NOTICE OF GENERAL MEETING AND EXPLANATORY MEMORANDUM

Transcription

1 NOTICE OF GENERAL MEETING AND EXPLANATORY MEMORANDUM 30 July :00pm Perth time [WST] Offices of Scotgold Resources Limited 24 Colin Street I West Perth I Western Australia This Notice of General Meeting, Explanatory Memorandum and accompanying Independent Expert s Report (which considers the proposed transaction the subject to Resolutions 1-4 (inclusive) to be fair and reasonable to non-associated shareholders) should be read in its entirety. If Shareholders are in doubt as to how to vote, they should seek advice from their accountant solicitor or other professional adviser without delay. Should you wish to discuss any matter please do not hesitate to contact the Company by telephone on +61 (0) ABN

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3 NOTICE OF GENERAL MEETING Notice is given that a General Meeting of Shareholders of Scotgold Resources Limited (Company) will be held at the Company s offices at 24 Colin Street, West Perth, Western Australia on 30 July 2014 commencing at 5:00pm WST. The Explanatory Memorandum to this Notice provides additional information on matters to be considered at the Meeting. The Explanatory Memorandum and the Proxy Form form part of this Notice. The Directors have determined pursuant to regulation of the Corporations Regulations 2001 (Cth) that the persons eligible to vote at the Meeting are those who are registered as Shareholders on 28 July 2014 at 5:00pm WST. Terms and abbreviations used in this Notice and Explanatory Memorandum are defined in Schedule 1. AGENDA 1. RESOLUTION 1 CONVERTIBLE NOTE To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution: That, subject to the passing of Resolutions 2 and 3, for the purpose of Section 208 and item 7 of Section 611 of the Corporations Act, ASX Listing Rule and for all other purposes, approval is given for the Company to issue the Convertible Notes (for the purpose of ASX Listing Rule only), the Conversion Shares on conversion of the Convertible Note (in whole or part), the Attaching Options and the ordinary Shares to be issued on exercise of the Attaching Options to the Investors as follows: (a) 104,000,000 Conversion Shares to Nathaniel le Roux (or his nominee); (b) 80,000,000 Attaching Options and the ordinary Shares to be issued upon exercise of the Attaching Options to Nathaniel le Roux (or his nominee); (c) 20,000,000 Conversion Shares to Richard Harris (or his nominee); (d) 45,333,333 Attaching Options and the ordinary Shares to be issued upon exercise of the Attaching Options to Richard Harris (or his nominee); (e) 9,333,333 Conversion Shares to Alexander Littlejohn (or his nominee); and (f) 8,000,000 Attaching Options and the ordinary Shares to be issued upon exercise of the Attaching Options to Alexander Littlejohn (or his nominee), on the terms and conditions set out in the Explanatory Memorandum. Voting Exclusion Statement: The Company will disregard any votes cast on this Resolution by any person who may participate in the proposed issue and a person who might obtain a benefit, except a benefit solely in the capacity of a holder of ordinary securities, if the Resolution is passed and any associates of those persons. However, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form, or, it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides. Independent Expert s Report: Shareholders should carefully consider the Independent Expert s Report prepared by Stantons International accompanying the Explanatory Memorandum as Annexure A. The Independent Expert s Report comments on the fairness and reasonableness of the Convertible Notes. The Independent Expert has determined that the Convertible Notes the subject of Resolution 1 are FAIR AND REASONABLE to Shareholders who do not have an interest in the Transaction. 2. RESOLUTION 2 PLACEMENT To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution: That, subject to the passing of Resolutions 1 and 3, for the purpose of Section 208 and item 7 of Section 611 of the Corporations Act, ASX Listing Rule and for all other purposes, approval is given for the Company to issue up to 50 million Placement Shares and 50 million Placement Options and ordinary Shares to be issued upon exercise of the Placement Options to Nathaniel le Roux (or his nominee) on the terms and conditions set out in the Explanatory Memorandum. 1 SCOTGOLD

4 Voting Exclusion Statement: The Company will disregard any votes cast on this Resolution by any person who may participate in the proposed issue and a person who might obtain a benefit, except a benefit solely in the capacity of a holder of ordinary securities, if the Resolution is passed and any associates of those persons. However, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form, or, it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides. Independent Expert s Report: Shareholders should carefully consider the Independent Expert s Report prepared by Stantons International accompanying the Explanatory Memorandum as Annexure A. The Independent Expert s Report comments on the fairness and reasonableness of the Placement. The Independent Expert has determined that the Placement the subject of Resolution 2 is FAIR AND REASONABLE to Shareholders who do not have an interest in the Transaction. 3. RESOLUTION 3 APPROVAL OF SECURITY ARRANGEMENTS To consider, and if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution: That, subject to the passing of Resolutions 1, 2 and 4, for the purpose of Section 208 of the Corporations Act, ASX Listing Rule 10.1 and for all other purposes, Shareholders approve the Company granting, and complying with the terms of the Security Arrangements including a Charge being over all of the Company s assets on the terms and conditions set out in the Explanatory Memorandum. Voting Exclusion: The Company will disregard any votes cast on this Resolution by a party to the transaction and any Associate of that party (or those parties). However, the Company need not disregard a vote if it is cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form, or, if it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides. Independent Expert s Report: Shareholders should carefully consider the Independent Expert s Report prepared by Stantons International accompanying the Explanatory Memorandum as Annexure A. The Independent Expert s Report comments on the fairness and reasonableness of the proposed security arrangements. The Independent Expert has determined that the proposed Security Arrangements pursuant to Resolution 3 is FAIR AND REASONABLE to Shareholders who do not have an interest in the Acquisition. 4. RESOLUTION 4 ISSUE OF SHARES TO GOLDEN MATRIX HOLDINGS PTY LTD To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution: That, subject to the passing of Resolutions 1-3 (inclusive) for the purpose of Section 208 and item 7 of Section 611 of the Corporations Act, ASX Listing Rule and for all other purposes, approval is given for the Company to issue up to 6,874,933 Shares to Golden Matrix Holdings Pty Ltd (or its nominee) on the terms and conditions set out in the Explanatory Memorandum. Voting Exclusion Statement: The Company will disregard any votes cast on this Resolution by any person who may participate in the proposed issue and a person who might obtain a benefit, except a benefit solely in the capacity of a holder of ordinary securities, if the Resolution is passed and any associates of those persons. However, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form, or, it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides. Independent Expert s Report: Shareholders should carefully consider the Independent Expert s Report prepared by Stantons International accompanying the Explanatory Memorandum as Annexure A. The Independent Expert s Report comments on the fairness and reasonableness of the proposed issue of Shares to Golden Matrix Holdings Pty Ltd. The Independent Expert has determined that the proposed issue pursuant to Resolution 4 is FAIR AND REASONABLE to Shareholders who do not have an interest in the Acquisition. 2 SCOTGOLD

5 5. RESOLUTION 5 RATIFICATION OF PRIOR ISSUE OF SECURITIES To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution: That, for the purpose of ASX Listing Rule 7.4 and for all other purposes, Shareholders ratify the issue of: (a) 57,689,565 Shares issued pursuant to ASX Listing Rule 7.1; and (b) 38,459,710 Shares issued pursuant to ASX Listing Rule 7.1A, on the terms and conditions set out in the Explanatory Memorandum. Voting Exclusion Statement: The Company will disregard any votes cast on this Resolution by any person who participated in the issue and a person who obtained a benefit, except a benefit solely in the capacity of a holder of ordinary securities, if the Resolution is passed and any associates of those persons. However, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form, or, it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides. 6. RESOLUTION 6 ISSUE OF SHARES TO DIRECTORS To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution: That, for the purposes of Section 195(4) and Section 208 of the Corporations Act, ASX Listing Rule and for all other purposes, approval is given for the Company to allot and issue the following Director Shares: (a) up to 10,269,353 Director Shares to John Bentley (or his nominee); (b) up to 5,477,215 Director Shares to Christopher Sangster (or his nominee), and (c) up to 3,018,750 Director Shares to Phillip Jackson (or his nominee), on the terms and conditions set out in the Explanatory Memorandum. Voting Exclusion Statement: The Company will disregard any votes cast on this Resolution by John Bentley, Christopher Sangster and Phillip Jackson (or their nominees) and any of their associates. However, the Company need not disregard a vote if it is cast by John Bentley, Christopher Sangster or Phillip Jackson as a proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form, or, it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the Proxy Form to vote as the proxy decides. Dated 23 June 2014 BY ORDER OF THE BOARD Peter Newcomb Company Secretary NOTICE OF GENERAL MEETING AND EXPLANATORY MEMORANDUM I

6 EXPLANATORY MEMORANDUM INTRODUCTION This Explanatory Memorandum has been prepared for the information of Shareholders of the Company in connection with the business to be conducted at the Meeting to be held in Perth on 30 July 2014 at 5:00pm WST. This Explanatory Memorandum should be read in conjunction with and forms part of the accompanying Notice. The purpose of this Explanatory Memorandum is to provide information to Shareholders in deciding whether or not to pass the Resolutions in the Notice. A Proxy Form is located at the end of the Explanatory Memorandum. ACTION TO BE TAKEN BY SHAREHOLDERS Shareholders should read the Notice and this Explanatory Memorandum carefully before deciding how to vote on the Resolutions. Proxies A Proxy Form is attached to the Notice. This is to be used by Shareholders if they wish to appoint a representative (a proxy) to vote in their place. All Shareholders are invited and encouraged to attend the Meeting or, if they are unable to attend in person, sign and return the Proxy Form to the Company in accordance with the instructions thereon. Lodgement of a Proxy Form will not preclude a Shareholder from attending and voting at the Meeting in person. Please note that: (a) (b) (c) a member of the Company entitled to attend and vote at the Meeting is entitled to appoint a proxy; a proxy need not be a member of the Company; and a member of the Company entitled to cast two or more votes may appoint two proxies and may specify the proportion or number of votes each proxy is appointed to exercise, but where the proportion or number is not specified, each proxy may exercise half of the votes. The enclosed Proxy Form provides further details on appointing proxies and lodging Proxy Forms. 1. BACKGROUND INFORMATION REGARDING THE TRANSACTION On 26 February 2014 Scotgold announced that it had entered into a binding Heads of Agreement with three investors (Investors) which, subject to the terms and conditions summarised below, would result in Scotgold raising up to AUD$1,825,000 (Heads of Agreement). Details of the Heads of Agreement and related transactions are set out below. 1.1 Details of the Investors The largest of the Investors is Mr Nat le Roux, the former CEO of IG Group plc, and a non-executive director of the London Metal Exchange. The other Investors are Mr Richard Harris and Mr Alexander Littlejohn. As described further below, the Investors are considered to be related parties of the Company for the purpose of section 228(6) of the Corporations Act. The Heads of Agreement specifies that each Investor is acting independently and is not a partner, joint venture partner or Associate of any other Investor. Further, the Company considers that the Investors (or their nominees) are not associated with each other (pursuant to the Corporations Act definition of Associate) for the purposes of the prohibition in Chapter 6 of the Corporations Act. However, out of an abundance of caution and to avoid any possibility that the Investors (or their nominees) are considered to be associated for the purposes of Chapter 6 of the Corporations Act, the Company is seeking the approval of Shareholders under Item 7 of section 611 of the Corporations Act because the proposed issue of securities pursuant to Resolutions 1, 2 and 4 will result in the Investors (or their nominees), together with Golden Matrix, having a relevant interest in an aggregate of more than 20% of the voting shares in the Company. 4 SCOTGOLD

7 (a) (b) (c) Nat le Roux Nat le Roux spent most of his career in financial markets and was Chief Executive of IG Group plc between 2002 and Now semi-retired, he is an independent director of the London Metal Exchange and a trustee of various charities. Nat was born in Scotland and went to school in Edinburgh. He holds an MA in Law from Cambridge University and an MSc is Anthropology from University College London. He is married with one adult daughter and lives in Suffolk. Richard Harris Richard Harris is a mining engineer with over 30 years experience in the mining and finance industries as a mining analyst and public company Director. He has considerable experience in evaluating mining companies and projects, identifying and procuring mining project acquisition, advising, restructuring and raising capital for resource companies. He is sole Director and shareholder of Golden Matrix Holdings Pty Ltd a private mining investment company founded in 2009 which is developing a vertically integrated mining company concept and investment jewellery business AuraBa. Prior to this he briefly became a Director of Australian silver miner Alcyone Resources Ltd in 2009 after organising a syndicate group which recapitalized and relisted the company on ASX. In 2005 as Managing Director (later Executive Chairman) he founded and later listed as an IPO, Eleckra Mines Limited, (renamed Gold Road Resources Ltd) a gold exploration company on the ASX. Prior positions include senior mining analyst; Hartleys Ltd, business development manager gold division; WMC Ltd, international mining analyst & Associate Director, Shearson Lehman Hutton Ltd, London, mining analyst; Gold Fields South Africa Ltd. Sandy (Alexander) Littlejohn Sandy Littlejohn is the managing director of the DTS Group, one of the largest and most well established dental laboratories in the United Kingdom. He is also the director of Core3D, a global network for digital dental solutions and the director for Halo dental surgeries. 1.2 Summary of Terms of the Heads of Agreement The material terms of the Heads of Agreement are as follows: (a) (b) First Placement Upon signing the Heads of Agreement, the Company must issue 60 million fully paid ordinary shares at an issue price of AUD$ (approximately 0.4 pence) per share to raise AUD$450,000 (First Placement). The First Placement was completed on 26 February 2014 (refer to the Company s ASX announcement of that date). Convertible Note Subject to the conditions precedent listed in section 1.2(f) below, convertible notes must be issued to the Investors to raise AUD$1,000,000 (Convertible Notes). Scotgold intends to use the majority of the proceeds of the Convertible Notes to repay a portion of the Company s current Rand Merchant Bank loan. The repayment date of the Convertible Notes is 2 years from their date of issue. The interest rate on the Convertible Notes is 1% per annum. The Investors may elect to convert the Convertible Notes (in part or in full) into fully paid ordinary shares at a conversion price of AUD$ per share (Conversion Shares). For every Conversion Share issued, one free attaching option will be issued (Attaching Options). The Attaching Options are exercisable before 31 March 2016 at an exercise price of AUD$0.012 per Attaching Option. The terms and conditions of the Attaching Options are set out in Schedule 3. Further details in respect of the shareholder approvals relating to the Convertible Notes are set out in section 2 below. NOTICE OF GENERAL MEETING AND EXPLANATORY MEMORANDUM I

8 (c) (d) (e) (f) (g) Security Arrangement The Convertible Notes and the Principal Sum advanced will be secured against the Company s assets (including mineral leases and the Company s subsidiary) via security and charge documentation of a similar nature to, but subordinate and secondary to, RMB s existing security in respect of the RMB Loan. Further details in respect of the shareholder approvals relating to the Security Arrangements are set out in section 3 below. Second Placement Subject to the conditions precedent listed in section 1.2(f) below, and upon issue of the Convertible Notes, the Company will issue a further 50 million fully paid ordinary shares to Mr Nat le Roux, to raise AUD$375,000 (Placement), together with 50 million free attaching unlisted options (Placement Options). The Placement Options will be exercisable before 31 March 2015 at an exercise price of AUD$0.012 per option. The terms and conditions of the Placement Options are set out in Schedule 4. Further details in respect of the shareholder approvals relating to the Placement are set out in section 2 below. Appointment of Directors Subject to the conditions precedent listed in section 1.2(f) below, and completion of the issue of the Convertible Notes and the Second Placement, Nat le Roux and Richard Harris are each entitled to appoint a nominee to the board of directors of the Company within a period of six months of the completion of the Second Placement. (Director Appointment). Conditions Precedent The Convertible Notes and Placement are subject to the following conditions precedent: (i) Rand Merchant Bank s formal written agreement to extend at least 1,000,000 of the Company s existing loan from 30 June 2014 until at least 1 July 2015; and (ii) the Company obtaining all necessary shareholder and regulatory approvals in respect of: A. the issue and conversion of the Convertible Notes (including the issue of the Conversion Shares and Attaching Options), B. the issue of the Placement Shares and Placement Options; and C. the issue of the Shares to be issued on exercise of the Attaching Options and Placement Options. In respect of paragraph (i), as announced on 2 June 2014, the Company is presently in negotiation with RMB in respect of an extension agreement, the terms of which are yet to be formalised. RMB is seeking the permission of its investment committee to: (iii) extend the term of the loan for a period of 30 days (by which time an EGM will have been held); and (iv) further extend the term of the loan to 31 December 2015 if the EGM approves the proposed funding from Nat Le Roux and his co-investors and subject to certain other conditions. Subject to obtaining investment committee permission, RMB will extend the term of the loan in the manner outlined above. In the absence of the investment committee permission, the Condition Precedent loan will remain on its current terms and the Company will continue to seek other sources of funding to progress work on the Company s current assets. Offtake and Sales Arrangement Following the issue of the Convertible Notes and the Placement, the Company and the Investors have agreed to enter into an arrangement (Marketco) for the marketing, offtake and sale of all dore and gravity gold and silver production from the Company s Cononish mine (Product). Marketco will have the first right of refusal (but not the obligation) to purchase up to 100% of the Company s Product, which will be purchased at Comex Fix plus 10% (less refining charges, penalties and transport costs) for the life of the Company s Cononish mine. The equity share in Marketco will be comprised of the Company (40%), public interest entities (20%) and the Investors (40%), comprised of Nat Le Roux (22%), Richard Harris (16%) and Sandy Littlejohn (2%). 6 SCOTGOLD

9 The Company is not seeking any shareholder approvals at this stage in respect of the offtake and sales arrangement. The Company will seek any necessary shareholder and regulatory approvals in respect of the offtake and sales arrangement as and when required. 1.3 Proforma Capital Structure The capital structure of the Company following completion of all of the transactions proposed by the Heads of Agreement is set out in Schedule 2 to this Explanatory Memorandum. 1.4 Dilution as a result of the Transaction Assuming that Shareholders approve Resolutions 1, 2 and 4, the effect of the issue of all of the securities pursuant to Resolutions 1, 2 and 4 on the capital structure of the Company is as follows: Type of Security Number % Change Shares on issue as at the date of this Notice (including Shares issued under First Placement) Shares issued pursuant to the Placement (Resolution 2 Placement Shares and Shares issued on exercise of Attaching Options) 483,889,318 N/A 100,000, % Shares issued to Golden Matrix pursuant to Resolution 4 6,874, % Shares to be issued pursuant to the Convertible Notes (Resolution 1 Conversion Shares and Shares issued on exercise of Attaching Options) 266,666, % Total Issued 373,541, % Total Shares following Transaction 857,430,917 2 RESOLUTIONS 1, 2 AND 4 CONVERTIBLE NOTE, PLACEMENT AND GOLDEN MATRIX SHARES 2.1 Background Resolutions 1 and 2 seek Shareholder approval under Listing Rule for the grant of the Convertible Note, and under section 208 and Item 7 of section 611 of the Corporations Act for the acquisition by the Investors of a relevant interest in: (a) (b) (c) (d) (e) the Shares to be issued upon conversion of the Convertible Note; the specified number of Attaching Options to be issued per Conversion Share issued; the specified number of Shares upon the exercise of the Attaching Options; the Placement Shares to be issued under the Placement; and the Placement Options to be issued under the Placement, in accordance with the terms and requirements of the Heads of Agreement, and as set out in the table below. Further, Resolution 4 seeks Shareholder approval for the issue of up to 6,874,933 Shares as consideration for services provided by Golden Matrix Holdings Pty Ltd (or its nominee) pursuant to the terms of a Consultancy Fee Agreement (GM Consultancy Agreement). Golden Matrix Holdings Pty Ltd is an entity associated with Mr Richard Harris, of which he is the sole director and shareholder. NOTICE OF GENERAL MEETING AND EXPLANATORY MEMORANDUM I

10 2.2 Effect of Resolutions 1, 2 and 4 on share capital and percentage holdings Nat le Roux Richard Harris Golden Matrix Sandy Littlejohn Total Shares on Issue Current Shareholding 37,333,333 10,000,000 13,000,000 2,666, ,889,318 % 7.7% 2.1% 2.7% 0.6% 100.0% Placement shares 50,000, ,000,000 87,333,333 10,000,000 13,000,000 2,666, ,889,318 % 16.4% 1.9% 2.4% 0.5% 100.0% Issue to Golden Matrix - - 6,874,933-6,874,933 87,333,333 10,000,000 19,874,933 2,666, ,764,251 % 16.1% 1.8% 3.7% 0.5% 100.0% Conversion Shares 104,000,000 20,000,000-9,333, ,333, ,333,333 30,000,000 19,874,933 12,000, ,097, % 4.5% 2.9% 1.8% 100.0% Exercise of placement options 50,000, ,000, ,333,333 30,000,000 19,874,933 12,000, ,097, % 4.1% 2.7% 1.7% 100.0% Exercise of attaching options 80,000,000 45,333,333-8,000, ,333, ,333,333 75,333,333 19,874,933 20,000, ,430, % 8.8% 2.3% 2.3% 100.0% 2.3 Convertible Note Terms under Heads of Agreement On 26 February 2014, the Company and the Investors entered into the Heads of Agreement whereby the following terms were agreed: (a) (b) (c) (d) (e) (f) The Company will issue Convertible Notes to the Investors in consideration for the advance of the principal sum of $1,000,000 (Principal Sum) to the Company. The interest payable on the Principal Sum will be 1% per annum. (c) The proceeds of the Convertible Notes will be used to repay the outstanding RMB Loan by an amount of not less than 500,000 (being $910,746.8 AUD when converted to AUD from GBP based on the exchange rate contained in the Independent Expert s Report of 0.549, any remainder from the $1million Principal Sum will also be applied to the outstanding RMB Loan). The parties agree that if the proceeds of the Convertible Notes are less than 500,000 due to the prevailing exchange rates, any deficiency will be paid by the Company. The Convertible Notes will be issued on the date on which the Investors delivers to the Company the Principal Sum and duly completed application forms. The Principal Sum and any interest payable must be repaid on the date which is 24 months after the date on which the Convertible Notes are issued, or such other date as agreed by the parties in writing (Repayment Date). The Investors may elect to convert the Convertible Notes (or a portion of the Convertible Notes) at any 8 SCOTGOLD

11 time from the date of issue of the Convertible Notes to the Repayment Date. The Convertible Notes will convert into ordinary fully paid shares in the capital of the Company (Conversion Shares) which will rank equally with the existing ordinary shares of the Company. (g) (h) (i) (j) (k) (l) (m) The Conversion Shares shall be issued upon the Investors providing the Company with a written conversion notice which specifies the portion of the Principal Sum to be converted (Conversion Notice). Each Conversion Share must be issued and allotted within 5 business days of the date on which a Conversion Notice is received by the Company. The conversion price will be AUD$ per Conversion Share (Conversion Price). Other than as provided in section 2.3(m)(i), if the Company raises new capital during the term of the Convertible Notes at a price below AUD$ per share, then the Conversion Price of the Convertible Shares will be adjusted to the issue price of the new capital raising. The Investors will have the first right of refusal in respect of any capital raisings conducted by the Company during the term of the Convertible Notes (excluding any bonus issues or rights issues). The Convertible Note Agreements and the Principal Sum under them will be secured against the Company s assets, including mineral leases and the Company s subsidiary, via security and charge documentation of a similar nature to, but subordinate and secondary to, RMB s existing security in respect of the RMB Loan. The Company must do all things which are necessary or desirable to ensure that each Conversion Share issued to the Investors upon conversion of the Convertible Notes will: (i) be quoted on ASX; and (ii) be freely tradeable without restriction, including by providing to ASX, before commencement of trading on the ASX on the day of issue of that share, a notice in accordance with section 708A(6) of the Corporations Act (Cleansing Statement). (iii) Unlisted options to acquire fully paid shares in the Company will be issued in the proportions set out in clause 2.3(k)(iv) below on a pro-rata basis per Conversion Share issued. Options are exercisable before 31 March 2016 at an exercise price of AUD$0.012 per option (Attaching Options). Based on AUD$1,000,000 of Convertible Notes and assuming conversion at AUD$ per Conversion Share, there will be 133,333,333 Attaching Options issued upon the full conversion of the Convertible Notes. For example, if only half of the Convertible Notes are converted into Conversion Shares, then only half of the respective Attaching Options will be issued at the time of conversion. The terms and conditions of the Attaching Options are set out in Schedule 3. (iv) Based on AUD$1,000,000 of Convertible Notes and assuming conversion at AUD$ per Conversion Share, the Principal Sum, Conversion Shares and Attaching Options in respect of each Investors member (or their nominees) will be subject to the following proportions: Nat le Roux: Principal Sum: AUD$780,000 Conversion Shares: 104,000,000 Attaching Options: 80,000,000 Richard Harris: Principal Sum: AUD$150,000 Conversion Shares: 20,000,000 Attaching Options: 45,333,333 Sandy Littlejohn: Principal Sum: AUD$70,000 Conversion Shares: 9,333,333 Attaching Options: 8,000,000 The parties agree that the Convertible Notes will only be issued for an aggregate value of not less than AUD$1,000,000. If the Company conducts a bonus issue or rights issue: (i) during the term of the Convertible Notes, the Conversion Price may only be altered in accordance with the formulas specified in ASX Listing Rules (for rights issues) and (for bonus issues); or NOTICE OF GENERAL MEETING AND EXPLANATORY MEMORANDUM I

12 (ii) before the expiry date of the Attaching Options, the exercise price of the Attaching Options (or the number of underlying shares in the Company over which the Attaching Options can be exercised) may only be altered in accordance with the formulas specified in ASX Listing Rules (for rights issues) and (for bonus issues). 2.4 Security Arrangements Details of the Security Arrangements in respect of the Convertible Notes are set out in section 3 below. 2.5 Placement Terms under Heads of Agreement On 26 February 2014, the Company and the Investors entered into the Heads of Agreement whereby the following terms were agreed: (a) (b) (c) Subject to satisfaction of the Conditions Precedent, and upon issue of the Convertible Notes, the parties agree that the Company will issue 50,000,000 fully paid ordinary shares at an issue price of AUD$ per share to Nat le Roux (or his nominee) to raise AUD$375,000 (Placement Shares). 50,000,000 free attaching unlisted options to acquire fully paid shares in the Company will be issued to Nat le Roux (or his nominee) upon the issue of the Placement Shares on the basis of one option per Placement Share. Options are exercisable before 31 March 2015 at an exercise price of AUD$0.012 per option (Placement Options). The terms and conditions of the Placement Options are set out in Schedule 4. The Company will apply for quotation of the Placement Shares in accordance with the ASX Listing Rules. 2.6 Conditions Precedent The issue of securities pursuant to the Convertible Note and the Placement is conditional upon the following (Conditions Precedent): (a) (b) (c) RMB s formal written agreement to extend at least 1,000,000 of the Company s existing RMB Loan until at least 1 July 2015; that from the date of the Heads of Agreement until completion of the Placement, the Company will not enter into any marketing, discussions or negotiations of any kind similar to or in relation to the transactions contemplated by this Heads of Agreement with anyone other than the Investors, except: (i) for any securities issued by the Company using its existing capacity to issue securities under ASX Listing Rules 7.1 and 71.A (calculated as at the date of this Heads of Agreement), as an excluded offer without disclosure under section 708 of the Corporations Act; and (ii) except with the written consent of the Investors; the Company obtaining all necessary shareholder, board and regulatory approvals and consents including but not limited to all approvals required in respect of: (i) the issue and conversion of the Convertible Notes; (ii) the issue of the Placement Shares; and (iii) the issue of the Attaching Options; (vi) the issue of the Placement Options (v) the Shares to be issued on exercise of the Attaching Options and Placement Options. The Investors have acknowledged and agreed that any approvals obtained under Item 7 of section 611 of the Corporations Act in respect of the transactions contemplated in the Heads of Agreement may need to be refreshed at the time any Shares are issued on the exercise of the Attaching Options and Placement Options, pursuant to the requirements of the Corporations Act and the Australian Securities and Investment Commission s Regulatory Guide SCOTGOLD

13 2.7 GM Consultancy Agreement Terms On 21 December 2013, the Company and Golden Matrix entered into the GM Consultancy Agreement whereby the following fees were agreed in respect of consultancy services provided by Golden Matrix for the introduction of new investors to the Company: (a) (b) 3.75% of funds raised payable in cash; 3.75% of funds raised payable in Shares; and The Company and Golden Matrix have agreed that Golden Matrix is to be paid a total of $103,124 as a consulting fee relating to the proposed transactions with the Investors under the Heads of Agreement. Of this fee, 50% ($51,562) is to be paid in cash and the balance ($51,562) is to be satisfied by the issue of the 6,874,933 Golden Shares at a deemed issue price of $ (the same as the conversion price of the Notes). Accordingly, Resolution 4 seeks Shareholder approval for the issue of up to 6,874,933 Shares Golden Matrix (or its nominee) as consideration for services provided under the GM Consultancy Agreement. Golden Matrix is an entity associated with Mr Richard Harris, of which he is the sole director and shareholder. As described in section 1.1 above and section below, Shareholder approval is being sought under section 208 (as the Investors are considered to be related parties of the Company) and item 7 of section 611 of the Corporations Act (out of an abundance of caution and to avoid any possibility that the Investors (or their nominees) are considered to be associated for the purpose of the prohibition in Chapter 6 of the Corporations Act, together with Golden Matrix (due to its connection with Investor Richard Harris)). 2.8 The Investor Group As stated above, the Heads of Agreement specifies that each Investor is acting independently and is not a partner, joint venture partner or Associate of any other Investor. Further, the Company considers that the Investors (or their nominees) are not associated with each other (pursuant to the Corporations Act definition of Associate) for the purposes of the prohibition in Chapter 6 of the Corporations Act. However, out of an abundance of caution and to avoid any possibility that the Investors (or their nominees) are considered to be associated for the purposes of Chapter 6 of the Corporations Act, the Company is seeking the approval of Shareholders under Item 7 of section 611 of the Corporations Act because the proposed issue of securities pursuant to Resolutions 1, 2 and 4 will result in the Investors (or their nominees), together with Golden Matrix, having a relevant interest in an aggregate of more than 20% of the voting shares in the Company. No other relevant parties are considered to be Associates of the Investors or have a relevant interest in the securities to be issued to the Investors. Further, as described below, the Investors are considered to be related parties of the Company for the purpose of section 228(6) of the Corporations Act. Section 228(6) of the Corporations Act provides that a person or entity is a related party of the Company if the person or entity believes or has reasonable grounds to believe that it is likely to become a related party of the Company at any time in the future. Accordingly, as a result of the Director Appointment clause contained in the Heads of Agreement (as described in section 1.2(e) above) the Investors are considered to be related parties of the Company for the purpose of section 228(6) of the Corporations Act. 2.9 Chapter 2E of the Corporations Act and ASX Listing Rule Chapter 2E of the Corporations Act requires that for a public company, or an entity that the public company controls, to give a financial benefit to a related party of the public company, the public company or entity must: (a) (a) obtain the approval of the public company s members in the manner set out in Sections 217 to 227 of the Corporations Act; and give the benefit within 15 months following such approval, unless the giving of the financial benefit falls within an exception set out in Sections 210 to 216 of the Corporations Act. NOTICE OF GENERAL MEETING AND EXPLANATORY MEMORANDUM I

14 In addition, ASX Listing Rule also requires shareholder approval to be obtained where an entity issues or agrees to issue securities to a related party or a person whose relationship with the entity or a related party is in ASX s opinion such that approval should be obtained unless an exception in ASX Listing Rule applies. ASX Listing Rule 10.12, Exception 7 provides an exception for securities issued on the conversion of convertible securities, if the entity complied with the Listing Rules at the time of issue of the convertible securities. It is the view of the Company that the exceptions set out in Sections 210 to 216 of the Corporations Act and ASX Listing Rule do not apply in the current circumstances. Accordingly, the grant of the Convertible Notes requires approval in order for the Company to rely on Listing Rule Exception 7 for the issue of the subsequent issue of the Conversion Shares and Attaching Options, and the issue of the Shares and Options listed above to the Investors and Golden Matrix requires the Company to obtain Shareholder approval under Chapter 2E of the Corporations Act because: (a) (b) the issue of the Shares and Options may constitute giving a financial benefit; and as a result of the Director Appointment clause contained in the Heads of Agreement (as described in section 1.2(e) above) each of the Investors, being Nat le Roux, Richard Harris and Alexander Littlejohn, are considered to be related parties of the Company for the purpose of section 228(6) of the Corporations Act. Further, Golden Matrix Holdings Pty Ltd is also considered to be a related party of the Company for this purpose (due to its association with Richard Harris). Accordingly, Shareholder approval is sought for the issue of the Shares and Options in respect of the Convertible Note and Placement to the Investors and for the issue of Shares to Golden Matrix Technical information required by Chapter 2E of the Corporations Act and ASX Listing Rule Pursuant to and in accordance with the requirements of Sections 219 of the Corporations Act, the following information is provided in relation to the proposed issue of Shares and Options under Resolutions 1, 2 and 4: 12 (a) (b) (c) (d) (e) (f) (g) SCOTGOLD the related parties are Nat le Roux, Richard Harris, Alexander Littlejohn and Golden Matrix, for the reasons set out in section 2.9 above; the maximum amount of Shares and Options (being the nature of the financial benefit) to be provided to the Investors (or their nominees) and Golden Matrix is set out in the table contained in section 2.2 above; the issue price of the Shares and Options is set out in sections 2.1, 2.3, 2.5 and 2.7 above; the Attaching Options and Placement Options will be granted for nil cash consideration, accordingly no funds will be raised; the terms and conditions of the Attaching Options are set out in Schedule 3 and the terms and conditions of the Placement Options are set out in Schedule 4; the total funds subscribed for and to be received by the Company in respect of the Notes is the total face value of Notes, being $1million. Based on the Conversion Price, the total value of the Conversion Shares is $1million, comprised of the amounts advanced by each Investor as described in section 2.3(k)(iv) above. However, the Company notes that the Conversion Price of the Conversion Shares was based on the Company s Share price as at the time that the Heads of Agreement was entered into. Accordingly, the ultimate value of the Conversion Shares (but not the Conversion Price) is subject to change depending on the rise or fall of the price of the Company s Shares traded on ASX, which, at any given point, may be less than or more than the Conversion Price; the value of the Attaching Options and the pricing methodology is set out in Schedule 3A. Using the Black-Scholes options pricing method, the total value of the Attaching Options is $732,533, being $ per Attaching Option, based on the assumptions listed below: (i) a valuation date of 3 June 2014; (ii) a current market price of $0.007 per Share. Shareholders should also note that the market price of Shares during the term of the Attaching Options will affect the value of the financial benefit provided to the optionholders; (iii) an interest rate of a two year Australian Government bond, being 2.63% per annum;

15 (vi) an Option term of approximately 1 year, 8 months and 15 days (being an expiry date of 31 March 2016); and (v) a Share price volatility of 210%; (h) (i) (j) (k) (l) (m) (n) (o) (p) (q) (r) (s) (h) the value of the Placement Shares is the total amount of funds raised under the Placement, being AUD$375,000 (via the issue of 50,000,000 fully paid ordinary shares at an issue price of AUD$ per share to Nat le Roux (or his nominee)). However, the Company notes that the issue price of the Placement Shares was based on the Company s Share price as at the time that the Heads of Agreement was entered into. Accordingly, the ultimate value of the Placement Shares (but not their issue) is subject to change depending on the rise or fall of the price of the Company s Shares traded on ASX, which, at any given point, may be less than or more than the issue price of the Placement Shares; the value of the Placement Options and the pricing methodology is set out in Schedule 3A. Using the Black-Scholes options pricing method, the total value of the Placement Options is $182,250, being $ per Placement Option, based on the assumptions listed below: (i) a valuation date of 3 June 2014; (ii) a current market price of $0.007 per Share. Shareholders should also note that the market price of Shares during the term of the Placement Options will affect the value of the financial benefit provided to the optionholders; (iii) an interest rate of a two year Australian Government bond, being 2.63% per annum; (vi) an Option term of approximately 8 months (being an expiry date of 31 March 2015); and (v) a Share price volatility of 210%; the value of the Golden Matrix Shares has been attributed to the amount fees for which the Shares are being issued pursuant to the GM Consultancy Agreement, being $51,562 (via the issue of the 6,874,933 Golden Shares at a deemed issue price of $ (the same as the conversion price of the Notes) to Golden Matrix (or its nominee ). the relevant interests of the parties receiving the Shares and Options in the Company is set out in the table in section 2.2 above; as the Director Appointment referred to in section 1.2(e) above are subject to the Conditions Precedent, the nominees are yet to be appointed to the Board and accordingly, have not received any remuneration or emoluments in the last financial year; the dilutionary effect of Resolution 1, 2 and 4 is set out in the table in section 1.4 above; the market price for Shares during the term of the Attaching Options and Placement Options would normally determine whether or not the Options are exercised. If at any time any of the Attaching Options and Placement Options are exercised and the Shares are trading on ASX at a price that is higher than the exercise price of the Performance Options, there may be a perceived cost to the Company. the Shares and Options to be issued under Resolutions 1 and 2 are being issued in accordance with the terms and conditions of the Heads of Agreement described above. subject to the satisfaction of the Conditions Precedent under the Heads of Agreement, the Investors delivering to the Company the Principal Sum and duly completed application forms (following shareholder approval) the Convertible Notes will be granted as soon as possible and no later than 1 month after the date of the Meeting (or such later date as permitted by an ASX waiver or modification of the ASX Listing Rules). the Golden Matrix Shares to be issued under Resolution 4 are being issued in accordance with the terms and conditions of the GM Consultancy Agreement described above; the Golden Matrix Shares will be issued no later than 1 month after the date of the Meeting (or such later date as permitted by an ASX waiver or modification of the ASX Listing Rules). based on the information available, including that contained in this Explanatory Memorandum, all of the Directors consider that Resolutions 1, 2 and 4 are in the best interests of the Company and recommend that Shareholders vote in favour of Resolutions 1, 2 and 4 for the following reasons: NOTICE OF GENERAL MEETING AND EXPLANATORY MEMORANDUM I

16 (i) the transactions under the Heads of Agreement being part of the only funding solution capable of being completed by the Company in current market conditions given the Company s specific circumstances, including the stage of its project and the near term expiry of the RMB Loan; and (ii) for the reasons set out in the Independent Expert s Report, the Independent Expert has determined that the transactions under Resolutions 1, 2 and 4 are fair and reasonable to non-associated shareholders; and (t) the Directors are not aware of any other information (other than set out in this Explanatory Memorandum) that would be reasonably required by Shareholders to allow them to make a decision whether it is in the best interests of the Company to pass Resolutions 1, 2 and Corporations Act Item 7 of Section Summary Except as provided by Chapter 6 of the Corporations Act, section 606(1) of the Corporations Act prohibits a person from acquiring shares in a company if, after that acquisition, that person or any other person would have a relevant interest or voting power in excess of 20% of the voting shares in that company. Item 7 of Section 611 provides that section 606(1) of the Corporations Act does not apply to an acquisition of a relevant interest in the voting shares of a company if the company has agreed to the acquisition by resolution passed at a general meeting to which no votes are cast in relation to the resolution by the person to whom the shares are to be issued or by an associate of that person. Under section 610 of the Corporations Act, a person s voting power is defined as the percentage of the total voting shares in the Company held by the person and the person s associates Associate Subject to specified exclusions, a person (second person) will be an associate of the other person (first person) if: (a) (b) (c) (d) the first person is a body corporate and the second person is: (i) a body corporate the first person controls; (ii) a body corporate that controls the first person; or (iii) a body corporate that is controlled by an entity that controls the first person; or the second person has entered or proposed to enter in a relevant agreement with the first person for the purpose of controlling or influencing the composition of the Company s board or the conduct of the Company s affairs; or the second person is a person with whom the first person is acting or proposed to act, in concert in relation to the Company s affairs; or the first person is a body corporate and the second person is: (i) a director or secretary of the body; or (ii) a Related Body Corporate; or (iii) a director or secretary of a Related Body Corporate. An entity controls another entity if it has the capacity to determine the outcome of decisions about that other entity s financial and operating policies. 14 SCOTGOLD

17 Relevant interest Pursuant to Section 608(1) of the Corporations Act, a person has a relevant interest in securities if they: (a) (b) (c) are the holder of the securities; have the power to exercise, or control the exercise of, a right to vote attached to the securities; or have power to dispose of, or control the exercise of a power to dispose of, the securities. It does not matter how remote the relevant interest is or how it arises. If two or more people can jointly exercise one of these powers, each of them is taken to have that power. Pursuant to Section 608(3) of the Corporations Act, a person is deemed to have a relevant interest in securities that a company has if their voting power in the company is above 20% or they control the company. The voting power of a person is determined under section 610 of the Corporations Act. It involves calculating the number of voting shares in the company in which the person and the person s Associates have a relevant interest. As stated above, the Heads of Agreement specifies that each Investor is acting independently and is not a partner, joint venture partner or Associate of any other Investor. Further, the Company considers that the Investors (or their nominees) are not associated with each other (pursuant to the Corporations Act definition of Associate) for the purposes of the prohibition in Chapter 6 of the Corporations Act. However, out of an abundance of caution and to avoid any possibility that the Investors (or their nominees) are considered to be associated for the purposes of Chapter 6 of the Corporations Act, the Company is seeking the approval of Shareholders under Item 7 of section 611 of the Corporations Act because the proposed issue of securities pursuant to Resolutions 1, 2 and 4 will result in the Investors (or their nominees), together with Golden Matrix, having a relevant interest in an aggregate of more than 20% of the voting shares in the Company. No other relevant parties are considered to be Associates of the Investors or have a relevant interest in the securities of the Investors Item 7 of Section 611 There are various exceptions to the prohibition in section 606 of the Corporations Act. Section 611 of the Corporations Act contains a table setting out circumstances in which acquisitions of relevant interests are exempt from the prohibition. Item 7 of section 611 of the Corporations Act provides an exception to the prohibition in section 606(1) if an acquisition is approved previously by a resolution passed by shareholders at a general meeting of the Company. The parties involved in the acquisition and their Associates are not able to cast a vote on the resolution. The issue of the Shares (on conversion of the Convertible Note or exercise of the Attaching Options), and the issue of the Placement Shares (and Shares on exercise of the Placement Options) will result in the Investors having a relevant interest in aggregate of more than 20% of the voting shares in the Company (as set out in the table in section 2.2 above). Accordingly, the Company is seeking the approval of Shareholders under Item 7 of Section 611 of the Corporations Act in respect of the Investors and their nominees. At the date of the Notice of Meeting, neither Investors nor any of their Associates held any Shares in the Company other than the First Placement Shares (as set out in in capital structure table in Schedule 2). If Resolutions 1, 2 and 4 are passed, the issue of Shares (on conversion of the Note or exercise of the Options) to the Investors or their Associates, pursuant to those Resolutions will give the Investors and their Associates a relevant interest in an aggregate of more than 20% of the voting shares in the Company. As set out in the Voting Exclusion Statements in the Notice of Meeting and in accordance with the Listing Rules, the Investors and their respective Associates are precluded from voting on Resolutions 1, 2 and 4. NOTICE OF GENERAL MEETING AND EXPLANATORY MEMORANDUM I

18 Assumptions The figures in the following section assume that: (a) (b) (c) (d) (e) the Company has 483,889,318 Shares on issue and does not issue any additional Shares other than: (i) the securities to be issued under Resolutions 1 and 2, being the Conversion Shares, the Placement Shares and the Shares to be issued on exercise of the Attaching Options and Placement Options issued to the Investors; and (ii) the securities to be issued under Resolutions 4 and 5, being the Golden Matrix Shares and Director Shares. all of the Note (i.e. $1,000,000, being the Principal Sum) is converted at $ (unless converted in accordance with section 2.3(m)(i)), accordingly, the Conversion Price could vary from $ per Share stated in this Explanatory Memorandum. If the conversion price was lower than $ the Investors would be entitled to be issued with a larger number of Shares than specified above. However, if the ultimate conversion price is lower than $0.0075, the Company cannot issue more than the maximum number of Shares set out below unless further shareholder approval is sought and obtained; all of the Attaching Options and Placement Options are converted into Shares; the Convertible Note is converted in full on or before the Repayment Date and all Interest is or has been paid and thus not converted into Shares on this date (with the Company having not elected to repurchase all or any part of the Convertible Note prior to this date); the Company does not issue any additional Shares (other than specified in 2.10(a)) prior to the Repayment Date; and (f) The Investors do not acquire any additional Shares other than those referred to in Resolutions 1 and 2 (and Resolution 4 in respect of Richard Harris) ASIC Regulatory Guide 74 The following information is included in accordance with the requirements of Item 7 of section 611 of the Corporations Act and ASIC Regulatory Guide 74 to the extent it applies pursuant to ASIC Regulatory Guide Identity of Person who will hold a relevant interest in the securities to be issued If Resolutions 1, 2 and 4 are passed, the following Shares are proposed to be issued to the Investors (or their nominees): Type of Security Total Shares Conversion Shares 133,333,333 Shares on exercise of Attaching Options 133,333,333 Placement Shares 50,000,000 Shares on exercise of Placement Options 50,000,000 Golden Matrix Shares 6,874,933 TOTAL 373,541,599 The Shares to be issued to each Investor are set out in sections 2.1 and 2.2 above Impact of the transactions on the Voting Power in the Company s Shares (a) The Company s capital structure Once the securities issue proposed in Resolutions 1, 2 and 4 have been completed, the capital structure of the Company will consist of: (i) 857,430,917 Shares; and (ii) 36,486,494 existing unlisted Options (but excluding the Attaching Options and Placement Options referred to in under Resolutions 1 and 2). 16 SCOTGOLD

19 The number of Shares includes the Conversion Shares and Placement Shares but excludes any further Shares issued (including as a result of Resolutions 5 and 6). (b) (c) (d) (e) (f) (g) (h) Current voting power of the Investors As at the date of the Notice of Meeting, the parties comprising the Investors and their Associates (including Golden Matrix) have a relevant interest in 63,000,000 Shares and their voting power is 13%. Voting power of the Investors and their Associates (assuming all Conversion Shares and Placement Shares are issued, and all Attaching Options and Placement Options are exercised) The voting power of each of the Investors (and Golden Matrix) as a result of Resolutions 1, 2 and 4 is set out in section 2.2 above. The maximum increase in the voting power of the Investors and their Associates as a result of Resolutions 1, 2 and 4 will be 37.8%, being a total voting power of 50.9%. Intentions as to the Future of the Company Shareholders should be aware that the Investors have the right, but not the obligation to convert the Note into Shares. At this time, the Investors have not determined if it will convert the Note into Shares if Shareholders approve the conversion of the Note. Subject to the above paragraph, the present intentions of the Investors regarding the future of the Company, if Resolutions 1, 2 and 4 in the Notice of Meeting are approved by Shareholders: (i) Maintain the Company s ongoing business and operations. (ii) Review the Company s work plans and funding requirements to determine if any additional capital is required to advance the Cononish Project. (iii) Except as set out in the previous paragraphs, the Investors have no present intentions to change the business of the Company, or to otherwise redeploy the fixed assets of the Company. (vi) There are no proposals whereby any property will be transferred between the Company and the Investors or any person associated with the Investors or the Company. Financial and Dividend Policies of the Company There is no immediate intention of the Investors to change the financial or dividend policies of the Company. Proposal is fair and reasonable The Expert s Report concludes that the proposed issue of Shares under Resolutions 1, 2 and 4 set out in this Explanatory Memorandum is fair and reasonable to non-associated Shareholders. You should consider the Expert s Report in detail. Advantages Conversion of the Note would reclassify the Note from debt to equity. This would, in turn, replace the Investors obligatory cost of debt (i.e interest on the Note) with a discretionary cost of equity (i.e dividends to Shareholders). The conversion of the Note would therefore reduce the Company s fixed finance costs. The Company s Directors have actively sought alternative sources of funding, pursuant to their fiduciary duties, and have found no alternatives more favourable than the terms offered under the Note. Placements were completed in September 2013 and March 2014, together with a Rights Issue in December 2014, comprising of a total of $1,556,142 being raised. However despite exhaustive efforts, the directors of the Company have been unable to secure any further capital raisings or other funding proposals other than the Convertible Note under the Heads of Agreement. Disadvantages If the conversion of the Note and Placement is approved, the Investors will potentially hold at least 50.9% of the issued shares of the Company. NOTICE OF GENERAL MEETING AND EXPLANATORY MEMORANDUM I

20 (i) Directors Recommendation Based on the information available, including that contained in this Explanatory Memorandum, all of the Directors consider that Resolutions 1, 2 and 4 are in the best interests of the Company and recommend that Shareholders vote in favour of Resolutions 1, 2 and 4 for the reasons set out in section 2.9.1(s) ASIC and ASX s Role For the purposes of Resolutions 1, 2 and 4, in accordance with Regulatory Guide 74, the Company must lodge the Notice of Meeting and the Explanatory Memorandum with the ASIC before the notice convening a general meeting is given. Approval under Listing Rule 7.1 for the issue of the Shares proposed under Resolutions 1, 2 and 4 is not required by virtue of Exception 16 of Listing Rule 7.2, because approval is sought under Item 7 of section 611 of the Corporations Act. The fact that the accompanying Notice of Meeting, this Explanatory Memorandum and other relevant documentation has been reviewed by ASX and ASIC is not to be taken as an indication of the merits of the Resolutions or the Company. ASIC, ASX and its respective officers take no responsibility for any decision a Shareholder may make in reliance on any of that documentation. 3 RESOLUTION 3 APPROVAL OF SECURITY ARRANGEMENTS 3.1 Background As specified in section 1.2(c) above, it is a term of the Heads of Agreement that the Convertible Note and the Principal Sum under them will be secured against the Company s assets, including mineral leases and the Company s subsidiary, via security and charge documentation of a similar nature to, but subordinate and secondary to, RMB s existing security in respect of the RMB Loan (Security Arrangements). The Security Arrangements will include the Company entering into charge with the Investors pursuant to which the Company will grant to the Investors a fixed and floating charge over the present assets of the Company (Charge). The material terms of the Charge are as follows: (a) (b) (c) (d) The Charge will be entered into to secure the payment of any money that may become owing to the Investors in respect of the Convertible Note. The maximum prospective liability under the Charge will be $1,000,000 plus any Interest owing on the Note. It is intended that the Charge is entered into by the Company and each Investor. The Charge will be subordinate and secondary to RMB s existing security over the Company s assets in respect of the RMB Loan. The terms and conditions contained in the Charge will otherwise be standard for a document of this nature. 3.2 Chapter 2E of the Corporations Act The requirements of Chapter 2E of the Corporations Act are set out in section 2.9 above. It is the view of the Company that the exceptions set out in Sections 210 to 216 of the Corporations Act and ASX Listing Rule do not apply in the current circumstances. Accordingly the Security Arrangements and the grant of the Charge require the Company to obtain Shareholder approval because: (a) (b) the entry into the Security Arrangements and the grant of the Charge in favour of the Investors may constitute giving a financial benefit; and as a result of the Director Appointment clause contained in the Heads of Agreement (as described in section 1.2(e) above) each of the Investors, being Nat le Roux, Richard Harris and Alexander Littlejohn, are considered to be related parties of the Company for the purpose of section 228(6) of the Corporations Act. Accordingly, Shareholder approval is sought for the Security Arrangements and the grant of the Charge in favour of the Investors. 18 SCOTGOLD

21 3.2.1 Technical information required by Chapter 2E of the Corporations Act Pursuant to and in accordance with the requirements of Sections 219 of the Corporations Act, the following information is provided in relation to the proposed Security Arrangements and Charge under Resolution 3: (a) (b) (c) (d) (e) (f) the related parties are Nat le Roux, Richard Harris and Alexander Littlejohn for the reasons set out in section 3.2 above; the nature of the financial benefit is the entry into and benefit conferred by the Security Arrangements, including the grant of the Charge in favour of the Investors, as described above; the maximum prospective liability (and attributable value) under the Charge will be $1,000,000 plus any Interest owing on the Note; the relevant interests of the Investors is set out in the table in section 2.2 above, as a result of the transactions under Resolutions 1, 2 and 4, the Investors will hold a total voting power of 50.9%; as the appointment of the nominees of the Investors is subject to the Conditions Precedent, the nominees are yet to be appointed to the Board and accordingly, have not received any remuneration or emoluments in the last financial year; based on the information available, including that contained in this Explanatory Memorandum, all of the Directors consider that Resolution 3 is in the best interests of the Company and recommend that Shareholders vote in favour of Resolution 3; and (g ) the Directors are not aware of any other information (other than set out in this Explanatory Memorandum) that would be reasonably required by Shareholders to allow them to make a decision whether it is in the best interests of the Company to pass Resolution ASX Listing Rule 10.1 requirements ASX Listing Rule 10.1 provides that a listed company (or any of its child entities) must not acquire a substantial asset from, or dispose of a substantial asset to, specified persons or companies without the approval of Shareholders at a general meeting Substantial asset An asset is treated as a substantial asset if its value or the value of the consideration for it is, or in ASX s opinion is, 5% or more of the listed company s equity interests as set out in the latest financial statements given to ASX under the ASX Listing Rules. A listed company s equity interests are the sum of paid up capital, reserves, and accumulated profits or losses, disregarding redeemable preference share capital and outside equity interests. The Charge requires the granting of security over all of the Company s assets, including the Cononish Project. The giving of such security by the Company in favour of the Investors is deemed, under ASX Listing Rule 10.1, to be a disposal of assets to which ASX Listing Rule 10.1 may apply. As such, Shareholder approval is sought under ASX Listing Rule Substantial shareholder (or Associate) The specified persons or companies to whom ASX Listing Rule 10.1 applies include a substantial holder in the listed company who either alone or together with its Associates has a relevant interest, or had a relevant interest at any time in the six months before the transaction, of at least 10% of the total votes attached to the listed company s voting securities. For the purposes of ASX Listing Rule 10.1, an Associate includes an entity that controls a body corporate. For the purposes of ASX Listing Rule 10.1, the Investors are substantial holders because as at the date of this Notice, they (on aggregate) hold in excess of 10% of the issued Shares in the Company. Further, upon the issue of securities the subject of Resolutions 1, 2 and 4, the Investors will (on aggregate) be the registered holder of 50.9% of the issued capital of the Company (being a total voting power of 50.9%) Requirement for shareholder approval On the basis that: (a) the granting of the security interest over the Company s Cononish Project is considered a disposal of a substantial asset; and NOTICE OF GENERAL MEETING AND EXPLANATORY MEMORANDUM I

22 (b) the Investors are substantial shareholders of the Company, the Company is required to seek Shareholder approval under ASX Listing Rule 10.1 in respect of entering into the Security Arrangements Advantages and disadvantages of entering into the Security Arrangements The Directors are of the view that the following non-exhaustive list of advantages may be relevant to a Shareholder s decision on how to vote on Resolution 3: (a) (b) (c) (d) the Company will have the funding to continue to progress exploration, modelling and development of the Company s Cononish Project; the Convertible Note gives the Company the opportunity to fund its exploration and development activity without being required to seek equity funds at a time when equity markets are depressed; if the Charge proposed by Resolution 3 is not approved, the Company will not be able to meet its obligations in relation to the Convertible Notes and will be forced to source alternative funding arrangements. As conditions in capital markets remain difficult, it is possible that any such alternate capital raising may be on less attractive terms than the Convertible Note, and may involve the issue of securities at a significant discount to market; and as at the date of this Notice, the Directors have not received any alternative funding proposals more advantageous to the Company than the transaction proposed under Resolution 3. The Directors are of the view that the following non-exhaustive list of disadvantages may be relevant to a Shareholder s decision on how to vote on Resolution 3: (a) (b) the Security Arrangements reduce the flexibility of potential divestment or capital raisings in the future; and the liabilities associated with the Security Arrangements may make the Company less attractive as a potential takeover target. 3.5 Director s recommendation Based on the information available, including that contained in this Explanatory Memorandum, the Directors consider that Resolution 3 is in the best interests of the Company and recommend that Shareholders vote in favour of Resolution 3 for the following reasons: (a) (b) after assessment of the advantages and disadvantages referred to in Section 3.4 of this Explanatory Memorandum the Directors are of the view that the advantages outweigh the disadvantages; and the Independent Expert has determined the Convertible Note and the Security Arrangements to be fair and reasonable to the non-associated Shareholders. If the Shareholders do not approve the Company entering into the Security Arrangements, the transactions under the Heads of Agreement will not go ahead and the Company will continue to seek other sources of funding and work on the Company s current assets. The Board considers that there is no current alternative to entering into the Security Arrangements other than to not enter into the Convertible Note transaction under the Heads of Agreement, continue to seek other sources of funding and continue to invest in the Company s current assets. However, for the reasons outlined above, the Directors believe that the transaction under the Heads of Agreement and entering into the Security Arrangements is in the best interest of Shareholders. 3.6 Independent Expert s Report In accordance with the requirements of ASX Listing Rule , the Company has commissioned Stantons International provide an independent expert s report on the Acquisition, which incorporates the entering into of the Security Agreements. The Independent Expert s Report sets out a detailed examination of the Security Agreements to enable non-associated Shareholders to assess the merits of, and decide whether to approve, the Security Agreements. The Independent Expert s Report concludes that, on balance, the Security Agreements are fair and reasonable to the non-associated Shareholders (the non-associated Shareholders being Shareholders that are not associated with the Investors). 20 SCOTGOLD

23 Shareholders are urged to read carefully the Independent Expert s Report to understand its scope, the methodology of the assessment, the sources of information and the assumptions. A voting exclusion statement in respect of Resolution 3 is set out in the Notice of Meeting. Other than as set out in the Explanatory Memorandum, there is no further information which the Shareholders would reasonably require in order to decide whether or not it is in the Company s best interests to pass Resolution RESOLUTION 5 RATIFICATION OF PRIOR ISSUE OF SECURITIES 4.1 General On: (a) (b) 24 March 2014 the Company issued 6,149,275 Shares at an issue price of $ per Share to raise $50,270 pursuant to Listing Rule 7.1A; 3 March 2014 the Company issued 90 million Shares, including 60 million shares as described in 1.2(a), at an issue price of $ per Share to raise $675,000, being the First Placement described under the Heads of Agreement, of these Shares: (i) 57,689,565 were issued pursuant to Listing Rule 7.1; and (ii) 32,310,435 were issued pursuant to Listing Rule 7.1A. (Previous Placements). Resolution 5 seeks Shareholder ratification pursuant to ASX Listing Rule 7.4 for the issue of the Shares under the Previous Placements (Placement Ratification). ASX Listing Rule 7.1 provides that a company must not, subject to specified exceptions, issue or agree to issue more equity securities during any 12 month period than that amount which represents 15% of the number of fully paid ordinary securities on issue at the commencement of that 12 month period. ASX Listing Rule 7.1A provides that an Eligible Entity may seek Shareholder approval at its annual general meeting to allow it to issue Equity Securities up to 10% of its issued capital over a period up to 12 months after the annual general meeting. This extra 10% capacity is in addition of the Company s 15% capacity under ASX Listing Rule 7.1. The Company confirms that it is an Eligible Entity and that it obtained approval from Shareholders at its last annual general meeting for this placement capacity in accordance with the ASX Listing Rules. ASX Listing Rule 7.4 sets out an exception to ASX Listing Rule 7.1. It provides that where a company in general meeting ratifies the previous issue of securities made pursuant to ASX Listing Rule 7.1 (and provided that the previous issue did not breach ASX Listing Rule 7.1) those securities will be deemed to have been made with shareholder approval for the purpose of ASX Listing Rule 7.1. By ratifying this issue, the Company will retain the flexibility to issue equity securities in the future up to the 25% annual placement capacity set out in ASX Listing Rule 7.1 and 7.1A without the requirement to obtain prior Shareholder approval. 4.2 Technical information required by ASX Listing Rule 7.4 Pursuant to and in accordance with ASX Listing Rule 7.5, the following information is provided in relation to the Previous Placements: (a) (b) (c) (d) A total of 96,149,275 Shares were issued, with 57,689,565 Shares being issued pursuant to ASX Listing Rule 7.1 and 38,459,710 being issued under ASX Listing Rule 7.1A; the issue prices are set out in section 4.1 above; the Shares issued were all fully paid ordinary shares in the capital of the Company issued on the same terms and conditions as the Company s existing Shares; as announced by the Company on 24 March 2014 and 3 March 2014, the allottees were professional and sophisticated investors whom the Company could issue the Previous Placement Shares without the requirement for a disclosure document under section 708 of the Corporations Act. None of these NOTICE OF GENERAL MEETING AND EXPLANATORY MEMORANDUM I

24 subscribers are related parties of the Company; and (e) the Company has used the funds raised (and intends to use any remaining funds) from the Previous Placements for the following purposes: (i) maintaining the Company s ongoing business and operations; and (i) general working capital. 5. RESOLUTION 6 ISSUE OF SHARES TO DIRECTORS 5.1 General The Company has agreed subject to obtaining Shareholder approval to allot and issue 18,765,318 Shares in the following manner: (a) (b) (c) 10,269,353 Shares to John Bentley (or his nominees); 5,477,215 Shares to Chris Sangster (or his nominees); and 3,018,750 Shares to Phillip Jackson (or his nominees), on the terms and conditions set out below. 5.2 Chapter 2E of the Corporations Act and ASX Listing Rule The requirements of Chapter 2E of the Corporations Act and ASX Listing Rule are set out in section 2.9 above. The issue of the Shares constitutes giving a financial benefit and John Bentley, Chris Sangster and Phillip Jackson are related parties of the Company by virtue of being directors of the Company. It is the view of the Company that the exceptions set out in Sections 210 to 216 of the Corporations Act and ASX Listing Rule do not apply in the current circumstances. Accordingly, Shareholder approval is sought for the issue of Shares pursuant to Resolution 5. As the Directors have a material personal interest in the issue of the Shares, the Company seeks approval under section 195 of the Corporations Act so that the Shareholders may pass a resolution to deal with this matter. 22 SCOTGOLD

25 5.2.1 Technical information required by Chapter 2E of the Corporations Act and ASX Listing Rule Pursuant to and in accordance with the requirements of Section 219 of the Corporations Act and ASX Listing Rule 10.13, the following information is provided in relation to the proposed issue of the Shares: (a) (b) (c) (d) (e) (f) the related parties are John Bentley, Chris Sangster and Phillip Jackson (or their nominees) and they are related parties by virtue of being directors of the Company: the maximum number of Shares (being the nature of the financial benefit being provided) to be granted is: (i) 10,269,353 Shares to John Bentley (or his nominees); (ii) 5,477,215 Shares to Chris Sangster (or his nominees); and (iii) 3,018,750 Shares to Phillip Jackson (or his nominees); the Shares will be granted to the allottees no later than 1 month after the date of the Meeting (or such later date as permitted by any ASX waiver or modification of the ASX Listing Rules) and it is anticipated the Shares will be issued on one date; as the Shares are being issued in lieu of cash payment of outstanding directors fees, the Shares will be granted for nil cash consideration, accordingly no funds will be raised; the Shares being issued are fully paid ordinary shares on the same terms and conditions of the Company s existing ordinary Shares; the issue price of the Shares will be 1c per Share, and accordingly, the value of the financial benefit is $187,653.18, as follows: Related Party Shares Value of Financial Benefit Chris Sangster 5,477,215 John Bentley 102, Phillip Jackson 3,018,750 (g) $54, (in lieu of $23, owed for the financial year ending 30 June 2012 and $31, for the financial year ending 30 June 2014) $102, (in lieu of $13, owed for the financial year ending 30 June 2013 and $89, for the financial year ending 30 June 2014) $30, (in lieu of $30, owed for the financial year ending 30 June 2014 including GST) the relevant interests of the allottees in securities of the Company are set out below: Related Party Shares Options Chris Sangster 11,266,938 1 Nil John Bentley 3,434,375 2 Nil Phillip Jackson 1,312,500 3 Nil 1. Of these Shares, 7,243,186 are held by Giltspur Nominees Ltd 2. Of these Shares, 1,158,125 are held by Smith & Williamson Nominees Limited 3. Of these Shares, 1,120,000 are held by Holihox Pty Ltd NOTICE OF GENERAL MEETING AND EXPLANATORY MEMORANDUM I

26 (h) the remuneration and emoluments for the current directors over the two previous financial years, and the proposed remuneration and emoluments for the current financial year are set out below: Related Party Current Financial Year Ending 30 June 2014 (AUD) ex GST Previous Financial Year Ending 30 June 2013 (AUD) ex GST Previous Financial Year Ending 30 June 2012 (AUD) ex GST Chris Sangster 1 241, , ,244 2 John Bentley 1 89, , ,250 Phillip Jackson 30, ,000 42, Chris Sangster s and John Bentley s remuneration for the current financial year has been converted to AUD from GBP based on the exchange rate contained in the Independent Expert s Report, being As stated in section 5.2.1(f) above, the Shares to be issued to Chris Sangster under this resolution are issued in lieu of $23, owed for the financial year ending 30 June 2012 and $31, for the financial year ended 30 June As stated in section 5.2.1(f) above, the Shares to be issued to John Bentley under this resolution are issued in lieu of $13, owed for the financial year ending 30 June 2013 and $89,522 for the financial year ending 30 June As stated in section 5.2.1(f) above, the Shares to be issued to Phillip Jackson under this resolution are issued in in lieu of $30, owed for the financial year ending 30 June 2014 including GST. (i) (j) a total of 18,765,318 Shares will be issued under Resolution 6. Assuming Resolutions 1-4 are passed, and the securities under those resolutions are issued, the Shares issued under Resolution 6 will increase the number of Shares on issue from 857,430,917 to 876,196,235 (assuming that no other Options are exercised and no shares other than those contemplated by the Resolutions of this Notice are issued) with the effect that the shareholding of existing Shareholders would be diluted by an aggregate of 1.02%. the trading history of the Shares on ASX in the 12 months before the date of this Notice is set out below: Price Date (k) (l) Highest 1.91 cents 30 August 2013 Lowest 0.5 cents 10, 13 and 14 January 2014 Last 0.8 cents 20 June 2014 (m) the primary purposes for the grant of the Shares pursuant to Resolution 6 is in lieu of compensation for past services provided to the Company; and The Directors decline to make a recommendation to Shareholders in relation to Resolution 6 due to their material personal interest in the outcome of Resolution 6 on the basis that they are to be granted Shares should Resolution 6 be passed; and the Directors are not aware of any other information that would be reasonably required by Shareholders to allow them to make a decision whether it is in the best interests of the Company to pass Resolution 6. Approval pursuant to ASX Listing Rule 7.1 is not required in order to issue the Shares to the related parties as approval is being obtained under ASX Listing Rule Accordingly, the issue of the Shares to the related parties will not be included in the 15% calculation of the Company s annual placement capacity pursuant to ASX Listing Rule SCOTGOLD

27 SCHEDULE 1 DEFINITIONS In this Notice and the Explanatory Memorandum: means the currency of Great Britain, being British Pounds. $ means the currency of Australia, being Australian Dollars. Associate has the meaning described in section and as otherwise defined in the Corporations Act. ASX Listing Rules or Listing Rules means the listing rules of ASX. ASX means ASX Limited (ACN ) and, where the context permits, the Australian Securities Exchange operated by ASX. Attaching Options means the free attaching Options to be issued in connection with the Conversion Shares as described in section 2. Board means the board of Directors. Business Day means a day (other than a Saturday, Sunday or public holiday) on which banks are open for general banking business in Perth, Western Australia. Chair or Chairman means the person appointed to chair the Meeting conveyed by this Notice. Charge means the charge to be entered into by the Company and the Investors pursuant to the Heads of Agreement as described in section 3. Company, SGZ or Scotgold means Scotgold Resources Limited. Conversion Shares means the Shares to be issued on conversion of the Convertible Notes, as described in section 2.3. Convertible Note or Note means the convertible notes to be issued to the Investors under the terms and conditions of the Heads of Agreement, as described in section 2.3. Corporations Act means the Corporations Act 2001 (Cth). Directors means the board of directors of the Company. Explanatory Memorandum means the explanatory memorandum attached to the Notice. First Placement means the first placement issued to the Investors pursuant to the terms and conditions of the Heads of Agreement as described in section 1.2(a). GM Consultancy Agreement means the consultancy fee agreement between the Company and Golden Matrix Holding Pty Ltd dated on or about 21 December Golden Matrix means Golden Matrix Holdings Pty Ltd, an entity associated with Richard Harris, of which he is the sole director and shareholder. Heads of Agreement means the heads of agreement entered into by the Company and the Investors dated on or about 26 February Investors means Mr Nathaniel Nat le Roux, Mr Richard Harris and Mr Alexander Sandy Littlejohn and their Associates. Meeting or General Meeting has the meaning in the introductory paragraph of the Notice. Notice means this notice of general meeting. Options means options to acquire a Share. Placement means the second placement issued to Nat le Roux pursuant to the terms and conditions of the Heads of Agreement as described in sections 1.2(d) and 2. Placement Options means the free attaching Options to be issued under the Placement. Placement Shares means the Shares to be issued under the Placement. Proxy Form means the proxy form attached to the Notice. Relevant Interest has the meaning described in section , and as otherwise defined in the Corporations Act. Resolution means a resolution contained in the Notice. RMB Loan means the current loan agreement between the Company and RMB. RMB means Rand Merchant Bank. Schedule means a schedule to this Notice. Section means a section contained in this Explanatory Memorandum. Security Arrangements means the security arrangements to be entered into by the Company and the Investors in respect of the Convertible Note as described in section 3.1. Share means a fully paid ordinary share in the capital of the Company. Shareholder means a shareholder of the Company. Transaction means the transactions contemplated by the Heads of Agreement, including the First Placement, the Convertible Note and the Second Placement. WST means Western Standard Time, being the time in Perth, Western Australia. In this Notice and the Explanatory Memorandum words importing the singular include the plural and vice versa. NOTICE OF GENERAL MEETING AND EXPLANATORY MEMORANDUM I

28 SCHEDULE 2 PROFORMA CAPITAL STRUCTURE Investors (includes Golden Matrix) Cumulative Percentage Interest (%) Other shareholders Total Current Shares on issue at 6 May 2014 (after issue of shares under the First Placement and other share issues in February and March 2014) 63,000, % 420,889, ,889,318 Securities to be issued under Resolutions 1-4 Issue of Placement Shares to NLR only 50,000, ,000,000 Issue of shares to Golden Matrix (Resolution 4) 6,874, ,874,933 Total shares on issue after issue of Placement Shares and Golden Matrix Shares (Potential Shares on Issue) Potential issue of new Note Shares to the Investors on conversion of all of the Notes 119,874, % 420,889, ,764, ,333, ,333,333 Sub Total 253,208, % 420,889, ,097,584 Potential issue of new shares to NLR only on exercise of the Placement Options 50,000, ,000,000 Sub Total 303,208, % 420,889, ,097,584 Potential issue of new shares to the Investors on exercise of the Attaching Options 133,333, ,333,333 Potential number of shares on issue after issue of all shares to the Investors but before the exercise of existing share options 436,541, % 420,889, ,430,917 Director Shares to be issued under Resolution 6 John Bentley 0 10,269,353 10,269,353 Chris Sangster 0 5,477,215 5,477,215 Phillip Jackson 0 3,018,750 3,018,750 Total Shares on Issue if all Resolutions are passed 436,541, % 439,654, ,196,235 Total Options on Issue as at date of Meeting 0 36,486,494 36,486,494 Note does not take into account issue of Shares if the Company s current Options on issue are exercised. 26 SCOTGOLD

29 SCHEDULE 3 TERMS AND CONDITIONS OF ATTACHING OPTIONS Terms and Conditions of Attaching Options (Options) The Options entitle the holder to subscribe for Shares on the following terms and conditions: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) Each Option gives the Optionholder the right to subscribe for one Share. To obtain the right given by each Option, the Optionholder must exercise the Options in accordance with the terms and conditions of the Options. The Options will expire at 5:00 pm (WST) on 31 March 2016 (Expiry Date). Any Option not exercised before the Expiry Date will automatically lapse on the Expiry Date. The amount payable upon exercise of each Option will be $0.012 (Exercise Price). The Options held by each Optionholder may be exercised in whole or in part, and if exercised in part, multiples of 1,000 must be exercised on each occasion. An Optionholder may exercise their Options by lodging with the Company, before the Expiry Date: (i) a written notice of exercise of Options specifying the number of Options being exercised (Exercise Notice); and (ii) a cheque or electronic funds transfer for the Exercise Price for the number of Options being exercised; An Exercise Notice is only effective when the Company has received the full amount of the Exercise Price in cleared funds. Within 10 Business Days of receipt of the Exercise Notice accompanied by the Exercise Price, the Company will issue the number of Shares required under this Deed and conditions in respect of the number of Options specified in the Exercise Notice. The Options are transferable. All Shares issued upon the exercise of Options will upon issue rank pari passu in all respects with other Shares. The Company will not apply for quotation of the Options on ASX. If at any time the issued capital of the Company is reconstructed, all rights of an Optionholder are to be changed in a manner consistent with the Corporations Act and the ASX Listing Rules at the time of the reconstruction. There are no participating rights or entitlements inherent in the Options and Optionholders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Options. However, the Company will ensure that for the purposes of determining entitlements to any such issue, the record date will be at least 6 Business Days after the issue is announced. This will give Optionholders the opportunity to exercise their Options prior to the date for determining entitlements to participate in any such issue. An Option does not confer the right to a change in exercise price or a change in the number of underlying securities over which the Option can be exercised. ANNEXURE 3A VALUATION OF ATTACHING OPTIONS AND PLACEMENT OPTIONS The Attaching Options and Placement Options have been valued by Stantons International Securities Pty Ltd. Using the Black-Scholes option model and based on the assumptions set out below, the Attaching Options and Placement Options were ascribed the value contained in the following valuation. Please note that the values noted in the following valuation are not necessarily the market price that the Attaching Options and Placement Options could be traded at and is not automatically the market price for taxation purposes. NOTICE OF GENERAL MEETING AND EXPLANATORY MEMORANDUM I

30 PO Box 1908 West Perth WA 6872 Australia Level 2, 1 Walker Avenue West Perth WA 6005 Australia Tel: Fax: ABN: AFS Licence No: June 2014 The Directors Scotgold Resources Limited 24 Colin Street West Perth, WA 6005 Dear Sirs, At the request of Peter Newcomb (Company Secretary) on 3 June 2014 on behalf of Scotgold Resources Limited ( Scotgold Resources or the Company ), Stantons International Securities hereby sets out our technical valuation for the following options and shares: 1) Tranche 1 Options - 133,333,333 unlisted share options ( Options ) to be granted as follows:- a) 125,333,333 Options to Mr. Richard Harris and; b) 8,000,0000 Options to Mr. Alexander Littlejohn; 2) Tranche 2 Options - 50,000,000 unlisted share placement options ( Options ) to be granted to Mr. Nathaniel le Roux. The grant of the above Options is subject to the approval of its shareholders at a Scotgold Resources General Meeting to be held on or around 16 July Tranche 1 and 2 Options Valuations In arriving at the below mentioned Tranche 1 and 2 Options valuations, we have used the following assumptions. 1. The Black and Scholes option valuation methodology has been used, as requested by the Company Secretary. This Option Valuation methodology has been used with the expectation that the majority of the Options would be exercised towards the end of the term of the Options. 2. The exercise price of 133,333,333 Tranche 1 Options and 50,000,000 Tranche 2 Options will be 1.2 cents. 3. The Tranche 1 Options will be issued with an expiry date of 31 March 2016 while the Tranche 2 Options will be issued with an expiry date of 31 March We have assumed that the Options will be deemed to be granted on the date of proposed general meeting of its shareholder on or around 16 July 2014 ( deemed grant date ). 4. The last price of a listed Scotgold Resources share on the ASX as at 2 June 2014 was 0.7 cents. We have used the 0.7 cents as the deemed price at the date of grant for the valuation purpose. This valuation is made for the purpose of its inclusion in the notice of the general meeting as requested and not necessarily for accounting purposes; hence these Options need to be re-valued on their grant date i.e. the date of the general meeting. Liability limited by a scheme approved under Professional Standards Legislation

31 5. We have used a rate of a two year Australian Government bond being 2.63%. 6. The above Options do not have any vesting conditions. To reflect the unlisted status of the Options a discount rate of 20% may be applied. You should consult your auditors before applying any discount. For the purpose of this report, we have not applied any discount. 7. We have assumed that no dividends are expected to be declared or paid by the Company during the term of the Options. 8. We note that the one year low share price of a Scotgold Resources share was 0.5 cents (10 January 2014) and the high was 1.84 cents (30 August 2013 and 2 September 2013). We note that in the last six months the share price has been between 0.50 cents to 1.10 cents. The annualised volatility to 2 June 2014 that was calculated using an option volatility calculator is %. However, it is noted that since March 2014, the shares have traded in the range of 0.7 cents to 1.10 cents. Scotgold Resources s share price is sensitive to ASX announcements particularly with the opportunities in relation to its Cononish Gold and Silver Project. In our opinion after taking into account the various ASX announcements, the volatility calculator, the relatively short term of the Options (less than 2 years), and the general trend in the shares of the companies in similar businesses and trading on the ASX over the past 3 and 6 months, we are of the opinion that the fair volatility factor for the purpose of valuation as at 2 June 2014 should be 210%. We have given our valuations for three levels of volatility namely 190%, 210% and 230% for the purpose of the notice of the meeting. 9. The valuations noted below are not necessarily the market prices that the Options could be traded at and it is not automatically the market prices for taxation purposes. The recipients of these Options should seek their own tax advice as to the tax treatment of receiving Options in Scotgold Resources and the values for taxation purpose. 10. Based on the above discussion the valuations of one Scotgold Resources Tranche 1 and Tranche 2 Options under different volatilities are as follows: No of Options Expiry Date Exercise Price (Cents) Volatility percentage Value (cents) for one Option before discount 133,333,333 Tranche 1 Options 31 March ,333,333 Tranche 1 Options 31 March ,333,333 Tranche 1 Options 31 March ,000,000 Tranche 2 Options 31 March ,000,000 Tranche 2 Options 31 March ,000,000 Tranche 2 Options 31 March Scotgold Resources Limited Options valuation 3 June 2014

32 11. We would note that normally free attaching options granted as part of a capital raising or conversion of notes is not normally allocated a separate value based on the Black Scholes model. The values derived above have been calculated based on a Black Scholes valuation at the request of the Company Secretary. The Option Valuations have been prepared for the use and distribution to the Directors of Scotgold Resources Ltd. We disclaim any assumption of responsibility for any reliance on this report or on the Option Valuations to which it relates, to any person other than the Directors of Scotgold Resources Ltd or for any purpose other than that for which it was prepared. Should you wish to discuss the above, do not hesitate to contact the undersigned. Yours faithfully STANTONS INTERNATIONAL SECURITIES PTY LTD (Trading as Stantons International Securities) Samir Tirodkar - CA Director Scotgold Resources Limited Options valuation 3 June 2014

33 SCHEDULE 4 TERMS AND CONDITIONS OF PLACEMENT OPTIONS Terms and Conditions of Placement Options (Options) The Options entitle the holder to subscribe for Shares on the following terms and conditions: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) Each Option gives the Optionholder the right to subscribe for one Share. To obtain the right given by each Option, the Optionholder must exercise the Options in accordance with the terms and conditions of the Options. The Options will expire at 5:00 pm (WST) on 31 March 2015 (Expiry Date). Any Option not exercised before the Expiry Date will automatically lapse on the Expiry Date. The amount payable upon exercise of each Option will be $0.012 (Exercise Price). The Options held by each Optionholder may be exercised in whole or in part, and if exercised in part, multiples of 1,000 must be exercised on each occasion. An Optionholder may exercise their Options by lodging with the Company, before the Expiry Date: (i) a written notice of exercise of Options specifying the number of Options being exercised (Exercise Notice); and (ii) a cheque or electronic funds transfer for the Exercise Price for the number of Options being exercised; An Exercise Notice is only effective when the Company has received the full amount of the Exercise Price in cleared funds. Within 10 Business Days of receipt of the Exercise Notice accompanied by the Exercise Price, the Company will issue the number of Shares required under this Deed and conditions in respect of the number of Options specified in the Exercise Notice. The Options are transferable. All Shares issued upon the exercise of Options will upon issue rank pari passu in all respects with other Shares. The Company will not apply for quotation of the Options on ASX. If at any time the issued capital of the Company is reconstructed, all rights of an Optionholder are to be changed in a manner consistent with the Corporations Act and the ASX Listing Rules at the time of the reconstruction. There are no participa ting rights or entitlements inherent in the Options and Optionholders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Options. However, the Company will ensure that for the purposes of determining entitlements to any such issue, the record date will be at least 6 Business Days after the issue is announced. This will give Optionholders the opportunity to exercise their Options prior to the date for determining entitlements to participate in any such issue. An Option does not confer the right to a change in exercise price or a change in the number of underlying securities over which the Option can be exercised.

34 ANNEXURE INDEPENDENT EXPERT S REPORT 32 SCOTGOLD

35 23 June 2014 The Directors Scotgold Resources Limited 24 Colin Street West Perth WA 6005 Summary of Opinion In our opinion, taking into account the factors noted above and in section 7 of this report, the proposals noted in Resolutions 1 and 2 to allow the issue of up to 183,333,333 ordinary shares in Scotgold, allow the issue of up to 183,333,333 shares on conversion of share options at 1.2 cents each and allow the issue of a further 6,874,933 shares as noted in Resolution 4, are on balance, fair and reasonable to the non-associated shareholders of Scotgold at the date of this report (refer paragraph 2.2 below). In our opinion, taking into account the factors noted below, including the advantages and disadvantages and other factors noted in section 9 of this report and the comments made in the Explanatory Memorandum to Shareholders accompanying the Notice, the proposal noted in Resolution 3 (in relation to the Charge) is, on balance, fair and reasonable to the non-associated shareholders of Scotgold at the date of this report. Shareholders should be aware that in the absence of an equity raising sufficient to repay the Convertible Note Debt Amount and any unpaid interest, the risk of losing the Cononish Project is enhanced. Each shareholder will need to form its own opinion on whether to vote in favour of the resolutions. Dear Sirs, RE: SCOTGOLD RESOURCES LIMITED (ABN ) - MEETING OF SHAREHOLDERS TO CONSIDER RESOLUTIONS UNDER SECTION 611 OF THE CORPORATIONS ACT 2001 ( TCA ) RELATING TO THE PROPOSAL TO ALLOW THE ISSUE OF UP TO 183,333,333 SHARES AT 0.75 CENTS EACH AND ALLOW THE EXERCISE OF UP TO 183,333,333 SHARE OPTIONS AT 1.2 CENTS EACH RESULTING FROM THE CONVERSION RIGHTS UNDER A $1,000,000 CONVERTIBLE NOTE FACILITY AND ISSUING 6,874,933 SHARES TO A COMPANY ASSOCIATED WITH RICHARD HARRIS. A RESOLUTION UNDER AUSTRALIAN SECURITIES EXCHANGE ( ASX ) LISTING RULE 10.1 ALLOWING THE NLR GROUP TO TAKE A SECURITY OVER THE ASSETS AND UNDERTAKINGS OF THE SCOTGOLD GROUP INCLUDING THE CONONISH GOLD PROJECT, HELD BY THE COMPANY S SUBSIDIARY, TO SECURE THE CONVERTIBLE NOTE DEBT 1. INTRODUCTION 1.1 We have been requested by the Directors of Scotgold Resources Limited ( Scotgold or the Company ) to prepare an Independent Expert s Report to determine the fairness and reasonableness of the transactions referred to in Resolutions 1 to 4 as detailed in the Notice of Meeting to Scotgold shareholders ( the Notice ) and the Explanatory Memorandum attached to the Notice ( EM ) to be issued to shareholders in June 2014.

36 1.2 In terms of a Binding Heads of Agreement ( HOA ) signed in February 2014 between the Company and Messrs Nat le Roux ( NLR ), Richard Harris ( RH ) and Sandy Littlejohn ( SL ) (collectively known in this report as the NLR Group notwithstanding that they are all independent of each other and are not partners, joint venture partners or associates of each other), the Company and the NLR Group have agreed to the following: The NLR Group subscribes for 60,000,000 shares in the Company at 0.75 cents each (to raise $450,000 and known as the First Placement) (subsequently issued in February 2014 along with a further 30,000,000 shares issued to other investors at 0.75 cents each to raise a further $225,000- total raised $675,000- these transactions are not subject to our report but are noted as part of the overall part recapitalisation of Scotgold); The Company issues Convertible Notes ( Notes ) to the NLR Group to the extent of $1,000,000 and allows the conversion of the Notes into ordinary shares ( Note Shares ) at a conversion price of 0.75 cents each, on or before 24 months from date of issue of the Notes. If Note Shares are issued, the Company will issue on a 1 for 1 basis, up to 133,333,333 share options exercisable at 1.2 cents each, on or before 31 March 2016 (NLR Group Options ). Resolution 1 partly refers to the issue of up to 133,333,333 shares and share options and the allowing of the share options to be converted to shares in Scotgold. The monies raised from the Notes are planned to be used to repay 500,000 (approximately $940,000) of a 1,500,000 loan owing to RMB Resources Limited ( RMB ); NLR agrees to subscribe for 50,000,000 shares ( NLR Shares ) at 0.75 cents each to raise a gross $375,000 ( the Second Placement ) along with 50,000,000 free attached share options, exercisable at 1.2 cents each, on or before 31 March 2015 ( NLR Options ) (the issue of the NLR Shares and NLR Options occurs post shareholder approval to issue the Notes and other Conditions Precedent outlined in the HOA before 30 June 2014). Resolution 2 relates to the issue of the 50,000,000 NLR Shares and the issue of the 50,000,000 share options and allowing such share options to be converted to shares in Scotgold; Following the issue of the Notes and the Second Placement, the parties enter into an arrangement regarding the offtake, marketing and sale of all dore and gravity gold and silver production from the Scotgold Group s Cononish Mine- see details below. On 2 June 2014 the Company announced an update to the Heads of Agreement and Placing ( Updated HOA ). Under the Updated HOA a variation to the HOA has been executed whereby NLR and RH are each entitled to appoint a director within a period of 6 months of the completion of the Second Placement. It has also been agreed that the provision for the issue of the Convertible Notes to be effected by 30 June 2014 has been extended to 30 July Furthermore RMB is seeking permission of its investment committee to extend the term of the loan for a period of 30 days (by which time the general meeting will have been held) and to further extend the term of the loan to 31 December Further details are set out in Section 1.9 below. 1.3 Under the HOA, the Company will raise a total of $1,825,000 before the exercise of the NLR Options and NLR Group Options. The First Placement was for $450,000 (completed), the Notes will raise $1,000,000 and the Second Placement will raise $375,000 for a total of $1,825,000. The First Placement Shares were issued as follows: 37,333,333 to NLR; 10,000,000 to RH; 10,000,000 to Golden Matrix Holdings Pty Ltd; and 2,666,667 to SL

37 In the event that all of the Notes are converted to a total of 133,333,333 shares in Scotgold (the Note Shares), the allocation will be as follows: 104,000,000 to NLR; 20,000,000 to RH; and 9,333,333 to SL In conjunction with the HOA and capital/note raisings from the NLR Group, the Company announced to the market on 25 February 2014 that is would also raise a further $225,000 from new investors not associated with the NLR Group by way of an issue of 30,000,000 shares at 0.75 cents each ( Other Placement Shares ). As noted above, the Other Placement Shares were issued in February 2014 after receiving cash proceeds of $225,000. In addition, on 21 March 2014, the Company issued a further 6,149,275 shares at cents to raise a further $50,270 of which 3,000,000 shares were issued to Golden Matrix Holdings Pty Ltd in respect of fees. In the event that all of the 133,333,333 NLR Options are exercised at 1.2 cents each into a total of 133,333,333 shares in Scotgold ( the Option Shares ), the allocation will be as follows: 80,000,000 to NLR; 45,333,333 to RH; and 8,000,000 to SL 1.4 The basis terms of the Notes and other conditions are as follows: Principal sum - $1,000,000; Interest rate - 1%; Term (Maturity Date) 24 months from date of issue; Conversion price of the Notes 0.75 cents each (a total of 133,333,333 Note Shares could be issued). However, if a new capital raising is undertaken at a price below 0.75 cents before the Maturity Date, then the exercise price will be at the same price as the new capital raising); First Rights of Refusal - The NLR Group will have first right of refusal in respect of any capital raisings conducted by the Company during the term of the Notes (excluding any bonus issues and rights issues); Security the Notes will be secured over the Company s assets, including the Company s subsidiary, via a security and charge documentation but as secondary to RMB s existing security in regard to the existing RMB Loan; In the event that Notes are converted to Note Shares, the Company will issue on a 1 for 1 basis, NLR Group Options exercisable at 1.2 cents each, on or before 31 March See paragraph 1.2 above for maximum allocation of the NLR Options and if exercised, the maximum number of Option Shares that could be issued. 1.5 The HOA notes a commitment from both the Company and the NLR Group to enter into an arrangement ( Marketco ), post the issue of the Notes and the completion of the Second Placement, to market a proportion of the future gold and silver produced on-site at Cononish in the form of dore bars. This product is to be identifiable and marketed as Scottish gold and silver and Scotgold will sell it to Marketco at a premium of 10% to the Comex Fix less any costs associated with refining the dore bars. Scotgold will hold 40% of the shares in Marketco, 20% will be held by public interest entities, including the Strathfillan Community Development Trust and the remaining 40% between the NLR Group (as to 22% NLR, 16% RH and 2% SJ). The Company will not contribute to the marketing costs of Marketco. 1.6 Resolution 1 seeks shareholders to allow the issue of up to 133,333,333 Note Shares if all of the Notes are converted and allow the issue of up to 133,333,333 NLR Group Options (and allowing such share options to be converted to shares in Scotgold) as described above.

38 Resolution 2, inter-alia allows the issue of the 50,000,000 NLR Shares and issue and exercise of 50,000,000 NLR Options to be exercised into 50,000,000 new shares in Scotgold at 1.2 cents each on or before 31 March 2015 ( New NLR Shares ). 1.7 In addition, as noted in Resolution 4 in the Notice, 6,874,933 shares ( Golden Shares ) are to be issued to Golden Matrix Holdings Pty Ltd ( Golden ), a company associated with RH. Golden is to be paid a total of $103,124 as a consulting fee relating to the NLR Group debt raising. 50% ($51,562) is to be paid to Golden in cash and the balance ($51,562) is to be satisfied by the issue of the 6,874,933 Golden Shares at a deemed issue price of 0.75 cents (the same as the conversion price of the Notes). RH owns 10,000,000 shares in Scotgold and Golden owns 13,000,000 shares in Scotgold. Thus as at 7 May 2014, the NLR Group holds 63,000,000 shares in Scotgold of which NLR on his own owns 37,333,333 shares. 1.8 The issue of the Notes, Note Shares, Golden Shares, NLR Group Options, NLR Shares, NLR Options and allow the issue of Option Shares and New NLR Shares are collectively known as the Proposed Transactions. Golden for the purposes of reporting on the fairness and reasonableness of the Proposed Transactions is considered part of the NLR Group, notwithstanding that Golden is only associated with RH. 1.9 In addition to Resolutions 1 to 3 and 4, there are two further resolutions. Resolution 5 relates to the ratification of a prior issue of shares. We are not reporting on Resolution 5. Under Resolution 6 it is proposed to issue 18,765,318 shares ( Director Shares ) in Scotgold to three directors of Scotgold who will be owed collectively 86, (two directors) and $30, (one director) in director and consulting fees as at 30 June It is proposed as noted in Resolution 6 to issue the Director Shares at 1.0 cent each and fixing the exchange rate at $1.00 equals The 86, equates to $157, and along with the $30,187.50, the estimated 30 June 2014 outstanding fees total $187, and thus 18,765,318 Director Shares are planned to be issued to eliminate the estimated debts due to the three directors as at 30 June 2014 (the director debts at 31 December 2013 totalled 95,121). We are not reporting on the fairness and/or reasonableness of the proposal (Resolution 6) to issue the Director Shares and have not assumed that such Director Shares will be issued in calculating the potential percentage interests of the NLR Group. If the Director Shares are issued, the potential percentage of the NLR Group would decrease. Furthermore, negotiations are in hand with RMB a financier of the Scotgold Group to extend the RMB Loan repayment date from 30 June 2014 to 31 December In terms of an Extension of Corporate Facility letter dated 14 May 2014, it is proposed that 9,000,000 new shares ( RMB Shares ) will be issued to RMB as a facility extension fee. In addition, on the closing of the amendment to the RMB Loan, the Company will issue to RMB, Financier Warrants to acquire 30,000,000 ordinary shares in the Company exercisable at per share (approximately cents) per Financier Warrant. The table below excludes any shares and/or Financier Warrants/share options that may be issued to RMB. It is also proposed that 320,000 of principal and 180,000 of accrued interest to 30 June 2014 will be repaid in cash to RMB and the balance of the Principal ( 1,180,000) may then be deferred to 31 December The extension of the Loan Repayment date is subject to various conditions precedent including: The Company raising at least $1,375,000 as proposed via $375,000 in equity and the issue of the Notes; The Company repays 500,000 to RMB; RMB is satisfied with the Company s proposed budget for the period ending 31 December 2015; and The proposed $1,000,000 convertible loan from NLR are on terms satisfactory to the Arranger.

39 1.10 In the event that the proposals noted in Resolutions 1 to 4 of the Notice, along with the other proposals outlined in the HOA are passed and consummated (but ignoring the potential issue of the Director Shares and RMB Shares), the potential issued capital could be as outlined below. NLR Group (includes Golden) No. of shares Other No. of shares Total No. of shares NLR Group % shareholding Shares on issue at 6 May 2014 (after issue of shares under the First Placement and other share issues in February and March 2014) 63,000, ,889, ,889, Issue of NLR Shares to NLR only 50,000,000-50,000, Issue of shares to Golden (Resolution 4)- deemed related to the NLR Group 6,874,933-6,874, Total shares on issue after issue of NLR Shares and Golden Shares (Potential 119,874, ,764, Shares on Issue) (i) Potential issue of new Note Shares to the NLR Group on conversion of all of the Notes 133,333, ,333, Sub Total 253,208, ,889, ,097, Potential issue of new shares to NLR only (New NLR Shares) on exercise of the NLR Options 50,000,000-50,000, Sub Total 303,208, ,889, ,097, Potential issue of new shares to the NLR Group (Option Shares) on exercise of the NLR Group Options 133,333, ,333, Potential number of shares on issue after issue of all shares to the NLR Group but before the exercise of existing share 436,541, ,889, ,430, options (ii) Potential conversion of existing Options with exercise prices between and 0.08 between 24 July2014 and 31 March ,486,494 36,486,494 - Total Potential Shares on issue after issue of Placement Shares and Conversion of Placement Options and existing Options 436,541, ,375, ,917, (i) (ii) (iii) As noted above, if the Director Shares are issued (assumes Resolution 6 is passed by shareholders and consummated), the NLR Group s shareholding would reduce to approximately 21.42% (instead of approximately 22.17%) (after the issue of the NLR Shares and Golden Shares but before the potential issue of Note Shares and other shares on exercise of various share options. If all shares were issued to the NLR Group (after the potential issue of the Note Shares and the exercise of the NLR Group Options and NLR Options) and the Director Shares were also issued, the NLR Group s shareholding would approximate 49.82% (instead of approximately 50.91%). If all shares were issued to the NLR Group, to the Directors, and the RMB Shares were also issued, the NLR Group s shareholding would approximate 49.32% (instead of approximately 49.82%). It should be noted that the potential movement in share capital as noted elsewhere in this report excludes the potential issue of Director Shares that may be issued pursuant to Resolution 6 as referred to in the Notice and EM and the potential issue of shares to RMB. The percentage interests of NLR, RH and SL would reduce if shares were issued pursuant to Resolution 6 and any shares issued to RMB.

40 1.11 The shareholding interest of NLR only is currently approximately 7.72% and after the issue of the 50,000,000 NLR Shares and the Golden Shares, his interest increases to approximately 16.15% and after conversion of all Notes (if converted to 133,333,333 Note Shares in Scotgold) his beneficial interest would increase to approximately 28.38% (approximately 29.68% if only NLR converted Notes into 104,000,000 Note Shares). If NLR then exercised the NLR Options, his interest would increase to approximately 33.33% and after the exercise of all of the 133,333,333 NLR Group Options, his interest would increase to approximately 37.48% (approximately 39.96% if only NLR exercised his 80,000,000 NLR Group Options and approximately 41.49% if only NLR were issued shares). If the RMB Shares and the Director Shares are also issued, the shareholding interest of NLR only would decrease from 37.48% to approximately 36.30% Under Section 606 of TCA, a person must not acquire a relevant interest in issued voting shares in a company if because of the transaction, that persons or someone else s voting power in the company increases: (a) from 20% or below to more than 20%; or (b) from a starting point that is above 20% and below 90%. Under Section 611 (Item 7) of TCA, Section 606 does not apply in relation to any acquisition of shares in a company by resolution passed at a general meeting at which no votes were cast in favour of the resolution by the acquirer or the disposer or their respective associates. Section 611 (Item 9) refers to creeping provisions and a shareholder may not increase its shareholding by more than 3% in a six month period As noted above, NLR may exceed a 20% shareholding interest in Scotgold if NLR converts his proportion of the Notes into 104,000,000 Note Shares and then may increase the percentage further on exercise of the NLR Options and then the NLR Group Options. As NLR (exclusive of RH and SL) may increase his shareholding interest from below 20% to up to approximately 41.47%, the Directors of Scotgold have sought approval from the non NLR associated shareholders for the issue of the Notes to NLR, issue of the Golden Shares, exercise of the 80,000,000 Option Shares on exercise of the NLR Group Options by NLR and the issue of up to 50,000,000 New NLR Shares to NLR on the exercise of the NLR Options. Under ASIC Regulatory Guide 111 Contents of Expert Reports an Independent Expert s Report is required to report on the fairness and reasonableness of the above transactions involving NLR pursuant to Resolutions 1 to 4. The Scotgold directors have requested Stantons International Securities to prepare an Independent Expert s Report to assist the shareholders in determining how to vote on Resolutions 1 to 4 pursuant to Section 611 (Item 7) meeting as outlined in the Notice and the EM For us to report on the fairness and reasonableness of the proposals involving NLR, we have had to consider the issue of the Golden Shares, issue of all of the Notes to the NLR Group, the issue of the NLR Shares and NLR Options (and allowing the exercise of the NLR Options to New NLR Shares) and the exercise of all of the NLR Group Options to Option Shares as they are all part of the funding package as outlined in the HOA as noted above Apart from this introduction, the report considers the following: Summary of opinion Implications of the proposals with the NLR Group

41 Future directions of Scotgold Preferred value method for valuing a Scotgold share and share options Premium for control Fairness of the proposals with Scotgold Conclusion on the Fairness of the Proposed Transactions Reasonableness of the proposal with Scotgold Conclusion as to Reasonableness of the Proposed Transactions Sources of information Appendices A, B and C and our Financial Services Guide 2. SUMMARY OF OPINION 2.1 In determining the fairness and reasonableness of the Proposed Transactions (refer paragraph 1.6 above) pursuant to Resolutions 1 to 4, we have had regard for the definitions set out by the Australian Securities and Investments Commission ( ASIC ) in its Regulatory Guide 111. Regulatory Guide 111 states that an opinion as to whether an offer is fair and/or reasonable shall entail a comparison between the offer price and the value that may be attributed to the securities under offer (fairness) and an examination to determine whether there is justification for the offer price on objective grounds after reference to that value (reasonableness). The concept of fairness is taken to be the value of the offer price, or the consideration, being equal to or greater than the value of the securities in the above mentioned offer. Furthermore, this comparison should be made assuming 100% ownership of the target and irrespective of whether the consideration is scrip or cash. An offer is reasonable if it is fair. An offer may also be reasonable, despite not being fair, where there are sufficient grounds for security holders to accept the offer in the absence of any higher bid before the close of the offer. 2.2 Regulatory Guide 111 also states that in all cases, where an acquisition of shares by way of an allotment is to be approved by shareholders pursuant to Section 611 (Item 7) of TCA, a report by an independent expert stating whether or not the proposals pursuant to Resolutions 1, 2 and 4 are fair and reasonable, having regard to the interests of shareholders other than the proposed allottees (in this case, the NLR Group and in particular NLR), and whether a premium for potential control is being paid by the allottees (in this case, only NLR), will be required. Regulatory Guide 111 also provides that such an allotment should involve a comparison of the advantages and disadvantages likely to accrue to non-associated shareholders if the transaction proceeds compared with if it does not. Although the proposals with the NLR Group (and NLR) is not in relation to a takeover offer, we have noted the above matters and definitions for shareholders to have an understanding of fairness and reasonableness referred to in this report. 2.3 Accordingly, our report relating to Resolutions 1, 2 and 4 is concerned firstly with the fairness and reasonableness of the proposals under Resolutions 1, 2 and 4 from the point of view of the existing non associated shareholders of Scotgold, and secondly whether the price payable for the potential to obtain a significant shareholding interest (by NLR) (may be approximately up to 39.96%, in the event that the Notes are issued, the Golden Shares are issued, the Notes are converted to 133,333,333 Option Shares, NLR exercises the 50,000,000 NLR Options (following the issue of 50,000,000 NLR Shares to NLR only) and only NLR exercised 80,000,000 of the 133,333,333 NLR Group Options, includes a premium for control. As noted in Section 2.3 of the NOM, the Heads of Agreement specifies that each investor is acting independently and is not a partner, joint venture partner or associate of any other investor. Further, the Company considers that the investors, NLR, RH and SL (or their

42 nominees) are not associated with each other (pursuant to the Corporations Act definition of Associate) for the purposes of the prohibition in Chapter 6 of the Corporations Act. However, out of an abundance of caution and to avoid any possibility that the investors (or their nominees) are considered to be associated for the purposes of Chapter 6 of the Corporations Act, the Company is seeking the approval of shareholders under Item 7 of section 611 of the Corporations Act because the proposed issue of securities pursuant to Resolutions 1, 2 and 4 will result in the investors (or their nominees) having a relevant interest in an aggregate of more than 20% of the voting shares in the Company. Accordingly, shareholders are required to vote on all of the proposals pursuant to Resolutions 1, 2 and 4 and thus our report considers these collectively. 2.4 In our opinion: The proposals as outlined in Resolutions 1 and 2 to allow the issue of up to 133,333,333 Note Shares on conversion of the Notes by the NLR Group at 0.75 cents each (Resolution 1), allowing the issue of 50,000,000 NLR Shares and 50,000,000 NLR Options and allowing NLR to exercise 50,000,000 NLR Options into 50,000,000 New NLR Shares (Resolution 2), allowing the exercise of 133,333,333 NLR Group Options (Resolution 1) into 133,333,333 Option Shares and allowing the issue of 6,874,933 Golden Shares to Golden (Resolution 4) is, based on valuing a share in Scotgold on the asset backing methodology, considered to be fair and reasonable to the non-associated shareholders of Scotgold at the date of this report. Thus, the proposals under Resolutions 1 and 2 as they relate to NLR only (conversion of 104,000,000 Notes to Note Shares, the issue of 50,000,000 NLR Shares and 50,000,000 NLR Options and the conversion of 50,000,000 NLR Options to New NLR Shares and allowing 80,000,000 NLR Group Options to be exercised into 80,000,000 Option Shares) is also fair and reasonable to the shareholders of Scotgold not associated with NLR. In our opinion, taking into account the factors noted below, including the advantages and disadvantages and other factors noted in section 9 of this report and the comments made in the EM accompanying the Notice, the proposal noted in Resolution 3 (in relation to the Charge) is, on balance, fair and reasonable to the non-associated shareholders of Scotgold at the date of this report. It is noted that the volumes of trades in Scotgold shares on ASX and the Alternative Investment Market ( AIM ) of the London Stock Exchange are reasonable (although some trading days having nil sales) but the last ASX sale price was 0.8 cents on 20 June 2014 (but traded on AIM at approximately 0.50p (approximately cents) on 20 June 2014). Using the trading share prices of late February 2014 to 30 May 2014 and taking into account that the Note Shares (if the Notes were converted) would be issued at a discount to the AIM share price as at 29 May 2014 of around cent equivalent (discount approximately 12%) and the ASX share price of 25 February 2014 (the day before the announcement of the proposals with the NLR Group - discount approximately 16.67%) the proposals would also not be fair (but could still be considered reasonable). However, our preferred methodology to value the shares in Scotgold is to use the adjusted net asset backing methodology as noted elsewhere in this report. The opinion expressed above must be read in conjunction with the more detailed analysis and comments made in this report, including the valuation report on the Mining Assets of the Scotgold Group as prepared by AMC Consultants (UK) Limited (refer below).

43 3. IMPLICATIONS OF THE PROPOSALS WITH THE NLR GROUP 3.1 As at 2 June 2014, there were 483,889,318 fully paid ordinary shares on issue in Scotgold. The significant fully paid shareholders as at 31 March 2014 are disclosed in the Australian Share Register as: Name of Shareholder (and associates) No. of Shares % Interest Nat Le Roux (NLR) HSDL Nominees Limited 37,333,333 25,520, Barclayshare Nominees Limited 24,955, Westland Group Holdings Limited 17,500, TD Direct Investing Nominees (Europe) Limited 17,050, William Styslinger (owns 21,055,480 in total) 17,000, Golden Matrix Limited 13,000, ,389, RH also owns 10,000,000 shares in Scotgold and along with the 13,000,000 shares owned by Golden has a deemed associated interest in 23,000,000 shares in Scotgold (approximately 4.75% shareholding interest). The top twenty fully paid shareholders as at 31 March 2014 owned approximately 55.6% of the current issued capital. Many of the shareholders are residents of the UK but they do not have an Australian address and thus are held in the names of various nominee companies. The AIM top 20 shareholders own approximately 49% of the total top 20 shareholders. Messrs GD & C Donaldson own 16,001,294 shares registered in one of the nominee companies. 3.3 The following share options are on issue as at 6 May 2014: 15,316, 110 share options exercisable at each, on or before 7 June 2014; 26,222,222 share options exercisable at each, on or before 24 July 2015; 153,161 share options exercisable at each, on or before 7 December 2015; 7,111,111 share options exercisable at each, on or before 28 March 2016; and 3,000,000 share options exercisable at 0.08 each, on or before 31 March 2022 The vast majority of the options are fully vested (a few 2022 share options not fully vested) and are significantly out of the money at the date of this report. 3.4 In the event that the Proposed Transactions noted in Resolutions 1, 2 and 4 are passed and consummated and the Golden Shares, Note Shares, NLR Shares, New NLR Shares and Option Shares are issued to the NLR Group, the potential issued capital and shareholdings of the NLR Group could be as outlined in paragraph 1.7 above (paragraph 1.11 notes the potential shareholding of NLR only). The Company will initially raise a gross $1,825,000 which will be used for working capital purposes and partly to reduce a debt owing to RMB. In the event that all NLR Group Options and NLR Options were exercised by the NLR Group, the Company would raise a further $2,200,000 ($1,560,000 from NLR only). 3.5 In determining whether the issue of the Golden Shares, Note Shares (on exercise of the Notes), New NLR Shares (on exercise of the NLR Options) and the issue of the Option Shares (on exercise of the NLR Group Options) pursuant to Resolutions 1, 2 and 4 are fair and reasonable to the non associated shareholders we have compared the fair value of an ordinary share in Scotgold to the consideration given by the NLR Group of 0.75 cents per Note Share and take into consideration the exercise price (1.2 cents) of the NLR Group Options and the NLR Options.

44 We also compare: (a) (b) the fair assessed value of a Scotgold share pre-transactions on a control basis; versus the fair assessed value of a Scotgold share post-transactions on a minority basis, taking into account the additional cash raised or Notes converted and the associated dilution resulting from the issue of new shares and share options under the transaction. 3.6 In relation to the Board of Directors, the current directors are John Bentley, Christopher Sangster and Phillip Jackson. As NLR and RH are each entitled to appoint a director within a period of 6 months of the completion of the Second Placement the composition of the Board of Scotgold may change in the near future. The Company Secretary is Peter Newcomb. 4. FUTURE DIRECTION OF SCOTGOLD 4.1 Scotgold is a listed public company in Australia. Scotgold has a 100% interest in two Scottish registered subsidiaries, namely Scotgold Resources Limited (Scotland) and Fynegold Exploration Limited (together the Scotgold Group ). The Scotgold Group has focused particularly on commercialising discovered but as yet undeveloped gold and silver assets in Scotland. Its principal asset is its 100% owned Cononish Gold and Silver Project in Scotland ( the Cononish Project ). We have been advised that all of the Scotgold s Group s assets are in good standing. The Cononish Project has identified JORC resources in the Measured, Indicated and Inferred categories of 169,200 oz of gold and 631,300 oz of silver at a 3.5g/t cut off. A Final Cononish Development Study was completed in April The results of this study, conducted at a base case gold price of US$1,300 per oz, indicated that production of gold could commence at Cononish within 18 months of securing financing for the Cononish Project (proving difficult since mid 2013 due to a decline in the gold price). The published base case pre-tax net present value figure of the Cononish Project in development (not yet commercialized) was 11.8 million (April 2013). The other Scottish mineral project is the Grampian Gold Project (via various option agreements) and exploration activities are continuing on this project (subject to availability of cash funds). 4.2 We have been advised by the directors of Scotgold that: The plans are to seek development finance and commercialise and enter into development and production of the Cononish Project; and continue exploration work on the Grampian Gold Project; Composition of the Board of Directors of Scotgold is may change in the near future as noted above; The Company will put to the shareholders the proposals noted in Resolutions 1 to 4 in the Notice and EM and will on completion raise cash funds of $1,825,000 from the NLR Group ($450,000 of such funds already raised in late February 2014); No dividend policy has been set and is not proposed to be set until such time as the Company is profitable and has a positive cash flow; The Company in 2014/15 may seek to raise further capital (may be debt and equity); and The Company may issue 18,765,318 Director Shares (Resolution 6) to eliminate an estimated liability to three directors of the equivalent of $187, as at 30 June 2014

45 and may also issue 9,000,000 RMB Shares and Financier Warrants/or share options to acquire 30,000,000 shares to RMB as a payment to extend the loan or part of the loan owing to RMB to 31 December It should be noted that the potential movement in share capital as noted elsewhere in this report excludes the potential issue of shares that may be issued pursuant to Resolution 6 and any shares and/or share options that may be issued to RMB as an extension fee. The percentage interests of NLR, RH and SL would alter downwards if shares were issued pursuant to Resolution 6 and potential issue of securities to RMB. 5. BASIS OF TECHNICAL VALUATION OF SCOTGOLD SHARES 5.1 Shares In considering the proposals to allow the issue of the Note Shares (on exercise of the Notes), New NLR Shares (on exercise of the NLR Options) and the issue of the Option Shares (on exercise of the NLR Group Options) as outlined in Resolutions 1 and 2 and allow the issue of the Golden Shares as outlined in Resolution 4, we have sought to determine if the considerations payable by the NLR Group is fair and reasonable to the existing non-associated shareholders of Scotgold The proposals to allow the issue of the of the Golden Shares, Note Shares (on exercise of the Notes), New NLR Shares (on exercise of the NLR Options) and the issue of the Option Shares (on exercise of the NLR Group Options) to the NLR Group would be fair to the existing non associated shareholders if the value of the considerations being offered by the NLR Group is greater than or equal to the value of the potential shares being issued as consideration (also refer paragraph 8.1 below). Accordingly, we have sought to determine a theoretical value that could reasonably be placed on a Scotgold share for the purposes of this report The valuation methodologies we have considered in determining the current technical value of a Scotgold share are: Capitalised maintainable earnings/discounted cash flow; Takeover bid - the price which an alternative acquirer might be willing to offer; Adjusted net asset backing and windup value; and The market value price of Scotgold shares. 5.2 Capitalised Maintainable Earnings / Discounted Cash Flows Scotgold currently does not have a reliable cash flow or profit history from a business undertaking and therefore this methodology is not appropriate. The Cononish Project cannot proceed to commercialisation without development finance. Currently, Scotgold does not have sufficient funds and thus any perceived technical value of the Cononish Project on a discounted cash flow methodology is theoretical as without funds it will not be developed. The 2013 Annual Report of Scotgold reported estimated post tax net present values of between 5.6 million (gold price US$1,200 per ounce) and 21.1 million (gold price US$1,600 per ounce) with a base case of 9.5 million (gold price US$1,300 per ounce). All post tax returns are before head office corporate costs and exclude exploration costs on undeveloped parts of the Cononish Project and exploration costs relating to the Grampian Gold Project. Further details of the Scotgold Cononish Project (Mineral Assets) are included in the Valuation Report dated 6 May 2014 ( AMC Valuation Report ) prepared by AMC Consultants (UK) Limited Pty Ltd ( AMC ) which is attached as Appendix B to this report. In addition, the exploration mineral tenements (Exploration Assets) of the Scotgold Group have been evaluated by Matlock Geological Services (author Bernard Alyward) ( Matlock ), however

46 the values are very immaterial in relation to the Scotgold Group and the summary evaluation report has not been reproduced as an appendix to this report. Based on current stream sediment sampling results over the large areas over which the Company holds options with the Crown, the Company is considering rationalisation of its holdings and also in line with potential changes as indicated informally by the Crown's representatives to the option regime regarding the areal extent of any particular option area. 5.3 Takeover Bid We have been advised by the directors of Scotgold that there are no previous bids for the Company. The directors do not believe that there would be any person with an interest in taking over the Company by way of a formal takeover bid at the current time. To our knowledge, there are no current bids in the market place and the directors of Scotgold and ourselves have formed the view that there is unlikely to be any takeover bids made for Scotgold in the immediate future. We have no reason to consider that the Scotgold directors views are not currently accurate. It is noted that potentially the NLR Group collectively may end up having a voting interest in Scotgold of approximately 50.56% (and NLR individually could have a relevant shareholding interest of approximately between 37.48% and 41.49%), however to achieve the maximum shareholdings, all Notes would need to be converted and all NLR Group Options and NLR Options exercised). 5.4 Net Asset Backing and Wind-Up Value As there is no intention to wind up the Company, we have not considered wind up values for the purposes of this report. We set out below the unaudited consolidated Statements of Financial Position of Scotgold as at 31 December 2013: Balance Sheet A - Summary of the unaudited consolidated statement of financial position as at 31 December 2013 adjusted for: o estimated administration and exploration costs for the 6 month period to 30 June 2014 for a total amount of $470,000; o depreciation of say $10,000; o the receipt of further funds of $830,871 from the completion of the 3 for 4 Rights Issue at 0.5 cents each and allowing for capital raising costs of $50,000; o the receipt of $450,000 from the First Placement and $225,000 from issue of shares to other investors in February 2014; and o the issue of 6,149,275 shares in March 2014 to raise a gross $50,270. Pro-forma Balance Sheet B - Summary of the unaudited consolidated statement of financial position as at 31 December 2013 adjusted for the substitution of the book values of the capitalised exploration expenditure of approximately $13,517,000 with the preferred value of the gold and silver mineral assets as ascribed by AMC and Matlock of $4,728,000 and as detailed below in paragraph Unaudited 31 December 2013 A $000 s Pro-forma 31 December 2013 B $000 s Current assets Cash and cash equivalents 1,209 1,209 Receivables Other current assets ,242 1,242

47 Non-current assets Plant and equipment Capitalised exploration expenditure 13,517 4,728 Other receivables ,733 4,944 Total assets 14,975 6,186 Current liabilities Trade and other payables Other current liabilities Interest bearing liabilities 2,995 2,995 3,506 3,506 Net Assets (Liabilities) 11,469 2,680 Number of shares on issue 483,889, ,889,318 Net asset value per share (cents) The above financial information excludes any issue of Director Shares, the subject of Resolution 6 and also excludes any issue of the RMB Shares. It is noted that the book value of capitalised exploration expenditure approximates $ million whilst the independent valuation of the mineral interests of Scotgold as prepared by AMC and Matlock as noted below are significantly less at approximately $4.728 million. The Company may re-assess carrying values in preparing the 30 June 2014 financial statements In determining the net tangible asset value on a going concern basis it is necessary to adjust the book values of the Mineral Assets to reflect the technical (market) fair value of those Mineral Assets. We, in conjunction with Scotgold instructed AMC to undertake a valuation of the Mineral Assets of Scotgold. On 23 June 2014 AMC prepared a Valuation Report in relation to the main Cononish Project (the Mineral Assets). In addition an evaluation report was prepared by Matlock in relation to the Exploration Assets of the Scotgold Group. Both valuation firms have valued Scotgold s Mineral Assets and Exploration Assets on preferred, low and high values. We have used and relied on the AMC Valuation Report and the Matlock Evaluation Report and have satisfied ourselves that: AMC and Matlock are suitably qualified consulting firms and have relevant experience in assessing the merits of gold and silver projects and preparing gold and silver asset valuations (also the principal authors of the reports are suitably qualified and experienced); AMC and Matlock are independent from Scotgold and the NLR Group; AMC and Matlock have to the best of our knowledge employed sound and recognised methodologies in the preparation of the valuation reports on Scotgold Group s Mineral Assets and Exploration Assets respectively. It is noted that the Exploration Assets are relatively very minor in nature and value and the overwhelming asset of the Scotgold Group is the Cononish Project. Based on current stream sediment sampling results over the large areas over which the Company holds options with the Crown, the Company is considering rationalisation of its holdings and also in line with potential changes as indicated informally by the Crown's representatives to the option regime regarding the areal extent of any particular option area. Due to the immaterial valuations of the Exploration Assets by Matlock, we have not attached the Matlock Valuation Report to this independent expert s report AMC and Matlock have ascribed a range of market values for the Mineral Assets and Exploration Assets as follows:

48 Mineral Assets by AMC (Cononish Project) Exploration Assets by Matlock Low $ 1,698,000 Preferred $ 4,528,000 High $ 7,358, , , ,000 1,848,000 4,728,000 7,638,000 Using an exchange rate of AUS$1 equals UK 0.53, the Mineral Asset/Exploration Asset valuations in Australian dollars lie in the range of approximately $1,848,000 (low) to $7,638,000 (high) with a preferred value of approximately $4,728,000. In pound sterling, the value of the Mineral Assets was between 900,000 and 3,900,000 with a preferred value of 2,400, Using the fair values in Australian Dollars of the Mineral Assets and Exploration Assets as ascribed in the AMC Valuation Report and Matlock Evaluation Report and based on the assumptions/values provided to us of the other assets and liabilities of Scotgold as at 31 December 2013 as per Balance Sheet B above, the net fair value of the Scotgold Group is expected to lie in the range as follows: Paragraph Low $000 s Preferred $000 s High $000 s Mineral Assets and Exploration Assets ,848 4,728 7,638 Property, plant and equipment Remaining non-current assets Current assets 1,242 1,242 1,242 Total liabilities (3,506) (3,506) (3,506) Total Net Assets/(Deficiency) (200) 2,680 5,590 Number of shares on issue 483, 889, ,889, ,889,318 Net asset per share (cents) nil Based on the preferred values, the adjusted net book values at 31 December 2013 ( Balance Sheet B ) equates to a value per share (483,889,318 shares) of approximately cents (ignoring the value, if any, of non-booked tax benefits). See comments below on ASX share prices. 5.5 Market Price of Scotgold Shares We set out below a summary of the fully paid share prices of Scotgold traded on ASX since 1 July 2013 to 25 February 2014 (the day before the announcement of the proposals with the NRL Group). It is noted that shares in Scotgold are also traded on the Alternative Investment Market ( AIM ) of the London Stock Exchange.

49 High Cents Low Cents Last Sale Cents Volume Trade (000 s) July ,303 August ,091 September ,972 October ,994 November ,619 December ,276 January ,527 February 2014 (to 25 th ) , On 31 July 2013, the Company released its quarterly report to 30 June 2013 that contained positive news on the Cononish Project. On 12 September 2013, the Company issued 10,000,000 shares at 2 cents each to raise $200,000. On 1 November 2013, the Company released its quarterly report to 30 September 2013 that contained positive news on the Cononish Project but noted the fall in gold prices since April 2013 and the difficulties of raising finance for small gold projects. The cash flow statement for the same quarter noted cash funds of only $331,000. On 26 November 2013, the Company announced a proposed 3 for 4 Rights Issue at 0.5 cents per share to raise $830,871 before costs (166,174,304 new shares). The Rights Issue was finalised on 31 December 2013 and the shortfall shares issued in January and February As can be seen above, the price at which shares traded varied considerably and it is difficult to arrive at a fair value for a Scotgold share, particularly in light of the moderate trading volumes. Due to the moderate volumes, varying share price and the Company s poor cash position that may be affecting the share price, we have considered that the listed share price methodology is not the most appropriate methodology to use in this instance The capital markets over recent years have been in turmoil and the ability to raise capital has been restricted. Even arranging share placements has been difficult and where they have occurred they have been undertaken in the main at significant discounts to market values and technical values. As at 31 December 2013 the cash position of the Company was approximately $174,000 (before adjusting for cash received post 31 December 2013). The Company s financial position is arguably insufficient to continue exploration and evaluation (and development) of its existing gold projects and pay new administration and corporate costs without a significant inflow of funds via a capital raising or loan funds. Further funds are required for 2014 and thereafter It is noted that subsequent to the announcement on 26 February 2014 on the proposals with the NLR Group, the shares have traded on ASX at between 0.8 cents and 1.1 cents. 6. PREFERRED VALUATION METHOD FOR VALUING A SCOTGOLD SHARE 6.1 In assessing the fair value of Scotgold and a Scotgold share pre the Proposed Transactions with the NLR Group we have selected the net assets on a going concern methodology as the preferred methodology as: Scotgold does not generate revenues or profits and per the audited accounts has incurred significant losses in the financial years ended 30 June 2013 and Therefore the capitalisation of future maintainable earnings is not appropriate;

50 Scotgold, if finance can be arranged, will have a foreseeable future net cash inflow from development of the Cononish Project but Scotgold to date has had difficulty raising development finance. Thus the discounted cash flow methodology per-se has not been used (but refer AMC s Valuation Report for further details); and Although the shares of Scotgold are listed, as there is only moderate trading volumes on ASX/AIM and the share prices in recent times may be affected by the lack of cash resources it is arguably inappropriate to use market share prices to value the Company and the shares in the Company for the purposes of this report. We note share prices as a secondary methodology and have considered share prices in assessing reasonableness of the proposals with the NLR Group. 6.2 As stated at paragraph we have assessed the value of Scotgold prior to the Proposed Transactions with the NLR Group on a net asset basis on a going concern basis as follows: Low Preferred High Net asset per share (cents) nil In accordance with Regulatory Guide 111, we have relied upon AMC to assess the preferred value of the Mineral Assets and relied upon Matlock for the preferred value in relation to the Exploration Assets and incorporated them in the table above in determining the net asset value on a technical basis. We note that, the technical net asset value may not necessarily reflect fair values in the current economic circumstances of the Company. If funds can be raised and the Cononish Project proceeds to development then arguably the fair value of a Scotgold share may be in excess of the current technical fair value (and in excess of the market values as noted on ASX and AIM). Notwithstanding the prospectivity of the Cononish Project in which Scotgold has an interest in, without cash the Company cannot complete exploration and evaluation and in a worst case scenario may be forced into Administration. The net book asset backing per share is 2.37 cents at 31 December 2013 (refer Balance Sheet A ) based on the book values compared with the proposed Notes that will be issued at 0.75 cents each. 6.3 As noted above the estimated net asset price per share after adjusting for the valuation of the Mining Assets and Exploration Assets varies from nil cents to cents with a preferred value of approximately cents per share which is significantly less than the last ASX share price of 0.9 cents on 25 February 2014 (the date of the announcement of the Proposed Transactions with the NLR Group). We note that the future ultimate value of a Scotgold share will depend upon, inter alia: the ability to raise further cash to continue in business; the future prospects of its Mineral Assets (and Exploration Assets) and in particular as to whether the Cononish Project proceeds to development and commercialisation; the state of the gold and base metal market (and prices) in Australia and overseas; the state of Australian stock exchange and overseas stock markets; the strength of the Board and management and/or who makes up the Board and management; foreign exchange rates; general economic conditions; the liquidity of shares in Scotgold; and possible joint ventures, acquisitions and divestments entered into by Scotgold.

51 7. PREMIUM FOR CONTROL 7.1 Premium for control for the purposes of this report, has been defined as the difference between the price per share, which a buyer would be prepared to pay to obtain or improve a controlling interest in the Company and the price per share which the same person would be required to pay per share, which does not carry with it control or the ability to improve control of the Company. 7.2 Under TCA, control may be deemed to occur when a shareholder or group of associated shareholders control more than 20% of the issued capital. In this case, NLR s voting shareholding in Scotgold could increase from approximately 7.72% as at 31 March 2014 to approximately 28.38% after the issue of the Note Shares (on exercise of the Notes) and then to up to approximately 37.48% on the issue of all of the Golden Shares, New NLR Shares (on exercise of the NLR Options) and the issue of the Option Shares (on exercise of all of the NLR Group Options). Accordingly, we have addressed whether a premium for control will be paid by NLR. 7.3 It is generally accepted that premium for control may vary from nil to 40% or more depending on many different factors including the nature of the business, the financial position of a company, and shareholding percentages. Prior to the issue of the Note Shares (if the Notes are converted to Note Shares in Scotgold), NLR has an approximate 7.72% interest in the Company and could increase to approximately 28.38% (or more) as noted above. Therefore we would expect the premium for control could be approximately 25%. 7.4 Our preferred methodology is to value Scotgold and a Scotgold share on a technical net asset basis which assumes a 100% interest in the Company. Therefore no adjustment is considered necessary to the technical asset value determined under paragraph as this already represents the fair value of the Company or a share in the Company on a pre Proposed Transactions control basis. 7.5 We set out below the comparison of the low, preferred and high values of a Scotgold share compared to the issue price for the Note Shares and Golden Shares. Para. Low (cents) Preferred (cents) High (cents) Estimated fair value of a Scotgold Share nil Issue price of the Note Shares on any conversion of the Notes (and the issue price of the NLR Shares) Excess/(shortfall) between Conversion Price and fair value (0.405) 7.6 On a pre Proposed Transactions control basis, the technical value (not market value based on ASX/AIM share trades) of a Scotgold share ranges from nil cents to cents with a preferred value of cents per share. The Note Shares (only issued if the Notes are converted to share equity) are to be issued at 0.75 cents per share to the NLR Group. Based on the preferred values of a Scotgold share as noted above, a premium for control is being paid by the NLR Group and in particular NLR.

52 7.7 We note that NLR does not have Board control of Scotgold before the Proposed Transactions pursuant to Resolutions 1 to 4. Under the Updated HOA announced on 2 June 2014, NLR and RH are each entitled to appoint a director within a period of 6 months of the completion of the Second Placement 8. FAIRNESS OF THE PROPOSAL WITH THE NLR GROUP (AND NLR) 8.1 In arriving at our conclusion on fairness, we considered whether the transaction is fair by comparing: (a) (b) the fair market value of a Scotgold share pre-transaction on a control basis; versus the fair market value of a Scotgold share post-transaction on a minority basis, taking into account the additional cash raised and the associated dilution resulting from the issue of new shares and share options under the proposed transactions with the NLR Group. 8.2 The low, preferred and high values of a Scotgold share pre the Proposed Transactions on a control basis as noted in paragraph are: Para. Low (cents) Preferred (cents) High (cents) Estimated fair value of a Scotgold Share nil The preferred fair value of a Scotgold share has been estimated at cents on a pre proposed transaction control basis. If the Notes are converted, the Note Shares are to be issued at 0.75 cents per share to the NLR Group, the difference being cents per share. As the preferred fair technical (not share market) value of a Scotgold share is less than the proposed issue price of a Note Share of 0.75 cents, on this basis, the potential issue of the Note Shares (and Golden Shares) is considered to be fair to the non associated shareholders. The conversion price of the Notes of 0.75 cents is below the last traded price of a Scotgold share of around 1.0 cent and on this basis the potential issue of the Note Shares would be considered to be not fair to the non associated shareholders. However, it is our view that using the asset backing methodology is the most appropriate methodology to use in valuing a Scotgold share and therefore as noted above, the potential issue of the Note Shares is considered fair to the non associated Scotgold shareholders. 8.4 The 133,333,333 NLR Options that would be issued if all of the Notes are converted to Note Shares are exercisable at 1.2 cents per option on or before 31 March The same applies to the issue of 50,000,000 free attached NLR Options but the last date to expiry is 31 March The exercise price of 1.2 cents per each NLR Group Option and NLR Option is currently in excess of the current market value of 0.9 cents to 1.0 cents (early May 2014), but may be higher or lower at date of exercise of the NLR Group Options and NLR Options (the NLR Options would probably be exercised before the NLR Group Options as the expiry date of the NLR Group Options is 12 months after the expiry date of the NLR Options). 8.5 We set out below the range of estimated technical net asset values of Scotgold based on Proforma Balance Sheet B as detailed in paragraph and after adjusting for the following transactions: the issue of the Notes and the raising of cash funds of $1,000,000; the issue of 50,000,000 NLR Shares at 0.75 cents each to raise a gross $375,000 (and the issue of 50,000,000 free attached NLR Options); the conversion of all of the Notes (to eliminate a debt of $1,000,000) and the issue of 133,333,333 Note Shares at 0.75 cents each;

53 the issue of 6,874,933 Golden Shares to Golden at a deemed cost of $51,562 and the payment of $51,562 cash to Golden; and the expensing of the costs associated with the Notice amounting to approximately $50,000. Low A$000 s Preferred A$000 s High A$000 s Mining Assets and Exploration Assets 1,848 4,728 7,638 Property, plant and equipment Remaining assets 2,608 2,608 2,608 Remaining liabilities (3,506) (3,506) (3,506) Total net assets/(liabilities) 1,073 3,953 6,863 Number of shares on issue 674,097, ,097, ,097,584 Net asset value per share Minority interest discount 20.0% 20.0% 20.0% Minority value per share (cents) Note Conversion Price (cents) In order to reflect the minority interest value we have applied a minority interest discount to the technical net asset value. The minority interest discount has been calculated as the inverse of the premium for control of 25% as discussed in paragraph We set out below a comparison of: (a) (b) the fair assessed value of a Scotgold share pre-transaction (before issue of the Notes issued to the NLR Group) on a control basis; versus the fair assessed value of a Scotgold share post Transaction on a minority basis, taking into account the additional cash raised and Notes converted and the associated dilution resulting from the issue of Note Shares under the transactions with the NLR Group (before exercise of any share options issued to the NLR Group and NLR). Para. Low (cents) Preferred (cents) High (cents) Estimated fair value of a Scotgold Share pre-transaction on a control basis nil Estimated fair value of a Scotgold Share post Transaction on a minority basis Excess/(shortfall) between post transaction price and pre transaction price (0.084) (0.341) Using the preferred net asset fair values, the estimated fair value of a Scotgold share pre the Proposed Transactions with the NLR Group on a control basis is greater than the estimated fair value of a Scotgold share post the proposals on a minority basis and on the preferred methodology basis, the issue of the Note Shares (on any conversion of the Notes) would not be fair.

54 8.7 If we allowed for the exercise of the 50,000,000 NLR Options at 1.2 cents each to raise a gross $600,000 and the exercise of 133,333,333 NLR Group Options at 1.2 cents each to raise a gross $1,600,000 and ignored all other transactions, including losses or profits generated in the future, the position would be as follows: Total Net Assets $3,273,000 $6,153,000 $9,063,000 Number of shares on issue 857,430, ,430, ,430,917 Net asset value per share Minority interest discount 20.0% 20.0% 20.0% Minority value per share (cents) Exercise Price (cents) As noted above the fair market value of a Scotgold share Post-Transactions on a minority basis, taking into account the cash raised after costs ranges from approximately cents to cents with a preferred fair value of approximately cents. 8.9 We set out below a comparison of: (a) (b) the fair assessed value of a Scotgold share pre-transaction (before the issue of the Notes to the NLR Group) on a control basis; versus the fair assessed value of a Scotgold share post Transaction on a minority basis, taking into account the additional cash raised and Notes converted and also the additional cash raised from the exercise of all NLR Group Options and the NLR Options and the associated dilution resulting from the issue of new shares under the exercise of options transactions with the NLR Group (after exercise of all share options issued to the NLR Group). Para. Low (cents) Preferred (cents) High (cents) Estimated fair value of a Scotgold Share pre-transaction on a control basis nil Estimated fair value of a Scotgold Share post Transaction on a minority basis Excess/(shortfall) between post transaction Price and pre transaction price (0.309) Using the preferred net asset fair values, the estimated fair value of a Scotgold share pre the Proposed Transactions with the NLR Group on a control basis (after exercise of all of the NLR Group Options and all of the NLR Options) is greater than the estimated preferred fair value of a Scotgold share post the proposals on a minority basis and on the preferred methodology basis, the issue of the Option Shares and New NLR Shares would be fair. There are currently existing Options with exercise prices between (approximately cents) and 0.08 (approximately cents) between 7 June 2014 and 31 March As these options are currently considerably out of the money and that the Company will need to raise substantial new capital in 2014 onwards, we have therefore excluded such options from the calculation of the fully diluted net asset value per share.

55 8.10 As noted above, the ASX market value (to 25 February 2014) of a Scotgold share lies in the range of approximately 0.6 to 1.0 cents, with a last sale (25 February 2014) value of 0.9 cents per Scotgold share (on a non controlling interest basis). The volume weighted average share price ( VWAP ) for a 15 day trading period to 19 February 2014 using prices as traded on ASX and AIM approximated cents. Using the last sale price as a basis for valuing the Company and taking into account a premium for control of say 25%, the value of a Scotgold share to the non controlling interest (NSL) would be as follows: ASX market value on a non controlling interest basis Premium for control (25%) Value on a controlling interest basis 0.90 cents 0.25 cents 1.15 cents Number of shares on issue 483,740,043 Total control value pre- issue of Note Shares and NLR Shares $4,353,660 Second Placement proceeds and Note Proceeds (net of $50,000 and $51,562 of costs) $1,273,000 Total Value $5,626,660 Minority Discount applied (20%) $(1,125,332) Minority valuation post issue of shares to the NLR Group $4,501,328 Number of shares post issue of shares to the NLR Group and NSL 674,097,584 Minority valuation post issue of Note Shares and NLR Shares (approximate value per share in cents) cents (Shortfall) in value per share to the minorities post the issue of Note Shares to the NLR Group and NLR Shares to NLR (0.483) cents 8.11 Using the share price as the methodology for valuing Scotgold would suggest that the issue of the Note Shares (on conversion of all of the Notes) would not be fair, as on a post transaction Minority Basis, the shares are worth less than the value of the shares on a pre Transaction Control Basis. However the use of share prices as listed on the ASX due to the relatively low volumes in trades and poor financial position of the Company is not the preferred methodology in valuing a share in Scotgold for the purposes of this report In our opinion: The proposals as outlined in Resolutions 1 and 2 to allow the issue of up to 133,333,333 Note Shares on conversion of all of the Notes, allow the issue and exercise of up to 133,333,333 NLR Group Options (both Resolution 1), allow the issue of 50,000,000 NLR Shares and 50,000,000 NLR Options and allow the exercise of the 50,000,000 NLR Options (Resolution 2) and allow the issue of 6,874,933 Golden Shares (Resolution 4) are, based on our preferred asset backing methodology considered to be fair to the nonassociated shareholders of Scotgold at the date of this report. Thus, the proposals under Resolutions 2 and 3 as they relate to NLR only (conversion of 104,000,000 NLR Group Options to Option Shares, the issue of 50,000,000 NLR Shares and 50,000,000 NLR Options and the conversion of 50,000,000 NLR Options to New NLR Shares and allowing 80,000,000 NLR Group Options to be exercised into 80,000,000 Option Shares) are also considered to be fair to the shareholders of Scotgold not associated with NLR. Refer comments above using the market price methodology (not our preferred methodology).

56 9. REASONABLENESS OF THE PROPOSALS WITH THE NLR GROUP We set out below, some of the advantages, disadvantages and other factors pertaining to the proposed share and share option issues by Scotgold to the NLR Group and the granting of a charge pursuant to Resolutions 1 to 4. Advantages 9.1 If shareholders do not approve Resolutions 1 to 4, then there is the strong possibility that the Company cannot continue in its present form and the Company may in the worst case scenario be forced to divest itself of some or all of the UK projects. Scotgold urgently requires funds to allow the Company to continue its exploration and evaluation activities on its Mining Assets and Exploration Assets in the UK and to obtain finance to enter into gold production in relation to the Cononish Project.. Additionally funds are required to fund business development and corporate overheads. If the Notes are not issued (and allowing Note Shares to be issued on conversion of the Notes) and allowing the issue of the NLR Shares, the Company may not get the necessary funding to continue operating, to meet its commitments and to seek further financial support. It may need to dispose of its assets at distressed levels or fall into Administration once cash raised from the recent Rights Issue, First Placement and placement to Investors in February/March 2014 is exhausted. Obtaining access to a reasonable amount of cash funds in the current environment is difficult and thus the Company and its shareholders should benefit. This should alleviate cash flow concerns in the immediate future, and position the Company to fund its operations. In the current market it is still difficult for exploration companies such as Scotgold to raise equity. It is our understanding that discussions were held with other interested parties with a view to raising capital. We have been advised that management has considered that the best proposal put to them was the proposals with the NLR Group. 9.2 The NLR Group and NLR specifically is placing faith in Scotgold and its Mining Assets in the UK and as noted above the issue of Notes and NLR Shares should assist the Scotgold Group in continuing in business. Having NLR as a significant shareholder may be an incentive to NLR (and the NLR Group) to financially support Scotgold in future capital raisings although there is no assurance that this will occur. After the issue of the Notes and NLR Shares, the NLR Group s interest would be significant and the NLR Group would be determined to ensure its investment in Scotgold is successful. NLR alone would initially obtain a shareholding interest in Scotgold of approximately 28.38% (and could rise to up to approximately 41.47% if only NLR were issued shares and NLR exercised its share options). 9.3 The proposed Note Issue and issue of NLR Shares under the Second Placement to raise a gross $1,375,000 ($450,000 was raised from the NLR Group in February 2014 along with $275,270 from other investors in February/March 2014) will strengthen the balance sheet of the Company and may facilitate future capital raisings. Cash costs of raising the funds from the NLR Group are estimated at $101,562 (includes a cash payment to Golden). Also, if the NLR Options are exercised, the Company would raise a further $600,000 and if all of the NLR Group Options are exercised, the Company would raise a further $1,600, The exercise price of the NLR Group Options and NLR Options (1.2 cents each) is in excess of the share prices of a Scotgold share over the two months to 25 February 2014 (0.6 cents to 1.0 cents). However refer to paragraph 9.14 below for possible disadvantages.

57 Disadvantages 9.5 The number of shares on issue rises initially to 540,764,251 shares after the issue of the Golden Shares, NLR Shares to NLR (and before any other share issues) but may rise to 674,097,584 if all of the Notes are converted and up to 857,430,917 if all NLR Group Options and NLR Options are exercised. This could represents an up to approximate 75.20% increase in the shares of the Company as compared to the current shares on issue of 483,889,318 and represents a significant shareholding of an additional up to 37.89% in the Company being issued to the NLR Group (to a total potential percentage holding of approximately 50.91%) (NLR could have an approximate 37.48% if all Notes are converted to share equity, all NLR Group Options are exercised and all NLR Options exercised). Potentially this may make the Company a less attractive investment for potential future investors. Effective control may be granted to NLR over Scotgold. 9.6 Scotgold shareholders could effectively dilute their interest in a company that has the potential to develop its Mining Assets, and in particular the Cononish Project, which have been independently valued by AMC at 2,400,000 (approximately $4,528,000) (preferred value). This preferred value, however is significantly less than the current carrying value of over $13,000,000 and the April 2013 DFS pre-tax NPV of around 11.8 million. It could be assumed that if book values were used, the conclusion may have resulted in a not fair conclusion (but still being reasonable). 9.7 The conversion price of the Notes and issue price of the NLR Shares is 0.75 cents which is not at a premium to the last sale price of a Scotgold share traded on ASX on 24 February 2014 (last sale price prior to the announcement of the proposals with the NLR Group). However, it is not uncommon to issue shares at a discount to market (refer paragraph 9.2 above). 9.8 There is always the possibility that the value of the shares may be in excess of the subscription/conversion price of 0.75 cents per share particularly if development finance can be arranged. The Scotgold closing share price as at 16 May 2014 (as traded on ASX), being 0.8 cents per share, exceeds the subscription/conversion share price of 0.75 cents per share. The book asset backing per share prior to the Proposed Transactions with the NLR Group approximates 2.37 cents per share and this is again in excess of the subscription/conversion price relating to the NLR Shares and Notes and that based on such book figures would normally lead to a not fair conclusion. However, as noted the technical valuation prior to the Proposed Transactions is cents that is below the Notes issue price and conversion price of share options arising from conversion of the Notes to Note Shares. Other Factors 9.9 The costs relating to the potential issue of the Notes and the Second Placement of approximates $50,000 (issue of Notice, expert s reports etc) along with the issue of 6,874,933 Golden Shares at a deemed cost of $51,562 (a non cash outlay) and a cash payment to Golden of $51,562 for a total cost of $153,124. This compares with a normal capital raising cost of between 5% and 8% and based on the initial $1,825,000 ($450,000 and $1,375,000) would result in a cost of between $91,250 and $146,000. However, potentially a further $2,200,000 can be raised from the exercise of NLR Options and NLR Group Options at effectively no additional cash outlay by Scotgold and thus the overall percentage on the maximum that could be raised from the NLR Group may approximate 3.80% The value of the Note Shares on conversion of the Notes may be higher than the preferred fair value on a control basis calculated above of cents if the Company is able to successfully exploit its Mining Assets and the mining results in a value significantly in excess of the current value ascribed to the Mining Assets by AMC. However, all shareholders would also benefit from an increased share price. As noted above, the Group currently has a deficiency in working capital and without immediate cash the Company may not continue in its present form

58 and may be forced to sell or farm-out its Mining Assets or fall into some form of Administration The NLR Group is taking a risk in obtaining a substantial increased shareholding in Scotgold by the issue of NLR Shares and possible Note Shares (on conversion of Notes of up to $1,000,000). Scotgold s future share price may be determined by the exploitation and/or commercial success (or otherwise) of the Cononish Project (and the Exploration Assets) owned by the Scotgold Group. As noted, there is a huge incentive for the NLR Group to make Scotgold a successful company and have the share price rise considerably. All shareholders would benefit from a rise in the share price Having a potential cornerstone investor such as NLR has advantages but it may also limit the opportunity for other parties to bid for all or part of the shares in Scotgold in the future There is no guarantee that, should the NLR Group Options be issued to the NLR Group on conversion of the Notes and as outlined as part of Resolution 1, the NLR Group will exercise those NLR Group Options (this also applies to the NLR Options as noted in Resolution 2), and therefore inject additional funds into Scotgold. However, if the shares are exercised, Scotgold will receive a cash inflow of up to $2,200,000. However, in all probability, the NLR Group and NLR would not exercise such share options until the share price was well in excess of 1.2 cents, liquidity in the stock was far higher and the Company had commercial success with the Cononish Project The conversion price of the Notes at 0.75 cents is at a discount of approximately 16.67% to the last ASX traded price of a Scotgold share immediately prior to the announcement of the proposals with the NLR Group on 26 February It is not uncommon for relatively junior exploration companies (even those companies that have excellent prospects) to offer discounts on its share price to raised much needed cash funds. Such discounts are often between 20% and 50% but can be less or substantially more The Company is obtaining a favourable interest rate on the Notes at 1% (often convertible notes issued by non producing mineral companies may be between 10% and 15% and occasionally higher). The cost to finance the Notes to maturity would approximate $20, Scotgold is potentially disposing of its core assets over which, a second fixed charge will be registered (RMB Resources already has a first Charge over the assets and undertakings of the Scotgold Group). Failure to satisfy the repayment requirements may allow the NLR Group under certain circumstances to gain the assets for a value which potentially is less than the actual net worth of the assets of Scotgold. The Directors of Scotgold consider that this is unlikely taking into consideration the advanced stage of exploration/evaluation on the Cononish Project and the high probability that the Cononish Project will be financed and enter into gold/silver production. It is always possible that further share equity funds can be raised to pay out the NLR Group if required. See section 10.3 below The Company in the absence of conversion to equity by the NLR Group will need to raise further funds of at least $1,000,000 to repay the Notes.

59 10. Conclusion of Reasonableness of the Proposed Transactions 10.1 In our opinion: After taking into account the advantages, disadvantages and other factors, the collective proposals as outlined in Resolutions 1 and 2 to allow the issue of up to 133,333,333 Note Shares on conversion of the Notes by the NLR Group at 0.75 cents each (Resolution 1), allow the issue of 50,000,000 NLR Shares and 50,000,000 NLR Options, allowing NLR to exercise 50,000,000 NLR Options into 50,000,000 New NLR Shares (Resolution 2), allowing the exercise of 133,333,333 NLR Group Options into 133,333,333 Option Shares (Resolution 1) and issuing 6,874,933 Golden Shares (Resolution 4) is considered to be reasonable to the non-associated shareholders of Scotgold at the date of this report Thus, the proposals under Resolutions 1 and 2 as they relate to NLR only (conversion of 104,000,000 NLR Group Options to Option Shares, issue of 50,000,000 NLR Shares and the conversion of 50,000,000 NLR Options to New NLR Shares and allowing 80,000,000 NLR Group Options to be exercised into 80,000,000 Option Shares) is also reasonable to the non associated shareholders of Scotgold. Conclusion on the fairness and reasonableness of the Charge 10.3 In our opinion, taking into account the factors noted below, including the advantages and disadvantages and other factors noted in section 9 of this report and the comments made in the explanatory statement to Shareholders accompanying the Notice, the proposal noted in Resolution 3 (in relation to the Charge) is, on balance, fair and reasonable to the non-associated shareholders of Scotgold at the date of this report. Shareholders should be aware that in the absence of an equity raising sufficient to repay the Convertible Note Amount and any unpaid interest, the risk of losing the Cononish Gold Project is enhanced. Each shareholder will need to form its own opinion on whether to vote in favour of the resolutions. 11. SOURCES OF INFORMATION 11.1 In making our assessment as to whether the proposals pursuant to Resolutions 1 to 4 are fair and reasonable, we have reviewed relevant published available information and other unpublished information of the Company that is relevant to the current circumstances. In addition, we have held discussions with the management of Scotgold about the present and future operations of the Scotgold Group. Statements and opinions contained in this report are given in good faith, but in the preparation of this report, we have relied in part on information provided by the directors and management of Scotgold 11.2 Information we have received, includes but is not limited to: Drafts of the Notice of General Meeting of Shareholders and EM of Scotgold to 20 June 2014; Discussions with management of Scotgold; Shareholding details of Scotgold as at 31 March 2014; Share issue prices relating to Scotgold shares in 2013 and to 20 June 2014 as traded on ASX and AIM; Annual report of Scotgold for the year ended 30 June 2013; Announcements by Scotgold to its shareholders from 1 January 2013 to 20 June 2014; The budget and cash flow forecasts for 2014/15; The audit reviewed financial statements of the Scotgold Group for the six months ended 31 December 2013;

60 The Independent Valuation of the Mineral Assets in which Scotgold has an interest by AMC dated 23 June 2014; The Independent Evaluation Memorandum of the Exploration Assets in which Scotgold has an interest by Matlock dated 25 March 2014; and The Extension of 1.5million Corporate Facility letter dated 14 May 2014 from RMB Resources Our report includes Appendices A and B (the AMC Valuation Report) and our Financial Services Guide. Yours faithfully STANTONS INTERNATIONAL SECURITIES PTY LTD (Trading as Stantons International Securities) John Van Dieren Director

61 APPENDIX A AUTHOR INDEPENDENCE AND INDEMNITY This annexure forms part of and should be read in conjunction with the report of Stantons International Securities Pty Ltd trading as Stantons International Securities dated 23 June 2014, relating to the proposals as referred to in Resolutions 1 to 4 in the Notice. At the date of this report, Stantons International Securities does not have any interest in the outcome of the proposal. There are no relationships with Scotgold other than acting as an independent expert for the purposes of this report. There are no existing relationships between Stantons International Securities and the parties participating in the transactions detailed in this report which would affect our ability to provide an independent opinion. The fee (excluding disbursements) to be received for the preparation of this report is based on the time spent at normal professional rates plus out of pocket expenses and is estimated not to exceed $27,000. The fee is payable regardless of the outcome. With the exception of that fee, neither Stantons International Securities nor John Van Dieren or Martin Michalik have received, nor will or may they receive any pecuniary or other benefits, whether directly or indirectly for or in connection with the making of this report. Stantons International Securities does not hold any securities in Scotgold. There are no pecuniary or other assets of Stantons International Securities that could be reasonably argued as affecting its ability to give an unbiased and independent opinion in relation to the proposal. Stantons International Securities, Mr John Van Dieren and Martin Michalik have consented to the inclusion of this report in the form and context in which it is included as an annexure to the Notice. QUALIFICATIONS We advise Stantons International Securities is the holder of an Australian Financial Services Licence (No ) under the Corporations Act 2001 relating to advice and reporting on mergers, takeovers and acquisitions involving securities. A number of the directors of Stantons International Audit and Consulting Pty Ltd who owns 100% of the shares in Stantons International Securities Pty Ltd are the directors and authorised representatives of Stantons International Securities. Stantons International Securities and Stantons International Audit and Consulting Pty Ltd (trading as Stantons International) have extensive experience in providing advice pertaining to mergers, acquisitions and strategic for both listed and unlisted companies and businesses. John Van Dieren (FCA) and Martin Michalik CA, the persons responsible for the preparation of this report, have extensive experience in the preparation of valuations for companies and in advising corporations on takeovers generally and in particular on the valuation and financial aspects thereof, including the fairness and reasonableness of the consideration offered. The professionals employed in the research, analysis and evaluation leading to the formulation of opinions contained in this report, have qualifications and experience appropriate to the task they have performed. DECLARATION This report has been prepared at the request of the independent Directors of Scotgold in order to assist the shareholders of Scotgold to assess the merits of the proposal to which this report relates. This report has been prepared for the benefit of Scotgold and those persons only who are entitled to receive a copy for the purposes of Section 611 of the Corporations Act 2001 and does not provide a general expression of Stantons International Securities opinion as to the longer term values of Scotgold and its subsidiaries and assets. Stantons International Securities does not imply, and it should not be construed, that is has carried out any form of audit on the accounting or other records of Scotgold or its subsidiaries, businesses, other assets and liabilities. Neither the whole, nor any part of this report, nor any reference thereto may be included in or with or attached to any document,

62 circular, resolution, letter or statement, without the prior written consent of Stantons International Securities to the form and context in which it appears. DUE CARE AND DILEGENCE This report has been prepared by Stantons International Securities with due care and diligence. The report is to assist shareholders in determining the fairness and reasonableness of the proposal set out in Resolutions 1 to 4 to the Notice and each individual shareholder may make up their own opinion as to whether to vote for or against Resolutions 1 to 4. DECLARATION AND INDEMNITY Recognising that Stantons International Securities may rely on information provided by Scotgold and its officers (save whether it would not be reasonable to rely on the information having regard to Stantons International Securities experience and qualifications), Scotgold has agreed: (a) (b) to make no claim by it or its officers against Stantons International Securities (and Stantons International Audit and Consulting) to recover any loss or damage which Scotgold may suffer as a result of reasonable reliance by Stantons International Securities on the information provided by Scotgold; and to indemnify Stantons International against any claim arising (wholly or in part) from Scotgold or any of its officers providing Stantons International Securities any false or misleading information or in the failure of Scotgold or its officers in providing material information, except where the claim has arisen as a result of wilful misconduct or negligence by Stantons International Securities. A draft of this report was presented to Scotgold directors for a review of factual information contained in the report. Comments received relating to factual matters were taken into account, however the valuation methodologies and conclusions did not alter.

63 FINANCIAL SERVICES GUIDE FOR STANTONS INTERNATIONAL SECURITIES PTY LTD (Trading as Stantons International Securities) Dated 23 June Stantons International Securities Pty Ltd (Trading as Stantons International Securities) ABN and Financial Services Licence ( SIS or we or us or ours as appropriate) has been engaged to issue general financial product advice in the form of a report to be provided to you. 2. Financial Services Guide In the above circumstances we are required to issue to you, as a retail client a Financial Services Guide ( FSG ). This FSG is designed to help retail clients make a decision as to their use of the general financial product advice and to ensure that we comply with our obligations as financial services licensees. This FSG includes information about: who we are and how we can be contacted; the services we are authorised to provide under our Australian Financial Services Licence, Licence No: ; remuneration that we and/or our staff and any associated receive in connection with the general financial product advice; any relevant associations or relationships we have; and our complaints handling procedures and how you may access them. 3. Financial services we are licensed to provide We hold an Australian Financial Services Licence which authorises us to provide financial product advice in relation to: Securities (such as shares, options and notes) We provide financial product advice by virtue of an engagement to issue a report in connection with a financial product of another person. Our report will include a description of the circumstances of our engagement and identify the person who has engaged us. You will not have engaged us directly but will be provided with a copy of the report as a retail client because of your connection to the matters in respect of which we have been engaged to report. Any report we provide is provided on our own behalf as a financial services licensee authorised to provide the financial product advice contained in the report.

64 4. General Financial Product Advice In our report we provide general financial product advice, not personal financial product advice, because it has been prepared without taking into account your personal objectives, financial situation or needs. You should consider the appropriateness of this general advice having regard to your own objectives, financial situation and needs before you act on the advice. Where the advice relates to the acquisition or possible acquisition of a financial product, you should also obtain a product disclosure statement relating to the product and consider that statement before making any decision about whether to acquire the product. 5. Benefits that we may receive We charge fees for providing reports. These fees will be agreed with, and paid by, the person who engages us to provide the report. Fees will be agreed on either a fixed fee or time cost basis. Except for the fees referred to above, neither SIS, nor any of its directors, employees or related entities, receive any pecuniary benefit or other benefit, directly or indirectly, for or in connection with the provision of the report. 6. Remuneration or other benefits received by our employees SIS has no employees and Stantons International Audit and Consulting Pty Ltd charges a fee to SIS. All Stantons International Audit and Consulting Pty Ltd employees receive a salary. Stantons International Audit and Consulting Pty Ltd employees are eligible for bonuses based on overall productivity but not directly in connection with any engagement for the provision of a report. 7. Referrals We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we are licensed to provide. 8. Associations and relationships SIS is ultimately a wholly subsidiary of Stantons International Audit and Consulting Pty Ltd a professional advisory and accounting practice. Stantons International Audit and Consulting Pty Ltd trades as Stantons International that provides audit, corporate services, internal audit, probity, management consulting, accounting and IT audits. From time to time, SIS and Stantons International Audit and Consulting Pty Ltd and/or their related entities may provide professional services, including audit, accounting and financial advisory services, to financial product issuers in the ordinary course of its business. 9. Complaints resolution 9.1 Internal complaints resolution process As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints from persons to whom we provide financial product advice. All complaints must be in writing, addressed to: 30

65 The Complaints Officer Stantons International Securities Level 2 1 Walker Avenue WEST PERTH WA 6005 When we receive a written complaint we will record the complaint, acknowledge receipt of the complaints within 15 days and investigate the issues raised. As soon as practical, and not more than 45 days after receiving the written complaint, we will advise the complainant in writing of our determination. 9.2 Referral to External Dispute Resolution Scheme A complainant not satisfied with the outcome of the above process, or our determination, has the right to refer the matter to the Financial Ombudsman Service Limited ( FOSL ). FOSL is an independent company that has been established to provide free advice and assistance to consumers to help in resolving complaints relating to the financial services industry. Further details about FOSL are available at the FOSL website or by contacting them directly via the details set out below. Financial Ombudsman Service Limited PO Box 3 MELBOURNE VIC 8007 Toll Free: Facsimile: (03) Contact details You may contact us using the details set out above. Telephone Fax jvdieren@stantons.com.au APPENDIX B THE VALUATION REPORT OF AMC ON THE MINERAL ASSETS (CONONISH GOLD PROJECT) OF THE SCOTGOLD GROUP 31

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67 AMC Consultants (UK) Limited Registered in England and Wales - Company No Level 7, Nicholsons House Nicholsons Walk, Maidenhead Berkshire SL6 1LD UNITED KINGDOM T F E amcmaidenhead@amcconsultants.com W amcconsultants.com Report Cononish Gold and Silver Project Scotgold Resources Limited AMC Project _04 23 June 2014

68 Cononish Gold and Silver Project Scotgold Resources Limited _04 Executive summary This report (Report) provides a Fair Market Value (Valuation) of the Cononish Gold and Silver property (the Project) located in the Grampian Highlands of mid-western Scotland and owned by Scotgold Resources Limited (Scotgold). The Report was prepared by AMC Consultants (UK) Limited (AMC) for inclusion in the public documentation relating to the placement of notes with a number of private investors. The notes relate to shares in Scotgold which is a company listed on the Official List of Australian Securities Exchange Limited (ASX) and the Alternative Investment Market (AIM) of the London Stock Exchange (LSE). The Valuation has been carried out in accordance with the principles of the VALMIN Code 1. No mining has been carried out at the Project. There has been exploration for gold at the Project by a series of project owners since 1983 consisting of diamond drilling and underground exploration development. A Mineral Resource estimate has been prepared for the Project by Snowden Mining Industry Consultants (Snowden) and reported under the JORC Code 2. AMC, Scotgold and Scotgold s consultants have prepared a number of studies relating to the development of the Project. These studies have included preliminary mine designs, process plant designs, tailings storage facilities design, mining and treatment schedules, cost estimates and estimates of the Project cash flow. AMC has used these development studies for the Project to develop a discounted cash flow analysis which form the basis of the Valuation. AMC has used the Expected Value method based on discounted cash flow (DCF) analysis. The DCF analysis estimated the post-tax cash flow from the Project as a result of the development strategy currently envisaged by Scotgold. The Expected Value method applies a risk factor to the net present value generated by the DCF analysis. The risk factor selected reflects the confidence of the Mineral Resource estimates, the level of detail of any engineering studies, the status of the permits and licenses to operate and the lack of any operating history. AMC believes that the use of the Expected Value method is appropriate, considering the body of work completed on the Project and that the Project is close to the construction stage but that economic production from the Project has yet to be demonstrated. AMC has taken the top and bottom of the range of values derived from sensitivity analysis carried out as part of the DCF analysis to determine a preferred valuation range for the Project. AMC has selected the base case DCF value as the preferred value. AMC s preferred value of the Property based on a 100% ownership basis is 2.4 million within a valuation range of 3.9 million to 0.9 million. In the current economic environment, AMC considers that its preferred value for the Project constitutes a Fair Market Value, as a premium or discount (over and above the application of a risk factor) is not warranted to account for market, strategic or other considerations. 1 The VALMIN Committee (VALMIN), Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (The VALMIN Code), 2005 edn, effective April 2005, 24 pp., available < viewed 1 November Australasian Joint Ore Reserves Committee (JORC), Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code), 2012 edn, effective December 2012, 44 pp., available < viewed 20 November amcconsultants.com i

69 Cononish Gold and Silver Project Scotgold Resources Limited _04 Quality control The signing of this statement confirms this report has been prepared and checked in accordance with the AMC Peer Review Process. AMC s Peer Review Policy can be viewed at Project Manager Martin Staples 23 June 2014 Date Peer Reviewer Andrew Hall 23 June 2014 Date Important information about this report Confidentiality This document and its contents are confidential and may not be disclosed, copied, quoted or published unless AMC Consultants (UK) Limited (AMC) has given its prior written consent. No liability AMC accepts no liability for any loss or damage arising as a result of any person other than the named client acting in reliance on any information, opinion or advice contained in this document. Reliance This document may not be relied upon by any person other than the client, its officers and employees. Information AMC accepts no liability and gives no warranty as to the accuracy or completeness of information provided to it by or on behalf of the client or its representatives and takes no account of matters that existed when the document was transmitted to the client but which were not known to AMC until subsequently. Precedence This document supersedes any prior documents (whether interim or otherwise) dealing with any matter that is the subject of this document. Recommendations AMC accepts no liability for any matters arising if any recommendations contained in this document are not carried out, or are partially carried out, without further advice being obtained from AMC. Outstanding fees No person (including the client) is entitled to use or rely on this document and its contents at any time if any fees (or reimbursement of expenses) due to AMC by its client are outstanding. In those circumstances, AMC may require the return of all copies of this document. Public reporting requirements If a Client wishes to publish a Mineral Resource or Ore / Mineral Reserve estimate prepared by AMC, it must first obtain the Competent / Qualified Person s written consent, not only to the estimate being published but also to the form and context of the published statement. The published statement must include a statement that the Competent / Qualified Person s written consent has been obtained. amcconsultants.com ii

70 Cononish Gold and Silver Project Scotgold Resources Limited _04 Contents 1 Introduction Purpose of this report Use of report Reporting standard Qualifications Appointment of Specialists Statement of independence Reliance on information Property description Location History Tenement status Mineral Resources Background Mineral Resources Ore Reserves Geology and Mineral Resources Mining method Mining selectivity Existing development Decline access Processing and beneficiation Metallurgical testwork and process design Water supply Power supply Tailings storage Infrastructure Valuation based on discounted future cash flows Valuation Valuation using the Expected Value method Production schedule Estimated capital cost Operating costs Taxation and royalty Gold and silver prices and discount rates Expected value range Preferred value Risk assessment Tables Table 1.1 Specialists contributing to the Report... 2 Table 4.1 November 2012 Mineral Resource Estimate... 6 Table 8.1 Capital cost summary Table 8.2 Operating cost summary Table 8.3 Summary of NPV sensitivities amcconsultants.com iii

71 Cononish Gold and Silver Project Scotgold Resources Limited _04 Figures Figure 2.1 Property location... 3 Figure 3.1 Tenement location plan... 5 Figure 4.1 Mineral Resource model with classification... 7 Figure 5.1 Long. Section Resource polygons and gold grade... 8 Figure 5.2 Long. Section of vein showing grade thickness... 9 Figure 5.3 Long-hole open stoping top down Figure 5.4 Mine development oblique view looking north-west Figure 5.5 Mine development with 3D vein model looking north-west Figure 5.6 Diluted Resource Blocks included in Production Schedule shown in Long Projection Figure 8.1 Monthly mill feed and stockpile levels Distribution list 1 e-copy to John Van Dieran, Stantons International Securities Pty Ltd 1 e-copy to Chris Sangster, Scotgold Resources Limited amcconsultants.com iv

72 Cononish Gold and Silver Project Scotgold Resources Limited _04 1 Introduction 1.1 Purpose of this report This report (Report) provides a Fair Market Value (Valuation) of the Cononish Gold and Silver property (the Project) located in the Grampian Highlands of mid-western Scotland and owned by Scotgold Resources Limited (Scotgold). The Report has been prepared by AMC Consultants (UK) Limited (AMC). The Report has been prepared for inclusion in the public documentation to accompany the issuance of notes in connection with shares in Scotgold, which is a company listed on the Official List of Australian Securities Exchange Limited (ASX) and the Alternative Investment Market (AIM) of the London Stock Exchange (LSE). 1.2 Use of report The Report should not be used for any purpose other than a purpose directly related to the issuance of notes relating to shares listed on the ASX and on the AIM. 1.3 Reporting standard This Valuation is being provided to Stantons International Securities Pty Ltd in support of their Expert Report relating to a transaction connected with the raising of equity finance from an outside party. For this Report, AMC has adopted the VALMIN Code 3 as the reporting standard. The VALMIN Code is intended to apply primarily to technical assessments and valuations prepared in accordance with Australian Law, circumstances, practices and terminology. Reference to Mineral Resources and Ore Reserves in the Report are in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, the JORC Code Qualifications AMC is a leading firm of independent geological, mining geotechnical, mine engineering, and mine management consultants offering expertise and professional advice to the exploration, mining, and mining finance industries. The Report has been prepared by Martin Staples FAusIMM, FIMMM. Mr Staples is an employee and director of AMC and is the Expert as defined by the VALMIN Code with overall responsibility for the physical preparation and contents of the Report. Mr Staples has more than thirty years of experience in the minerals industry, has more than five years of experience in the assessment and/or valuation of mineral assets, and is a member of professional organizations having an enforceable code of ethics (The AusIMM and The IMMM). Mr Staples is a mining engineer, and is qualified to prepare this Valuation of a Pre-Development project by way of his involvement with the multiple scoping and development studies for the Project. The Mineral Resource estimates underlying the Valuation were prepared by Dr Simon Dominy FAusIMM, FGS(CGeol,CSci), MIMMM(CEng), MAIG of Snowden Mining Industry Consultants (Snowden). This estimate was publically reported by Scotgold on 14 November Appointment of Specialists The following Specialists as defined by the VALMIN Code have contributed to the Report. 3 The VALMIN Committee (VALMIN), Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (The VALMIN Code), 2005 edn, effective April 2005, 24 pp., available < viewed 1 November Australasian Joint Ore Reserves Committee (JORC), Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code), 2012 edn, effective December 2012, 44 pp., available < viewed 20 November amcconsultants.com 1

73 Cononish Gold and Silver Project Scotgold Resources Limited _04 Table 1.1 Specialists contributing to the Report Name Position Employer Independent of Scotgold Date of site visit Professional designation Martin Staples Principal Mining Engineer AMC Yes FAusIMM, FIMMM Project manager Ricky Brooks Mining Engineer AMC Yes 2011 MIMMM Mine design and scheduling Ciaran Molloy Technical Director AMEC Yes TMF Design Michael Bell Director Consulmet Yes Process and plant design 1.6 Statement of independence AMC and the individual contributors to the Report are independent of Scotgold, its directors and substantial shareholders. Neither AMC nor the contributors to the Report have any interest, direct or indirect, in the listed entity, or any associated companies. AMC is being paid a fee according to its normal per-diem rates and outof-pocket expenses incurred in the preparation of the Report. AMC s fee is not contingent upon the outcome of the proposed issuance of notes. 1.7 Reliance on information Scotgold has agreed to provide AMC with all available technical, relevant financial and other information required for the purposes of preparing the Report. In performing its services according to the VALMIN Code, AMC has considered information that was provided to it by Scotgold and its consultants, suppliers and service providers. In particular AMC has used information provided in the Geological Review and Mineral Resource Estimate report prepared by Snowden in June This estimate was reported in accordance with the JORC Code (2004) guidelines for public reporting. AMC has based the Valuation on information within its own knowledge and/or acquired as a result of its investigations as well as the information presented by Scotgold, its consultants, suppliers and its service providers. AMC has no reason to believe that the information provided by Scotgold, its consultants, suppliers or its service providers is materially inaccurate, misleading, or incomplete. AMC has not audited the information provided to it, however, it has satisfied itself as to the reasonableness of the information it used. Scotgold has been provided with a draft of this report to enable correction of any factual errors and notation of any material omissions. Scotgold represented in writing that, to the best of its knowledge, it has provided AMC with all material information relevant to the Project described in this report. Mr Staples has not visited the Project site personally, although he has visited the area up to the project gates and viewed the locations for much of the infrastructure. However, in the course of numerous studies for the Project, Mr Ricky Brooks, an AMC mining engineer, Ms Lucy Ball, an AMC mining engineer, Mr Chris Arnold, an AMC principal geologist, Ms Marnie Pascoe, an AMC principal geotechnical engineer, and Ms Lily Whitehead, an AMC geotechnical trainee, all visited the Project on various occasions through 2009 and These mining and geotechnical engineers and geologists inspected aspects of the proposed mining operation, and held discussions with Scotgold personnel, and Mr Staples has used information gained from discussions with these professionals in the preparation of this Valuation. Role amcconsultants.com 2

74 Cononish Gold and Silver Project Scotgold Resources Limited _04 2 Property description 2.1 Location The Project is located on the Cononish Farm within The Loch Lomond and the Trossachs National Park in the Grampian Highlands. The Project lies within the broader Grampian exploration lease being explored by Scotgold (Figure 2.1). Figure 2.1 Property location The nearest town to the Project is Tyndrum, and Glasgow lies about 90 km to the south-east. amcconsultants.com 3

75 Cononish Gold and Silver Project Scotgold Resources Limited _ History Exploration work on the property began in 1983 by Ennex International PLC (Ennex). The Cononish structure showed the greatest promise in the area and 8,700 m of diamond drilling was carried out from 1985 to In order to test the continuity of the structure, an underground development programme was completed during 1989 and A total of 1,120 m of underground development was completed, (including 120 m of rises) of which 590 m was driven on vein. A further 5,000 m of diamond drilling was carried out after completion of the underground exploration programme. Caledonia Mining Ltd (Caledonia) took ownership in 1995, reviewed the previous work, and commissioned a technical and financial audit in September Additional technical work was done in 1995 to produce a mine plan. Further drilling and studies were carried out in 1996 resulting in the 1997 Development Plan. The review of other aspects of the Project was not completed due to a change in the economic climate in April The Project was put on care and maintenance in 1999/2000 until May 2007 when Scotgold completed the acquisition of the Project. In November 2007, Scotgold was granted 3,220 km 2 of exploration licences over the Cononish, Glen Orchy, Inverliever and Glen Lyon areas of the Scottish Grampians. In 2011, Scotgold was granted a further 1,000 km 2 over the Knapdale and Ochils area. In early 2008, Scotgold engaged Snowden to complete a review of the Cononish gold-silver deposit including geological setting, previous geological mapping, previous assay data and QA/QC protocols reported in accordance with the JORC Code. This review was made public in June In September 2008, Scotgold commenced drilling the Cononish Vein below the previously defined Mineral Resource (pre-1996), seeking to increase the size of the Mineral Resource after potential was identified in the Snowden report. AMC completed a Scoping Study in April 2009 based on the Snowden 2008 Mineral Resource estimate. Along with a review of historical data excluded from the original estimate and including results from the 2008 drilling programme (4 holes), Snowden produced a revised Mineral Resource estimate in early Scotgold began a limited infill drilling programme in 2009/2010 with four holes completed. However, there were delays at the time due to planning permission discussions between Scotgold and The Loch Lomond National Park. After further negotiations with the relevant authorities and modifications to the proposed plan to accommodate some concerns of the Loch Lomond and the Trossachs National Park Authority, planning permission was granted in February A Preliminary Development Study was completed by AMC in March 2012, based on the then existing Mineral Resource estimate. In 2012, Scotgold commenced an infill drilling programme of 18 holes, with the intention of increasing confidence in that part of the Mineral Resource to be mined initially. Snowden incorporated the infill drilling results into an update of the Mineral Resource which was reported in November This November 2012 estimate forms the basis for a revised Development Study by AMC which forms the basis for the Valuation. amcconsultants.com 4

76 Cononish Gold and Silver Project Scotgold Resources Limited _04 3 Tenement status Scotgold has access to the Cononish Gold and Silver Project under the terms of a lease from the Crown Estate Commissioners. This lease gives Scotgold the right to mine the Cononish project for ten years from Planning Completion as defined within the lease. In exchange, Scotgold will pay to the Crown a rent; which is in part made up of a fixed (certain) rent, and in part a royalty rent totalling 4% of net realisable revenue as defined in the lease (to exclude transport, smelting and refining charges). The payment of certain rent and royalty rent follow different schedules with certain rent due six months in advance and royalty rent due six months in arrears. In addition, there are provisions that if royalty rent does not exceed certain rent in any one year, it can be offset against certain rent payments in the following year. AMC has sighted a copy of the Crown Lease signed and dated February The Project was granted planning permission by The Loch Lomond and The Trossachs National Park on 13 February AMC has sighted the Decision Notice which grants Scotgold planning permission for ten years from the date of commencement of the development. The activities allowed in the ten-years period include construction, mining operations, restoration, decommissioning and all ancillary development but does not include aftercare of the mine site. Figure 3.1 Tenement location plan amcconsultants.com 5

77 Cononish Gold and Silver Project Scotgold Resources Limited _04 4 Mineral Resources 4.1 Background The Project is targeted on the Cononish Vein, which is a steeply dipping quartz vein containing gold and silver, hosted in metasediments. The Cononish Vein is a late intrusion, postdating the foliation and metamorphism in the metasediments. The Cononish Vein and other quartz veins in the area strike subparallel to the regionally-significant Tyndrum fault, which trends north-west south-east. The gold mineralization is associated with sulphide minerals such as pyrite, chalcopyrite and galena. 4.2 Mineral Resources This Report is based on a Mineral Resource estimate prepared by Snowden, which represents an update of earlier estimates; all completed using a 2D polygonal estimation method. The method is described in Snowden s initial 2008 report entitled: Scotgold Resources Limited, Cononish Gold Project, Scotland; Project No L136. Geology Review and Mineral Estimate 30 June The drillhole intersections of the Cononish vein are configured on a semi-regular to irregular grid. In preparation for tonnage and grade estimation, each drillhole is assigned a polygon, as shown in Figure 4.1. The grade and mineralization thickness from the drillhole are assigned to the corresponding polygon. The global Mineral Resource is estimated by taking the area of each polygon and the thickness assigned from the drillhole to estimate a volume. A bulk density of 2.72 t/m 3 was assigned to all blocks on the basis of a number of density determinations from drill core. The grade assigned from each drillhole was then applied to the tonnage calculated, to produce the estimate of Mineral Resources. Snowden updated the 2008 Mineral Resource estimate in 2011, and subsequently Snowden further updated the Mineral Resource estimate to reflect additional infill drilling by Scotgold. This infill drilling raised the confidence in some areas of the deposit, resulting in an increase in the Indicated Resource component of the Mineral Resource, which was publically reported by Scotgold in November The November 2012 Mineral Resource estimate reported by Scotgold at a 3.5 g/t Au cut-off grade is summarized in Table 4.1. Table 4.1 November 2012 Mineral Resource Estimate Classification Tonnes (t) Grade (g/t Au) Grade (g/t Ag) Au Ounces (Oz) Ag Ounces (Oz) Measured 53, , ,500 Indicated 142, , ,500 Measured + Indicated 196, , ,000 Inferred 264, (10.0 to15.0) , ,300 Total Mineral Resource 460, , ,300 Source: Scotgold, 2012 The polygonal estimate is illustrated with the classifications shown in Figure 4.1. amcconsultants.com 6

78 Cononish Gold and Silver Project Scotgold Resources Limited _04 Figure 4.1 Mineral Resource model with classification The polygonal estimation method, as used at Cononish, is no longer widely applied in Mineral Resource evaluation. Nonetheless it remains an appropriate method for particular styles of mineralisation, such as at Cononish, for which there is adequate data density, and where alternative estimation methods will not necessarily return improved representations of the high degree of local grade variability. The Mineral Resource estimate has been prepared by a recognized industry specialist, using one of the traditional methods in the industry for this type of deposit, and the estimate has been classified and reported in accordance with the JORC Code. AMC therefore considers that, for the Cononish mineralization the Mineral Resource estimate is a reasonable basis for the development studies undertaken to date. amcconsultants.com 7

79 Cononish Gold and Silver Project Scotgold Resources Limited _04 5 Ore Reserves The JORC Code requires Ore Reserves to be supported by studies at a pre-feasibility or feasibility level. No studies at this level have been completed and, consequently, there are currently no Ore Reserves, as defined by the JORC Code, for the Project. AMC has developed a number of mine designs and schedules as part of either scoping studies or mine development studies. It is the latest of these mine designs and schedules that forms the basis of the DCF analysis used in this Valuation. 5.1 Geology and Mineral Resources The Mineral Resource estimate by Snowden in November 2012 was used as the basis of the mine design and schedules. This Mineral Resource estimate is a 2D polygonal estimate as referred to above. AMC converted the Snowden Mineral Resource estimate into a 3D seam block model in a Datamine format. The resulting Datamine block model contains individual cells which extend horizontally across the full width of the vein. The Snowden polygons were fitted to the centroids of the drill hole intersections that were their basis. The resultant model provided a three-dimensional representation of the Snowden Mineral Resource estimate for the purposes of mine planning. This 3D representation is only used as a basis for the mine design there are no tonnes and grade reports based on this model. As part of this conversion process, AMC did not re-interpolate vein thicknesses, tonnes, or metal grades. The mine design was used to calculate the physical quantities of development in the mine design and schedule. For the purpose of the mine design, AMC considered all resource categories. The Mineral Resource estimate that formed the basis of this mine design and schedule (at a 3.5 g/t Au cut-off) is shown in Table 4.1 with the resource polygons coloured by grade in Figure 5.1. Figure 5.1 Long. Section Resource polygons and gold grade amcconsultants.com 8

80 Cononish Gold and Silver Project Scotgold Resources Limited _04 The Cononish Vein is orientated east west and dips approximately 75 degrees north. The majority of this vein within the area to be mined is from 1 m through to 2 m wide, however, there are localized areas where vein width is greater than 5 m. The average width for undiluted Mineral Resource polygons above the Au cut-off is 2 m. Narrow vein deposits are often considered in terms of grade thickness. The grade thickness of a vein is a measure of metal content, and is therefore a useful economic criterion. The gold grade thickness of each polygon is shown in Figure 5.2. The polygonal nature of the Mineral Resource estimate results in relatively large areas estimated with a constant grade and thickness. The existing exploration development is also shown in Figure 5.2. Figure 5.2 Long. Section of vein showing grade thickness 5.2 Mining method In discussion with Scotgold, small-scale mechanized long-hole open stoping (LHOS) was chosen as the preferred mining method for the narrow Cononish Vein. LHOS is a conventional mining method commonly used in many underground mining operations. The LHOS method uses mechanized equipment for developing access drives, drilling production holes, loading stoped material, and for hauling material within the mine and to surface. The LHOS method, as applied to narrow vein deposits, utilizes decline development positioned in the hanging wall or footwall of the deposit to provide access between levels. Ore is accessed by a cross-cut from the decline and then by drives along the deposit. Blast holes are drilled up from each level to the level above and stoping on each level retreats along the vein to the cross-cuts. Each stope undercuts the floor of the access development of the level above. Where required either for geotechnical purposes, or in order to separate mining areas for scheduling purposes, a sill or rib pillar is left between LHOS stopes. amcconsultants.com 9

81 Cononish Gold and Silver Project Scotgold Resources Limited _04 A central stockpile is located in, or near the cross-cut at the start of the east and west stope drives. Load Haul Dumpers (LHDs) tram the material from the development headings and stopes to the level stockpile and subsequently load it into trucks Mining selectivity The mining selectivity for narrow vein LHOS is dependent on the minimum mining width, vein width, vertical undulation of the vein, and the sublevel spacing. The mining equipment selected for the Project is some of the smallest mechanized equipment currently available. This is required to be able to mine to a minimum mining width of 2.2 m for access development, and 1.2 m for stopes (pre-dilution) in order to minimize dilution. Narrower mining widths would be difficult to achieve even with non-mechanized methods. The vein widths at the Project range from less than one metre to more than five metres in width. The average of Mineral Resource polygons above the gold cut-off is two metres. Some planned dilution is expected where the vein is less than the minimum mining width. The interpretation of the vein position in the 3D model was used to develop the mine layout based on drillhole intercepts. This model has been relied on to provide guidance as to the attitude of the vein. The vein model generally has a consistent orientation, however, in some areas, variation in the dip and strike is apparent. In the majority of the vein the dip is greater than 75 degrees, however in some isolated areas the range can be between 55 degrees and 90 degrees. Stope development on the upper level as well as the lower level prior to stoping will be required for confirmation of the vein position. Slot rises will be developed as long-hole raises between levels. The only exception to this is the uppermost level of the mine where a blind uphole rise and stope is planned. The undulations of the vein that occur between levels dictate the distance between levels required to control selectivity. The proposed level spacing is between 14 metres and 17.5 metres floor-to-floor. This results in approximately 10 metres to 14 metres stope height between the back and the floor of the next level. The level spacing proposed in the underground design is the initial configuration. These dimensions could be modified with experience to manage dilution and the amount of development required. The basic mining sequence proposed is generally a LHOS top down method as follows: 1) Access and stope drive development is established top and bottom for a mining area, and then the stopes are developed down by level. 2) Long-hole production drilling between levels, drilled as upholes. 3) Establish a slot/raise at the end of stoping panel furthest from the level access to create the initial void required for stope material to be fired into. 4) Charge-and-blast production holes in stages, typically two or three rings per blast when required. 5) Load broken stope material after each blast. Stope material will be loaded from the draw point with the loader (LHD) and operators remaining well back from the brow. Once the muckpile is inaccessible from a safe position, remote loading using a teleremote will be used to load ore. The remote loading can be carried out after each blast, or after each mining panel is completely fired out on a particular level. Alternatively, the material beyond the brow can be left in the stope. As the stope below is developed, this material will fall into that stope for loading with the stope below. Through leaving material in the stope, remote loading is only required on the bottom level of a mining area. For example, the area above a sill pillar will need to be cleaned out using remote loaders. In this way, the requirement for remote loading can be reduced. Figure 5.3 shows a diagram of a typical long-hole open stoping method being mined from the top down. amcconsultants.com 10

82 Cononish Gold and Silver Project Scotgold Resources Limited _04 Figure 5.3 Long-hole open stoping top down Open void Ore (Broken Stock) Ore Drive (production loading) Ore Drive (production drilling upholes) Rib Pillars Ore Drive Developing With the LHOS top down method there is no requirement for backfill. A void is left above as the stope levels progress down. This results in a progressively increasing stope size with increasing exposure to hanging wall and footwall failure or sloughing. This sloughing can lead to dilution and the possibility of equipment damage for remote equipment working in the stope. In the case of the Project, it is necessary to store development waste in worked-out stopes as the surface storage for waste is limited. Areas of stope have been selected to be stoped out and then used as waste storage areas. With larger mining extents, sill pillars and rib pillars are required for regional stability. Strategic placement of sill pillars has been incorporated into the mine design. Sill pillars provide support for the stope walls but also segregation of mining areas allowing separate areas to be mined concurrently down dip, or areas to be mined other than starting at the top of the mine. Additional mining areas provide scheduling flexibility and increased mining rates. The sill pillar forms the floor of the lowest level of the mining area above. The sill pillars are non-recoverable. Rib pillars can be established as each level retreats by developing a new slot rise. Rib pillars are often opportunistic, being located in lower grade or narrower areas of the mineralization Existing development There are two existing exploration adits at the Project. The main access is on the 397 m level and extends into the mine approximately 880 m. The second adit is located 50 m above on the 449 m level, and is approximately 170 m long. The two adits are linked by a vertical raise. The existing adits have crosssectional size of approximately 2.5 m wide by 2.5 m high Decline access The LHOS method requires access to each level suitable for trackless mechanized mining equipment. This will be provided by a decline ramp with cross-cuts to each level. The Project will be within a hill above the surface access to the site. The lower of the existing adits is below the bulk of the Mineral Resource and will be utilized as the main access into the mine. Ramp access to other levels of the mine is proposed utilizing a spiral ramp positioned in the footwall of the Mineral Resource near the centre. amcconsultants.com 11

83 Cononish Gold and Silver Project Scotgold Resources Limited _04 The existing lower adit development that will form the main haulage route requires stripping from the existing 2.5 m wide by 2.5 m high adit, to 3.5 m wide by 4 m high to provide sufficient room for the production haulage equipment. The upper adit will also be stripped out to allow access and this adit will be equipped with a fan and will become the exhaust airway. Figure 5.4 shows the mine design development layout. The 3D mine design for development is based on the 3D spatial interpretation of the Cononish Vein, and the development is shown in relation to the deposit in Figure 5.5. Figure 5.4 Mine development oblique view looking north-west Escape-way to surface and second vent intake Main level access Level Stockpiles Vent return drives, (including vertical) Decline development On-vein ore drive development 447 Adit, primary vent exhaust Existing adit stripped for ore drive development 397 Adit (Portal & Fresh Air Intake) Existing adit stripped for haulage access Figure 5.5 Mine development with 3D vein model looking north-west A pillar of at least 20 m is maintained between the capital decline development and the operating vein development and production stopes. A pillar of at least 15 m is maintained between the capital vertical ventilation shafts and the production stopes. Given the geotechnical conditions and the narrow stopes, these standoff distances will leave pillars that should be adequate for the life of the mine without special or ongoing support. amcconsultants.com 12

84 Cononish Gold and Silver Project Scotgold Resources Limited _04 An escape-way drive was designed that extends from the upper west 536 m level to the surface. Once installed, this drive will also act as a secondary fresh air intake for the top of the mine. This entrance will be secured and gated. This additional surface opening will simplify and improve the mine operation and safety from a ventilation and secondary escape-way perspective. AMC recognizes a variation to the current planning consent will be required to accommodate this additional opening to surface. If the amendment cannot be obtained, there are alternatives for a second means of egress from the top of the mine which can be accommodated within the cost allowed for the current design. Permanent 6-m-high sill pillars are left in strategic locations to create independent mining areas to allow greater operational flexibility during production. This is particularly important in the establishment of waste rock backfill areas and also to minimize exposure of the hanging wall during production. Minimum mining widths, development and stope Stope development was designed at a minimum width of 2.2 m and this includes a 0.3 m dilution skin on each side of the Cononish Vein. Where the vein (including dilution skin) is wider than 2.2 m, the development width is increased to the width of the vein and dilution skin. The production stope minimum width including dilution is 1.8 m. This comprises of a minimum of 1.2 m, plus a 0.3 m dilution skin on both the hanging wall and footwall. (1.2 m m = 1.8 m). Where the vein is wider than 1.2 m the stope width becomes the vein width plus 0.3 m of dilution on each side. When determining the production schedule, the dilution was added at a background grade of 0.85 g/t Au and 4.66 g/t Ag was calculated using the average grade of the combined drill hole intercepts from the first halfmetre on each side of the Cononish Vein. This gold and silver grade was applied to the dilution skins added to the mining shapes. A stoping recovery factor of 90% is applied to all stope material, which means that 10% of all stope material is unrecoverable. A stope recovery of 90% is typical when benchmarked against other operations of this size and nature. The main factors that contribute to the 10% loss of stope material are: Material left behind on the floor of the upper stoping development drive (in the toes or floor edges of the drive). Material left behind in the stope due to possible mischarging and/or misfiring of production holes. Accuracy of production holes. Material left due to Cononish Vein continuity or undulation in a vertical sense between levels. Material left after remote loading a level clean. A production schedule was determined by summing development and production material after applying a cut-off grade of 3.3 Au g/t to the mining shapes. The scheduled material also includes marginal development (2.0 to 3.3 g/t Au range), dilution, ore loss, and recovery factors. The diluted grade for those resource polygons that were included in the production schedule is shown in Figure 5.6. Material mined as development through the pale blue blocks was treated as mill feed as it is above a marginal cut-off grade. All other resource blocks coloured grey or pale blue were excluded from the production schedule. amcconsultants.com 13

85 Cononish Gold and Silver Project Scotgold Resources Limited _04 Figure 5.6 Diluted Resource Blocks included in Production Schedule shown in Long Projection The production schedule included material from all resource classifications with approximately 50% of the material processed and 45% of the gold production coming from Inferred Resources. Scotgold intend to develop the mine on the basis of the existing exploration data. They are of the view that the drilling to date has confirmed the presence of the mineralized structure and that the localized variability of the system is such that only close spaced drilling would improve the confidence in the local estimate. Scotgold s preference is to develop the production levels and sample these levels to develop a localized grade understanding upon which final stope shapes and production predictions will be based. AMC consider this approach to be pragmatic and appropriate in this style of mineralization. Nonetheless it should be noted that there is a lower level of confidence associated with the Inferred Mineral Resources and there is no certainty that the sampling of the development and the eventual production will correspond to the production schedules in the development studies. amcconsultants.com 14