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(Appendix No. 2)



APRIL 2009


Project Motivation

KML is injecting investment into the Kagem Emerald Project for the following


• The Kagem emerald field has continued to operate economically and

profitably. However there has not been an estimate of the resource and

lifetime of the Kagem deposit. Further exploration activities will enhance the

future development potential of the project;

• Kagem mine employs 397 workers who depend on the mine for their income.

The continuation of the project and possible future expansions will increase

job opportunities for the regional population;

• The skills of the employees will be increased through job training programs;

• Income will be generated for local and central government through the

payment of taxes and royalties and the revenue generated through the

Lusaka emerald exchange. This will assist the government in rejuvenating

and stabilizing the Zambian economy; and

• There are positive multiplier effects throughout the economy from the

preferential use of local suppliers and developers.

Project Outline

Kagem Mining Limited currently mines emeralds from the Fwaya Fwaya, F10 and

Chama open pits. A new wash plant was constructed on the site and the current

rated throughput is 50 tonnes per hour (tph). It is proposed to increase the capacity

of the wash plant to 100tph by April 2009. The wash plant will operate on an 8-12hr

shift depending on activities onsite.

An old wash plant exists on the site approximately 200m from the Kafubu River.

Operations at this plant were discontinued in March 2008.

Capital Investment and Employment

The estimated initial capital investment for Phase 1 is US$24.05 million.

The annual operational costs for the project are estimated to be US$48 million at the

optimal level of operation. A part of this operational cost will be generated for

environmental management activities.

Exploration Program

Airborne high resolution radiometric and magnetic survey was conducted over the

licence area in order to delineate potential prospects for detail exploration.

Historically there have been very short term estimates of the emerald resource of the

Kagem emerald ore bodies. Exploration drilling along targets has been conducted

and will be ongoing during the project.

Up to the 18,n of January 2008, a total of 21,395m of diamond core drilling had been

conducted. This exploration has allowed an estimated resource of 24 million tonnes

(MT) that extends to a vertical depth of 150m and which covers a strike length of

920m. The drill holes have a diameter of 46mm.

Exploration is planned to continue during the mining operations using diamond

drilling techniques. A total of 15,325m of drilling in 98 drillholes has been conducted

in 2008-09in Fwayafwaya belt and Dabwisa.

Total investment on exploration since November 2008 is about US$ 3 million.

Exploration work will be continued in other prospects within the Kagem licence area

during subsequent years.

Mining Methods, Equipment, Treatment and Disposal

Bulk blasting techniques will be used in the open pits. It is anticipated that the

Fwayafwaya, Chama and F10 pits will evolve into one large open pit. Bulk blasting

will remove the waste rock and then small scale blasting will be conducted closer to

the biotite-phlogopite contact zones between the quartz-tourmaline veins and the

TCTM schists. A hydraulic excavator will load the material into trucks which will

transport the reaction zone material to the wash plant (1.95km). A total of 236.23MT

of material will be removed from the open pit of which 22.5MT is ore and 213.73MT is

waste. This is a stripping ratio of approximately 1:9. The final open pit will be 1,500m

long, 815m wide and 150m deep.

The waste rock will be removed by dump trucks to the waste rock dumps (more than

0.6km) on the footwall of the ore body to the northwest of the open pit. The waste

rock dumps will be engineered to maximise the angle of repose of the material.

During mining operations backfilling of the open pit will be conducted. This will

reduce the impact of the mining activities on the landscape. Backfilling will be

conducted at a rate of 16 Mt/annum at optimal level of production.

The mining activities were historically mechanised. The equipment fleet will be

expanded over the first three years of the project.

Noise will be generated during blasting operations and it is advisable that employees

in the area and mining equipment operators are supplied with personal protective

equipment (PPE). Table 1 shows the preliminary mining schedule for 2008 to 2017.

Table 1 Preliminary mining schedule from 2008 to 2018

Year Ore (MT) Waste (MT) Total (MT)

2007 - 2008 0.12 2.28 2.40

2008 1.46 8.11 9.57

2009 2.00 14.00 16.00

2010 2.50 20.00 22.50

2011 2.50 22.50 25.00

2012 2.50 20.00 22.50

2013 2.50 22.50 25.00

2014 2.50 23.75 26.25

2015 2.50 23.75 26.25

2016 2.50 25.00 27.50

2017 1.42 31.84 33.26

Total 22.5 213.73 236.23