Ecuador Mining Legislation

On April 18, 2008, Ecuador`s Constitutional Assembly passed a Constituent Mandate resolution (the “Mining Mandate”), which provided, among other provisions, for the suspension of mineral exploration activities for 180 days, or until a new Mining Law was approved. In January 2009, the new Mining Act was published. In November 2009, the regulations and procedures to operate under the new Mining Act were signed by the President of Ecuador and published in the Official Registry, after which time the new Mining Act and Regulations (collectively, the “Mining Law”) were enacted. The Mining Law was further amended in July 2013 to distinguish between small, medium and large scale operations. The Mining Law provides that operations mining up to 300 tonnes of mined material per day on any individual concession may be categorized as a Smaller Scale Operation and are required to pay a fixed royalty of 3%; operations mining between 301 and 1,000 tonnes of mined material per day on any individual concession may be categorized as a Medium Scale Operation and are required to pay a fixed royalty of 4%; and operations mining in excess of 1,000 tonnes of mined material per day on any individual concession are categorized as Large Scale Operations and are required to enter into an exploitation contract with the government which sets out specific terms and conditions of the particular operation, including the royalty between 5% and 8% and the application of a windfall tax.

To date, five concessions at the Company’s Zaruma Gold Project were qualified as and granted small scale mining licenses. This means that the Company is now able to mine 300 tonnes per day from each of these concessions, or 1,500 tonnes per day in aggregate, subject to a fixed 3% royalty and no windfall tax. The five concessions for which the Company elected to apply for the small scale operation licenses are the focus of the Company’s current mine development plans at the Zaruma Gold Project, being the five concessions currently being accessed by the Company’s declines and containing a significant amount of the Company’s resource at the Zaruma Gold Project.

The Company may apply for additional small scale operation licenses for other concessions at Zaruma in the future based on its mine development plans; however there can be no assurance that these applications will be successful. Under the terms of the Mining Law, the Company’s other projects (being the Jerusalem Project and the Dynasty Copper-Gold Project) may be required to enter into exploitation contracts with the Ecuadorian government if the projects are advanced into the production phase in the future.

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