DRAGON MINING LIMITED ABN

Transcription

1 DRAGON MINING LIMITED ABN ANNUAL REPORT 2016

2 DRAGON MINING ANNUAL REPORT 2016 Contents CHAIRMAN S REPORT 3 EXECUTIVE DIRECTOR S REPORT 4 OPERATIONS REVIEW 6 OCCUPATIONAL HEALTH & SAFETY REVIEW 10 ENVIRONMENT REVIEW 11 EXPLORATION REVIEW 14 RESOURCES AND RESERVES STATEMENT 23 FINANCIAL REPORT 27 AUDITOR S INDEPENDENCE DECLARATION 43 FINANCIAL STATEMENTS 44 INDEPENDENT AUDITOR S REPORT 86 ASX ADDITIONAL INFORMATION 91 TENEMENT REGISTER 93 2

3 DRAGON MINING ANNUAL REPORT 2016 Chairman s Report I am pleased to present to shareholders Dragon Mining Limited s Annual Report for the year ended 31 December 2016, particularly as we have been able to report a third successive year of profitable results since the new Board and Management took office on 7 February The Company also recorded a positive cash balance of $15.4 million at year end. The profit of $5.3 million for the year and positive cash balance of $15.4 million at year end was achieved notwithstanding the exhaustion of the Svartliden ore stockpiles, the acquisition of Fäboliden for cash, the costs of keeping the Svartliden plant open for concentrate treatment and the costs of extending Orivesi at depth. The aforementioned situations required extremely careful management, but close attention to cost reductions and operational efficiencies enabled the Company to maintain profit. The Company has continued to pursue the acquisition of all the environmental permits necessary to commence test mining at Fäboliden. The Group is presently aiming to commence mining at Fäboliden and Kaapelinkulma by Q In the meantime we have continued to keep the Svartliden plant operating by processing concentrates so as to have it available to start processing Fäboliden ore once the permits are finalised and mining commences. We were also able to sell off the excess land and timber acquired with the Fäboliden package. We have continued to make operational improvements at the Vammala plant details of which are contained in this report. We have also progressed the new mine at Kaapelinkulma to a position where we are able to start mining at any time to provide additional feed for the Vammala plant when required. The Board has previously indicated that it believes there is a disconnect between a listing on the ASX and the Company s operations being all in the Nordic area and, as a result, there has not been significant interest in the Company s securities in Australia. Accordingly, consideration has been given to listing in a jurisdiction where Nordic operations may generate more interest. The Board considers that Hong Kong may be a more appropriate jurisdiction and it is continuing to explore the prospects of listing in Hong Kong. The Company has appointed Altus Capital Limited as its sponsor for a possible Hong Kong listing. We expect 2017 to be a difficult year for the Company until Fäboliden can be brought into production. The cost of keeping the Svartliden plant open is significant and permitting delays will negatively affect the Company s performance. Also, the cost of operating Orivesi escalates with depth so we need to rely more on increased production at Jokisivu and potentially Kaapelinkulma. The recently announced discovery of a small ore body at a lesser depth at Orivesi is also expected to enhance the Orivesi mine life. The Company s position is expected improve significantly once Fäboliden can be brought into production. In view of our Fäboliden acquisition we believe Dragon has significant opportunity for improvement in the future. I wish to express my sincere thanks to our Directors and loyal staff for their support and efforts during this difficult period. I also thank our shareholders for their support. Arthur G. Dew Chairman 3

4 DRAGON MINING ANNUAL REPORT 2016 Executive Director s Report The completion of the 2016 financial year saw the Company continue its recovery with a third year of profitability and positive cash generation. During the year we consolidated key aspects of our stated strategy. The development of the existing and new mining assets within economic tracking distances to our processing plants has been both the cornerstone of our return to profitability and the platform for our future growth. With quantified results, we have refocused exploration to in mine and near mine targets and progressed the development of our two new mines, Fäboliden and Kaapelinkulma. We have also continued to invest in improvements to safety, our environmental performance and the efficiency of our process plants. With regard to safety, improvements continue to be made with a focus on the safety culture of the organisation. Our commitment to the continuous improvement of safety has included investment in risk based training across our operations and a focus on how supervisors influence safety outcomes. Complementing the cultural change, we have completed the commissioning of the underground seismic monitoring equipment and major reinforcing work on the decline at Orivesi and installed improved underground communications systems at Jokisivu. We have also continued to implement environmental improvements at each of our operations. Key changes are aimed at improving discharge water quality and reducing the total water discharged from each site. At Orivesi, we have installed automatic ph monitoring and control and at both Vammala and Svartliden we have re-engineered our plant wide water systems to improve recycling with resulting reductions in discharge quantities. Noise abatement and dust mitigation have also been improved. In preparation for the development of the Kaapelinkulma and Fäboliden mines, we are completing studies on the ground and surface water to ensure minimal impact to the surrounding area. For Kaapelinkulma, where local residents rely on wells for their water, we understand their concerns and will ensure that there are no interruptions to their water supply. The implementation of our strategy required some key decisions to be made. After consideration of all of the factors influencing the Kuusamo project and our focus on progressing Fäboliden and Kaapelinkulma we decided to sell the Kuusamo project. While the sale initially resulted in a reduction of our reported resource, this has been more than compensated for by increases from Fäboliden and from the results of near mine drilling at our mines in Finland. In Finland, we have successfully ramped up production at Jokisivu to compensate for reduced tonnes from Orivesi. Orivesi is becoming more difficult and more expensive to mine at greater depth. We are shifting our near mine exploration to establish if known ore bodies closer to the surface at Orivesi can be exploited more economically than deepening the mine. Initial surface drilling results from both existing mines have been promising and an expanded program is planned at Jokisivu and Orivesi for Kaapelinkulma is now fully permitted and we will start preparing the site early in 2017, with scheduled production in the third quarter of At Vammala, a review of historic production data followed up with metallurgical test work has identified approximately 50,000 tonnes of high grade Orivesi tailings. This material is easy to access and we will run production trials in During the year we had to take some hard decisions with regard to the operations at Svartliden. Svartliden operates within one of the strictest environmental permits of any mine in Europe. In particular, copper levels in our discharge water are significantly below EU limits for drinking water. During the year we became aware of rising levels of copper in our clear water dam and traced this back to the copper content of third party concentrates. So to ensure environmental compliance we decided to cease processing external concentrates. While not sufficient to cover operating costs we will maintain Svartliden processing concentrate from Finland operations, as we consider maintaining the skilled staff strategic to the future operation of the plant with ore from Fäboliden. As a result of the back log of work at the relevant Government Departments the permitting of our new mine in Sweden, Fäboliden has been frustratingly slow. We now expect to see the test mining permit processed in early 2017 and test mining to commence in late In parallel to this we are working on the application for the permits for the full mining operations. Depending on the progress of these permits, we may need to review the continued operation of the Svartliden plant on concentrates from our Finish operations. Looking ahead to 2017, we will commit significant investment to the development of Fäboliden and Kaapelinkulma, together with an increase in expenditure for in mine and near mine exploration. While increased tonnes from Jokisivu and Kaapelinkulma are expected to maintain our operations in Finland, the average grades will be lower with less ore from the Orivesi mine. 4

5 DRAGON MINING ANNUAL REPORT 2016 In Sweden our focus is the development of Fäboliden, where the timing will be a function of permitting. Dependent on the speed of the permitting we may need to review our continued operation at Svartliden. Brett Smith Executive Director 5

6 DRAGON MINING ANNUAL REPORT 2016 Operations Review Group Overview In 2016, the Company produced 34,426 ounces of gold (2015: 53,805 ounces), comprising 3,939 ounces from the Svartliden Production Centre ( Svartliden ) and 30,487 ounces from Vammala Production Centre ( Vammala ) at a C1 cash cost of US$792 per ounce (2015: US$917 per ounce). Svartliden production was impacted by the cessation of processing external concentrate in mid The decision to stop processing external concentrates was made due to the high leachable copper content of the external concentrates and the risk of exceeding our discharge limits. Svartliden continued to process most of the concentrate from the Jokisivu Gold Mine ( Jokisivu ), with only a small portion delivered to the Boliden Harjavalta Smelter, and an increased amount of concentrate from the Orivesi Gold Mine ( Orivesi ). Gold production from Vammala was reduced due to a decrease in higher grade ore tonnes from Orivesi, partially offset by an increase in lower grade ore from Jokisivu. Near mine and in mine drilling has yielded additional recoverable ore at both Orivesi and Jokisivu mines. A review of historic production records supplemented with metallurgical test work has identified a significant quantity of high grade tailings from historical Orivesi production that can be reprocessed at Vammala. The Company has commenced a study to estimate the Mineral Resource and confirm that the tailings would be economically viable to reprocess. Assuming a positive outcome, this material will be processed during No additional permitting is required. Frustratingly, the Fäboliden Gold Project ( Fäboliden ) Test Mining permit application remains with the County Administration Board. Work on the full mining permit for Fäboliden has progressed in parallel to the test mining permit. Fully permitted, the site preparation work for the Kaapelinkulma Gold Mine ( Kaapelinkulma ), the Company s third gold mine in Southern Finland, has now commenced following the confirmation of the permission to process ore from Kaapelinkulma at Vammala. Community consultations were held with stakeholders for both the Fäboliden and Kaapenlinkulma mines. Finland Vammala Production Centre Vammala is situated in southern Finland, approximately 160 kilometres northwest of the Finnish capital Helsinki. It comprises the Vammala plant, a conventional 300,000 tonnes per annum flotation plant plus the operating Orivesi and Jokisivu gold mines and the advanced Kaapelinkulma gold project. The Vammala plant was successfully recommissioned by Dragon Mining in June 2007 and has produced 283,082 ounces of gold in concentrate to 31 December During 2016, the Vammala plant treated 314,175 dry metric tonnes ( DMT ) of ore (2015: 285,797 DMT of ore) with an average grade of 3.4 g/t gold (2015: 4.7 g/t gold) to produce 30,478 ounces of gold (2015: 38,321 ounces of gold) at a recovery level of 87.1% (2015: 88.7%) and a C1 cash cost of US$792 per ounce (2015: US$722 per ounce). Mill feed was sourced from Orivesi and Jokisivu, comprising: 90,716 DMT of ore from Orivesi at an average grade of 4.7 g/t gold; and 223,459 DMT of ore from Jokisivu at an average grade of 3.0 g/t gold. Summary of Vammala Production Centre Operating Performance ore milled (DMT) 314, ,797 Head grade milled (g/t gold) Gold recovery (%) Gold produced (ounces) 30,478 38,321 C1 cash cost (US$/ounce) A Crisis Management System ( CMS ) was implemented across all sites in The purpose of the CMS is to provide media instructions in the event of a serious accident or environmental hazard. 6

7 DRAGON MINING ANNUAL REPORT 2016 Processing - Vammala Plant The Vammala plant achieved 347 lost time injury ( LTI ) free days by 31 December During the year, the Vammala plant operated at a 93.45% utilisation rate, processing 314,175 DMT, comprising 58% of ore from underground production stopes at Orivesi and Jokisivu and 42% of ore from development mining. Continuing our philosophy to invest in productivity, safety and the environment, there were a number of improvements initiated at the Vammala plant during 2016, including: installation of a new ore silo; installation of a conveyor belt scale on the concentrate belt; installation of temporary water pumps beside the northeast side of the C-pond to pump the seepage water back to the C-pond; raising of the Tailings Storage Facility ( TSF ) embankment; and installation of a variable speed pump to our water process circuit to reduce the amount of discharge water to areas outside of the plant site. In addition, the filling rates of the grinding mills was lower in 2016 compared to 2015, and the ore throughput rate (DMT per hour) was higher in 2016 compared to This resulted in a lower consumption of grinding media. Modifications to flotation cells were also installed to improve froth mobility. As a result, the flotation behaviour at the scavenger flotation stage has improved. The froth layer in the scavenger flotation is now more stable and generating higher recoveries. Going forward, the Company intends to maintain its focus on continued improvements to water management, recovery, operating efficiencies and safety. Mining - Orivesi Gold Mine Orivesi is located 80 kilometres northeast of the Vammala plant in the municipality of Orivesi. For the second year in a row, no LTI s were recorded at Orivesi and the number of LTI free days was 758 by the end of The seismic monitoring system, which comprises seven seismometers supplied by the South African company ISM, was installed in the first half of The system is now being used to actively monitor seismic event in the mine improving operational safety. A rock mechanical audit was undertaken at Orivesi by an independent rock mechanic consultant from South Africa in August During 2016, the majority of stoping took place between the 820m and 1120m levels in Kutema Pipe 5. Five sill pillars were mined out during the year, the pillar on the 820m level of the Kutema Pipe 2 could not be mined at all due to safety reasons and the mining recovery of the other pillars was less than 44%. This is one of the principal reasons for Orivesi s gold production being below budget during the year. As an alternative to further deepening the mine, with the complexities of increasing costs, rock stresses and more complex mining, methodologies in mine exploration has shifted to examine areas in the 100 to 200 metre and 300 to 400 metre levels. Initial surface drilling results have been promising. A total of 2,076 metres of lateral development and the deepening of the main decline to the 1205m level were completed at Orivesi in Mining - Jokisivu Gold Mine Jokisivu is located 45 kilometres southwest of the Vammala plant in the municipality of Huittinen. No LTI s were recorded at Jokisivu during 2016 and the number of LTI free days was 377 by the end of During 2016, Jokisivu produced a total of 232,870 wet metric tonnes ( WMT ) of ore at a grade of 2.9 g/t gold (2015: 159,000 WMT grading 3.5 g/t gold). A total of 125,000 WMT of ore was won from stopes, the remainder being development ore. The deepening of the Kujankallio decline to the 350m level was completed early in 2016 and a total of 2,635 metres of underground development was completed during the year. 7

8 DRAGON MINING ANNUAL REPORT 2016 Finland Outlook Vammala Plant The Vammala plant will continue to process material from both Orivesi and Jokisivu during 2017 and efforts to maximise plant utilisation and recovery over the course of 2017 will continue. It is the objective of the Company that all concentrate produced at Vammala during the year will be sent to the Company s Svartliden plant in northern Sweden for leaching. First ore from Dragon Mining s third gold mine in the region, Kaapelinkulma, is scheduled for processing at the Vammala Plant in the second half of In addition, a trial flotation of 3,000 DMT of higher-grade tailings derived from Orivesi ore has been scheduled to be carried out in the first quarter of The Company is seeking to confirm the viability of processing approximately 50,000 tonnes of the higher-grade tailings that are stored in the C-Open Pit at Vammala. Planned investment in 2017 will include further improvements to the water collection and treatment around the plant and additional automation. The renewal of the electrical circuit at the crushing station is also planned. Orivesi Gold Mine The mining of the panel between the 1140m and 1205m levels will brought into production in the first of half of The tonnes per vertical metre of Kutema Pipe 5 is decreasing, but from drilling completed in 2016 the pipe continues deeper, down to at least the 1280m level. The results of the Sarvisuo diamond core drilling program between the surface and 160m level are expected to be available in March The first phase of drilling has returned promising intercepts, including a robust g/t gold (true width 4 metres). Given the tenor of the results obtained to date, further drilling from surface will be completed in this area in early Diamond core drilling will also be completed from underground, targeting the Sarvisuo West area. To manage costs in light of reduced production tonnes, Orivesi will change the shift roster from 6 days/week (12hr/day) to 4days/week (10hr/day) in January Jokisivu Gold Mine Work on an exploration drift on the 340m level is planned to commence in This drift will allow the Kujankallio Main Zone and Hinge Zone to be explored below the 340m level to the 500m level in 2017 and the Arpola main, footwall and hanging wall zones below the 240m to the 500m level in The Kujankallio decline will be extended to the 420m level during the year, opening a new mining panel for Continuous mining from both Arpola and Kujankallio is scheduled for Ore production will primarily come from Arpola between the 40m and 220m levels and from the Kujankallio Main Zone between the 285m and 320m levels. The Kujankallio Main Zone has a number of parallel lodes, the distance between which is less than 15 metres. Due to the close distance, the stoping order must be planned carefully so as not to jeopardise stability. Underground diamond core drilling programs will progress at Kujankallio throughout A campaign of exploration drilling from the surface at Arpola is also planned in early 2017 so that mining can commence towards the end of The planned programs will allow Mineral Resources currently categorised as Inferred to be upgraded to the Indicated category. 8

9 DRAGON MINING ANNUAL REPORT 2016 Sweden Svartliden Production Centre Svartliden is located in northern Sweden. The operation was brought into production in March 2005 and has produced a total of 391,704 ounces of gold as at 31 December The Svartliden gold deposit was mined by open-cut and underground methods with ore processed through a conventional carbon in leach ( CIL ) plant that has a design throughput capacity of 300,000 tonnes per annum. The open-pit and underground mining operations at Svartliden were suspended during 2013 however Svartliden continued to process low grade stockpiled ore and concentrate concurrently until June With the depletion of the low grade stockpiled ore in June 2015, Svartliden transitioned to 100% gold concentrate processing resulting in the ball mill and crushing circuit being placed on care and maintenance. Until the second quarter of 2016, Svartliden processed both internal and third party concentrates, but since the third quarter of 2016, only internal concentrates from Vammala have been processed. During 2016, Svartliden treated 1,352 tonnes of external concentrate from 3rd party sources at an average grade of 99.6 g/t gold to produce a combined total of 3,939 ounces of gold, at a recovery of 92.7%. The Company successfully completed the purchase of Fäboliden following the transfer of the Exploitation Concession to the Company. Fäboliden represents a key strategic element for the continued operation of Svartliden. One lost time injury (LTI s) occurred during 2016, and the Company s focus remains very much on the continuation of its proactive measures, reporting and risk elimination to achieve a target of zero LTI s. Svartliden has the most stringent discharge conditions of any mining and processing operation in Sweden. According to the permit, the 14-day average cannot be exceeded more than four times per year. During second quarter of 2016, the operations experienced a sudden increase of copper in the Clear Water Pond ( CWP ) and the discharge of water to the recipient had to be temporarily interrupted. Analysis established the high copper levels in external concentrates were responsible. As a result, the plant has stopped processing external concentrates. Modifications of the water treatment regime and the use of a flocculent in both the CWP and the water pumped from the open pit significantly reduced the remaining copper in the tailings and 9

10 DRAGON MINING ANNUAL REPORT 2016 clear water circuit. All measures were communicated and approved by the County Administrative Board in Västerbotten. Summary of Svartliden Production Centre Operating Performance External concentrate processed (tonnes) 1,352 3,855 External concentrate grade (g/t gold) ,5 Gold recovery (total combined) (%) Gold produced (ounces) 3,939 15,484 Processing Gold recovery from both internal and third party concentrates improved in 2016 averaging 92.7% (2015: 89.45%). Svartliden was never designed for the 100% leaching of gold concentrates and the start-up of leaching created a number of process issues that required the assistance of external consultants. Batch leaching results in step changes in cyanide concentration that effects the operation of the detox circuit. This was resolved by converting one of the CIL-tanks into a buffer tank designed to aid the detox process. This process improvement resulted in an imovement of the finesse of the doré bars. Sweden Outlook While sub economic, the continued operation of Svartliden on concentrate in considered strategic to ensure that the staff are retained for the startup of mining at Fäboliden. Gold production from Svartliden is planned to increase during the coming year as a result of the startup of Fäboliden. The commencement of mining is subject to the granting of the test mining environmental permit and then, after that, the full mining permit. The commencement of test mining at Fäboliden is scheduled to commence late 2017 and fulle mining during the latter part of Further investment for the optimisation of water treatment processes will continue and rehabilitation works to the tailings dam and waste rock stockpile will be ongoing throughout the upcoming year. The focus on safety, environment and operational efficiency will be maintained to ensure Svartliden remains a productive and cost efficient operation that is safe for its employees, contractors, neighbours, and the environment. Occupational Health and Safety The Company continues to work closely with all stakeholders to seek continuous improvement in Occupational Health and Safety ( OH&S ) taking into account evolving scientific knowledge and technology, management practices and community expectations. The Company ensures it maintains compliance with the applicable laws, regulations and the standards of the countries it operates in by: improving and monitoring OH&S performance; training and ensuring its employees and contractors understand their obligations and are held accountable for their responsibilities; communicating and openly consulting with employees, contractors, government and community on OH&S issues; and developing risk management systems to appropriately identify, assess, monitor and control hazards in the workplace. During the year, the Company noted the following OH&S highlights across its operations in Sweden and Finland: a 48% decrease in LTIFR compared to 2015; implemented a number of safety culture improvements that included an updated to the Crisis Management Protocols which resulted in the formation of the Crisis Management Team; and commenced using an underground seismic monitoring system designed to continuously record micro seismic events caused by rock stresses at Orivesi. 10

11 DRAGON MINING ANNUAL REPORT 2016 Environment - Finland Environmental Management The Company operates in three national regulatory environments and the supra-national regime of the European Union. While compliance with these regulatory environments and specific operational licence conditions are the basis of the Company s environmental management procedures, the Company is committed to the principle of developing and implementing best applicable practices in environmental design and management and will actively work to: protect the environment surrounding its operations; give environmental aspects due consideration in all phases of mining projects, from exploration and evaluation through to development, operation, production and final closure; and act systematically in the planning, execution, monitoring and improvement of environmental performance. General The Company s current operations are located within inhabited areas of southern Finland. Orivesi, Jokisivu and Kaapelinkulma are situated close to summer cottages and agriculture, whereas the Vammala Plant is set on an old mining site. Regardless of areas of operation, the Company engages in open dialogue with local communities and municipalities. Vammala Plant The Vammala plant is recirculating process water in accordance with best applicable practices to reduce water emissions. Tailings from the plant are discharged as slurry into the TSF where water is pumped back to the plant. Additionally, surface water run-off is collected and used in the process circuit. The old underground mine is used for storage of excess or make up water, reducing the need for water to be discharged to the local waterways. However, during heavy rainfalls or spring floods the storage capacity can be exceeded resulting in excess water discharged. The quality of discharged water is sampled and monitored and water flows are continuously measured. In 2016, once in September due to exceptionally stormy winds dust issues were observed. The ELY Centre ( ELY ) was informed of the event immediately. The dusting was managed by spraying water and lime around TSF. The new Environmental Permit for Vammala was granted in June 2014 and this included an increase in capacity and the processing of ore from Kaapelinkulma. The permit was subsequently appealed by the Company and a few other parties based on a technical issue with the water balances. The Vaasa Administrative Court s ( Vassa Court ) decision concerning the appeals process against the Environmental Permit were issued in May The Vassa Court ruled that the decision on the Environmental Permit is to be passed back to the Regional State Administrative Office ( AVI ). The Vassa Court considered itself unable to decide and due to the discharge water management permit conditions, expects more information on water management to be provided before the Environmental Permit can be issued. The Vassa Court s decision was followed by an appeals period that resulted in the receipt of a further appeal submitted to Supreme Administrative Court ( Supreme Court ). The hearing process has not yet commenced however the Company is already planning to implement additional improvements likely to be requested by the Supreme Court before an Environmental Permit is issued. The Company has submitted a proposal outlining improvement of water management around the site, information on Kaapelinkulma ore, and tailings to ELY in August ELY responded positively in September 2016 advising the proposal to process Kaapelinkulma ore was acceptable so long as there are no additional environmental risks. ELY has also requested that the Company use only Orivesi tailings when raising the dams. The Company has explained that this will not be practical and have submitted an alternative proposal for consideration. Orivesi Gold Mine During the last few years, Orivesi has succeeded in successfully decreasing its environmental impact on the lower watercourses. In 2016, two automated ph controlling systems were installed, one underground and the other above ground, to stabilise discharge water quality. Before the installation, one permit breach relating to 11

12 DRAGON MINING ANNUAL REPORT 2016 water quality occurred, when ph (9.0) exceeded the maximum ph level allowed (8.5). The permit condition for maximum metal concentrations wasn t breached, ELY was informed of the event. The Orivesi area is sensitive to noise caused by mining activities. The Company has put considerable effort into reducing noise levels around the ventilation air fans and in 2016 the Company did not receive any noise complaints. In December 2015, AVI rejected the Environmental Permit extension application that had been submitted in The Company submitted an appeal against the decision in January 2016 with relevant arguments supported by an updated waste management plan, the latest fish inventory report showing a significant improvement in fish bio diversity since the Company has been operating the mine, and a description of water management improvements. ELY has also appealed against the AVI s decision to reject the Environmental Permit extension application because they also believe that closing the mine is not the best path to ensure environmental management in the area. In May 2016, the Vaasa Court requested the Company s explanation to one statement and seven opinions, which were given due to the appeal. The contents of the statement and opinions vary however most which consider that the Environmental Permit should be granted, at least for a fixed period. The Company submitted its explanation during May Since then the Vassa Court has been considering the ruling of the mine s Environmental Permit. While the appeal process is underway, the mine can continue to operate with its pre-2010 permit. Jokisivu Gold Mine Jokisivu is in an agricultural area of Finland. The importance of the area for farming and the existence of the protected flying squirrel have been acknowledged and managed by the Company during the operation of the mine. Encouragingly, the inventories of flying squirrels have shown that the number of squirrels in the area has increased since mining operations commenced. In 2016, Jokisivu operated in compliance with all Environmental Permit conditions and good practice. An Environmental Permit application for crushing waste rock at Jokisivu was submitted to AVI in July The Environmental Permit was issued in June The Permit allows the Company to crush 100,000 TPA, either for own use or to be sold externally as construction aggregate. An inventory of the protected flying squirrel was carried out in spring The study shows that a very viable population of flying squirrel exists in all four territories found at the site. In spring 2016, flying squirrels were breeding in at least two of the territories. This can be considered a very significant success in terms of flying squirrel protection. The Company has participated in a project called SUSMIN tools for sustainable gold mining in EU managed by Geological Survey of Finland. As a part of the project, a water treatment pilot was run at Jokisivu in May The project lasted three years and was concluded in Autumn Kaapelinkulma Gold Project The final meeting regarding the granting of the mining concessions at Kaapelinkulma was organised in April 2016 at Valkeakoski. No party appealed against the proceedings. The mining concession has now gained legal force. The Environmental Permit with reviewed permitting conditions was issued in October 2015 and is effective until further notice. The major permits are now being received for mining to commence. At year end, the baseline monitoring of water quality commenced. In December 2016, the consultant responsible for water quality monitoring started taking samples from wells located within 1 kilometre of the mine site which are used by households. The radius of 1 kilometre is defined in the mine s monitoring program and is based on the Environmental Permit. The baseline monitoring will continue into Environment - Sweden Svartliden Production Centre Environmental challenges at Svartliden are quite different when compared to the Finnish operations. While the location is remote, with the closest permanent residence at 9 kilometres, there are Natura2000 protected areas both to the north and south of the site. There is a continuous focus on water management, and permit conditions for water discharge from the site which are the most stringent of all mines in Sweden. 12

13 DRAGON MINING ANNUAL REPORT 2016 The new Environmental Permit, which was issued in 2012 for the Svartliden operations, has been in effect since March The Company has met all discharge limits and other permit conditions during The increased level of copper in the CWP created metallurgical challenges for the operation mid-way through the year but with specific treatment using flocculants, changed water management and water treatment processes (precipitation using both iron sulphate and lime), the Company managed to effectively remove metals from the waters discharged to the CWP and ensured that the strict discharge requirements were met. Fäboliden Gold Project The Company continued during 2016 to work on an application for both a test mining permit and a full scale Environmental Permit for operation at Fäboliden. A permit application for test mining was submitted to the County Administrative Board ( CAB ) of Västerbotten on 3 June Due to the backlog and workload at the CAB they haven t responded during 2016 with any request for additional information. A response on the test mining application is expected in early As a parallel process, Dragon Mining has been proceeding with preparation of a permit application for full scale mining at Fäboliden. As a part of the permitting a number of environmental baseline surveys have been made in the Fäboliden area during 2016 to complement earlier work completed by the previous owner, as part of the Company s ongoing project development work at Fäboliden. Kinetic testing of the different waste rock types at Fäboliden is continuing into At the end of 2016 invitation for consultation meetings to be held January-February 2017, were sent out to stakeholders together with consultation documentation. The plan is to submit the environmental permit application for the full-scale mining during the summer of 2017 and that a permit would be granted during the summer of Sustainability Policy The Company continues to strengthen its commitment to the sustainable development of its mineral resources, and the community, through its Board approved Mission Statement and Sustainability Policy ( Policy ). The Policy covers the Company s commitment to best practices in environmental performance, constructive community relations, openness and accountability and to the creation of a safe work place for its employees. Community Relations The Company recognises that its operations involve a range of community stakeholders. All facets of the Company s activities are carried out in consultation with other nearby land users and community organisations. A number of minor sponsoring activities have been undertaken with a focus on local community activities, in particular school travel safety and junior sporting activities. A number of community consultations were held with stakeholders for both the Fäboliden and Kaaplinkulma mines. 13

14 DRAGON MINING ANNUAL REPORT 2016 Exploration Review Exploitation activities at Dragon Mining s key projects in Finland and Sweden continued during 2016, supporting mine planning and mine development. Metres drilled during the year from both surface and underground positions were lower than in 2015, but continued to yield a series of significant intercepts that underline the prospectivity of the Company s projects. The results from the drilling were included in the updates of the Dragon Mining s Mineral Resources, resulting in a 51% increase in tonnes and 31% increase in ounces for the Vammala and Svartliden Production Centres, since the previously reported update. The Measured, Indicated and Inferred Mineral Resources total of 1,443,000 ounces grading 3.2 g/t gold provides the Company with a sound foundation as two projects advance towards production status. The achieved increases in Mineral Resources from the Production Centres in part cover the loss of Mineral Resources from Kuusamo, following the sale of 100% interest in the Finnish subsidiary Kuusamo Gold Oy during the year. The Groups Ore Reserves have also increased marginally with a 9% increase in tonnes and 3% increase in ounces since the previously reported update. The Proved and Probable Ore Reserves total 189,000 ounces grading 3.3 g/t gold. Results for drilling and metallurgical test work programs were previously released to the ASX on 19 April 2016 Drilling Continues at the Orivesi and Jokisivu Gold Mines; 12 May 2016 Drilling Returns Robust Intercept from Orivesi Gold Mine; 12 May 2016 Fäboliden Metallurgical Test Work Improves Recovery Levels; 22 July 2016 Encouraging Results from Southern Finland Drilling Programs; 20 October 2016 Drilling in Southern Finland Yields Promising Results and 19 January 2017 Drilling Returns Robust Intercept from Orivesi Gold Mine. Updates for Mineral Resources and Ore Reserves as at 31 December 2016 were previously released to the ASX on 28 February 2017 Mineral Resources Updated for the Nordic Production Centres and 21 March 2017 Ore Reserves Updated for Dragon Mining s Nordic Projects. Vammala Production Centre - Finland Orivesi Gold Mine Orivesi is located 80 kilometres to the northeast of the Vammala Plant immediately to the west of the Orivesi township in the Pirkanmaa Region in southern Finland. The mine was initially in operation between 1992 and 2003 and produced 422,000 ounces of gold from a series of near vertical pipe-like lodes at Kutema. Two of the five principal lodes at Kutema continued below the historical extent of the decline at the 720m level and this area is now the subject of a program of staged development and production stoping down to the 1205m level. Mining from the Sarvisuo lodes, 300 metres east of Kutema commenced in April 2008 and has to date been conducted from the 240m to the 620m level. The Kutema and Sarvisuo lode systems occur within the Paleoproterozoic Tampere Schist Belt, representing a metamorphosed paleo-epithermal system. Gold mineralisation is associated with strongly deformed andalusite rich, silicified zones found in vertical pipe-like lode systems that exhibit depth extensions ranging from tens to 14

15 DRAGON MINING ANNUAL REPORT 2016 hundreds of metres. These lode systems are in a broad zone of hydrothermally altered rocks that cover an area of 40 hectares. Both Kutema and Sarvisuo remain partially open and potential remains for the identification of additional gold bearing pipes or pipe clusters within the surrounding hydrothermal alteration system. Sixty-one diamond core drill holes were completed at Orivesi during 2016 for an advance of 7, metres. Holes were directed at both the Kutema and Sarvisuo lode systems and the areas in their near vicinity, as well as targeting rocks associated with the broader hydrothermally altered domain. At Kutema, drilling targeted the lode system between the 1200m and 1280m levels. A number of significant intercepts were obtained including g/t gold, g/t gold, g/t gold, g/t gold, g/t gold and g/t gold. The results from the program were positive, extending known mineralisation down to the 1300m level. A zone of higher-grade mineralisation was defined within Pipe 5 that displays reasonable vertical continuity, whilst indications of a new, separate zone of mineralisation was identified to the immediate northeast of Pipe 5. The drilling of a diamond core program from surface commenced during the year in the Sarvisuo area targeting a panel between the 120m and 160m levels. By year end results had been received for four holes of the eleven-hole program, yielding intercept highlights of g/t gold and g/t gold. When all results are received, the Company will evaluate the viability of developing a drift across to this area from the main decline. An underground diamond core drilling program was completed that was designed to target the Sarvisuo West area from the 300m level. Results have been received for all holes returning a series of promising intercepts including g/t gold and g/t gold. An extensive diamond core drilling program of the underexplored hydrothermally altered domain that hosts and surrounds the known lode systems was completed in early Designed with the objective of identifying new gold bearing pipes or pipe clusters from the 260m, 550m and 710m levels, results yielded only a few promising intercepts. Drilling will continue at Orivesi in 2017 and will target the Kutema and Sarvisuo lode systems and satellite zones to these lode systems as the Company continues to remain focused on identifying any zones of exploitable gold mineralisation within the Orivesi Mining Concession. Jokisivu Gold Mine Jokisivu is in the municipality of Huittinen in southern Finland, 40 kilometres southwest of the Vammala Plant. Two gold deposits, Kujankallio and Arpola have been identified at Jokisivu, both of which are hosted in the Paleoproterozoic Vammala Migmatite Belt. Here, gold mineralisation is found within relatively undeformed and unaltered diorite, in one to five-metre-wide shear zones that are characterised by laminated, pinching and swelling quartz vein zones. The Kujankallio deposit has been shown by drilling to extend to at least 525 metres in depth, though resource drilling currently extends only down to 350 metres vertically below surface on the Main Zone and 410 metres vertically below surface on the Hinge Zone. The Arpola deposit has been shown by drilling to extend to at least 350 metres in depth, though resource drilling only extends to down to 305 metres. Both deposits remain open with depth and partially along strike. Open cut mining at Kujankallio commenced in 2009 and underground production in A small open pit was mined at Arpola in 2011 and underground production commenced from this deposit in Drilling activities targeting both Kujankallio and Arpola advanced during 2016 with sixty-four diamond core drill holes completed for an advance of 13, metres. At the Kujankallio deposit campaigns of underground diamond core drilling was completed targeting the Main and Hinge Zones. The results have provided additional information related to the geological structure improving confidence in the resource model and highlighted extensions of both the Main Zone and Hinge Zone. Better intercepts received include g/t gold, g/t gold,

16 DRAGON MINING ANNUAL REPORT g/t gold, g/t gold, g/t gold, g/t gold, g/t gold and g/t gold. A program of diamond core drilling from the surface targeting the extensions of the Arpola deposit was completed during the year. Assay results yielded a number of significant intercepts including g/t gold, g/t gold, g/t gold, g/t gold, g/t gold, g/t gold, g/t gold and g/t gold. Drilling programs will continue at Jokisivu from both underground and surface positions in 2017 with the objective of further evaluating the extensions of Kujankallio and Arpola and satellite zones to these deposits. Kaapelinkulma Gold Project Kaapelinkulma is an advanced exploration project, 65 kilometres east of the Vammala Plant in the municipality of Valkeakoski in southern Finland. Kaapelinkulma is an orogenic gold deposit sited within the Paleoproterozoic Vammala Migmatite Belt. It comprises a set of sub-parallel lodes in a tight array hosted within a sheared quartz-diorite unit inside a tonalitic intrusive. Two separate gold deposits have been identified at Kaapelinkulma, the southern deposit the larger of the two. The Kaapelinkulma Gold Project has received all required Environmental Permits to undertake the mining of 161,000 tonnes of ore and 800,000 tonnes of waste. The Kaapelinkulma Mining Concession became valid during 2016 following negotiations with affected landholders. Permission was also received from ELY to process ore from Kaapelinkulma at the Vammala Plant while the new Environmental Permit for the Vammala Plant is still under appeal. This allows the Company to now commence mining at Kaapelinkulma, Dragon Mining s third gold mine in the region. The company will phase in the operations at Kaapelinkulma with the mine plans at Orivesi and Jokisivu. A positive outcome was received by the Company for the updated and ongoing Pre-Feasibility level study into the development of Kaapelinkulma. The study was based on the establishment of an open pit mining operation and the haulage of ore to the Vammala Plant to produce a high-grade gold concentrate and the processing of this concentrate at Dragon Mining s Svartliden Production Centre in northern Sweden. With the Company s experience in commencing and undertaking small scale open pit mining in the Nordic Region and its existing infrastructure in southern Finland, the study confirmed that Kaapelinkulma will incur minimal initial capital investment. Reverse Circulation ( RC ) drilling at Kaapelinkulma started at the end of 2016, the program designed to improve the drill density in the planned open pits in readiness for mining and to sterilize the planned waste rock dump site. 16

17 DRAGON MINING ANNUAL REPORT 2016 Svartliden Production Centre - Sweden Fäboliden Gold Project Fäboliden is an advanced gold project located 40 kilometres west of the regional centre Lycksele in northern Sweden. It represents a potential source of gold bearing material that could be trucked to, and processed at the Svartliden CIL Plant, 30 kilometres by road to the northwest. Fäboliden covers an area of 2, hectares and comprises the Fäboliden K nr 1 Exploitation Concession that hosts the Fäboliden Gold Deposit and three contiguous Exploration Permits that encompass ten kilometres of the host geological sequence. Fäboliden is an orogenic gold deposit, with mineralisation hosted by Paleoproterozoic meta- sediments and meta-volcanic rocks, surrounded by granitoids. The host sequence is crosscut by a set of northwest-southeast striking, flat lying undeformed and unmineralised dolerites. The Fäboliden mineralised system is delineated over a strike length of 1,295 metres and includes a 665-metre vertical extent from 485mRL to -180mRL. Gold displays a strong association with sulphides and most abundant gangue minerals. Arsenopyrite, boulangerite and pyrrhotite are commonly associated with gold in variably boudinaged quartz and sulphide veins where the gold is found in fractures and as inclusions. Gold is also seen as free grains in the silicate matrix of the host rock with feldspars, quartz and micas common hosts. The gold is generally fine grained ranging from 2µm to 40 µm. During 2016, the Company continued to advance work on the development of Fäboliden. The second phase of bench scale metallurgical test work was successfully completed. Representative material from Fäboliden returned gold recoveries of 83%, higher than that obtained in earlier test work programs. Gravity regrind tests resulted in a 3% increase in recovery to 86%. The test work program was conducted to assess the possibility of increasing recovery from material at Fäboliden by producing a high-sulphur gravity concentrate for regrind and intensive leaching. The test work was undertaken at the SGS Australia s facility in Malaga, Western Australia, on representative samples from the planned southern open-pit area at Fäboliden. It follows on from extensive flotation test work undertaken by the previous owners of the project and an initial phase of metallurgical bench scale test work and a 1,000- tonne production test by Dragon Mining in In summary, the new test work has shown that: comminution results yielded moderate levels for abrasion and hardness with an Abrasions Index of and Ball and Rod Mill Work Indices of 14.8kWh/t and 18.4 kwh/t respectively. Values for abrasion and hardness are like levels obtained in previous test work; diagnostic leaching returned values like those in previous test work, with the master composite showing approximately 80% of the gold available for cyanide leaching at a grind P80 of 75 µm; whole ore leaching on variability samples returned overall gold extraction levels at 83%, higher than obtained in previous test work. Cyanide and lime consumption were moderate at approximately 0.7 kg/t and 0.4 kg/t, respectively; and gravity regrind tests resulted in a 3% recovery increase to 86%, compared with the standard whole ore leach test. 17

18 DRAGON MINING ANNUAL REPORT 2016 The Company submitted its Environmental Permit Application for a test mining operation at Fäboliden to the CAB on 3 June By the end of the year, the request for supplementary information had still not been issued. Dragon mining still anticipate that test mining will commence in the latter part of The Company also continues to progress work on the full scale Environmental Permit Application. The Full Permit consultation document is now available on the Company s website. The consultation meetings will take place between the end of January and mid-february This will be the start of the formal permitting process for the Full Permit. Svartliden Gold Mine Svartliden is in northern Sweden, 70 kilometres west of the regional centre Lycksele. Mining commenced at Svartliden in 2004, representing the first integrated mine and treatment plant to be developed under the new Swedish Environment and Mining Acts. The mine commenced as an open pit operation in 2004, underground operations commencing in Open-pit and underground mining were carried out in tandem until the completion of open-pit mining in April Underground mining was completed by the end of Dragon Mining milled 3.18 million tonnes of ore from Svartliden grading 4.05 g/t gold producing 377,965 ounces since mining commenced. The Svartliden deposit represents an orogenic gold deposit hosted within a Paleoproterozoic volcanosedimentary sequence that has been metamorphosed to an amphibolite facies metamorphic grade. Gold mineralisation is hosted by a banded iron formation on the contact between the sediments and meta-basalts and is closely associated with a sulphide assemblage dominated by pyrrhotite and arsenopyrite. The entire host sequence is strongly deformed, initially subjected to tight folding followed by dextral shearing. Both events occurred after the mineralising event and have disrupted continuity of the host units. Dragon Mining did not undertake any exploration activities at Svartliden during The overall tenement position held by the Company in the Svartliden area has been decreased from 2, hectares to hectares by the end of the year. Other Projects - Finland Hanhimaa Gold Project (Diluting to 30% Interest) Dragon Mining and Agnico Eagle Mines Limited (NYSE:AEM)(TSX:AEM) ( Agnico Eagle ) executed the Hanhimaa Earn-In Agreement ( Agreement ) in February 2013, whereby Agnico Eagle could earn up to 70% interest in the Hanhimaa Gold Project in northern Finland, with the staged expenditure of 9 million. Amendments to the Agreement were agreed by the parties in October 2013 and January Under the amended terms of the Agreement, Agnico Eagle can expend 5 million within 6 years of the commencement date to earn a 51% interest in the Hanhimaa Gold Project. Upon earning the 51% interest Agnico Eagle can then elect to earn an additional 19% by expending a further 4 million within 3 years of completion of the Stage 1 earn-in period. Agnico Eagle will be the manager during the earn-in and can now withdraw at any time, having achieved the minimum expenditure level of 1.5 million. The Hanhimaa Gold Project covers a portion of the prospective Central Lapland Greenstone Belt. The contiguous tenement holding principally encompasses the north-south trending Hanhimaa Shear Zone, 10 kilometres west of Agnico Eagles Kittila Gold Mine. In 2016, Agnico Eagle completed trenching and geochemical sampling in the very northern part of the Hanhimaa project area and trenching in the Kiimakuusikko-Välikiima area. Diamond core drilling also resumed with nine holes completed in the Vuotso, Kiimakuusikko-Välikiima and Lisma areas. Agnico Eagle advised that full or partial results had been received for one hole from each of the Vuotso and Kiimakuusikko-Välikiima areas and two holes from the Lisma area. Results from Vuotso and Kiimakuusikko-Välikiima have been reported by Agnico Eagle as disappointing, but Lisma exhibits potential for gold. Results for the trenching and geochemical programs remain pending. 18

19 DRAGON MINING ANNUAL REPORT 2016 Resources and Reserves Statement Updates of Dragon Mining s Mineral Resources and Ore Reserves as at 31 December 2016 were released to the ASX in February and March February 2017 Mineral Resources Updated for the Nordic Production Centres 21 March 2017 Ore Reserves Updated for Dragon Mining s Nordic Projects The Company has ensured that the Mineral Resources and Ore Reserves estimated are subject to good governance arrangements and internal controls. The Mineral Resources and Ore Reserves have been completed by independent mining consultants RungePincockMinarco in Western Australia and Hong Kong, an organisation whose personnel have exposure to best practices in modelling and estimation methods. RungePincockMinarco has also undertaken reviews of the quality and suitability of the underlying information, which included a site visit of the Company s mining projects in 2015 and In addition, the Company s management regularly carries out reviews and audits of internal processes and of external contractors that are utilised by the Company. Dragon Mining reports Mineral Resources and Ore Reserves at least annually in compliance with the requirements of the reporting guidelines of the 2012 Joint Ore Reserves Committee of The Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia ( JORC Code ). If there are any material changes to its Mineral Resources or Ore Reserves during the course of the year the Company is required to, and promptly reports these changes. Mineral Resources The statement of Mineral Resources for the Company totals 13,948,000 tonnes grading 3.2 g/t gold for 1,443,000 ounces as at 31 December 2016, inclusive of Ore Reserves. This represents a 51% increase in tonnes and 31% increase in ounces from the Company s Mineral Resources for Vammala and Svartliden since 1 September These increases in Mineral Resources, in part cover the loss of Mineral Resources from the Kuusamo Gold Project, following the sale of the Company s 100% interest in its Finnish subsidiary Kuusamo Gold Oy during Vammala Production Centre Southern Finland Orivesi Gold Mine The updated Mineral Resource for Orivesi totals 157,000 tonnes grading 7.3 g/t gold for 37,000 ounces at a 3.85 g/t gold reporting cut-off grade. It comprises material from two principal lode systems, Kutema and Sarvisuo and the smaller Sarvisuo West lode system. The update represents a 51% decrease in tonnes and 44% decrease in ounces when compared to the Orivesi Mineral Resource as at 1 September 2015 of 322,000 tonnes grading 6.4 g/t gold for 66,200 ounces. The decrease in tonnes and ounces is due to mining depletion from ore stopes and development drives and a change in the reporting cut-off grade from 3.0 g/t to 3.85 g/t gold. The new cut-off grade was determined using operating costs, mining and processing recoveries from Orivesi actuals and a gold price extrapolated for the potential economic extraction of the resource at a level approximating 125% of the spot gold price of US$1,500 per ounce. The Mineral Resource for the Kutema lode system extends over a strike length of 110 metres, has a maximum width of 60 metres and includes a 580 metre vertical interval from the 720m level to the 1,300m level. Material classified as Measured and Indicated accounts for 93% of the total ounces (91% - 1 September 2015) and extends over 440 metres vertically from the 720m level to the 1,260m level. Material classified as Inferred primarily extends from the 1,260m level to the 1,300m level. The Kutema lode system remains open with depth. The Mineral Resource for the Sarvisuo and Sarvisuo West lode systems extends over a strike length of 280 metres and includes a 720 metre vertical extent from the 60m level to the 780m level. Material classified as Measured and Indicated accounts for 61% of the total ounces (50% - 1 September 2015) and occurs between the 120m and 260m levels and the 620m and 700m levels. The main Sarvisuo lodes lose continuity below the 620m level where drilling has failed to locate any continuous zones of high grade mineralisation. The Company is now further evaluating the upper zones of the Sarvisuo and Sarvsuo West lode systems, between the surface and the 160m level. 19

20 DRAGON MINING ANNUAL REPORT 2016 Jokisivu Gold Mine The updated Mineral Resource for Jokisivu totals 2,512,000 tonnes grading 3.8 g/t gold for 308,000 ounces at a 1.5 g/t gold reporting cut-off grade. It comprises material from two deposits, Kujankallio and Arpola. The update yielded a 70% increase in tonnes and a 39% increase in ounces when compared to the Jokisivu Mineral Resource as at 1 September 2015 of 1,480,000 tonnes grading 4.7 g/t gold for 222,200 ounces. The increases are the product of encouraging results obtained from drilling campaigns completed since 1 September 2015 that targeted the extensions of the Kujankallio and Arpola deposits and a change in the reporting cut-off grade from 2.0 g/t gold to 1.5 g/t gold. The new cut-off grade was determined using operating costs, mining and processing recoveries from Jokisivu actuals and a gold price extrapolated for the potential economic extraction of the resource at a level approximating 125% of the spot gold price of US$1,500 per ounce. The Kujankallio Mineral Resource extends over a strike length of 700 metres and includes a vertical extent of 520 metres from surface to the -530mRL. Material classified as Measured and Indicated in the updated Mineral Resource for the Kujankallio deposit accounts for 70% of the total ounces (71% - 1 September 2015) and occurs over a vertical extent of 440 metres from -10m RL. The Inferred material extends from the -20mRL to the -530mRL. The updated Mineral Resource for Arpola extends over a strike length of 395 metres and includes a 300 metre vertical extent from -10mRL to -310mRL. Measured and Indicated material in the updated Arpola Mineral Resource accounts for 84% of the total ounces (67% - 1 September 2015) and occurs over a vertical extent of 260 metres from the -10mRL to -270mRL. The Inferred material extends from -10mRL level to -310mRL. Both the Kujankallio and Arpola deposits remain open with depth. Kaapelinkulma Gold Project The updated Mineral Resource for Kaapelinkulma totals 157,000 tonnes grading 4.1 g/t gold for 21,000 ounces at a 1 g/t gold reporting cut-off grade. It represents material from two zones of mineralisation, North and South. The update returned increases in tonnes and ounces of 43% and 13%, respectively when compared to the combined Mineral Resource as at 1 September 2015 of 110,000 tonnes grading 5.2 g/t gold for 18,600 ounces. The increase is primarily the result of a change in the reporting cut-off grade from 2 g/t gold to 1 g/t gold. The new cut-off grade was determined using costs and recoveries from the updated and ongoing Kaapelinkulma Pre-Feasibility study and a gold price extrapolated for the potential economic extraction of the resource at a level approximating 125% of the spot gold price of US$1,500 per ounce. The Kaapelinkulma Mineral Resource extends over a combined strike length of 440 metres, 280 metres in the southern area and 160 metres in the northern area and includes a vertical extent of 100 metres from 130mRL to 30mRL. Material classified as Indicated in the updated Mineral Resource accounts for 84% of the total ounces (87% - 1 September 2015). Svartliden Production Centre Northern Sweden Fäboliden Gold Project The updated Mineral Resource for Fäboliden totals 10,632,000 tonnes grading 3.0 g/t gold for 1,019,000 ounces, representing material above the 350m RL that is reported at a cut-off grade of 1.25 g/t gold and below the 350 mrl at a cut-off grade of 2.10 g/t gold. The update returned a 54% increase in tonnes and a 37% increase in ounces when compared to the Fäboliden Mineral Resource as at 1 September 2015 of 6,900,000 tonnes grading 3.3 g/t gold for 743,000 ounces. The increases are the result of the applying new reporting cut-off grades, which were estimated using costs and recoveries from the updated and ongoing Fäboliden Pre-Feasibility study and a gold price extrapolated for the potential economic extraction of the resource at a level approximating 125% of the spot gold price of US$1,500 per ounce. The Mineral Resource is defined over a strike length of 1,295 metres and includes a 665 metre vertical extent from 485mRL to -180mRL. Material classified as Measured and Indicated in the updated Mineral Resource for the Fäboliden deposit accounts for 43% of the total ounces (50% - 1 September 2015) and occurs over a vertical extent of 225 metres from 485 mrl to 260 mrl. The Inferred material extends from the 485 mrl to the -180 mrl. The Fäboliden deposit remains open with depth and along strike. 20

21 DRAGON MINING ANNUAL REPORT 2016 Svartliden Gold Mine The updated Mineral Resource for Svartliden totals 489,000 tonnes grading 3.7 g/t gold for 59,000 ounces, representing open-pit and underground material that is reported at a cut-off grade of 1.0 g/t gold and 1.7 g/t gold, respectively. The update yielded a 28% increase in tonnes and a 15% increase in ounces when compared to the total Mineral Resource as at 31 December 2013 of 382,000 tonnes grading 4.2 g/t gold for 51,300 ounces, as announced to the ASX on the 18 March 2014 Mineral Resources for the Finland and Sweden Production Centres Updated. The increases are the result of applying new reporting cut-off grades, which were estimated using updated estimates for mining costs and a gold price extrapolated for the potential economic extraction of the open-pit and underground resource at a level approximating 125% of the spot gold price of US$1,500 per ounce. The Mineral Resource is defined over a strike length of 1,180 metres and includes a 260 metre vertical extent from 465mRL to 205mRL. The remaining in-situ Mineral Resources comprise well defined zones of gold mineralisation adjacent to and beneath the Svartliden open-pit. The Svartliden deposit has been closed off by drilling at depth and along strike and there is limited scope for the identification of additional Mineral Resources from further drilling in the immediate mine area. Ore Reserves The Company s Proved and Probable Ore Reserves as at 31 December 2016 total 1,790,000 tonnes grading 3.3 g/t gold for 189,000 ounces. This represents an increase in tonnes and ounces compared to the Proved and Probable Ore Reserves as at 1 September 2015 of 1,627,000 tonnes grading 3.5 g/t gold for 183,500 ounces. The updated Ore Reserves for: Orivesi have decreased as a result of mining depletion; Jokisivu have replenished material mined since 1 September 2015 and further increased, following successful drilling campaigns that targeted the extensions of the Jokisivu deposits; Kaapelinkulma have decreased marginally as a result of an environment issue that prohibits mining activity in a butterfly habitat; and Fäboliden have returned an increase due to improved process recoveries and a higher gold price. The updated Ore Reserves are based on the Mineral Resource estimates, which were released to the ASX on 28 February 2017 Mineral Resources Updated for the Nordic Production Centres. In addition to site specific mining, metallurgical, cost and revenue factors, the updated reserve estimates used a gold price of US$1,260 per ounce (1 Sept-15: US$1,150 per ounce) and exchange rates of USD/EUR 1.13, USD/SEK 8.55 and AUD/USD 1.36 (1 Sept-15: USD/EUR 1.10, USD/SEK 8.50 and AUD/USD 1.37). Vammala Production Centre Southern Finland Orivesi Gold Mine The updated Proved and Probable Ore Reserves for Orivesi totals 46,000 tonnes grading 5.3 g/t gold for 7,900 ounces as at 31 December This represents a 78% decrease in tonnes and 77% decrease in ounces when compared to the Ore Reserves as at 1 September 2015 of 211,000 tonnes grading 5.1 g/t gold for 34,900 ounces. The decreases are due to mining depletion that has occurred since 1 September The Ore Reserves are estimated from underground stope and development designs and were based on the mines operating performance. Jokisivu Gold Mine The updated Proved and Probable Ore Reserves for Jokisivu totals 500,000 tonnes grading 3.6 g/t gold for 57,600 ounces as at 31 December This represents a 92% increase in tonnes and a 99% increase in ounces when compared to the Ore Reserves as at 1 September 2015 of 261,000 tonnes grading 3.5 g/t gold for 28,900 ounces. These increases are attributable to encouraging results obtained from drilling campaigns completed since 1 September 2015 at the Jokisivu deposits, Kujankallio and Arpola. The Ore Reserves are estimated from underground stope and development designs and were based on the mines operating performance. 21

22 DRAGON MINING ANNUAL REPORT 2016 Kaapelinkulma Gold Project The updated Proved and Probable Ore Reserves for Kaapelinkulma totals 79,000 tonnes grading 3.5 g/t gold for 8,900 ounces as at 31 December This represents a 9% decrease in tonnes and 7% decrease in ounces when compared to the Ore Reserves as at 1 September 2015 of 87,000 tonnes grading 3.4 g/t gold for 9,600 ounces. The decreases are attributable to an environmental issue that has arisen since the previous Ore Reserve update on 1 September 2015, which constrains mining to the main pit only. A population of a butterfly Woodland Brown (Lopinga Achine) has been discovered south of the Kaapelinkulma open pit area. The butterfly is protected under a European Union Directive the Habitats Directive 92/43/EEC. The butterfly is listed in Directive s Annex IV that covers species in need of strict protection. The legislation, which is adopted into the Finnish Nature Conservation Act (1096/1996) states that those places that the butterfly uses for breeding and resting, are not to be destroyed. The open pit or any other mining related activity cannot extend into this area. The Ore Reserves are part of an update to an ongoing Pre-Feasibility level study into the development of Kaapelinkulma in southern Finland. The study is being compiled by RungePincockMinarco and was based on the establishment of an open-pit mining operation and the haulage of ore to Dragon Mining s Vammala Plant. The Kaapelinkulma Ore Reserves demonstrate a base case operation, the Proved and Probable Ore Reserves representing a mining life of approximately twenty months based on a combined ore and waste movement of 45,000 tonnes per month. The Company will phase in the operation with the mine plans at Orivesi and Jokisivu. Svartliden Production Centre Fäboliden Gold Project The updated Proved and Probable Ore Reserves for Fäboliden totals 1,160,000 tonnes grading 3.1 g/t gold for 115,000 ounces as at 31 December This represents a 9% increase in tonnes and 4% increase in ounces when compared to the maiden Ore Reserves as at 1 September 2015 of 1,067,000 tonnes grading 3.2 g/t gold for 110,000 ounces. The increases achieved are attributable to an improved process recovery level following the completion of further bench scale metallurgical test work in 2016 and a higher gold price. The Ore Reserves form part of an update to an ongoing Pre-Feasibility level study into the development of Fäboliden in northern Sweden. The study is being compiled by RungePincockMinarco and was based on the establishment of a multiple open-pit mining operation and the haulage of ore to Dragon Mining s Svartliden Plant. The Fäboliden Ore Reserves demonstrate a base case operation, the Proved and Probable Ore Reserves representing a mining life of approximately five years based on the developed mining schedule, which includes a period of test mining. 22

23 DRAGON MINING ANNUAL REPORT 2016 Resources and Reserves Statement Mineral Resources Reported as at 31 December 2016 and Inclusive of Ore Reserves Measured Indicated Inferred Total Tonnes Gold Gold Gold Gold Ounces Tonnes Ounces Tonnes Ounces Tonnes (g/t) (g/t) (g/t) (g/t) Ounces Vammala Production Centre Orivesi Gold Mine 37, ,000 85, ,000 35, , , ,000 Jokisivu Gold Mine 504, ,000 1,265, , , ,000 2,512, ,000 Kaapelinkulma Gold Project , ,000 34, , , ,000 Total 542, ,000 1,473, , , ,000 2,826, ,000 Svartliden Production Centre Fäboliden Gold Project ,768, ,000 5,864, ,000 10,632, ,019,000 Svartliden Gold Mine 119, , , ,000 60, , , ,000 Total 119, ,000 5,078, ,000 5,924, ,000 11,121, ,077,000 Group Total 660, ,000 6,551, ,000 6,736, ,000 13,948, ,443,000 Note: Mineral Resources may not sum to equal totals due to rounding. Mineral Resources reported on a dry in-situ basis. Reporting Cut-off Grades Orivesi Gold Mine (Kutema and Sarvisuo Lode Systems): 3.85 g/t gold Jokisivu Gold Mine (Kujankallio and Arpola Deposit): 1.50 g/t gold Kaapelinkulma Gold Project: 1.00 g/t gold Fäboliden Gold Project (above 350mRL): 1.25 g/t gold Fäboliden Gold Project (below 350mRL): 2.10 g/t gold Svartliden Gold Mine (open pit): 1.00 g/t gold Svartliden Gold Mine (underground): 1.70 g/t gold Ore Reserves Reported as at 31 December 2016 Proved Probable Total Tonnes Gold Gold Gold Ounces Tonnes Ounces Tonnes (g/t) (g/t) (g/t) Ounces Vammala Production Centre Orivesi Gold Mine 12, ,000 34, ,900 46, ,900 Jokisivu Gold Mine 176, , , , , ,600 Kaapelinkulma Gold Project , ,900 79, ,900 Svartliden Production Centre Fäboliden Gold Project ,160, ,000 1,160, ,000 Group Total 188, ,900 1,600, ,300 1,790, ,000 Ore Reserve estimates have been rounded to reflect accuracy. All the estimates are on dry tonne basis. Reporting Cut-off Grades Orivesi Gold Mine (In-situ): Project 5.9 g/t gold; Operating 5.2 g/t gold; Stoping 4.7 g/t gold; Development 1.0 g/t gold Jokisivu Gold Mine (In-situ): Project 2.9 g/t gold; Operating 2.2 g/t gold; Stoping 1.6 g/t gold; Development 0.8 g/t gold Kaapelinkulma Gold Project: 1.14 g/t gold Fäboliden Gold Project: 1.47 g/t gold 23

24 DRAGON MINING ANNUAL REPORT 2016 Competent Persons Statements The information in this report that relates to the Ore Reserves as at 31 December 2016 were previously released to the ASX on the 21 March 2017 Ore Reserves Updated for Dragon Mining s Nordic Projects. This release can be found at (Code:DRA). It fairly represents information and supporting documentation compiled or supervised by Mr. Joe McDiarmid, who is a Chartered Professional Member of the Australasian Institute of Mining and Metallurgy and is an employee of RungePincockMinarco Limited. Mr. Joe McDiarmid has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as Competent Person as defined in the 2012 Edition of the Australasian Code of Reporting for Exploration Results, Mineral Resources and Ore Reserves. Written consent was previously provided by Mr. Joe McDiarmid for the 21March 2017 release. The Company confirms that it is not aware of any new information or data that materially affects the Ore Reserves as reported on the 21 March 2017, and the assumptions and technical parameters underpinning the estimates in the 21 March 2017 release continue to apply and have not materially changed. Mr. Joe McDiarmid, a Chartered Professional Member of the Australasian Institute of Mining and Metallurgy, who is an employee of RungePincockMinarco Limited and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as Competent Person as defined in the 2012 Edition of the Australasian Code of Reporting for Exploration Results, Mineral Resources and Ore Reserves, confirms that the form and context in which the Ore Reserves are presented in this report have not been materially modified and are consistent with the 21 March 2017 release. Mr. Joe McDiarmid has provided written consent approving the statement of Ore Reserves in this report in the form and context in which it appears. The information in this report that relates to the Mineral Resources for the Orivesi Gold Mine, Jokisivu Gold Mine, Kaapelinkulma Gold Project, Fäboliden Gold Project and the Svartliden Gold Mine as at 31 December 2016 were previously released to the ASX on the 28 February 2017 Mineral Resources Updated for the Nordic Production Centres. This release can be found at (Code:DRA). It fairly represents information and supporting documentation that was compiled or supervised by Mr. Jeremy Clark who is a full-time employee of RungePincockMinarco Limited and a Registered Member of the Australasian Institute of Mining and Metallurgy. Mr. Jeremy Clark has sufficient experience that is relevant to the styles of mineralisation and types of deposit under consideration and to the activity that being undertaken to qualify as a Competent Person as defined in the JORC Code 2012 Edition. Written consent was previously provided by Mr. Jeremy Clark for the 28 February 2017 release. The Company confirms that it is not aware of any new information or data that materially affects the Mineral Resources for the Orivesi Gold Mine, Jokisivu Gold Mine, Kaapelinkulma Gold Project, Fäboliden Gold Project and Svartliden Gold Mine as reported on the 28 February 2017, and the assumptions and technical parameters underpinning the estimates in the 28 February 2017 release continue to apply and have not materially changed. Mr. Neale Edwards BSc (Hons), a Fellow of the Australian Institute of Geoscientists, who is a full time employee of Dragon Mining, who has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as Competent Persons as defined in the 2012 Edition of the Australasian Code of Reporting for Exploration Results, Mineral Resources and Ore Reserves confirm that the form and context in which the Mineral Resources are presented in this report have not been materially modified and are consistent with the 28 February 2017 release. Mr. Neale Edwards has provided written consent approving the statement of Mineral Resources for the Orivesi Gold Mine, Jokisivu Gold Mine, Kaapelinkulma Gold Project, Fäboliden Gold Project and Svartliden Gold Mine in this report in the form and context in which it appears. The information in this report that relates to Exploration Results were previously released to the ASX on 19 April 2016 Drilling Continues at the Orivesi and Jokisivu Gold Mines; 12 May 2016 Drilling Returns Robust Intercept from Orivesi Gold Mine; 12 May 2016 Fäboliden Metallurgical Test Work Improves Recovery Levels; 22 July 2016 Encouraging Results from Southern Finland Drilling Programs; 20 October 2016 Drilling in Southern Finland Yields Promising Results and 19 January 2017 Drilling Returns Robust Intercept from Orivesi Gold Mine, which can be found at (Code:DRA). It fairly represents information and supporting documentation that was compiled by Mr. Neale Edwards BSc (Hons), a Fellow of the Australian Institute of Geoscientists, who is a full time employee of the company and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as Competent Person as defined in the 2012 Edition of the Australasian Code of Reporting for Exploration Results, Mineral Resources and Ore Reserves. Written consent was previously provided by Mr. Neale Edwards for the releases dated the 19 April 2016, 12 May 2016, 22 July 2016, 20 October 2016 and 19 January 2017, as listed above. 24

25 DRAGON MINING ANNUAL REPORT 2016 The Company confirms that it is not aware of any new information or data that materially affects the Exploration Results as released on the 19 April 2016, 12 May 2016, 22 July 2016, 20 October 2016 and 19 January 2017, and the assumptions and technical parameters underpinning the Exploration Results in the listed releases continue to apply and have not materially changed. Mr. Neale Edwards BSc (Hons), a Fellow of the Australian Institute of Geoscientists confirms that the form and context in which the Exploration Results are presented in this report have not been materially modified from the releases dated the 19 April 2016, 12 May 2016, 22 July 2016, 20 October 2016 and 19 January Mr. Neale Edwards has provided written consent approving the inclusion of the Exploration Results in the report in the form and context in which it appears. 25

26 DRAGON MINING ANNUAL REPORT 2016 DRAGON MINING FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER

27 DRAGON MINING ANNUAL REPORT 2016 DIRECTORS REPORT The Directors submit their report together with the consolidated financial report of the Company and its subsidiaries ( Consolidated Entity ) for the year ended 31 December 2016 and the auditor s report thereon. 1. Directors The Directors of the Company at any time during or since the end of the financial year are: Non-Executive Chairman - Mr Arthur G Dew, B.A., L.L.B. (appointed 7 February 2014) Mr Dew is a non-practising Barrister with a broad range of corporate and business experience and has served as a Director, and in some instances Chairman of the Board of Directors, of a number of publicly listed companies in Australia, Hong Kong and elsewhere. He is Chairman and Non-Executive Director of Hong Kong listed companies Allied Group Limited, Allied Properties (H.K) Limited and APAC Resources Limited (appointed 1 March 2016) and is a Non-Executive Director of Hong Kong listed SHK Hong Kong Industries Limited. He is also Non-Executive Director of ASX listed company Tanami Gold NL and Non-Executive Chairman of ASX listed company Tian An Australia Limited (previously known as PBD Developments Limited). Mr Dew is a member of the Audit and Risk Management Committee. Executive Director - Mr Brett R Smith, B.Eng., MBA and M.A (appointed 7 February 2014) Mr Smith has participated in the development of a number of mining and mineral processing projects including coal, iron ore, base and precious metals, and has over 30 years international experience in engineering, construction and mineral processing businesses. He has also managed engineering and construction companies in Australia and internationally. Mr Smith has served on the boards of private mining and exploration companies. Mr Smith is a Non-Executive Director of ASX listed company ABM Resources NL (appointed 9 May 2016) and Executive Director and deputy Chairman of Hong Kong listed company APAC Resources Limited (appointed 18 May 2016). Non-Executive Director - Mr Carlisle C Procter, B.Ec, M.Ec, FFin, (appointed 19 May 2015) Mr Carlisle Procter graduated from the University of Sydney with a Bachelor's Degree and a Master's Degree in Economics. He is a fellow of the Financial Services Institute of Australasia (FFin.). Based in Australia, Mr Procter worked in the Reserve Bank of Australia for over 30 years, holding various senior management positions. Since leaving the Reserve Bank, he has worked as a consultant to the International Monetary Fund and the Asian Development Bank and has also undertaken private consulting work in South East Asia and the Pacific. Mr Procter has been a Non-Executive Director of a number of public companies. He is also a Non-Executive Director of ASX listed company Tanami Gold NL. Mr Procter is Chairman of the Audit and Risk Management Committee. Alternate Director to Mr Arthur G Dew - Mr Mark Wong Tai Chun (appointed 19 May 2015) Mr Wong Tai Chun has a Master's Degree in Business Administration and is a fellow of the Hong Kong Institute of Certified Public Accountants, the Association of Chartered Certified Accountants, The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Chartered Secretaries. Mr Wong was the Financial Controller of other listed companies in Hong Kong. He is an Executive Director of Hong Kong listed companies Allied Properties (H.K.) Limited and SHK Hong Kong Industries Limited, the Director of investment of Allied Group Limited and an alternate Director to Mr Arthur G Dew in Hong Kong listed company APAC Resources Limited and ASX listed companies, Tanami Gold NL and Tian An Australia Limited (formerly known as PBD Developments Limited). 27

28 DRAGON MINING ANNUAL REPORT 2016 DIRECTORS REPORT (CONTINUED) 2. Company Secretary Shannon Coates LLB, GIA (cert), GAICD (appointed 19 December 2013) Ms Coates has over 20 years experience in corporate law and compliance. She is currently named company secretary to a number of public companies listed on ASX and AIM, and has provided company secretarial and corporate advisory services to Boards and various committees across a variety of industries, including financial services, resources, manufacturing and technology. 3. Directors Meetings The number of Directors and Board Committee meetings held and the number of meetings attended by each of the Directors of the Company during the year ended 31 December 2016 was: Board Meetings Audit & Risk Management Director Eligible to Attend Eligible to Attend Attend Attend Mr AG Dew Mr BR Smith Mr CC Procter Mr M Wong Attended by invitation. Alternate to Mr Dew. 4. Directors Interests As at the date of this report, the relevant interests of the Directors in securities of the Company are: Ordinary Shares Options Direct Indirect Direct Indirect Mr AG Dew 1 220,000 21,039, Mr BR Smith 28, Mr CC Procter 102, Mr M Wong Mr Dew is a Director of Allied Properties (HK) Limited, which via its wholly owned subsidiary Allied Property Resources Limited ( APRL ), indirectly holds an interest of 23.68%. Accordingly Mr Dew is taken to have a relevant interest in the 21,039,855 shares held by APRL. Mr Dew does not personally hold any shares in Allied Properties (HK) Limited or APRL. 5. Nature of Operations and Principal Activities The Company comprises Dragon Mining Limited, the parent entity, and its subsidiaries as set out in note 17. Of these subsidiaries, the operating entities are Dragon Mining (Sweden) AB in Sweden and Dragon Mining Oy in Finland. The Company operates gold mines and processing facilities in Finland and Sweden. In Finland, the Vammala Production Centre ( Vammala ) consists of a converted 300,000tpa nickel flotation plant, the Orivesi Gold Mine ( Orivesi ) and the Jokisivu Gold Mine ( Jokisivu ). In Sweden, the processing operation is known as the Svartliden Production Centre ( Svartliden ), consisting of a 300,000tpa CIL processing plant and the Svartliden Gold Mine (mining completed 2013). As mining has finished in Sweden no ore was processed, annual production from Finland is in the range of 30,000 to 40,000 ounces of gold depending on the grade of ore and gold concentrate feed. The principal activities of the Company during the period were: Gold mining, processing and refining ore in Finland; Processing ore concentrate in Sweden; and Exploration, evaluation and development of gold projects in the Nordic region. There have been no significant changes in the nature of those activities during the period. 28

29 DRAGON MINING ANNUAL REPORT 2016 DIRECTORS REPORT (CONTINUED) 6. Financial and Operating Review Consolidated Financial Review The Consolidated Entity generated a net profit after tax for the year ended 31 December 2016 of $5.3 million (2015: Profit $2.6 million). Revenue from operations amounted to $55.0 million (2015: $76.8 million) with the decrease in revenue attributable to reduced production from Orivesi and the cessation of processing third party concentrates at Svartliden. Production costs decreased to $50.6 million (2015: $65.6 million) due to a combination of reduced operations and continued costs savings across all sites. At 31 December 2016, the Company had net assets of $30.8 million (2015: $26.8 million), a working capital surplus of $17.0 million (2015: surplus $21.4 million) and a market capitalisation of $18.7 million (2015: $15.6 million). Key movements on the Consolidated Statement of Financial Position include: Total current assets decreased to $26.0 million (2015: $30.4 million) as a result of a decrease in trade and other receivables. Total non-current assets increased to $24.4 million (2015: $20.9 million), as a result of the capitalisation of Evaluation costs to Property Plant and Equipment in relation to the Company s 100% owned Fäboliden and Kaapelinkulma Gold Projects; and Other material movements are disclosed in the notes to the Financial Statements. Key movements on the Consolidated Statement of Profit or Loss include: Other income includes the gain on the sale of the Fäboliden land and timber of $1.8 million, and the sale of 6,750,000 shares in Aurion Resources Limited for $0.4 million; Other expenses includes the loss of $1.0 million recognised against the sale of the Company s 100% ownership interest in Kuusamo Gold Oy; and Other material movements are disclosed in the notes to the Financial Statements. Operating Overview In 2016, the Company produced 34,426 ounces of gold (2015: 53,805 ounces), comprising 3,939 ounces from Svartliden and 30,487 ounces from Vammala. Svartliden production was impacted by the cessation of processing external concentrate in Q2, The decision to stop processing external concentrates was made due to the high leachable copper content of the external concentrates so as to ensure environmental compliance. Svartliden continued to process most of the concentrate from Jokisivu, with only a small portion delivered to the Boliden Harjavalta Smelter, and an increased amount of concentrate from Orivesi. Gold production from Vammala was reduced due to a decrease in higher grade ore tonnes from Orivesi, partially offset by an increase in lower grade ore tonnes from Jokisivu. Metallurgical test work identified a significant quantity of high grade tailings from historical Orivesi production that could be reprocessed at Vammala. The Company commenced a study to estimate the Mineral Resource and determine that the tailings would be economically viable to reprocess. Assuming a positive outcome, this material will be processed during No additional permitting is required. The Fäboliden Test Mining permit application remains with the County Administration Board. The operations at the Kaapelinkulma Gold Mine ( Kaapelinkulma ), the Company s third gold mine in Southern Finland, are now able to commence following the receipt of permission to process ore from Kaapelinkulma at the Vammala Plant (refer to section 11 Business Strategies and Prospects). 29

30 DRAGON MINING ANNUAL REPORT 2016 DIRECTORS REPORT (CONTINUED) 6. Financial and Operating Review (continued) Operating Overview (continued) The table below details the production and C1 cash costs for each of the Production Centres: Description Svartliden, Sweden Vammala, Finland Gold production (oz) 3,939 15,484 30,478 38,321 C1 cash cost (USD/oz) - 1, Ore Tonnes milled (t) - 76, , ,797 Ore Gold grade (g/t) Concentrate milled (t) 1,352 2, Concentrate grade (g/t) The Company has adopted the C1 cash cost definitions as set out by Mackenzie Wood (formerly Brook Hunt), which are not in accordance with IFRS. Where used, the information has not been subject to audit by the Group s external auditors. Throughout the year, the Company: Significantly reduced the Group s 12 month rolling lost time injury ( LTI ) frequency rate per million work hours to 6.3, representing a 48% decrease compared to 2015; Completed the second phase of bench scale metallurgical test work for Fäboliden with material from Fäboliden returning gold recoveries of 83% whilst the gravity regrind tests resulted in a further 3% increase to recovery to 86%; and Made a number of safety improvements that included, an update to the Crisis Management Protocols which resulted in the formation of a Crisis Management Team, and commenced in using an underground seismic monitoring system designed to continuously record micro seismic events caused by rock stresses. Advanced Projects and Exploration Activities at Dragon Mining s key projects in Finland and Sweden during 2016 were directed to supporting mine planning and mine development. Metres drilled during the year from both surface and underground positions were lower than in 2015, but continued to yield a series of significant intercepts that underline the prospectivity of the Company s projects, the details of which have been released to the ASX throughout the year. Finland Sixty-one diamond core drill holes were completed at Orivesi during Holes were directed at both the Kutema and Sarvisuo lode systems and the areas in their near vicinity, as well as targeting rocks associated with the broader hydrothermally altered domain. At Kutema, drilling targeted the lode system between the 1200m and 1280m levels and a number of significant intercepts were obtained. The results from the program were positive, extending known mineralisation down to at least the 1280m level. A zone of higher-grade mineralisation was defined within Pipe 5 that displays reasonable vertical continuity, whilst indications of a new, separate zone of mineralisation was identified to the immediate northeast of Pipe 5. Further drilling is required to determine if the defined extension to known mineralisation and the new zone of mineralisation would support mining. The drilling of a diamond core program from surface commenced during the year in the Sarvisuo area targeting a panel between the 120m and 160m levels. When all results are received, the Company will evaluate the viability of developing a drift across to this area from the main decline. Drilling will continue at Orivesi in 2017 and will target the Kutema and Sarvisuo lode systems and satellite zones to these lode systems as the Company continues to remain focused on identifying any zones of exploitable gold mineralisation within the Orivesi Mining Concession. Drilling activities at Jokisivu advanced during 2016, with sixty-four diamond core drill holes completed for an advance of 13, metres. 30

31 DRAGON MINING ANNUAL REPORT 2016 DIRECTORS REPORT (CONTINUED) 6. Financial and Operating Review (continued) Advanced Projects and Exploration (continued) At the Kujankallio deposit, campaigns of underground diamond core drilling were completed targeting the Main and Hinge Zones. The results have provided additional information related to the geological structure improving confidence in the resource model and highlighted extensions of both the Main Zone and Hinge Zone. A program of diamond core drilling from the surface targeting the extensions of the Arpola deposit was also completed during the year, yielding a series of promising intercepts. Drilling programs will continue at Jokisivu from both underground and surface positions in 2017 with the objective of further evaluating the extensions of Kujankallio and Arpola and satellite zones to these deposits. The Kaapelinkulma Gold Project is expected to become the Company s third gold mine in the southern Finland region in The Kaapelinkulma Mining Concession became valid during 2016 following negotiations with affected landholders. The project had previously received all required Environmental Permits to undertake the mining of 161,000 tonnes of ore and 800,000 tonnes of waste. Permission was also received from the Centre for Economic Development, Transport and the Environment ( ELY Centre ) to process ore from Kaapelinkulma at the Vammala Plant while the new Environmental Permit for the Vammala Plant is still under appeal. The Company has commenced site preparation, grade control drilling and construction of a bypass road for the local community and will phase in the operations at Kaapelinkulma with the mine plans at Orivesi and Jokisivu. The Kaapelinkulma deposit will be an open pit mining operation, with ore to be hauled to the Vammala Plant to produce a high grade gold concentrate which will be further processed at Dragon Mining s Svartliden Plant in northern Sweden. With the Company s experience in commencing and undertaking small scale open pit mining in the Nordic Region and its existing infrastructure in southern Finland, Kaapelinkulma will incur minimal initial capital investment. Location of Projects and Production Centres 31