operational and dfs update

OPERATIONAL AND DFS UPDATE
DRILLING RECOMMENCES AT SIHAYO-SAMBUNG
COST OPTIMISATION PROGRAM ON TARGET TO DELIVER
SUBSTANTIAL REDUCTIONS IN SITE CASH OPERATING COSTS

The Board of Sihayo Gold Limited (ASX: SIH) is pleased to provide an Operational and Definitive
Feasibility Study (“DFS”) update for its 75% owned Sihayo Pungkut Gold Project (“SPGP”) in North
Sumatra, Indonesia.

OPERATIONAL UPDATE

Infill drilling program at Sihayo-Sambung
Drilling activities at SPGP have resumed with a focus on the final phase of infill drilling. An infill
program of approximately 3,000 meters is required to likely convert the limited amount of Inferred
Resource contained within the overall JORC Compliant Resource of 16.3Mt at 2.7 g/t Au for 1.425
Moz into the higher Indicated Category. The program has begun with a single rig and a second rig
shall arrive on site within 4 weeks. With two diamond drill rigs and the relatively shallow depth of
the planned holes it is anticipated that the drilling will be completed within two or three months.
Once the infill program is complete, ongoing exploration drilling shall target potential near-surface
mineralisation along strike from the existing JORC Resources, which could potentially be included in
the early years of the current proposed mine schedule as described within the DFS.
Figure 1 shows the Sihayo and Sambung Resources and highlights the potential resource extensions
to the northwest and southeast of the Sihayo Deposit and the infill drilling program.

Exploration drilling at Hutabargot Julu

Drilling has recently commenced at the highly prospective Hutabargot Julu Epithermal Gold Prospect
located 7km southeast, along strike, of the SPGP. Figure 2 shows the location of the SPGP and
Hutabargot Julu Prospect with the wider Contract of Work (“COW”) area.
Ongoing exploration at Hutabargot Julu has defined an intermediate sulphidation epithermal gold
complex that has a footprint of approximately 6km * 2km. Historic drilling yielded a best intercept
of 5m @ 36.7 g/t Au and 198 g/t Ag from 47m within Quartz-Sulphide veining. The current drilling
program will test multiple Epithermal Veins (high grade gold / moderate tonnage potential) and
Hydrothermal Breccias (lower grade gold / high tonnage potential) and will consist of an initial
10,000m of drilling. Figure 3 is a surface plan of Hutabargot Julu summarising exploration work to
date, current drilling status and planned ongoing drilling.

"It is exciting to be drilling the highly prospective Hutabargot Julu Gold Prospect concurrent with
completing the last phase of infill drilling at our flagship Sihayo Pungkut Gold Project. The
prospect is located 7km southeast of Sihayo Pungkut and has the potential to provide significant
upside to our overall resource inventory” said Paul Willis, Chief Executive Officer.
Community, Government and other Stakeholder Meetings
As previously reported, on Sunday 29th May, a group of demonstrators, believed to be supported by
the representatives of illegal artisanal miners from the region, arrived and caused significant damage
to Sihayo’s exploration camp.
Over the past five months, our community relations team has conducted over sixty meetings with
the key SPGP stakeholders including; local community members, village heads, religious groups,
NGO’s, local and provincial Government representatives, local and provincial Police and Army
commanders, the newly elected Bupati of Mandailing Natal, North Sumatra and the Governor of
North Sumatra.
The meetings have been focused on ensuring that the future activities of the Company are
conducted in a safe and secure environment without the risk of further unlawful acts.
As with any mining project, our relationship with the local community is critical to our long term
operational success. As part of our ongoing community program we took 15 local representatives
on a site visit to a newly commissioned gold mine in North Sulawesi, Indonesia in mid-September, to
show them first-hand the operational, environmental and community aspects of a mine of similar
size to our planned SPGP.
In addition, community agriculture based programs have been initiated in four of the villages
surrounding the SPGP and the aim is to establish similar programs in each of the 15 villages that are
located in the project’s primary area of influence.
The agriculture programmes work very well in these communities where over 90% of the local
population are engaged in agriculture production as their primary source of income. The programs
are built on the core philosophy of “sustainability” and seek to improve the overall productivity of
the local producers, add value to their existing products and ultimately facilitate better marketing of
their products.
The response from within the initial four villages has been extremely encouraging and bodes well for
the continued establishment of similar programs in the remaining 11 villages.

DEFINITIVE FEASIBILITY STUDY (“DFS”)

Metallurgical Testwork

As previously reported, the final phase of the DFS work related to the overall metallurgical gold
recoveries is progressing well. Over 4,500 additional cyanide leach tests are being completed (2,750
completed to date) across the multiple mineralisation types that make up the Sihayo and Sambung
Resources and the initial results suggest that some improvement in overall process gold recoveries is
achievable.
Optimal Plant Capacity
Ongoing assessment of the “optimal plant capacity” has confirmed that the project will be a 1.5Mtpa
operation.

Cost Optimisation – Biomass Power

Currently in the DFS, power production is based on diesel generators and at a basis of US$100/bbl
oil, the unit cost of power is approximately US$0.25 kw/hr.
Our study of hydro power potential was unsuccessful due to the high Capex associated with the
required infrastructure.
However, we have entered detailed discussions with a number of industry leading biomass power
companies, including DP Cleantech, to determine the viability of an 8MW biomass power plant being
the primary source of power.
DP Cleantech have designed, constructed and successfully commissioned over 40 biomass power
plants across Asia and Europe with a combined installed capacity of 1,000MW.
The primary fuel source for the proposed power plant is Palm Kernel Shells (“PKS”) a waste product
of the palm oil production process.
The PKS market is well established in Sumatra, Indonesia and export volumes of PKS to North Asia
and Europe as a primary fuel for biomass power plants has been steadily increasing over the past
five years.
Potential supply of PKS within trucking distance of the proposed power plant site exceeds 3 times
the annual required supply and is available across multiple independent suppliers. In addition, new
palm oil plantations are being established within the area and will provide additional future supply
of PKS.
From both an environmental and operating cost perspective, the potential to utilise proven biomass
power supply is an attractive proposition.
Biomass power would provide an approximate 70% operating cash cost saving compared to diesel
generated power, excluding any carbon emission credits that maybe available.
DP Cleantech will provide DFS Capex and Opex estimates for the biomass power plant by the end of
December 2011.
Cost Optimisation – Overland conveyor for waste material
The current waste material movement process is via haul trucks. Given the topography surrounding
the proposed pits and waste dump areas, the required haulage distance from pits to waste dumps is
up to 8km in the early years of operation.
We have entered detailed discussions with some of Europe’s leading manufacturers of conveyors for
the mining industry, including Famur Group of Poland, for the installation of an overland conveyor to
transport up to 8Mtpa of waste material from nearby the mining pits to the waste dump site.
The proposed conveyor will be between 1.2km and 2.0km in length and because the entire length of
the conveyor will be downhill, the conveyor will generate excess power equivalent to approximately
10% of the total power requirement of the entire project.
Famur Group will provide DFS Capex and Opex estimates for the overland conveyor by the end of
December 2011.


Conclusion

With the final phase of the DFS progressing well and the potential significant cost savings within
power production and waste material movement, the economics of the Sihayo Pungkut Gold Project
are looking very attractive.
Together with the DFS work, the final phase of infill drilling and concurrently the re-commencement
of drilling at the highly prospective Hutabargot Julu Epithermal Gold Prospect suggests the next six
months should prove to be a very exciting period for our Company.

Yours faithfully,
SIHAYO GOLD LIMITED
Paul Willis
Chief Executive Officer
27th October 2011