China Gold International Resources Corp Ltd. (TSX: CGG, HKSE: 2099) Solid Production Growth / Costs Higher Than Expected

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1 Siddharth Rajeev, B.Tech, MBA, CFA Analyst Danny Peng, BBA Research Associate Investment Analysis for Intelligent Investors May 14, 2012 China Gold International Resources Corp Ltd. (TSX: CGG, HKSE: 2099) Solid Production Growth / Costs Higher Than Expected Sector/Industry: Exploration/Mining Market Data (as of May 08, 2012) Current Price C$3.50 Fair Value C$5.07 ( ) Rating* BUY Risk* 3 (Average) 52 Week Range C$1.91 C$5.13 Shares O/S mm Market Cap C$1,387 mm Current Yield N/A P/E (forward) 17.5x P/B 1.1x YoY Return % YoY TSX -14.1% *see back of report for rating and risk definitions Key Financials 0 9-May-11 9-Aug-11 9-Nov-11 9-Feb Investment Highlights Gold production at the CSH Mine in Q4-FY2011 was 41,279 ounces versus 36,986 ounces in Q3-2011; a 12% QOQ increase. Copper production at the Jiama Mine in Q4-FY2011 was 6.61 million pounds versus 5.81 million pounds in Q3-FY2011; a 14% QOQ increase. China Gold posted revenues of $ million in FY2011, an increase of 134% YOY. FY2011 revenues beat our estimate of $ million due to higher than expected revenues from CSH Mine in Q4. Free cash flow in FY2011 was $55.34 million versus $2.11 million in FY2010, a 2,527% YOY increase. CGG continues to maintain a strong cash position - Cash at the end of the year was $ million which would allow the company to fund a significant portion of the expansion plans at CSH and Jiama. Shares are up 41% since our initiating report in November We have lowered our valuation from C$5.50 to C$5.07 per share as we raised our operating cost and CAPEX estimates(for expansion). FRC Analysts have visited the company's projects in the last 12 months. All the figures are in US$ unless otherwise noted. USD; in millions, except per share items 2007A 2008A 2009A 2010A 2011A 2012E 2013E Revenues $ - $ $ $ $ $ $ Net Income $ (16.95) $ $ (9.34) $ $ $ $ EPS $ (0.11) $ 0.09 $ (0.06) $ 0.14 $ 0.20 $ 0.16 $ 0.14 Cash and cash equivalents $ $ $ $ $ $ $ Working Capital $ $ (8.21) $ (9.60) $ $ $ $ LT Debt $ $ $ $ $ $ $ ROE (172.19%) 59.52% (24.60%) 4.24% 6.39% 4.76% 4.01% & Company Filings China Gold International Resources Corp Ltd. is a gold and non-ferrous metal producing company with two flagship properties in China; The Chang Shan Hao Gold mine in Inner Mongolia, and the Jiama poly-metallic mine in Tibet. Strong potential exists for near term production growth and continued exploration aims to expand the existing resource base at both projects Fundamental Research Corp.

2 China Gold International Resources Corp Ltd. (TSX: CGG, HKSE: 2099) - Update Page 2 Reports solid production growth We initiated coverage on China Gold in November The company recently announced its FY2011 results. China Gold has two producing mines - the Jiama Mine operating at 6,000 tpd and the CSH Mine operating 30,000 tpd. The following chart summarizes revenues and gold/copper production from the two mines. As shown in the chart, all three parameters were at record highs for FY2011. FY2011 revenues were $ million versus $ million in FY2010, a 134% YOY increase. Revenues beat our estimate of $ million due to higher-than-expected revenues from the CSH Mine in Q4-FY2011. China Gold posted $93.54 million in revenues in Q4-FY2011, versus $89.41 million (our estimate - $89.96 million) in Q3-FY2011; a 4.61% QOQ increase. The following table shows revenues from each mine. USD; in millions, except per share items Q % of Q3 Revenue Q % of Q4 Revenue QOQ Growth Revenues from CSH Mine $ % $ % 6% Revenues from Jiama Mine % % 2% Total Revenues % % 5% Q4 revenues from the CSH Mine were $68.00 million versus $64.40 million in Q3; a 5.59% QOQ increase. Revenues beat our estimate of $55.23 million primarily because 41,954 ounces of gold were sold in Q4, exceeding our estimate of 33,474 ounces. Gold sales beat our estimate because the CSH Mine was able to sell the gold produced from the ore that was already on the leach pad at the end of Q3. Our projections were based on the gold produced from the materials placed on the pad in Q4.

3 China Gold International Resources Corp Ltd. (TSX: CGG, HKSE: 2099) - Update Page 3 Q4 revenues from the Jiama Mine were $25.50 million versus $25.01 million in Q3, a 1.92% QOQ increase. Revenues were below our estimate of $34.36 million due to the following reasons: Cu production was 6.61 million pounds versus our estimate of 6.98 million pounds as we had expected ore grades to be 0.82% (actual Q4-FY2011 ore grade 0.7%). Realized copper price was $3.17/pound versus our estimate of $3.30/pound Maintaining revenue forecast for FY2012 at $349 million Management s goal for FY2012 is 130, ,000 ounces of gold from the CSH Mine and million pounds of copper from the Jiama Mine. We have revised our forecasts to 128,146 ounces of gold (previous estimate - 115,209 ounces) and million pounds of copper (previous estimate million pounds) as we believe that recovery rates and ore grades at the CSH Mine will increase slightly in FY2012, to 52% (previous estimate 51%) and 0.60g/t (previous estimate 0.55g/t), respectively. As for the Jiama mine, we expect copper recovery rates, and ore grades in FY2012, to be 90% (previous estimate 87.2%) and 0.70% (previous estimate 0.77%), respectively. We raised our gold and copper price forecast for FY2012 from $1,500/oz, and $3.25/lb, to $1,600/oz, and $3.50/lb, respectively. Despite these changes, our revenues forecast for FY2012 remained at $349 million. We introduce our FY2013 forecast in this report which is $341 million. We expect lower revenues in FY2013 (compared to FY2012) as we expect average gold and copper prices to drop to $1,500/ounce (from $1600/ounce in FY2012) and to $3.00/pound (from $3.50/pound in FY2012) next year. Operating costs higher than expected We estimate that operating costs per ounce of gold at the CSH Mine in Q4-FY2011 were $931.00/ounce versus $817.88/ounce in Q3-FY2011. Our previous estimate of $656/oz was highly optimistic. We have accordingly raised our forecast for FY2012 to $830/oz (from $600/oz). Our forecast for FY2013 is $800/oz. Operating costs per pound of copper at the Jiama Mine in Q4-FY2011, we estimate, were $2.90/lb versus $2.09/lb in Q3-FY2011. Our previous estimate was $2.53/lb. As with CSH, our previous estimate for Jiama ($2.44/lb) was highly optimistic. We have revised our estimate to $2.44/pound (previous estimate - $2.28/pound) for FY2012. Although gross margins dropped in Q4 (due to higher operating costs), we were pleased to see that all margins (shown below) were better than industry average margins.

4 China Gold International Resources Corp Ltd. (TSX: CGG, HKSE: 2099) - Update Page 4 Lowers EPS Estimates Margins 2008A 2009A 2010A 2011A Q3-FY2011 Q4-FY E Industry 2013E AVG Gross Margins 38% 38% 56% 51% 52% 47% 43% 38% 19% EBITDA Margins -1% 31% 52% 45% 48% 42% 38% 33% 16% EBIT Margins -9% 24% 44% 33% 37% 29% 28% 23% 12% Net Margins 50% -12% 20% 26% 26% 28% 18% 15% 5% The following chart shows EBITDA, EBIT and Net Income since FY2007. EBITDA in Q4-FY2011 was $39.28 million versus $42.75 million in Q3-FY2011, an 8.00% QOQ decrease. EBITDA in Q4-FY2011 was below our estimate of $43.61 million due to higher than expected operating costs (as mentioned earlier). FY2011 s EBITDA was $ million versus $69.31 million in FY2010, a % YOY increase. Our FY2012 EBITDA estimate has been revised to $ million (previous estimate - $ million), and we expect EBITDA in FY2013 to be $ million. Net income in Q4-FY2011 was $26.40 million (EPS: $0.07) versus $22.93 million (EPS: $0.06) in Q3-FY2011, a 15.00% QOQ increase. However, the increase was only due to $6.93 million in non-recurring income from the sale of a non-core asset (the Dadiangou Gold Project). If not for this asset sale, net income would have been $19.47 million (EPS: 0.05); a 15.00% QOQ decrease. FY2011 s net income was $79.40 million (EPS: $0.20) versus $26.22 million (EPS: $0.14) in FY2010, a 203% YOY increase. Our FY2012 net income forecast has been revised to $62.67 million (EPS: $0.16) (previous estimate - $ million; EPS: $0.26)), and we expect FY2013 net income to be $55.24 million (EPS: $0.14). Higher operating costs prompted us to lower our FY2012 estimate. Profitability The following table summarizes China Gold s profitability ratios.

5 China Gold International Resources Corp Ltd. (TSX: CGG, HKSE: 2099) - Update Page 5 Profitability Analysis 2007A 2008A 2009A 2010A 2011A 2012E Industry 2013E AVG ROA -20% 14% -6% 3% 5% 4% 3% 7% ROE -172% 60% -25% 4% 6% 5% 4% 11% ROIC -31% 19% -8% 3% 5% 4% 4% 9% Return on assets and return on equity in FY2011 were 5.00% and 6.00%, respectively. Both ROA and ROE were lower than the industry averages of 7.00% and 11.00%, respectively which is concerning. We do not expect any increase in these ratios until 2015, when we expect the company to complete its expansion and raise production at both CSH and Jiama. Free cash flows in FY2011 were $55.34 million versus $2.11 million in FY2010. Free cash flows are expected to drop (as shown in the table) as we project lower profits and higher CAPEX (for expansion at CSH and Jiama) in the next 3 years. Cash Flows ($ million) 2007A 2008A 2009A 2010A 2011A 2012E 2013E Cash Flow from Operations (4.59) (33.04) Cash Flow from Investing (25.52) (11.11) (31.35) 6.89 (71.03) (60.86) (95.32) Cash Flow from Financing (57.90) (54.87) Foreign Exchange Rate Adj (0.50) Net Change in Cash (0.88) (14.72) (24.72) (56.57) Free Cash Flows (30.11) (57.14) (21.14) (1.70) Cash & Liquidity At the end of FY2011, China Gold had cash and cash equivalents of $ million. Working capital was $ million. The current ratio was 2.96x compared to the industry average of 2.60x. Debt to capital and long term debt to capital, at the end of Q4-2011, were 15.00%, and 12.00%, respectively. We expect these ratios to drop as the company continues to repay its debt obligations. Liquidity Analysis 2007A 2008A 2009A 2010A 2011A 2012E Industry 2013E AVG Cash and Equivalents $ $ $ $ $ $ $ Working Capital $ $ (8.21) $ (9.60) $ $ $ $ Current Ratio 1.97x 0.86x 0.80x 2.72x 2.96x 2.35x 1.95x 2.60x Debt / Capital 82% 59% 72% 15% 15% 11% 8% 10% LT Debt / Capital 82% 16% 62% 13% 12% 8% 4% 7% Warrants & Options Valuation At the end of December 30, 2011, the company had 695,000 stock options outstanding (weighted average exercise price of $3.98 per share) with 295,000 stock options currently in-the-money. There were no warrants outstanding. Discounted Cash Flow Analysis Our DCF valuation on China Gold is revised to C$5.43 per share (previous estimate C$5.77 per share). A summary of our valuation model is shown below. The valuation dropped as we raised our CAPEX estimate for Jiama from

6 China Gold International Resources Corp Ltd. (TSX: CGG, HKSE: 2099) - Update Page 6 $300 million to $800 million. Our previous estimate, we believe, was extremely optimistic. DCF Valuation 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E E CFO Plus: Interest less tax (7.61) (5.95) (3.83) (1.86) (0.88) Less: Capital Expenditure (60.00) (95.32) (755.73) (62.46) (29.55) (20.43) (23.34) (27.78) (20.42) FCFF (7.65) (644.94) PV(FCFF) (6.47) (496.23) , Sum of PV FCFF 1, Cash - Debt 123 Equity Value 2,020 Intrinsic Value per Share (USD) $ 5.10 Intrinsic Value per Share (CAD) $ 5.61 Note: All figures in million $ except per share estimates Assumed gold price of $1,600/oz in 2012, $1,500/oz in 2013,$1,400/oz in 2014, and $1,200/oz for Assumed copper price of $3.50/lb in 2012, $3.00/lb in 2013, $2.50/lb in 2014, and $2.25/ lb for C$/US$ Our comparables valuation on CGG dropped significantly from C$5.26, to C$3.46 per share, as the share prices of most of its peers has dropped over the past few months (as a result of the market downturn). However, we do not believe current market valuations truly reflect the fundamentals of CGG or its peers. Therefore, we have only assigned a 25% weighting (75% of the DCF valuation) on the comparables valuation.

7 China Gold International Resources Corp Ltd. (TSX: CGG, HKSE: 2099) - Update Page 7 Company Name Ticker Price Market Cap EV EV/Sales EV/EBITDA EV/EBIT P/E ALAMOS GOLD INC. AGI-T $ , , AURIZON MINES LTD. ARZ-T $ AVOCA RESOURCES LTD AVORF-5 $3.34 1, B2GOLD CORPORATION BTO-T $3.19 1, , COEUR D ALENE MINES CORPORATION DUNDEE PRECIOUS METALS INC. HIGH RIVER GOLD MINES LIMITED JAGUAR MINING INCORPORATED KINGSGATE CONSOLIDATED LIMITED CDE-N $ , , DPM-T $ HRG-T $ JAG-T $ N/A KCN-AU $ , KIRKLAND LAKE GOLD INC. KGI-T $ KOZA ALTIN ISLETMELERI A.S KOZAL-IS $ , , LINGBAO GOLD CO LTD 3330-HK $ , , MEDUSA MINING LTD MML-AU $5.52 1, , OCEANAGOLD CORPORATION OGC-AU $ RESOLUTE MINING LIMITED RSG-AU $1.64 1, SEMAFO INC SMF-T $4.92 1, , SHANDONG HUMON SMELTING COMPANY LIMITED SZ $6.34 1, , N/A ST BARBARA LIMITED SBM-AU $ Mean China Gold International CGG-T ,509 1, Valuation Base on Peer Average (CAD per Share) $ 3.52 $ 2.87 $ 4.67 $ 2.78 Source:Fundamental Research Corp. & Capital IQ Average $3.46 Rating Our revised fair value on CGG is C$5.07 per share; down from C$5.50 per share. We maintain our BUY rating with a Risk 3 (Average) rating.

8 China Gold International Resources Corp Ltd. (TSX: CGG, HKSE: 2099) - Update Page 8 Risk The following risks, though not exhaustive, may cause our estimates to differ from actual results: The value of the company depends on commodity prices. The company is subject to delays that are affecting the entire mining industry. The success of drilling, resource expansion and development are important long-term success factors at both flagship properties. The outcome of feasibility studies and mine expansion plans at both the CSH and Jiama mines. Technical difficulties and delays in expansion may impede realization of economic benefits of the planned expansion. The ability of the company to provide adequate financing for future expansion. Political tensions in Tibet may impact investor interest in the company. The ability to maintain a consistent power supply to the operations given the remote location of both properties.

9 China Gold International Resources Corp Ltd. (TSX: CGG, HKSE: 2099) - Update Page 9 Income Statement Appendix USD; in millions, except per share items 2007A 2008A 2009A 2010A 2011A 2012E 2013E Revenue from Gold (CSH Mine) $ - $ $ $ $ $ Revenue from Copper and other (Jiama) Total Revenue COGS (exclude dep) Gross Profit SG&A (excclude dep & stock base com) Exploration and Evaluation Expenditure Stock-based Compensation (0.38) Asset Retirement Cost Other operating expense, total EBITDA (12.33) (0.15) Depreciation and Amortization EBIT (12.37) (2.56) Financing Cost (1.70) (3.59) (6.31) (5.84) (14.05) (9.70) (7.58) Interest Income Net Financing Expense (1.26) (3.42) (6.30) (5.78) (7.73) (9.70) (7.58) Gain (Loss) of Foreign Exchange (3.32) 8.06 (5.89) (1.48) Listing Expenses - - (2.15) (2.10) Fair Value Change on Warrant Liabilities (7.19) (7.16) EBT Excl. Unusual Items (16.95) (2.28) Gain (Loss) on Disposal of Subsidiary EBT Incl. Unusual Items (16.95) (2.28) Income tax expense Minority Interest in Earnings Net Income (16.95) (9.34) Basic EPS $ (0.11) $ 0.09 $ (0.06) $ 0.14 $ 0.20 $ 0.16 $ 0.14

10 China Gold International Resources Corp Ltd. (TSX: CGG, HKSE: 2099) - Update Page 10 Balance Sheet USD; in millions, except per share items 2007A 2008A 2009A 2010A 2011A 2012E 2013E ASSETS Cash and Equivalents Restricted Cash Total Cash and Restricted Cash Accounts Receivable Total Receivables Prepaid Expense and Deposits Prepaid Lease Payments Inventory Total Current Assets Asset Classified as Held for Sale Gross PP&E Accumulated Depreciation (1.39) (4.81) (10.42) (20.03) (42.04) (76.93) (113.55) Net PP&E Prepaid Expense and Deposits Prepaid Lease Payments Amount due from non-controlling Shareholder Long-term Receivable Inventory Deferred Tax Asset Intangibles Total Assets , , , , LIABILITIES Accounts Payable and Accrued Expenses Borrowings Tax Liabilities Total Current Liabilities Liabiliities Classified as Held for Sale Deferred Lease Inducement Borrowing Warrant Liabilities Deferred Tax Liabilities Deffered Income Environmental Rehabilitation Total Liabilities Common Stock , , , , Retained Earnings (Deficit) (70.71) (56.13) (65.47) (39.25) Total Common Equity , , , , Non-controlling Interest Total Liabilities and Equity , , , ,787.56

11 China Gold International Resources Corp Ltd. (TSX: CGG, HKSE: 2099) - Update Page 11 Cash Flow Statement USD; in millions, except per share items 2007A 2008A 2009A 2010A 2011A 2012E 2013E Net Income (16.50) (9.30) Depreciation & Amort Amort. Of Good will and Intangibles Impairment of Assets D&A., Total Other Amortization (Gain) Loss From Sale Of Assets (6.65) - - Stock-Based Compensation (0.50) Other Operating Activities 3.18 (22.70) Change in Acc. Receivable (1.40) (2.50) (0.36) Change In Inventories (0.40) (27.80) (1.40) (18.20) (27.37) (7.23) Change in Acc. Payable (26.70) (8.72) Change in Unearned Rev Change in Other Net Operating Assets 0.02 (5.20) 5.44 (2.50) (5.49) (1.93) (1.11) Cash from Operations (4.59) (33.04) Capital Expenditure (40.60) (26.80) (36.60) (13.20) (71.22) (60.00) (95.32) Sale of Property, Plant, and Equipment Cash Acquisitions Divestitures Other Investing Activities (0.86) - Cash from Investing (25.52) (11.11) (31.35) 6.89 (71.03) (60.86) (95.32) Short Term Debt Issued Long-Term Debt Issued Total Debt Issued Short Term Debt Repaid Long-Term Debt Repaid - - (67.00) (52.70) (68.28) (57.90) (54.87) Total Debt Repaid - - (67.00) (52.70) (68.28) (57.90) (54.87) Issuance of Common Stock Repurchase of Common Stock Common Dividends Paid Total Dividends Paid Special Dividend Paid Other Financing Activities (0.60) Cash from Financing (57.90) (54.87) Foreign Exchange Rate Adj (0.50) Net Change in Cash (0.88) (14.72) (24.72) (56.57)

12 China Gold International Resources Corp Ltd. (TSX: CGG, HKSE: 2099) - Update Page 12 Fundamental Research Corp. Equity Rating Scale: Buy Annual expected rate of return exceeds 12% or the expected return is commensurate with risk Hold Annual expected rate of return is between 5% and 12% Sell Annual expected rate of return is below 5% or the expected return is not commensurate with risk Suspended or Rating N/A Coverage and ratings suspended until more information can be obtained from the company regarding recent events. Fundamental Research Corp. Risk Rating Scale: 1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industry. The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure is conservative with little or no debt. 2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitive to systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cash flows (though current free cash flow may be negative due to capital investment). The company s capital structure is conservative with little to modest use of debt. 3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitive to economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, and coverage ratios are sufficient. 4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or in a turnaround situation. These companies should be considered speculative. 5 (Highly Speculative) - The company has no history of generating earnings or cash flow. They may operate in a new industry with new, and unproven products. Products may be at the development stage, testing, or seeking regulatory approval. These companies may run into liquidity issues, and may rely on external funding. These stocks are considered highly speculative. Disclaimers and Disclosure The opinions expressed in this report are the true opinions of the analyst about this company and industry. 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