Kolar Gold : Shareholder Update 15.07.14

Since its listing on AIM in June 2011, Kolar Gold's objective has been to become one of the leading participants in the developing Indian gold exploration and mining sector. Following the elections in India earlier this year, the Board of Kolar Gold believes that the environment for the Company's activities has improved and remains confident of progress in the future.
The Board reviewed its strategy in 2013, in light of the slow pace of progress with its gold licence and exploration activities, and revised its arrangements with its partner, Geomysore Services India Private Limited ("GMSI"), in order to focus on developing prioritised, later stage gold exploration and mining licences. At the same time measures were taken to reduce costs and preserve cash.
As part of this revised strategy, in August 2013 Kolar Gold entered into new arrangements with GMSI, which included further investment at that time and which included Nick Spencer joining the board of GMSI. In exchange for dissolving the 2011 agreements with GMSI, the cancellation of a loan of £300,000 to GMSI from Kolar Gold and the investment of £700,000, Kolar Gold gained a
30per cent shareholding in GMSI. This investment gave Kolar Gold direct exposure to GMSI's extensive portfolio of Indian gold licence rights and applications, including a new project at Jonnagiri that did not fall under Kolar Gold's initial 2011 agreements with GMSI. In October 2013, GMSI was granted a mining licence at Jonnagiri, the first such grant in India for gold since 2003. Jonnagiri has
720k ounces of JORC Resource and an exploration target of 2-5Moz, which was validated by a competent person's report conducted by Mining Associates. GMSI is now working on developing
this resource. Kolar Gold has recently invested $100,000 into GMSI for ongoing expenses. GMSI
continues to discuss its options with the Kolar Gold Board and third parties with regard to securing future financing however Kolar Gold has no obligation to make any further investment. Kolar Gold's holding in GMSI is currently 24.65 per cent.
In December 2013 Deccan Gold Mines ("DGM"), whose shares are listed on the Bombay Stock Exchange and which currently has a market capitalisation of $22m, announced that its board had, subject to relevant regulatory approvals and consents, given its in-principle approval for an amalgamation of DGM and Australia India Resources ("AIR") - the largest shareholder in GMSI. This merger is proposed under a court approved Scheme of Arrangement in Mumbai. DGM has a number of gold mining assets, key amongst them being the Ganajur Prospect Licence, which has 308k ounces of JORC Resource confirmed by SRK mining consultants and a final stage mining lease application pending. Upon completion of the proposed amalgamation DGM will own and control AIR's interests in GMSI. Additionally the board of DGM has given in-principle approval for the acquisition of the remaining 62.45per cent equity interests in GMSI not held by AIR, including Kolar Gold's shareholding in GMSI.
Since the announcement of the proposed merger, GMSI and DGM have been preparing their respective companies' valuations and proposed share swap ratios together with the scheme for approval by the Indian court. It is Kolar Gold's understanding that the scheme is almost fully prepared. It is also the understanding of the Board of Kolar Gold that the merger would require new funding to be raised to finance the activities of the enlarged group, which it is anticipated will occur at the completion of the amalgamation, from the Indian and international capital markets.
The Board of Kolar Gold believes that the proposed merger between GMSI and DGM and the associated fund raising will create a unique, significant and potentially well capitalised listed gold mining and exploration player in India. If the transaction is completed Kolar Gold will own a
proportional stake in the merged, listed entity. It is likely that Kolar Gold, together with other major
GMSI shareholders, will have the opportunity to invest in the merged DGM/GMSI entity.
Shareholders should note, however, that the Board of Kolar Gold has not received any firm proposal for it to consider in relation to the proposed merger. If and when such a proposal is received the Board will consider it and advise shareholders of the terms and what action, if any, it is proposed the Company should take. Importantly, Kolar Gold has given no commitment or undertaking that it will participate in the DGM/GMSI funding from its existing cash resources.
In parallel with this, Kolar Gold continues to work on the proposed acquisition of Bharat Gold Mines Limited ("BGML"), which represents a significant and separate opportunity and remains the second limb of Kolar Gold's strategy. The tender for the privatisation was expected to be issued before the recent election, following the 2013 decision of the Supreme Court of India instructing the Government to proceed with the asset sale and mine revival. Kolar Gold continues to work in partnership with the BGML ex-employees and their representative cooperative societies. Together with the ex-employee unions and societies, Kolar Gold has a right of first refusal ("ROFR") to acquire BGML and the Company is preparing for the tender sale process and ROFR counter offer bid. Kolar Gold is considering its available financing options to enable participation in the sale process, which is anticipated to commence later this year. Kolar Gold shareholders may also have the opportunity to participate in any equity funding for this project.
Based on Kolar Gold's two key assets - (1) a significant shareholding in GMSI (24.65%) together with the proposed merger with DGM; and (2) its preferred position in the anticipated tender of BGML
- Kolar Gold has the ability to play a pivotal role in the emergence and development of the Indian
gold mining sector. Getting to this point has been a long, complex and resource consuming journey but the opportunity is clear. Kolar Gold intends to use its cash resources prudently and in the best interests of all its shareholders in order to take as full advantage of these opportunities as is possible. The Board of Kolar Gold has a broad base of relevant mining, funding and M&A experience and in addition to proceeding with its stated strategy, reviews the challenges of doing business in India on an ongoing basis, whilst balancing these with the cash resources available to the Company. The remainder of 2014 is likely to be key in the delivery of Kolar Gold's two clear gold strategies in India and we look forward to providing a further update on these developments over the months ahead.

ENDS

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