captured TSF 3.1 drainage water into the river diversion tunnel resulted in flow of tailings from TSF 3.1 into the water-course and on into the downstream environment. The physical effects of the failure were successfully remediated; the downstream environment was cleared; the culvert was cleared, the ancillary structure for drainage was remediated, and flow of water re-established. Subsequently, a programme of regular visual inspection and maintenance of the diversion tunnel and associated infrastructure has been followed and there have been no further issues since mine re-commissioning in 2006.

In March 2017, SASA Mine commissioned the Faculty of Engineering, Skopje to undertake a Tunnel Integrity Assessment for the entire length of the diversion tunnel, to assess the current state of the tunnel, especially in its older sections and to comment on any potential requirements for additional support/remediation. The study will include visual inspections, in situ testing and sampling for laboratory material testing. Work is currently ongoing and results will be delivered in Q4 2017.

The SASA Mine LoMp extends to Q1 2038, with a planned constant throughput of ore at a rate of 780 ktpa until end-2037. This results in a steady state production of tailings of around 175,000 m3 per year tailings for dam construction and 230,000 m3 per year fine tailings (plus sludge) for deposition in the impoundment (total 405,000 m3 per annum). TSF 4 has capacity for 8 years of deposition, which means that additional TSFs will be required to provide storage for the entire LoMp. SASA Mine intends to construct two further TSFs downstream of TSF 4 to accommodate this additional material (TSF 5 and TSF 6). TSF 5 is planned to be constructed during 2025 and 2026 and is intended to be of a similar size to TSF 4 to provide an additional 8 years' storage. TSF 6 is planned to be constructed during 2033 and 2034 and is intended to be smaller than TSF 4 to provide an additional four years' storage up to 2038. Whilst detailed designs have not yet been prepared for either TSF 5 or TSF 6, SASA Mine has provided capital in the Financial Model in the relevant years. The capital quantum for TSF 5 (EUR7.5m, USD8.2m, which includes EUR2m allowance for the liner) is the same as that for TSF 4, and for TSF 6 the allowance is 50% of TSF 5 given the smaller storage requirement. There is also yearly sustaining capital of USD109k provided. Further preliminary and detailed design work for TSF 5 and TSF 6 will need to be completed, but these TSFs will require similar elements to TSF 4, including extension of the Kamenica River diversion tunnel through the bedrock of the western dam abutment and extension of the Petrova River surface diversion channel along the eastern side of the Kamenica River valley.

SRK notes, however, that to support the Ore Reserves, there is only a requirement for TSF 5.

Lynx Resources intends to commence pre-feasibility study level designs for TSF 5 immediately upon completion of TSF 4, to provide ample time for technical evaluations and permitting preparation.

The closure design for the active TSF 3.2 is detailed within the Waste Management Plan document which covers proposals for both tailings and waste rock. This document is required in accordance with applicable Regulations and the site Permit. The tailings closure design proposed in the Waste Management Plan is similar to that adopted for TSF 1 and comprises a layered cover system including (from the bottom up): waste rock cover; restoration soil layer; and vegetation. A similar arrangement is proposed for TSF 4.

One issue for the SASA Mine closure is the management of long-term water flows in the Kamenica River valley, currently and in the future, via the river diversion tunnel/culvert and surface water diversion channels. For the diversion tunnel, potential closure options are currently being evaluated by SASA Mine, in combination with the Faculty of Engineering, Skopje and SRK. The potential options being evaluated include:

●    long-term maintenance of the existing diversion tunnel/culvert;

●    maintaining the existing diversion tunnel but engineering bypass sections to replace culverts and ensure long-term flows are within the in-situ rock abutments; and

●    relocating flow to surface, necessitating decommissioning (sealing) of the tunnel/culvert and engineering of an open diversion channel at surface.

25.10       Water Management

The SASA Mine operations are situated within the Kamenica River watershed. The Kamenica River runs from northwest to southeast. Two smaller drainages connect to the Kamenica River upstream of the current mine operations, the Svinja River and the Kozje River. Both drainages contain legacy mine workings (and surface waste rock dumps), with adit discharges partially captured in pipelines and partially discharged to the rivers. Seepage from the old dumps also enters the rivers.

The process water intake structure is situated upstream of the confluence with the Kozje River. Downstream of the confluences of the Kozje and Svinja rivers, the Kamenica River is captured in a concrete diversion tunnel, which was historically constructed beneath TSF 1, TSF 2 and TSF 3.1, and then extended through the western abutment of TSF 3.2. The University of Skopje prepared a hydrologic and hydraulic analysis, the hydraulic model, prepared as part of the study, states that the existing diversion tunnel for the Saska River is equipped to convey the 10,000-year flood. Additional consideration may be required for the Probable Maximum Flood ("PMF") event, specifically during closure.

The hydrogeology of the area has not been characterised by means of site specific hydrogeological testwork. Groundwater, other than the alluvial aquifer immediately below TSF 3.2, is not monitored. The existing water collection and pumping infrastructure is considered sufficient for management of groundwater entering the underground workings. While maintenance of existing infrastructure is required to effectively manage groundwater within the mine, SRK's opinion is that no significant additional investment will be required.

A high-level water balance has been performed by Strength GEC in March 2017, evaluating potential for recycling of mine water in the process plant. The purpose of the water balance was to assess the potential for water recycling across the site. SRK understands, based on discussions while on site, that this balance is an initial step as part of an on-going flow monitoring programme to develop a more seasonally sensitive and refined understanding of water volumes across the site.

The balance suggests the TSF supernatant pond, as well as seepage collected at the TSF 3.2 dam toe and discharges from the Adit 830, be utilized in the plant and for dust suppression on tailings and dams. Improvements to the water balance should include a more detailed depiction of flows in the active and proposed TSF supernatant ponds, specifically examining freeboard limits and the capacity of the decant structure during extreme flood events.

SRK observed opportunities for improvement in the sample collection, handling, analytical suite and data processing aspects of the water quality monitoring. As part of the hydrogeological study outlined in the ESAP, SASA Mine is reviewing its sampling protocols.

25.11       Environmental, Social and Permitting

Lynx Resources maintains a permit register and this indicates the mine is fully permitted for continuing its current operations. Following completion of the requirements stipulated in its Permit for Alignment with the Operational Plan (an interim step in the Integrated Pollution Prevention and Control (IPPC) permit process), SASA Mine received its IPPC permit in October 2016. An Application for Changes to the IPPC permit was submitted in April 2017 (discussions currently in progress) requesting amendments to the permit for minor changes to the operation since March 2014. This application also included a formal request to amend the discharge limits in line with the Macedonian legislation for wastewater discharges, highlighting that the existing limits were created with reference to the Decree for Classification of Waters No 18/1999, which was applicable to in-stream surface water guidelines, and not for discharges of industrial wastewaters.

The mine has an environmental management system certified against ISO 14001:2015. There is also an environmental and social action plan ("ESAP") developed with the aim of bringing the project into line with good international industry practice over the next three years. A review of the cyanide management practices was undertaken in March 2017 to evaluate current practices with the requirements laid out in the International Cyanide Management Code; procedural opportunities for improvement were identified and are being considered by SASA Mine.

The project reportedly enjoys good relations with the community of Kamenica, which owes its existence to the presence of the mine. It also appears that relationships with employees are good. Therefore, no material risks arising from the current informal management of social issues have been identified. Following on from community complaints regarding dust from the TSFs, additional sprinkler investments were made in 2016. Further plans are underway to increase the amount of sprinklers, evaluate other dust suppression techniques and increase dust monitoring in 2017. The ESAP includes a commitment to develop an air quality management plan to improve dust control at the site.

There is historical contamination arising from the historical mine workings and the associated mine residues (waste rock and tailings), in addition to historical contamination arising from the tailings emission in 2003, generated when the mine was under state ownership. According to the legal review, the current operators are not liable for any historical contamination. SRK notes that separating the effects of contamination from the historical mine workings above the mine site, and any new contamination generated by current operations, can be challenging. The ESAP recognises a potential opportunity to work with the State to find rehabilitation solutions to address the historical mine workings and associated mine residues upstream of the current mine as part of closure planning.

Improvements in water monitoring (both flow and quality) are currently being implemented as part of the ESAP. Options for further recycling of various water streams are being investigated as part of this. The available monitoring of water quality indicates:

●    upstream of the mine, discharges from adits and seepage from waste rock dumps associated with the historical workings (not SASA Mine's responsibility) are contributing to exceedances of the Macedonian Category III environmental water quality standards;

●    available data show the quality improves downstream indicating dilution and potentially natural buffering from the surrounding catchments; however, zinc and manganese exceed the Macedonian Category III environmental water quality standards as far as 5 km downstream of the site;

●    there are occasional exceedances of the permitted discharge limit, though SRK notes these limits are currently subject to discussion with the regulator; these non-compliances are dealt with via a minor annual permit fee to the MEPP, which incorporates an annualised calculation for exceedances (fee has historically been approximately EUR5,000 per annum, and is expected to be of the same magnitude for calendar 2017); and

●    groundwater in the alluvial aquifer downgradient of the TSFs indicates that the water is generally in compliance with drinking water quality standards and the Macedonian Category III environmental quality standards except for zinc.

With no pre-disturbance baseline water quality monitoring (because the mine is 50 years old) and no monitoring of reference sites in unimpacted catchments, the natural background contribution of the deposit on water quality cannot be confirmed and thus the impact of the mine over and above this natural contribution can also not be confirmed. SRK considers that the outcomes of the currently planned hydrology and biodiversity studies, as well as the improved water quality monitoring programme, are needed to confirm potential impacts. SRK also recognises this cannot be done in isolation, as significant contributions are arising from the historical workings that are not the responsibility of SASA Mine. There is, however, significant time in the LoMp before closure to improve the quality, type and quantity of input data, assess this with respect to downstream water user requirements and use this in further evaluating the need for long term water treatment.

In June 2017, SRK prepared a conceptual closure plan ("CCP"), which included a closure cost estimate for the operations with a ±50% level of accuracy. For the purposes of closure design, the CCP considered two potential methods for diversion of surface water flows upstream and in the catchment of the TSFs. These are summarised below as follows:

●    Option 1 - Use of the existing river diversion channel to pass a portion of the storm water flows from the upstream catchment area only. In conjunction, a surface channel diversion will be constructed adjacent to the TSFs to divert calculated flows from the adjacent catchments.

●    Option 2 - Construction of an entirely new network of surface water channels designed to pass the cumulative flow from all catchments. All surface water diversions, will be constructed on the surface and the river diversion channel will be decommissioned at closure.

Option 1 requires additional engineering work to prove that use of the existing underground river diversion is feasible. Option 2 represents the lowest risk option to the project at closure and relies upon a series of surface diversion channels to convey flows at closure. The conceptual costs estimated for both options is presented in Table ES 5.

Table ES 5:     SASA Mine Closure Cost Summary

Closure Item	Option 1 Cost (EURm)	Option 2 Cost (EURm)
Plant and Surface Infrastructure Demolition	1.71	1.71
Tailings Cover Installation	2.03	2.03
Surface Water Diversion Features	6.92	19.84
Closure of Mine Portal	0.26	0.26
Adit and Tunnel Plugging and Grouting	0.19	0.29
WRD XVIa Removal and Rehabilitation	0.52	0.52
Passive Water Treatment Pond System	0.98	0.98
Post Closure Monitoring	1.15	1.15
Total Base Case Closure Cost	13.77	26.79

 

25.12       Occupational Health & Safety

Since Lynx Resources took management of the SASA Mine, they committed to continually reduce the number and severity of injuries and harm to health. The historical safety performance was poor under the previous management however, in 2014 they commissioned a safety management initiative and the safety performance has improved significantly. The mine continues to implement the safety initiative programme under the new management with a goal to further improve the safety performance and culture at the operations.

An integrated health, safety and environment system at the mine, based on OHSAS 18001:2007, ISO 9001:2015, ISO 14001:2015, is audited annually by external parties; accreditation is maintained. Table ES 6 lists the number of Fatal and Lost Time Injuries incurred at SASA Mine since 2013.

Table ES 6:     SASA Mine Fatal and Lost Time Injuries per year

Year	Fatal Injuries	Lost Time Injuries
2013	2	27
2014	0	11
2015	0	3
2016	0	6
H1 2017	0	0

 

25.13       Capital and Operating Costs

The Capital and Operating cost estimates for the SASA Mine have been determined by Lynx Resources based on recent historical performance and the current 2017 budget for the mine, a summary of which is presented in Table ES 7.

Whilst capital expenditures are relatively stable, the cost of TSFs are more project based as new TSFs and associated infrastructure are constructed, notably historically during 2016 and H1 2017, and going forward during H2 2017 and 2018 (TSF 4), then assumed in 2025/2026 (TSF 5) and finally in 2033/2034 (TSF 6).

SRK has reviewed the operating and capital cost forecasts, and finds that these are sufficient to support the LoMp. No contingencies have been added to either forecast due to the nature of steady state production. Option 1 for site closure has been incorporated in the financial assessment.

Table ES 7:     LoMp Forecast Capital and Operating Costs

	H2 2017	2018	2019	2020	2021	2022	2023-2027	2028-2037	2038	LoMp
Capital Expenditure (EURm)
Capitalised Development	1.5	2.6	2.6	2.6	2.6	2.6	12.8	19.0		46.0
Mining Equipment	1.3	2.7	2.1	3.2	2.0	1.7	11.3	21.6		45.8
Flotation	0.9	1.0	0.7	0.8	0.8	0.7	3.3	5.5		13.9
Tailings	1.0	2.1	0.1	0.1	0.1	0.1	7.8	4.5		15.8
Other	0.6	0.7	0.7	0.7	0.7	0.7	3.5	6.6		14.2
Total	5.3	9.1	6.1	7.3	6.2	5.8	38.7	57.2		135.7
Operating Costs (EURm)
Mining	5.9	11.9	11.9	11.9	11.9	11.9	59.4	134.3	-	258.9
Milling	3.5	7.2	7.2	7.2	7.2	7.2	36.0	70.7	-	144.8
G&A	1.8	3.6	3.6	3.6	3.6	3.6	17.9	36.9	-	75.7
Mine Closure	-	-	-	-	-	-	-	-	13.8	13.8
Total	11.2	22.6	22.6	22.6	22.6	22.6	113.2	241.9	13.8	493.2
Unit Operating Costs (EUR/t RoM)
Mining	15.5	15.2	15.2	15.2	15.2	15.2	15.2	17.2	-	16.2
Milling	9.1	9.2	9.2	9.2	9.2	9.2	9.2	9.1	-	9.1
G&A	4.9	4.6	4.6	4.6	4.6	4.6	4.6	4.7	-	4.7
Mine Closure	-	-	-	-	-	-	-	-	-	0.9
Total	29.5	29.0	29.0	29.0	29.0	29.0	29.0	31.0	-	30.9

 

25.14       Project Economics

25.14.1    Overview

SRK has prepared a financial model to evaluate the economics of:

●          the Ore Reserves and

●          the LoMp (including Inferred material).

Reporting at the mine is in EUR; however, the economic assessment has been carried out in USD. A constant exchange rate of 1.09 USD/EUR has been applied over the LoM. The financial model has been prepared in Microsoft Excel, in USD, in nominal money terms assuming a 2% annual inflation for both the Euro ("EUR") and USD denominated costs.

A discounted cash flow has been prepared, on a post-tax basis. No financing terms are modelled except for the silver streaming agreement, which forms the basis of the reduced silver price included in the financial model. Lynx Resources' payment terms have been taken into account in the model.

SRK has applied consensus market forecast prices for lead and zinc, sourced from Bloomberg as at 19 July 2017. The prices applied are the median of the forecasts of a range of analysts as compiled by Bloomberg. The silver price actually used in the financial model is as per the long-term streaming agreement, for the LoM. The streaming agreement included a price of USD5.0/oz of refined silver for the period up to 31 December 2016. In respect of each subsequent calendar year of the agreement, the fixed silver price in respect of the immediately preceding calendar year increased by a percentage equal to the lesser of inflation over the previous calendar year measured by the CPI Index and 3%. The financial model assumes a slightly more conservative approach, with the silver price only increasing after 2021 by the flat inflation of 2% per annum. The consensus market forecast silver price is only used to calculate the concession fee. The commodity prices are presented in Table ES 8.

Table ES 8:     Bloomberg Consensus Commodity Prices (nominal)

	Units	Spot (19 July 2017)	2017	2018	2019	2020	2021
Zinc	(USD/t)	2,747	2,665	2,622	2,450	2,398	2,508
Lead	(USD/t)	2,217	2,205	2,150	2,200	2,250	2,300
Silver (CMF)	(USD/oz)	16.3	17.4	18.2	19.3	20.0	20.0
Silver (streaming agreement)	(USD/oz)		5.00	5.00	5.00	5.00	5.00

 

25.14.2    Cash Flow Model

The economic assessment presents a solid economic case, with a low risk of any production being cash flow negative. Net present values ("NPVs") are presented for different discount rates. The NPVs are a measure of economic viability of the operations. They do not constitute a project valuation. SRK notes that the LoMp case includes a proportion of Inferred Mineral Resources, to be mined from 2028 onwards. Table ES 9 presents the overall inputs and outputs of the financial model for the two cases modelled. At the base discount rate of 10%, the LoMp case reports an NPV of USD461m and the Ore Reserve reports an NPV of USD413m.

Table ES 9:     Summary of the Cash Flow Model Assessment

	Unit	LoMp	Ore Reserve
Economic Output
Revenue	(USDm)	2,056	1,467
Operating Costs	(USDm)	724	466
EBITDA	(USDm)	1,333	1,001
Capital Costs	(USDm)	180	127
Non-cash items (due to Ag streaming)	(USDm)	20	20
Working Capital	(USDm)	5	5
Corporate Income Tax	(USDm)	114	85
Net Free Cash (undiscounted)	(USDm)	1,024	773
NPV, discount rate:
6.0%	(USDm)	610	518
8.0%	(USDm)	527	461
10.0%	(USDm)	461	413
12.0%	(USDm)	408	372
14.0%	(USDm)	364	337
16.0%	(USDm)	327	308
Net Smelter Return (Revenue)
Pb Concentrate	(USDm)	1,418	937
Zn Concentrate	(USDm)	748	596
Treatment Charges
Pb Concentrate	(USDm)	95	63
Zn Concentrate	(USDm)	87	69
Mining
Tonnage	(kt)	15,979	10,927
Pb Grade	(%)	2.65%	3.08%
Zn Grade	(%)	3.73%	3.85%
Processing
Tonnage	(kt)	15,979	10,927
Pb Grade	(%)	2.65%	3.08%
Zn Grade	(%)	3.73%	3.85%
Recovery
Pb	(%)	94.0%	94.0%
Zn	(%)	84.5%	87.4%
Concentrate
Pb Concentrate	(kt conc)	767	542
Pb Content	(kt metal)	560	395
Zn Concentrate	(kt conc)	725	598
Zn Content	(kt metal)	357	295
Operating Costs
Mining	(USDm)	352	214
Processing	(USDm)	195	126
G&A	(USDm)	102	68
Mine Closure	(USDm)	23	21
Concession	(USDm)	53	38
Total	(USDm)	724	466
Capital Costs
Capitalised Development	(USDm)	61	46
Mining Equipment	(USDm)	61	42
Flotation	(USDm)	18	13
Tailings	(USDm)	21	12
Other	(USDm)	19	13
Total	(USDm)	180	127

 

25.14.3    Sensitivity Analysis

SRK has considered the potential areas of risk to the project and has accordingly run sensitivities on the NPV. For this purpose, SRK has assumed a discount rate of 10% for the runs. SRK has tested the NPV sensitivity to operating, capital costs, and commodity prices. This is illustrated in Table ES 10 for the Ore Reserve case, and in Table ES 11 for the LoMp case.

Table ES 10:   Sensitivity Tables, Ore Reserve Case (NPV 10% discount rate, nominal)

Capital Cost
Sensitivity	-5%	0%	5%	10%	15%	20%	25%
NPV (USDm)	416	413	410	407	403	400	397
Operating Cost
Sensitivity	-5%	0%	5%	10%	15%	20%	25%
NPV (USDm)	422	413	403	394	385	376	367
Commodity Prices
Sensitivity	-15%	-10%	-5%	0%	5%	10%	15%
NPV (USDm)	305	341	377	413	449	485	521

 

Table ES 11:   Sensitivity Tables, LoMp Case (NPV 10% discount rate, nominal)

Capital Cost
Sensitivity	-5%	0%	5%	10%	15%	20%	25%
NPV (USDm)	465	461	458	454	451	447	444
Operating Cost
Sensitivity	-5%	0%	5%	10%	15%	20%	25%
NPV (USDm)	472	461	450	439	428	417	405
Commodity Prices
Sensitivity	-15%	-10%	-5%	0%	5%	10%	15%
NPV (USDm)	338	379	420	461	503	544	585

 

25.14.4    Mineral Resource and Ore Reserve Statement

The Ore Reserve estimate for the SASA Mine has been undertaken in accordance with the JORC Code (2012) guidelines and is stated in Table ES 12 as at 01 July 2017. The Ore Reserves are classified as Probable based on the current Mineral Resource classification of Indicated.

In line with reporting an Ore Reserve under the JORC Code (2012), SRK has prepared a financial model to test the economic viability of the Ore Reserve case, taking into account the various technical, operating cost, capital expenditure and corporate income tax parameters (excluding any debt of financing structures). The assessment demonstrates that the Ore Reserve is economically viable, with robust economics that remain positive when tested against appropriate increases in operating and capital costs, and changes in commodity prices.

Table ES 12:   Statement of Mineral Resources and Ore Reserves for the SASA Mine at 01 July 2017

Category	Gross							Net Attributable							Operator
	Tonnage	Grade			Content			Tonnage	Grade			Content
	(Mt)	Pb (%)	Zn (%)	Ag (g/t)	Pb (kt)	Zn (kt)	Ag (koz)	(Mt)	Pb (%)	Zn (%)	Ag (g/t)	Pb (kt)	Zn (kt)	Ag (koz)
Ore Reserves
Proved
Svinja Reka	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Golema Reka	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Subtotal Proved	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Probable
Svinja Reka	10.9	3.85	3.08	18.4	421	337	6,447	10.9	3.85	3.08	18.4	421	337	6,447
Golema Reka	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Subtotal Probable	10.9	3.85	3.08	18.4	421	337	6,447	10.9	3.85	3.08	18.4	421	337	6,447
Total Reserves	10.9	3.85	3.08	18.4	421	337	6,447	10.9	3.85	3.08	18.4	421	337	6,447	Rudnik "SASA" DOOEL
Mineral Resources
Measured
Svinja Reka	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Golema Reka	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Subtotal Measured	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Indicated
Svinja Reka	13.3	4.59	3.68	22.0	611	490	9,403	13.3	4.59	3.68	22.0	611	490	9,403
Golema Reka	-	-	-	-	-	-	-	-	-	-	-	-	-	-
Subtotal Indicated	13.3	4.59	3.68	22.0	611	490	9,403	13.3	4.59	3.68	22.0	611	490	9,403
Inferred
Svinja Reka	2.7	3.16	2.08	16.6	84	56	1,426	2.7	3.16	2.08	16.6	84	56	1,426
Golema Reka	7.4	3.69	1.52	18.6	273	112	4,424	7.4	3.69	1.52	18.6	273	112	4,424
Subtotal Inferred	10.1	3.55	1.67	18.1	357	168	5,849	10.1	3.55	1.67	18.1	357	168	5,849
Total Resources	23.4	4.14	2.81	20.3	968	658	15,252	23.4	4.14	2.81	20.3	968	658	15,252	Rudnik "SASA" DOOEL
Source: CP Mineral Resources - Guy Dishaw, CP Ore Reserves - Chris Bray