BRAZIL EXPLORATION BRIEFING by Mining Leaders

A Farewell to Arms Q&A: Phosphate the Great Exploration News

BRAZIL EXPLORATION BRIEFING

Vol 3 • May 2013

A FAREWELL TO ARMS Currency devaluation has been the default monetary policy of many developed countries as they aim to become more competitive in the aftermath of an economic crisis. The Brazilian real has fluctuated in value over the last five years and the government is now focusing on reducing the threat of inflation. The humble tomato took pride of place in the Brazilian media in April. Prices of the staple fruit have more than doubled over the last year as the government’s loose monetary policy and stimulus package have stoked inflation. In response the Brazilian Central Bank raised interest rates by 0.25 basis points to 7.5% on April 18, the first hike in almost two years. The move comes one month after finance minister Guido Mantega announced Brazil’s surrender in a currency war between the United States and emerging economies for the past two years. Brazilian economic policy proved relatively successful in breaking and reversing a steady appreciation of its currency, the real. But what effects will the new direction have on foreign miners operating in the country? Since 2009, the Brazilian real has appre ciated steadily against the US dollar as the United States’ quantitive easing policies flooded markets with new greenbacks. In December 2008 one dollar bought R$2.6. By July 2011 that figure was just R$1.54. International mining firms operating in the Brazil were already experiencing rising costs, with a scarcity of drill rigs and labor pushing up prices. However, with international firms counting their budgets in dollars, the appreciation of the real had a major effect on the bottom line. Well before the real peaked in July 2011, the Brazilian finance minister was crying foul. In September 2010, at a business luncheon in São Paulo, Mantega voiced what many in of his counterparts in emerging markets had recognized but not uttered: quantitative

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Source: cliffkule

easing was leading to competitive deval uation as numerous countries looked to boost their economies. “We’re in the midst of an international currency war, a general weakening of currency,” he told attendees. “This threatens us because it takes away our competitiveness.” The Brazilian government responded with a loosening of monetary policy and a stimulus of its own. In addition to the steady cutting of Brazil’s historically high base interest rate, the government eased reserve requirements

“It’s even more important today that we have a friendly exchange rate as gold prices are low and we need investors to believe there is value in Brazilian commodities.”

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for major banks, and introduced a number of tax cuts for key industries as well as a $60 billion infrastructure investment scheme. The bank also intervened to buy up dollars and imposed taxes on short-term foreign loans. The policies had a significant impact on the exchange rate, with the real weakening to R$2.14 to the dollar in December 2012, before stabilizing around the R$2 mark in recent months. “The Brazilian government has managed the foreign exchange situation very well,” says John Blake, president and CEO of Luna Gold, “It’s even more important today that we have a friendly exchange rate as gold prices are low and we need investors to believe there is value in Brazilian commodities.” While most gold producers reported rising cash costs per ounce in Brazil over 2010 and 2012, the last 12 months have seen reductions across many projects. At Luna

BRAZIL EXPLORATION BRIEFING Vol 3 • May 2013

LEAD ARTICLE

With inflation in March 2013 surpassing the central bank’s tolerance rate of 6.5%, the government has stepped in to tighten monetary policy Gold’s Aurizona project, which recently reached production of 74,269 ounces per year, cash costs were $731 per ounce in 2012, down from $1,031 per ounce in 2011—a reduction that can be attributed to improving economies of scale at the project as well as the depreciation of the real. The weakened real does increase costs for local firms looking to import outside equipment, however, and many mining executives interviewed by Mining Leaders expressed skepticism about the proposed increase in local content requirements—widely assumed to be part of the coming mining code overhaul—given the lack of domestic capacity for areas such as drilling. However, with inflation in March 2013 surpassing the central bank’s tolerance rate of 6.5%, the government has stepped in to tighten monetary policy. Many analysts had expected a steeper rise of 0.5 basis points. Brazilian president Dilma Rousseff must stand for reelection in 2014 and despite high approval ratings, continued high inflation would present a serious challenge in this regard. At present, the exchange rate seems to have stabilized to acceptable rates. In an interview with the Wall Street Journal on April 18, Mantega said the real had reached market level in recent months and that the focus now was on maintaining stability. “When the real was strong we intervened a lot; we bought dollars, raised reserves, imposed taxes to reduce arbitrage. Lately our interventions have declined a lot, and why? Because

Country Index Local Currency under(-)/over(+) valuation against the dollar, % 60

July 2012 Price, $ 100

Venezuela

7.92

Norway

7.06

Switzerland

6.56

Brazil

4.94

Australia

4.68

Euro area*

4.34

Britain

4.16

Argentina

4.16 July 2012

Japan New Zealand

July 2007

4.09 4.00

Canada

3.82

Hungary

3.48

Mexico

2.70

Indonesia

2.55

China

2.45

South Africa

2.36

Russia

2.29

Hong Kong

2.13

Source: McDonald`s; The Economist

now we’re at a market equilibrium; the real moves with the market,” he said. If Mantega can walk the fine line between controlling inflation and maintaining a stable exchange rate, the benefits are obvious. Stability provides certainty to investors and allows them to project their costs more accurately. However, while Brazil may have pulled out of the race to the bottom, at a global level the currency war continues unabated. On 19 April finance ministers at

the Group of 20 meeting in Washington, D.C., gave the greenlight to Japan’s own fiscal stimulus, which looks set to depreciate the yen’s exchange rate with the dollar to beyond the psychological 100 barrier. A statement released by the G20 said that “Japan’s recent policy actions are intended to stop deflation and support domestic demand,” but it will be viewed by many as an attempt by Japan to export its way to growth at the expense of other nations.

Brazil’s belted move to curb inflation will have a positive impact for firms in terms of their local costs, from labor to equipment rental. “Our fixed costs have been reduced substantially and I think its always important to stay flexible to take advantage of monetary policy developments such as the one we are currently experiencing in the marketplace,” says Patrick Brandreth, senior manager of phosphate explorer Eagle Star Minerals. However, the necessary resignation from the global currency war means that the recent victories achieved through the taming of currency appreciation and the stabilization of the real could prove temporary. 2 /1 15

Brazilian Real vs. U.S. Dollar

4 3.5 3 2.5

Real/USD

Source: IMF

1.5 1 0.5 0 1/15/03

1/15/04

1/15/05

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1/15/06

1/15/07

1/15/08

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1/15/09

1/15/10

1/15/11

BRAZIL EXPLORATION BRIEFING Vol 3 • May 2013

Q&A

Phosphate the Great EagleStar’s share price has doubled since the beginning of the year. What specific developments over the last 12 months have led to this rising value? It’s a combination of macro and micro factors. From a macro perspective, a lot more attention has been recently given to the agro sector as investors come to realize that, whatever happens to the world economy, it is safe to bet that population growth will make demand for food continue to increase. Within that sector, phosphates—a historically overlooked commodity that is essential for food manufacturing—are of particular interest. Recent trends in supply and demand indicate that investments in this commodity, especially within the context

Recent drilling uncovered phosphate grades of up to 19%. Is this grade atypical for Brazil? Within the context of Brazil, it’s not typical to uncover high-grade phosphate (15% and above) and when one does, generally the tonnage is on the lighter side. Having said that, the logistical advantage of operating in Brazil—one of the biggest consumers of fertilizers—means that in many cases a lower-grade deposit can be upgraded and become more profitable than a higher-grade DSO found in places like Morocco or Africa. Where Eagle Star stands out from other companies, is that we benefit from both scenarios—high grade in large quantities, which allows immediate production of direct-application fertilizers. Furthermore, we are located

Most analysts believe that we are rapidly approaching a major phosphate bull market similar to the potash bull market in recent years of Brazil, where good opportunities of this nature are very limited to begin with, will substantially increase in value. This is becoming evident by recent M&A activities, including Vale’s $4 billion acquistion of Bungee and, most recently, the acquisition of Rio Verde Minerals by B&A Mineração. As far as the micro factors are concerned, Eagle Star has managed to build over the past couple of years a very reputable team of experts with specific knowledge of where to find the top phosphate deposits in Brazil. As a result, the company was able to build a strong asset portfolio that includes, among others, our Bomfim agro-minerals project, where we have recently made a discovery of a significant amount of high-grade phosphate. This discovery gives Eagle Star the option of producing a direct-application natural fertilizer product at a very low capital expenditure in under a year.

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Eran Friedlander President & CEO EagleStar Minerals

within the heart of the “Cerrado,” the world’s largest arable land package and the fastest- growing agricultural region. The Brazilian agro-boom story is compelling. Is it hard to sell the opportunities in fertilizer projects riding this boom to investors? Other then the general sell-off in mining, the hardest challenge we have faced has been educating investors on why phosphates are a good strategy. It’s not a matter of convincing people that the world population is expanding, boosting demand for fertilizers; it’s more about helping an investor develop knowledge of grades, costs, different available products, and specifically the commodity itself. The more sophisticated investor generally understands the significance of this type of opportunity, even if they are not intimately familiar with every angle of the phosphate

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business. Nevertheless, over the past 12 months we have noticed much more buzz around the fertilizer sector, specifically phosphate. Most analysts believe that we are rapidly approaching a major phosphate bull market similar to the case of potash in recent years. Hence, in terms of timing, we believe we are positioned very well. B&A Mineracao recently purchased Rio Verde Minerals. Do you expect to see a consolidation of the market? It’s hard to say. There is talk of B&A making more acquisitions in Brazil’s fertilizers sector in the near future and I tend to agree that for a company with a strategy and focus like B&A, further consolidation of a few strong phosphate assets into one company makes a great deal of sense. As far as Vale goes, after their recent acquisition of Brazil’s largest fertilizer company, Bunge, they already have a substantial stake in the sector. Nonetheless, given the growing importance of the fertilizer market in Brazil, I would expect that in the long term we will see further acquistions by Vale.

BRAZIL EXPLORATION BRIEFING Vol 3 • May 2013

EXPLORATION NEWS

Eldorado Gold’s (NYSE:EGO) Vila Nova Iron Ore mine is looking for alternative ways to transport its iron ore as the Santana Port (Amapa) ship-loading facility is temporarily closed due to damaged sustained on March 28th, 2013. The Vila Nova mine production will be limited during this period of time.

Kenai Resources Ltd. (TSX-V:KAI) stated that SEMA, the Pará state environmental authority, has granted the Licença de Operação to its wholly owned subsidiary Gold Aura do Brasil Mineração Ltda. This is the major condition relating to Gold Aura do Brasil Mineração’s application for trial mining under a GUIA license, which it applied for in May 2012 with the DNPM (Brazil Mines Department). Gold Aura do Brasil Mineração is optimistic the GUIA license will be granted within Q2 of 2013.

respective vendors due to difficulties raising funds to continue supporting exploration activites.

Magellan Minerals Ltd (TSX-V:MNM) announced the commencement of drillinghas released an update on the feasibility study of its Coringa project located in Para, northern Brazil. Completed in October 2013, highlights include DD in progress at Serra zone to depths in excess of 200m. Metallurgical tests were also carried out for two 250kg composite samples in a Minas Belo Sun (TSX-V:BSX) has released an Gerais laboratory. Hydrogeological work is interim results update for its Volta Grande also being completed by Global Resource gold project in Para, Brazil. M&I results of pit Engineering Ltd. constrained mineral resources of 4.7m oz of Au at an average grade of 1.68g/t. Inferred Lion Gold Brazil (OTC US: LGBI) has pit constrained resources of 2.2m oz of Au at announced a change in business strategy an average grade of 1.85 g/t. Underground to focus primarily on immediate gold resources of 16,000 ox of Au at an average production through the Quad Mining Model grade of 3.33g/t of Au in Indicated category and joint venture agreements. The company and 228,000 oz at an average grade of has returned three leased project (Agua 3.41g/t in inferred category. Branca, Bom Jesus and Heitoraí) to their

Amerix Precious Metals Corporation (TSX-V:APM) has completed geochemical survey results at its Limão Gold Project in the Tapajos region. The “Limao Pit” Target and “Jorge Zone” targets have now been drilled. High grade gold projects have been intercepted at both targets. Results include drill hole intersections of 7.36g/t of Au across 1m and 39.4g/t of Au across 0.5m in a 400m long gold anomaly.

Beadell Resources (ASX:BDR) has announced the following highgrade RC drill results from its Duckhead deposit: 41 m @ 54.9 g/t gold from surface including 1 m @ 1,817.6 g/t gold and 22m@58.2g/t Au from 1m including 1m @832.9g/t gold and 24 m @ 35.9 g/t gold from surface including 1 m @ 813.4 g/t gold. 100% owned Tucano Gold Mine Commissioning update has seen plant production total 651,498 oz@1.57g/t for 30,451 oz of recovered gold. The recovery rate for the Brazil based project stands at 92.6%.

Brazil Resources Inc (TSX-V:BRI) has filed a NI 43-101 technical report including a mineral resource estimate on its Cachoeira do Piria Gold Project, located in the Pará state. Total Indicated resources stand at 17.4m tonnes at 1.4g/t of Au and Total Inferred resources stand at 15.6m tonnes at 1.12g/t

Lago Dourado Minerals (TSX-V:LDM) has released an update on its 100% owned flagship Juruena project located in Mato Grosso, Brazil. Three drill holes have now been completed in the Arrastro Hills porphyry-epithermal, which was previously untested. Geological logging has confirmed the underlying porphyry system is mineralized as shown by drill

EXPLORATION NEWS

hole JRND065, which intercepted 118m@3.0g/t Ag. The study also suggests that the most prospective target is the southeastern area of the Arrastro Hills permit. The company admitted its drilling campaign has been slow in 2013 due to extensive rain. Luna Gold (TSX-V:LGC) has announced that it has filed a NI43-101 technical report for its 100% Aurizona gold mine in Brazil. The company’s Its Piaba Gold Deposit has a proven and probable mineral reserve of 2.36 m oz. Aurizona Gold Mine Q1 production is also better than previous forecasts. Aurizona produced 17,203 oz of gold during Q1, exceeding previous quarterly estimate of 15,000 to 16,000 ounces. 2013 production estimates remain unchanged at between 95,000 and 105,000 oz of gold. Amarillo Gold Corp (TSX-V:AGC) has announced that the results for its geotechnical program have been received as its feasibility study continues on the Posse gold deposit at the Mara Rosa Project in Goias, Brazil. Brazilian Gold Corporation (TSX-V:BGC) announced it has received its NI 43-101 technical report on its independent PEA from Coffey Mining on its São Jorge Gold Project in Pará State, Brazil Orinoco Gold (ASX:OGX) has increased the size of its tenement package in the Faina Goldfields of central Brazil through a farm in deal. A key development is the extension to the strike length of the Eliseo Project to 3km from 1.3km previously. It increases Orinoco’s prospective tenement position around Cascavel and adds prospective targets to what was one of Brazil’s highest grade and low cost mines. Collosus Minerals (TSX:CSI) has stated to shareholders that it will release a resource estimate before entering production. The company’s Serra Pelada project is known to have high grade deposits but the company is the only leading junior on the TSX about to enter production without a resource estimate. Previous drill results over the last 2 years have been impressive with 71 metres @ 53.59 g/t gold, 20.77 g/t platinum and 31.3 g/t palladium or 7.3 metres @ 1,494.7 g/t Au, 516.6 g/t Pt and 558.9 g/t Pd Jaguar Mining (TSX-V:JAG) recently released its Q4 2012 earnings report. The company is engaged in the exploration and production of gold projects in Brazil and recently disclosed that it took large noncash write-downs on the implied value of its mining operations. Cashflows are expected to be positive in 2013 with a $17 million gross margin on its mining operations. Average cost of production in Q4 was $915 per oz of Au against an average sale price of $1714.

BRAZIL EXPLORATION BRIEFING Vol 3 • May 2013

CORPORATE NEWS

Eldorado Gold (NYSE:EGO) confirmed the TSX accepted filing for the company’s NCIB whereby El Dorado can purchase 3,496,372 of its common shares. This represents 0.50% of the total 714,988,288 of the issued and outstanding shares. Collosus Minerals (TSX:CSI) will present at the European Gold Forum 2013. The company is currently exploring in Brazil in its Serra Palada gold project. Cleveland Mining (ASX:CDG) announced that its underwritten Share Purchase Plan (SPP), which closed on March 2013, has been completed. A total of $682,500 was raised and a total of 2,730,000 fully paid ordinary shares in the company will be issued to shareholders who participated in the SPP program. Subscribers to the SPP will also receive one free option for every two shares under the Capital Raising agreeement. Kinross (NYSE:KGC) has announced new appointments to its Board of Directors. Following the retirement of Mr George Michals in 2012, Mr John Macken, Ms Una Power and Ms Ruth Woods will be nominated as Directors for election by shareholders at the Kinross General Meeting on May 8, 2013. These latest additions bring Kinross Board of Director membership to 12. The company has also subscribed to 3,571,428 units of junior explorer, Revolution Resources corp in a non-brokered private agreement. Each unit consists of one common share and one-half of one share purchase warrant. Each warrant entitles the holder to acquire one common share at CAD$ 0.125 for a period of 2 years following the closing of the private placement. Kinross now holds 9,571,429 common shares and 4,785,714 share purchase warrants of Revolution. This represents approximately 9.67% of Revolution’s issued and outstanding common shares on a non diuted basis and 11.67% on a fully diluted basis. Financial investors Forbes & Manhattan expects the feasibility study and preliminary environmental license of Belo Suns (TSXV:BSX) Volta Grande gold project to be completed in April. Eagle Star Mining (TSX-V:EGE) has completed 50% of its NI43-101 drill program on the Southern Portion of PZE at the Bomfim Hill target. 75 of 150 drill holes have been completed to

BRAZIL EXPLORATION BRIEFING Vol 3 • May 2013

date and the company does not anticipate any delays going forward.

US$2,000,000. This purchase must take place within a 48 month from the date of closing.

Beadell Resources (ASX:BDR) released its 2012 annual report to shareholders. Last year the company issued an unsecured $10 million interest free convertible note expiring at the end of April 2013. The convertible note converts to ordinary shares should any amount of the note go unpaid on April 30th 2013.

Brazil Minerals Inc (OTC BB:BMIX), the diamond producer and gold explorer with resources in Brazil has hired São Paulo and New York based MZ Group as its Investor Relations Adviser. MZ Group will assist the company in attracting global investors but mainly focusing on North America, South America and Asia.

Brazilian Gold Corporation (TSX:BGC) sannounced that it has signed a Share Exchange Agreement with D’Gold Mineral Ltda to acquire the latter’s 13.05% interest in Boa Vista Gold Inc. Boa Vista Gold indirectly holds a 100% interest in the Boa Vista gold project. In consideration for D’Gold’s 13.05% interest, Brazilian Gold Corp will issue 1,500,000 common shares over an eighteen-month period. According to the Shareholders Agreement, D’Gold Mineral Ltda is entitled to a 1.5% Net Smelter Return royalty, which can be bought by Brazilian Gold for

Yamana Gold Inc (NYSE:AUY) has declared a Q2 2013 dividend of $0.065 per share. Shareholders of record at the close of business on June 28th, 2013 will be able to receive a payment of this dividend on July 12, 2013. It is an “eligible dividend” for Canadian tax purposes. Carpathian Gold (TSX:CPN) is near production at its Riacho dos Machados old Project in Brazil. It is continuing to construct the mine and developing exploration targets on the permit.

IN FIGURES TOP 5 MOVERS

BRAZIL GOLD INDEX 200

+91 Cosigo -50 Rio Novo

100

C$m

-50 Amerix

+43 Orinoco Gold

Share Price (C$)

MAR

MAY

APR

The Brazil Gold Index measures the average market capitalization of 13 Brazil-focused gold juniors (AGC, ORA, BSX, BGC, BRI, CPN, CSI, JAG, LDM, LGC, MNM, CDG and CAS).

-36 Brazil Gold Corp Ticker

FEB

Prev Month (C$)

% Change Market Cap (C$m)

Cash (C$m)

Moz

EV/oz

$0.00

1.85

$16.63

2.60

$24.59

Canada TSX & TSX-V Amarillo Gold

AGC

69,938,085

$0.440

$0.750

-41

$ 30.8

Amerix Precious Metals

APM

82,454,934

$0.020

$0.040

-50

$ 1.6

Aura Minerals

ORA

228,358,334

$0.280

$0.360

-22

$ 63.9

Belo Sun

BSX

265,910,000

$0.995

$1.150

-13

$ 264.6

6.90

$38.34

Brazilian Gold

BGC

103,230,000

$0.135

$0.210

-36

$ 13.9

2.60

$5.36

Brazil Resources

BRI

41,330,000

$0.920

$1.060

-13

$ 38.0

0.67

$67.50

Carpathian Gold

CPN

555,419,911

$0.235

$0.300

-22

$ 130.5

9.00

$14.50

Colussus Minerals

CSI

106,953,401

$2.100

$3.060

-31

$ 224.6

Cosigo Resources

CSG

73,175,423

$0.210

$0.110

$ 15.4 0.98

$5.75

Eagle Mountain Gold

$7.20

37,583,526

$0.150

$0.360

-58

$ 5.6

Horizonte Minerals

HZM

360,046,170

$0.130

$0.190

-32

$ 46.8

INV Metal

INV

493,735,340

$0.035

$0.060

-42

$ 17.3

Jaguar Mining

JAG

85,080,567

$0.420

$0.600

-30

$ 35.7

8.29

$4.31

Kenai Resources

KAI

105,906,734

$0.030

$0.025

$ 3.2

0.10

$31.77

Lago Dourado

LDM

94,279,828

$0.120

$0.150

-20

$ 11.3

Lara Exploration

LRA

30,593,021

$1.080

$1.150

-6

$ 33.0

Luna Gold

LGC

105,008,566

$2.750

$3.760

-27

$ 288.8

3.90

$74.04

MNM

117,223,226

$0.155

$0.170

-9

$ 18.2

2.40

$7.57

Rio Novo Gold

113,670,000

$0.115

$0.230

-50

$ 13.1

2.66

$4.91

Sandstorm Gold

SSL

88,698,702

$7.650

$9.600

-20

$ 678.5

1.01

$671.83

Serabi Gold

SBI

361,268,529

$0.085

$0.120

-29

$ 30.7

0.67

$45.83

TriStar Gold

TSG

57,664,803

$0.280

$0.350

-20

$ 16.1

Cleveland Mining

CDG

200,280,000

$0.170

$0.235

-28

$ 34.0

Crusader Resources

CAS

126,650,000

$0.295

$0.330

-11

$ 37.4

2.43

$15.38

Minera Gold

MIZ

466,920,000

$0.026

$0.045

-42

$ 12.1

0.10

$121.40

Paringa Resources

PNL

61,000,008

$0.130

$0.200

-35

$ 7.9

OGX

62,000,000

$0.215

$0.150

$ 13.3

Gold Hills Mining

GHML

16,620,000

$2.040

Aurora Gold

ARXG

114,140,000

$0.030

-14

$ 3.4

0.13

$26.34

Santa Fe Gold

SFEG

117,600,000

$0.260

$0.240

-8

$ 28.2

EGO

714,534,000

$7.920

$10.210

-22

$ 5,659.1

25.70

$220.20

Magellan Minerals

Australia ASX

Orinoco Gold OTC

$ 0.0

NYSE Eldorado Gold

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BRAZIL EXPLORATION BRIEFING Vol 3 â&#x20AC;˘ May 2013