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1 May 11, 2012 MANAGEMENT S DISCUSSION & ANALYSIS For the three months ended March 31, 2012 This Management s Discussion and Analysis ( MD&A ) of Perseus Mining Limited and its controlled entities ( Perseus or the Company ) is dated May 11, 2012 and provides an analysis of the Company s performance and financial condition for the three months ended March 31, 2012 (the March 2012 Quarter or Quarter ). This MD&A should be read in conjunction with the Company s audited consolidated financial statements and notes thereto for the year ended June 30, (the Financial Report ), and the Company s audit reviewed consolidated financial statements for the half year ended December 31,. The financial statements (and the financial information contained in this MD&A) comply with stralian Accounting Standards as issued by the stralian Accounting Standards Board and International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board. These documents are available under the Company s profile on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) at sedar.com and on the Company s website, This MD&A may contain forward-looking statements that are subject to risk factors set out in a cautionary note contained herein. Examples of some of the specific risks associated with the operations of the Company are set out under Risk Factors. All monetary amounts are stated in stralian dollars, except as otherwise stated. COMPANY OVERVIEW Perseus was incorporated in stralia on October 24, Perseus s corporate office is in Perth, Western stralia. On September 22, 2004, the Company s shares were listed for trading on the stralian Securities Exchange ( ASX ) and on February 3, 2010 the Company s shares commenced trading on the Toronto Stock Exchange ( TSX ). The Company s shares are also listed on the German Stock Exchange. Perseus is a gold mining, exploration, evaluation and development corporation with activities focussed on underexplored gold belts located in West Africa. Its principal assets are: A 90% interest in the Edikan Gold Mine ( EGM ) (previously referred to as the Ayanfuri gold deposit or the Central Ashanti Gold Project), a newly commissioned gold mine located in Ghana. In July 2009, the Company completed a definitive feasibility study ( DFS ) on developing a mine and associated treatment facility for the EGM and based on the positive outcome of that DFS, construction of a gold mine and associated processing facility commenced in June The first gold pour and the first revenue received from the EGM took place on gust 21, and on September 28, respectively. Commercial Production was declared on January 1, An 85% interest in the Sissingué gold deposit (the Tengrela Gold Project or TGP ), a development stage gold project located in the north of Côte d'ivoire. In November 2010, the Company completed a DFS on developing an open cut mining operation based on the Sissingué gold deposit together with a conventional carbon in leach ( CIL ) gold processing plant and related infrastructure. The Company s 85% interest in the TGP reflects (as if it has been granted) a 10% free carried interest in the mine-owning company which is required to be allocated to the Government of Côte d'ivoire upon the issue of a mining lease pursuant to the current Ivorian Mining Code. A 90% interest in the Kayeya gold deposit which forms part of the Grumesa Gold Project ( GGP ), an exploration stage gold project located 30 kilometres to the east of the EGM in Ghana. Previous studies indicated that the GGP represents a potential satellite production opportunity to the larger EGM. The Company s 90% interest in the GGP reflects a 10% free carried interest in the mine-owning company which is required to be allocated to the Government of Ghana upon the issue of a mining lease. Perseus Mining Limited ABN Ledgar Road, Balcatta, Western stralia 6021 PO Box 717 Balcatta WA 6914 Telephone: (618) Facsimile: (618) address: info@perseusmining.com Website: 1

2 In addition, Perseus owns (i) a 23.0% interest in Burey Gold Limited ( Burey ), an ASX-listed junior exploration company holding a portfolio of gold exploration properties in the Republic of Guinea in West Africa; and (ii) a 23.7% interest in Manas Resources Limited ( Manas ), an ASX-listed company that owns a portfolio of gold properties in Central Asia that were sold to Manas by Perseus in mid Perseus has long-term debt obligations under the terms of a project finance facility that was fully drawn to US$85 million on June 23,. The first scheduled repayment under the debt facility of US$11.0 million was made during the March 2012 Quarter reducing the debt outstanding to US$74 million. Associated with the project debt facility, the Company sold forward 230,000 ounces of gold, of which forward contracts for the sale of 210,000 ounces of gold remain current at March 31, 2012 at a weighted average price of $1,253 per ounce (details of which are provided elsewhere in this MD&A) following the delivery of 20,000 ounces of gold under forward sales contracts during the March 2012 Quarter at an average price of US$1,216 per ounce. HIGHLIGHTS OF THE MARCH 2012 QUARTER The key highlights of the March 2012 Quarter includes: Edikan Gold Mine Key Operating Metrics Units March 2012 Quarter December Qtr Actuals Guidance Actuals Recovered gold oz 38, ,000 35,801 Cash costs (1) US$/oz n/a Cash costs including royalties US$/oz n/a Average gold sales price US$/oz 1,513 (2) - 1,667 1) Cash costs are C1 cash costs as per Brook Hunt definition, and include direct operating costs after adjusting for US$9.8M of costs of deferred waste stripping and ore inventory movements. 2) Includes both spot and forward sales of gold. Strong mill performance was achieved at EGM following the scheduled maintenance shutdown of the mill in February Monthly production in March 2012 totalled 19,026oz of gold from 435,575t of ore at an adjusted cash cost of US$576/oz, including mining costs of $2.80/t mined and processing costs of $7.15/t milled. Given production rates and costs in March and April 2012, the June 2012 Quarter guidance of 50,000oz to 55,000oz at a cash cost of $690/oz remains unchanged. Ghanaian Exploration During the March 2012 Quarter, Perseus drilled a total of 40,775 metres at and around the EGM and on its other Ghanaian exploration tenements (December : 34,392 metres). A revised Mineral Resource estimate for Esuajah North was completed by Runge Limited in March The Company s Measured and Indicated resource base at Edikan is now 5.6Moz of gold and the Inferred resource base is 1.7Moz before adjustment for mining depletion. Tengrela Gold Project Development The Environmental and Social Impact Assessment Report ( ESIA ) for the TGP was reviewed at a technical validation meeting conducted by the Ivorian National Environmental Agency ( ANDE ) on October 28, and on December 28, the ESIA was approved by ANDE. In anticipation of the successful permitting of the development of the Sissingué gold deposit, significant progress was made on designing the processing facility during the March 2012 Quarter, Tenders for selected early works contract packages were also received and assessed during the Quarter. Côte d Ivoire Exploration During the March 2012 Quarter six drill rigs operated on the Company s Tengrela licenses. A total of 26,859 metres of drilling was completed during the March Quarter (December Quarter: 34,540 metres). While assay turnaround times continue to be low, from the limited number of holes where results were received several anomalous exploration intercepts were recorded, at Sissingué East, Sissingué North, Podio and Zing. Corporate At March 2012, Perseus s available cash and cash equivalent balances totaled $ million. Approximately $2.401 million in new equity capital was generated during the March 2012 Quarter through the exercise of options to subscribe for ordinary shares in the Company. The first scheduled repayment of US$11.0 million was made under the Company s project debt facility during the March 2012 Quarter and the Company delivered the first 20,000 ounces of gold into forward sales contracts that formed part of a hedge programme required as a pre-requisite to drawing down the project debt facility. 2

3 OPERATIONS REVIEW EDIKAN GOLD MINE The EGM comprises a group of large gold deposits located in the Ashanti gold belt in Ghana in the vicinity of the township of Ayanfuri and the villages of Abnabna, Fobinso, Gyaman, Nkonya, Ataase and Besam. Key Quarterly Production Statistics Parameter Unit March Quarter 2012 December Quarter Total material mined bcm 1 4,760,351 3,679,706 Waste to Ore Strip Ratio bcm:bcm Ore mined Oxide wmt 2 907, ,022 Primary wmt 1,294,328 1,016,494 Grade mined Oxide Ore g/t Primary Ore g/t Ore Stockpiles (closing balance) Quantity wmt 2,703,000 1,669,000 Grade g/t Mill Throughput dmt 4 1,027,540 1,086,899 Head grade g/t Gold recovery % Gold produced oz 38,796 35, Denotes bank cubic metres. 2. Denotes wet metric tonnes. 3. Denotes grams/tonne of gold. 4. Denotes dry metric tonnes Mining The total of 4,760,351 bcm of ore and waste mined during the March 2012 Quarter included 907,846t of oxide ore at 1.0g/t and 1,294,328t of transition and primary ore at 1.3g/t. The 29% increase in mine production relative to the December Quarter reflected an increase in mining activity associated with the commencement of cutbacks for the final AF Gap and Fobinso pits. Accordingly, the 4.2:1 waste to ore strip ratio (expressed on the basis of bcm:bcm) for the March 2012 Quarter was higher than the life of mine strip ratio of 3.3:1. As a consequence of the increased mining activity during the March 2012 Quarter, ore stockpiles (including both high and low grade ore but not mineralised waste) increased to 2,195,000t of oxide ore at 0.9g/t and 508,000t of primary ore at 1.0g/t. Grade control results continue to reconcile positively to the Mineral Resource model which is the principal reason for the larger than expected oxide ore stockpiles. Mill grade to grade control reconciliation also remains positive at an estimated 3.7% year to date. Mining in the relatively high grade AF-Gap pit has reached transitional and primary ore while high grade transitional ore is currently being produced from the Fobinso pit. Mining of the Stage 1 pit at Abnabna is nearing completion. Processing Prior to the planned maintenance shutdown of the processing plant in mid-february, the mill throughput rate averaged 11,265dmt per day. Post the shut-down, this rate increased to 13,330dmt per day for the balance of February. In March, mill throughput rates increased further to an average of 14,050dmt per day resulting in a total of 19,026oz of gold being produced in the month from 435,575dmt of ore. Gold recoveries from blended oxide transition and sulphide ore increased to 83.7% during the March 2012 Quarter. During March, two daily throughput records and six daily gold production records were set for the mine. Subsequent to the end of the March 2012 Quarter, both the daily throughput rate and gold production records set in March have been eclipsed in April as the performance of the processing facility continues to improve. Unplanned mill shut-downs reduced significantly from 379hrs combined in January-February to 99hrs in March as a result of a number of issues being dealt with during the 8 day shut-down in February. Power supply was at 98% net availability. The performance of the processing facility during the March 2012 Quarter continues to validate the efficacy of the Edikan process flow sheet that allows for a very low reagent unit consumption, with total cyanide consumption at 0.08kg/t, steel ball consumption of 0.9kg/t and power usage of about 23.5kW/t in January and February dropping to 19kW/t in March with increased throughput. 3

4 Key Quarterly Financial Statistics Parameter Units Total Total gold sales oz 45,490 Average sales price US$/oz of gold sold 1,513 Gross Cash Costs US$/oz produced 975 Including: Mining cost US$/tonne of material mined 2.59 Processing cost US$/tonne of ore milled 8.63 Admin & Refining US$M / month 1.20 Accounting Adjustment US$M (9.8) Adjusted Cash Costs US$/oz produced 723 Royalties US$/oz produced 107 Adjusted Cash Costs including royalties US$/oz produced 830 Sustaining capital and plant upgrade costs US$M 8.8 Of the 45,490oz of gold that were sold during the March 2012 Quarter at an average delivered price of US$1,513/oz, 25,490oz were sold at spot gold prices averaging US$1,745/oz. The Company also delivered 20,000oz of gold into forward sales contracts at an average of US$1,217/oz. This reduced the Group s outstanding hedge commitment to 210,000oz of gold, to be delivered in quarterly instalments, the last in the December 2014 Quarter, at an average price of US$1,253/oz. The adjusted cash cost for the March 2012 Quarter of US$723/oz compared favourably to guidance of US$950/oz. This was due to higher than expected grades, lower than forecast unit mining costs and overheads that more than compensated for higher unit milling costs arising from lower than forecast mill throughput in the early part of the March 2012 Quarter. Following the scheduled maintenance shutdown in February 2012, mill performance improved significantly in March 2012 as noted above, resulting in monthly processing costs of $7.15/tonne milled. The adjustment to gross cash costs of US$9.8 million reflected costs incurred on stockpiling ore and deferred costs of waste stripping, consistent with the increase in mining activity that occurred during the Quarter as previously discussed. A total of US$8.8M of capital was incurred during the March 2012 Quarter including US$5.3M on tailings dam modifications to meet EPA requirements. During the March 2012 Quarter, the first scheduled debt repayment took placed with US$11.0M of project debt being repaid to lenders Macquarie Bank Limited and Credit Suisse AG, reducing the balance of outstanding debt to US$74.0M. Subsequent to the end of the March 2012 Quarter, the Company has received advice confirming previously announced changes to Ghanaian tax regime that will take effect from 9 March The changes that impact the EGM include an increase in the corporate tax rate from 25% to 35% and a change in the method of computation of capital allowances from the reducing balance method to a straight line method over five years. Ghana Exploration A total of 40,775m of drilling was completed on the Edikan mining leases and the neighbouring Dunkwa license during the March 2012 Quarter. Four rigs are active, with one rig evaluating district exploration targets at Dunkwa and three rigs engaged on resource infill and extensional drilling at Edikan. Assay turnaround has improved significantly in Ghana. Drilling is shifting from principally resource/reserve drilling to a larger component of near-mine and district exploration drilling. Resource/reserve drilling will continue at Edikan, with several resource and reserve updates to be released in However, increasing emphasis on target generation, with continuing infill and extensional geochemical sampling, IP geophysical surveys, geological and regolith mapping, data compilation, analysis and interpretation, is expected to result in multiple new targets for ongoing exploration drill testing in Recent near-mine exploration drilling at Edikan has returned several significant intercepts from new targets, including Besem Gap prospect (700m east of the Esuajah North deposit), the Wampem soil anomaly (2.8 kilometers northeast of Esuajah North) and NPRC049 which tested gold in soil anomalism 150m west of the Bokitsi-Nkonya structure and situated 1.6km southwest of the Bokitsi South Extension deposit, attesting to the exploration potential remaining on the Edikan mining leases. Deeper drilling at the Fetish deposit at Edikan Gold Mine (EGM) in Ghana continues to confirm strong gold mineralisation at depth, including: 4

5 EFRDD046-44m at 3.0g/t gold from 327m and 14m at 2.4g/t gold from 420m. EFRDD047-24m at 4.3g/t gold from 397m. EFRDD048-15m at 3.3g/t gold from 256m, 11m at 4.8g/t gold from 294m and 18m at 1.4g/t gold from 308m. EFDD127-5m at 11.4g/t gold from 288m, 23m at 1.1g/t gold from 303m and 19m at 1.2g/t gold from 347m. Deeper drilling at Esuajah South & Esuajah North at EGM confirmed gold mineralisation at depth, including: AKRDD252-11m at 1.0g/t gold from 352m, 78m at 3.4g/t gold from 373m and 16m at 4.0g/t gold from 469m. ENRDD028-8m at 1.5g/t gold from 308m, 29m at 1.6g/t gold from 330m, 1m at 14.8g/t gold from 353m and 16m at 1.9g/t gold from 385m. Exploration drilling at EGM returned significant results from multiple prospects, including: ENS121 - Besem Gap 30m at 2.3g/t gold from 90m. ENS141 - Besem North 24m at 1.8g/t gold from 60m. ENS143 - Besem North 28m at 1.6g/t gold from 52m. WPRC028 - Wampem 12m at 4.8g/t gold from 8m. CHRC159 - Chirawewa South 26m at 3.5g/t gold from 16m. Esuajah North Resource Estimate A revised Mineral Resource estimate for Esuajah North was completed by Runge Limited in March Measured & Indicated Mineral Resources at a 0.8g/t gold cut-off increased by 51% to 15.1Mt at 1.2g/t gold and at a 0.4g/t gold cutoff increased 59% to 32.7Mt at 0.9g/t gold containing 920,000oz of gold. Inferred resources decreased from 9.3Mt at 0.7g/t to 6.3Mt at 0.8 g/t containing 168,000oz of gold. The 400m-long Esuajah North deposit averages more than 100m in width and contains Measured and Indicated resources of 3,400oz per vertical metre for the first 150m below the existing shallow pit. Details of the revised Mineral Resource estimates are as follows: EGM, Esuajah North, Measured and Indicated Mineral Resources (>0.8g/t ) Deposit Total Measured and Indicated Measured Resources Indicated Resources Resources Tonnes Tonnes Tonnes Mt g/t Ounces Mt g/t Ounces Mt g/t Ounces Oxide , ,000 Transition , , ,000 Primary , , ,000 Total (1) , , ,000 Notes: 1 Rounding applied to totals. EGM, Esuajah North, Measured and Indicated Mineral Resources (>0.4g/t ) Deposit Total Measured and Indicated Measured Resources Indicated Resources Resources Tonnes Tonnes Tonnes Mt g/t Ounces Mt g/t Ounces Mt g/t Ounces Oxide , , ,000 Transition , , ,000 Primary , , ,000 Total (1) , , ,000 Notes: 1 Rounding applied to totals. EGM, Esuajah North, Inferred Mineral Resources >0.8g/t (1) 0.4g/t-0.8g/t (2) Total Inferred Resources Deposit Tonnes Mt g/t Ounces Tonnes Mt g/t Ounces Tonnes Mt g/t Ounces Oxide Transition Primary , , ,000 Total (1) , , ,000 Notes: 1. Rounding applied to totals. The Company s Measured and Indicated Mineral Resource base at Edikan is now 5.6Moz of gold and the Inferred Mineral Resource base is 1.7Moz before adjustment for mining depletion. Reserve Estimate The Company is undertaking updated pit designs for Fetish and Esuajah North and initial designs for Chirawewa and Bokitsi which will be incorporated in the planned June quarter 2012 Mineral Reserve upgrade. 5

6 TENGRELA GOLD PROJECT The Sissingué gold deposit is one of a number of prospects that comprise the TGP. In November 2010, the Company completed a DFS on developing an open cut mining operation based on the Sissingué gold deposit together with a CIL gold processing plant and related infrastructure. Permitting Following the completion of the positive DFS for the Sissingué Gold Mine, the application process for the permits required for development of a gold mining and processing operation at Sissingué was initiated. This process was suspended temporarily in late 2010 / early but resumed during the September Quarter. During the December Quarter the Company s ESIA was approved by ANDE with formal advice to the effect being received on 28 December. Technical reviews of the DFS were also completed by the authorities during this period and during the March 2012 Quarter, the Company was informed that issuance of the exploitation licence (i.e. mining lease) required to develop the Sissingué Gold Project was contingent only upon finalising agreement between the State and the Company on the terms of a fiscal regime to apply over the life of the Project. Implementation Following resumption of activities by the Company in Côte d Ivoire in the September Quarter, invitations to tender for design and engineering associated with the Sissingué Gold Mine were issued to a number of engineering firms and a contract was awarded to GR Engineering Services Limited ( GRES ) during the September Quarter, enabling detailed design of the processing facility and related infrastructure to commence. In anticipation of the successful permitting of the development of the Sissingué gold deposit, Perseus s project development team in conjunction with GRES made significant progress on the design of the processing facility during the December Quarter. By the end of the period, enquiries for equipment selection had commenced and prices for certain items of equipment had been received from potential suppliers. In December, an order was placed with Outotec Pty Ltd for the manufacture and supply of a 4,500kW, 5.5metre diameter, and 9.2 metre long SAG mill. The SAG mill is scheduled to be completed within 45 weeks ex-works, and the complete mill package is expected to be delivered to site in late The selection and notification of preferred tenders for the supply of equipment continued during the March 2012 Quarter and tenders for early works contract packages based on enquiries issued during the December Quarter, were also received and evaluated during the period. In addition, Perseus s project development team in conjunction with GRES continued to make significant progress on the detailed design of the processing facility. Contracts for site earthworks and early construction works will be awarded when clarity is obtained on the likely fiscal regime to apply during the term of the Project and the Company will move to full scale project development as soon as practical following the formal granting of the Exploitation Licence. Development Funding The DFS for the development of the Sissingué Gold Mine and the Tengrela Gold Project Technical Report estimated the capital cost of the project at US$115 million, excluding sustaining capital. The finance required to fully fund the development of the Sissingué Gold Mine will be sourced from Perseus s existing cash reserves (at March 31, 2012 the Company had cash or cash equivalent resources of $ million plus a further $2.164 million of funds on deposit securing environmental obligations) and from cash flow generated by the EGM. Exploration The Company currently has six drill rigs operating and completed 26,859m of drilling on various prospects on the Tengrela Gold Project during the Quarter. While assay turnaround remains poor, from the limited number of holes where results were received several anomalous exploration intercepts were recorded, including 4m at 33.5g/t gold at Sissingué East, 14m at 5.9g/t and 13m at 2.4g/t gold at Podio, 4m at 10g/t gold at Sissingué North and 4m at 10.0g/t gold from Zing. Infill drilling on the Sissingué deposit returned significant results, including: SD194-58m at 3.1g/t gold from 85m. SD196-42m at 1.7g/t gold from 75m, 8.6m at 1.0g/t gold from 121m and 8m at 1.8g/t gold from 137m. SD m at 2.7g/t gold from 52.5m. SD191-10m at 4.9g/t gold from 173m. SD m at 26.7g/t gold from 83m. 6

7 Exploration drilling at Tengrela returned significant results from multiple prospects, including: SAC232 - Sissingué East 4m at 33.5g/t gold from 72m. PDD004 - Podio 1.7m at 5.1g/t gold from 101m, 13m at 2.4g/t gold from 115m and 8m at 3.6g/t gold from 162m. PLC099 - Podio 14m at 5.9g/t gold from 60m. ZAC033 - Zing 4m at 10.0g/t gold from 24m. SRB Sissingué North 4m at 10.0g/t gold from 8m. KAC202 - Kanakono 19m at 2.0g/t gold from 40m to end of hole. GRUMESA GOLD PROJECT The GGP is currently based on the Kayeya gold deposit located in the Adansi South District of the Ashanti Region of Ghana, approximately 35 kilometres by road to the south of Obuasi, and approximately 30 kilometres to the east of the EGM. From a geological perspective the Kayeya deposit is situated in the Tarkwaian Series sediments. The Kayeya deposit contains Indicated Mineral Resources of 25.1M tonnes grading 0.6g/t gold for 0.47Moz of gold plus an additional Inferred Mineral Resource of 16.4M tonnes at 0.5g/t gold for 0.25Moz of gold. A feasibility study for a heap leach project based on the Kayeya deposit was completed in October The Company is currently undertaking an Environmental Impact Assessment, using external consultants, as a precursor to filing an EIS, revising the feasibility study to DFS standard, and potentially seeking regulatory approval for the development of a gold mine and processing operation at Kayeya. TOTAL MINERAL RESOURCES AND MINERAL RESERVES Total Mineral Resources (Including Reserves) Deposit (cut-off g/t ) Tonnes (million) Measured Indicated Inferred g/t Tonnes g/t Tonnes g/t (million) (million) Ounces (,000) Ounces (,000) Ounces (,000) EGM (1) >0.8g/t , , ,111 EGM (1) 0.4g/t - 0.8g/t Grumesa (2) >0.4 (3) Tengrela (4) >1.0g/t Tengrela (4) g/t Total >0.8g/t (1.0g/t Tengrela) , , ,282 Total >0.4g/t (0.5g/t Tengrela) , , ,217 Notes 1 Last updated in March 2012 and does not allow for mining depletion. 2 Last updated in December Primary reported above a 0.4g/t cut-off, oxide/transition report above a 0.2g/t cut-off. 4 Last updated in November The Company holds 90% of EGM, 90% of Grumesa and 85% of Tengrela after allowing for Government equity at mining stage. Total Mineral Reserves Deposit Tonnes (million) Proven Probable Total g/t Ounces (,000) Tonnes (million) g/t Ounces (,000) Tonnes (million) g/t Ounces (,000) EGM >0.4g/t (1,2) , , ,273 Tengrela >0.55g/t (3) Total , , ,930 7

8 Notes 1 >0.4g/t cut-off for Abnabna-Fobinso, >0.5g/t cut-off for all other deposits. 2 Last updated in December 2010, does not allow for material mined. 3 Last updated in November For a description of the key assumptions, parameters and methods used to estimate the Mineral Resources and Mineral Reserves and any known legal, political, environmental or other risks that could materially affect the potential development of the mineral resources or minimal reserves, please refer to the EGM Technical Report or the Tengrela Technical Report, as the case may be. COMPANY OUTLOOK FOR THE QUARTER ENDING JUNE 30, 2012 Based on current work schedules for the Quarter ending June 30, 2012 the Company plans to: Edikan Gold Mine Progressively increase throughput rate of the processing plant at the EGM above the nameplate rate of 5.5 TPA; Target gold production of 50-55,000oz at cash cost of US$690/oz; Continue active exploration drilling and prepare for upgrades to the current Mineral Reserve estimates. Tengrela Gold Project Expedite the full permitting of the development of the Sissingué Gold Mine; Advance detailed engineering design and contract packaging for the development of the Sissingué Gold Mine; Continue exploration drilling at Sissingué and other TGP targets. Business Development Continue to manage the preparation of an environmental impact statement relating to the development of a satellite gold mining and heap leach operation based on the Kayeya deposit which forms part of the GGP; Continue to investigate opportunities for expanding the Company s inventory of Mineral Resources and Mineral Reserves by identifying, investigating and, where appropriate, acquiring tenement holdings in West Africa through direct application to government authorities, joint venture activities or acquisition from existing holders. OVERALL FINANCIAL PERFORMANCE OF THE COMPANY The financial performance of the Company will be affected by the operation of the EGM and development and future operation of the TGP and GGP as well as ongoing exploration and evaluation activities being conducted on its properties. The financial performance of the Company will be closely linked to the gold price following the commencement of commercial production at the EGM and, potentially, the TGP and GGP. The gold price also affects the economic viability of the Company s other projects and prospects. To protect against changes in gold price the Company has entered a number of hedging contracts, including put options and forward sales contracts which are discussed in further detail below under Financial Instruments and Related Risks. The Company reports its financial results in stralian dollars (AUD or $). However, the Company s costs and funding are currently incurred in several currencies including AUD, United States dollars (USD), Canadian dollars (CAD), Ghanaian New Cedis, and CFA francs. Furthermore, for the EGM or any of the Company s other projects that commence commercial production, metals sales revenue will be denominated in USD. Fluctuations in the rates of exchange between the AUD and the currencies in which the Company transacts business may therefore significantly affect the results of operations of the Company and are discussed further below under Financial Instruments and Related Risks. The exploration, evaluation and development of the Company s properties may require substantial additional financing. Failure to obtain sufficient financing in the future may result in delay or indefinite postponement of the exploration, evaluation or development of any or all of the Company s properties. There can be no assurance that bank financing, equity capital or other types of financing will be available when needed or that, if available, the terms of such financing will be acceptable to the Company. See Risk Factors for a further discussion of these and other risk factors associated with the Company and an investment in the Company s shares. 8

9 DISCUSSION ON OPERATING RESULTS The operating results for the eight most recent quarters are as follows: Operating Results 1 for the three months ended Mar Dec 31 Sept 30 Jun 30 Mar 31 Dec Sept Jun Total income Net profit / (loss) (5.097) (3.653) (30.083) (12.343) Basic profit / (loss) per share (cents) (1.38) (0.73) (7.07) (2.93) All amounts shown above are in millions of dollars except as otherwise indicated On 1 January 2012, the Company commenced commercial gold production from the EGM resulting in a significant change in the nature of the operating results recorded by the Company in comparison to operating results recorded in prior periods. As a consequence of commencing commercial production, and in contrast to preceding periods (including the March Quarter) the operating results for the March 2012 Quarter included revenue earned from the sale of precious metals ($ million) less the cost of the goods sold ($ million). In addition the result includes interest income (March 2012 Quarter: $0.226 million; March Quarter: $0.507 million), depreciation and amortisation (March 2012 Quarter: $5.500 million; March Quarter: $0.062 million), administration and corporate overheads (March 2012 Quarter: $4.508 million; March Quarter: $4.643 million) and foreign exchange movements. In the March 2012 Quarter a foreign exchange loss ($5.640 million) was incurred (March Quarter: $0.419) that arose from a devaluation of the USD relative to the AUD during the period (March 31, 2012:1.0387; December 31, : ). As referenced above, due to the commencement of commercial production at EGM the Company s results for the nine months ended March 31, 2012 (Net profit: $ million and basic profit per share of 7.55 cents) differ to those of the corresponding period ending March 31, (Net loss: $ million and basic loss per share of cents) to the extent that during the prior period revenues mainly comprised interest income and its expenses mainly comprised administration and corporate overheads (given the Company s accounting policy to capitalise pre-operations, development, exploration and evaluation expenditure prior to the commencement of commercial production.) During the nine months ended March 31, 2012 a foreign exchange gain of $4.313 million has been earned (Nine months ended March 31, : loss of million) reflecting an appreciation of the USD relative to the AUD during the period (March 31, 2012:1.0387; June 30, : ). A hedge loss of $0.215 million incurred during the nine months ended March 31, 2012 contrasts with a hedge loss of $ million incurred during the corresponding period ended March 31, following the inception of hedge accounting during that period. Furthermore, there was a devaluation of gold put options by $0.033 million during the nine months ended March 31, 2012 compared to a devaluation of $6.654 million in the corresponding period ended March 31,. DISCUSSION OF FINANCIAL CONDITION The quarter-on-quarter movements in the financial position of the Company over the last eight quarters are shown below. Financial Position 1 as at: Mar Dec 31 Sept 30 Jun 30 Mar 31 Dec Sept Jun Cash and cash equivalents Total Assets Total Liabilities , Net Assets All amounts shown are in millions of dollars Total Assets Total assets have increased in the March 2012 Quarter by $ million and in the nine month period since June 30, by $ million. The March Quarter increase is due to an increase in non-current assets of $ million offset by a decrease in current assets of $ million. The increase in Total assets relative to June 30, reflects an increase of $ million in current assets as well as an increase of non-current assets of $ million. Details of movements in specific accounts follow. Cash and cash equivalents As at March 31, 2012 the Company had available cash or cash equivalent resources of $ million plus a further $2.164 million of restricted funds on deposit securing environmental obligations and an international trade facility. This cash balance represents a decrease relative to the position as at December 31, ($ million plus restricted cash of $2.209 million) but an increase in cash resources relative to the position as at June 30, ($ million 9

10 plus restricted cash of $2.881 million). The decrease in cash reserves of $ million during the March 2012 Quarter is discussed in some detail in the Discussion on Cash flows. The increase in cash reserves of $ million during the nine month period ended March 31, 2012 is due in the main to the receipt of proceeds from a capital raising that occurred during the December Quarter (refer to the discussion on Liquidity and Capital Resources below) and from the sale of gold during the period offset by payments associated with the development and operation of the EGM, development at TGP, purchase of other fixed assets and equity investments and payments for exploration and administration activities. Receivables At March 31, 2012 the Company s current receivables were $ million (December 31, : $ million; June 30, : million) while non-current receivables amounted to $ million (December 31, : $ million; June 30, : 3.631million). The increase in current receivables during the March 2012 Quarter is as a result of increased gold sales while the increase in non-current receivables in this period is due to an increase in a VAT refund from the Ghana Internal Revenue Service. During the nine month period since June 30, the VAT refund from the Ghana Internal Revenue Service has been reclassified from current to non-current receivable. The overall increase in receivables during this period is the result of an increase in gold sales and an increase in the VAT refund due from the Ghana Internal Revenue Service. Inventory At March 31, 2012 the Company held inventories of $ million (December 31, : $ million; June 30, :$0.428 million). The net increase in inventory during the March 2012 Quarter ($5.109 million) is mainly as a result of an increase in ore stockpiles offset by a decrease in the value of bullion on hand. On a year to date basis, the increase in inventory of $ million since June 30, is as a result of the ramping up of mining and processing activities being undertaken at EGM giving rise to ore stockpiles, gold in circuit, bullion on hand and materials and supplies. Property, plant and equipment At March 31, 2012, the Company recognised on its balance sheet a total of $ million for property, plant and equipment ( PP&E ) (December 31, : $ million; June 30, : $ million). The Company capitalised $ million of expenditure on PP&E during the March 2012 Quarter before expensing depreciation and amortisation of $5.500 million. During the March 2012 Quarter, an amount of $ million which relates to the TGP has been reclassified from exploration and evaluation expenditure to PP&E. Due to the devaluation of the USD against AUD referred to above, a $4.531 million foreign exchange loss was recorded against PP&E during the March 2012 Quarter as the majority of these assets are recorded in USD in the subsidiary companies accounts and are translated into AUD on consolidation. During the nine month period since June 30, $4.362 million of expenditure on PP&E has been capitalised and $5.627 million of depreciation and amortisation has been expensed. In addition, $ million relating to the TGP was reclassified from exploration and evaluation to PP&E, as mentioned above, and the net appreciation of the USD against AUD during the period referred to above gave rise to $4.475 million foreign exchange gain being recorded against PP&E. Exploration and evaluation expenditure At March 31, 2012 the Company recognised mineral interest acquisition and exploration expenditure of $ million on its Balance Sheet. (December 31, : $ million; June 30, : $ million). The Company capitalised $ million of exploration and evaluation expenditure incurred on its Ghanaian and Ivorian exploration tenements during the March 2012 Quarter ($ million in the nine month period from June 30, ) before recording a foreign exchange loss of $0.006 million in the March 2012 Quarter and a $1.668 million loss in the nine month period from June 30,. In addition, as mentioned above, $ million relating to the TGP was reclassified from exploration and evaluation to PP&E during the March 2012 Quarter. Other assets At March 31, 2012 the Company recognised prepayments of $5.128 million on its balance sheet. (December 31, : $3.561 million; June 30, : $3.081million). The increase in prepayments during the three months and nine months ended March 31, 2012 reflects the increased commercial activity associated with the EGM. Total Liabilities As at March 31, 2012, the Company had liabilities totalling $ million compared to $ million at December 31, and $ million at June 30,. The change in total liabilities during the March 2012 Quarter is principally the result of an increase in current liabilities ($ million) offset by a smaller decrease ($6.137 million) in non-current liabilities. In the nine month period since June 30, the changes in total liabilities are attributable to increases in current liabilities of $ million offset by a decrease in non-current liabilities of $ million. Details of movements in specific accounts follow. 10

11 Payables During the March 2012 Quarter, amounts owed to creditors, relating mainly to the construction and operation of the EGM, increased to $ million from a total outstanding at December 31, of $ million and at June 30, of $ million. The Quarterly increase reflected a slight increase in the volume of creditors and also an administrative delay in the timing of processing of outstanding invoices. Provision A provision of at $6.667 million as at March 31, 2012 for future rehabilitation work relating mainly to old and new mining activity at EGM, remained relatively unchanged from the $6.717 million that was provided for at December 31, (June 30, :$4.462 million). The change during the nine month period ended March 31, 2012 reflects an increase in the area requiring rehabilitation as a result of increased mining activity during the period. Derivative financial instruments As at March 31, 2012 the Company held forward sales contracts for 210,000 ounces of gold and recorded a liability of $ million (December 31, : 230,000 ounces of gold with a recorded liability of $ million; June 30, : 230,000 ounces of gold with a recorded liability of $ million) on its balance sheet. These contracts were designated as effective hedge contracts beginning October 1, The movement in mark-to-market value has been recorded as equity while $ million (December 31, : $ million; June 30, : $ million) of the liability has been classified as a current liability as these forward contracts settle within twelve months of the date of this MD & A; the balance of $ million (December 31, : $46.544; June 30, : $48.472) has been classified as a non-current liability. The liability in each case reflects the difference in value of the hedge contracts on the respective balance dates relative to the value of the contracts on the date of inception of hedge accounting. Borrowings The decrease in total borrowings at March 31, 2012 ($ million) relative to December 31, ($ million) is largely the result of the first scheduled debt repayment of US$11.0 million on March 30, 2012 and a decrease in the AUD equivalent value of the outstanding USD denominated borrowings due to the appreciation of the AUD against the USD during the March 2012 Quarter as described above. The decrease in liabilities during the nine months since June 30, can be attributed to similar factors to those that applied to the decrease in the March 2012 Quarter, except that the impact of foreign exchange movements on the AUD equivalent value of the debt differs due to a devaluation of the AUD against the USD in this nine month period as described above. DISCUSSION ON CASHFLOWS The eight most recent quarter-on-quarter movements in the cash flow of the Company are as shown below. Cash flows 1 for three months ended Mar Dec 31 Sept 30 Jun 30 Mar 31 Dec Sept Jun Operating activities (1.829) (1.908) (1.622) (1.977) (1.131) (1.096) (1.345) Investing activities (26.206) (6.857) (46.579) (52.249) (19.108) (40.328) (49.282) (37.090) Financing activities (8.240) All amounts shown are in millions of dollars Before considering the effects of foreign exchange movements, the Company s cash balance decreased by $9.282 million during the March 2012 Quarter while in the corresponding period in cash decreased by $ million. Operating activities, during the March 2012 Quarter, resulted in total cash receipts of $ million from the sale of precious metals produced at the EGM and $0.222 million from bank interest that were offset by administration expenses and production expenses at EGM of $ million, giving a net cash inflow for Operating Activities during the period of $ million. This net cash inflow was $ million more than the corresponding amount in March Quarter in when net outflows associated with Operating Activities totalled $1.977 million. In the March Quarter, the EGM had not commenced production as construction was still in progress and therefore no precious metals were available for sale and similarly no operating costs were incurred. Interest received in the March Quarter was $0.482 million and the costs of administration activities were $2.459 million. Investing activities during the March 2012 Quarter included pre-commercial production cash receipts capitalised to development of $9.261 million from the sale of precious metals produced at the EGM offset by development expenses at EGM and TGP of $ million, payments for exploration activities in Ghana and Cote d Ivoire of $7.319 million, investment in fixed assets of $0.997 million, advances to third parties of $0.169 million and financing costs of $0.976 million, that generated a net cash outflow of $ million. In the corresponding quarter in, investing activities included development of EGM ($ million), exploration associated with the EGM and TGP ($1.000 million), investment in fixed assets ($0.729 million), investment in associates ($1.800 million), financing costs ($0.471 million) 11

12 offset by funds received for security deposits and bank guarantees, and resulted in a net cash outflow associated with investing activities of $ million Financing activities in the March 2012 Quarter gave rise to a net cash outflow of $8.240 million. During the Quarter, the first scheduled debt repayment of US$11.0 million to lenders of the project debt facility occurred giving rise to a payment of $ million which was offset by a cash inflow of $2.401 million when options to acquire ordinary shares in the Company were exercised. By contrast during the March Quarter, $0.789 million of cash was generated by the exercising of options to acquire ordinary shares in the Company. No other financing activities occurred during this period. LIQUIDITY AND CAPITAL RESOURCES As at March 31, 2012 the Company s cash and cash equivalents amounted to $ million (December 31, $ million; June 30, : $96.462). The Company does not currently have a working capital deficiency. The Company has sufficient amounts of cash and cash equivalents in the short term to maintain capacity, meet its planned growth and fund development activities. As previously stated, the Company s short to medium term plans include the progressive expansion of the processing capacity of the EGM processing facility, permitting and development of the TGP, expansion of the Company s mineral resources through rapid exploration of existing ground, and the acquisition of prospective new projects, all of which require significant levels of funding. The Company s ability to generate sufficient amounts of cash and cash equivalents in the long term (if required) to maintain capacity, meet planned growth and fund development of activities depends on its ability to generate sufficient cash from the EGM and failing that, to raise additional funds from the debt or capital markets. On November 2,, the Company completed an offering of 25 million ordinary shares at a price of CAD 3.25 per ordinary share for aggregate gross proceeds of CAD 81,250,000 pursuant to a short form prospectus dated October 26,. Further gross proceeds of CAD 12,187,500 were received by the Company on November 14, upon the issue of an additional 3.75 million ordinary shares at a price of CAD 3.25 per share pursuant to the closing of an overallotment option which was exercised on November 9,. The Company intends to use the net proceeds of this offering together with surplus cash flow generated by operating activities at the EGM, for development of the Sissingué Gold Project that as previously stated, is estimated to have an initial capital cost of USD 115 million. The Company s liquidity is expected to fluctuate with production from the EGM and the price of gold. The Company s ability to raise funds from the debt or capital markets will be affected by, among other things, global economic conditions (including the price of gold). As described in detail below, the Company s liquidity will also be negatively affected in the event there is a breach of the Facility Agreement (as defined below) which is not waived and upon which the lenders demand repayment of the outstanding balance of the project loan facility which at 31 March 2012 amounted to US$74 million. In such event, the Company would seek replacement financing and to the extent it was unsuccessful, it would use existing cash and cash equivalents to satisfy the demand. Such a sequence of events could potentially cause development of the TGP to be delayed as existing cash and cash equivalents are planned to be used to partially fund the TGP development. To the extent sufficient funds could not be accessed to repay the project loan facility, the lenders would be entitled to realize on their security interest in the EGM. For a description of the balance sheet conditions or income or cash flow that may affect liquidity, please see the section below under Commitments. During the last three financial years, both the debt and equity capital markets have been used as sources of funding by the Company. As discussed above, the Company completed a million share fundraising during the December Quarter. The Company also received $2.401 million during the March 2012 Quarter ($0.752 million in the December Quarter; $2.343 million in the September Quarter; $1.478 million in the June Quarter; $9.230 million during the June Full Year) from the exercise of options to purchase ordinary shares in the Company pursuant to its Share Option Plan. During the June quarter, the Company drew $ million under its project debt facility. There can be no assurance however that the Company will be successful in raising additional funds, as and when required, from the debt or capital markets in the future. See Risk Factors. The project debt facility agreement (the Facility Agreement ) contains covenants and imposes restrictions on the Company s ability to complete certain transactions. For example, the Facility Agreement requires that the Company maintain certain financial ratios and prohibits the Company from incurring additional indebtedness or entering into hedging arrangements beyond that specifically permitted. The Facility Agreement also contains (i) certain conditions precedent to the drawing down of funds, which were either satisfied or waived, and (ii) certain conditions subsequent, some of which remain outstanding. The Company has previously received waivers of breaches of, and extensions for satisfaction of, non-financial conditions to the Facility Agreement. In particular, the Company has received waivers in respect of breaches of, and extensions to the time required for satisfaction of, the conditions subsequent that: (i) the 12