All data are collected in the Fiscal Year of 2008-2009.

Mauritania / Energy, Mining, Resources

Red Back Mining Inc. is an unhedged African focused gold producer. It owns and operates the Chirano Gold Mine in Ghana (90 percent interest) and the Tasiast Gold Mine in Mauritania (100 percent owned). Tasiast is now in commercial production. The end-2009 production is scheduled at approximately 230 000 ounces of gold.

Red Back acquired the Tasiast Gold Mine from Lundin Mining Corporation in August, 2007. The Company paid a purchase price of US$225 million to Lundin Mining, repaid the Tasiast debt facility with Macquarie Bank Limited (US$42,5 million plus US$0,3 million interest) and retired the gold hedging structure (US$10,1 million). The Company is now the 100 percent owner of Tasiast, which is debt free and unhedged.

The Company's land holdings in Mauritania consist of three permit areas totalling 16 222 km2 in area: the Tasiast, Ahmeyim-Tijirit and Karet.

The Tasiast Permit Area is located in north-western Mauritania, approximately 300 km north of the capital Nouakchott and 162 kilometres east-southeast of the port city of Nouâdhibou. The Tasiast Permit Area falls within the administrative purview of the Inchiri and Dakhlet Nouâdhibou Districts and comprises five individual and contiguous PRMs totalling 6,306 km2 in area.

Gold exploration and mining

Recruitment ongoing; envisages a work force of 400 people

Note 1: Production statistics may not calculate exactly due to rounding.
Note 2: 2009 gold sold at Chirano excludes 4,208 oz (year-to-date: 5,675 oz) recovered from underground operations and capitalized during pre-production development.
Note 3: This is a non-GAAP measure. It is calculated by dividing costs on the statement of income and deficit by gold oz sold. For Tasiast, approximately $80 per oz (year-to-date: $87 per oz) (2008, quarter and year-to-date: $139 per oz) of depreciation and amortization are due to the amortization of the fair value excess on purchase of the Tasiast mineral properties in 2007.

Tasiast is Mauritania's first pure gold mine. In 2007, copper and gold production began in Mauritania. Tasiast produced approximately 125 000 ounces of gold in 2008. First Quantum produced 100 000 ounces of gold in 2008.

“The Company's objectives are to optimize and fully develop its mines and aggressively explore its large prospective land position:

Overall, the Company's strategy is to focus on growth of cash flow, production and mineral resources through development of its existing assets and pursuit of acquisition opportunities worldwide.

Aggressive exploration programs aimed at increasing the Company's resource and reserve base are ongoing. At Tasiast Red Back has commenced an extensive exploration program to identify prospective mineralized areas along this belt for commercial exploitation.

Red Back, through its subsidiary Tasiast Mauritanie Limited SA ("TMLSA") holds a 100 percent interest in the Tasiast Gold Mine

The Tasiast Gold Mine was officially opened by the former President of Mauritania, Sidi Mohamed Ould Cheikh Abdallahi, on July 18, 2007.

Political uncertainty caused by the postponement of presidential elections in Mauritania in 2009 caused delays in the receipt of certain operating permits. The Company’s ability to reach its production target depended in part on the prompt receipt of final permits for the utilization of a new tailings dam and full irrigation of the dump leach operations at Tasiast.

During the second quarter 2009, Tasiast completed negotiations with the government of Mauritania whereby it agreed to pay certain annual fees in 2009 and 2010 in consideration for increasing the production capacity of its processing plant under the current capital expansion program. These fees become effective only after receipt of all permits and are calculated on annual production in excess of 130 000 oz. Based on forecast production of 230 000 oz in 2009 and 250 000 oz in 2010, these additional costs are estimated at $8.0 million and US$9,6 million respectively. The Company will be reporting these payments as an additional royalty expense.

The Company received the final permits from the government for commercial dump leach operations and for the new tailings storage facility in September 2009.

Mauritanian Act no. 2008-011 (of April 27, 2008) establishes a new framework with respect to the taxation of certain mining activities (i.e., prospecting for, exploration, and exploitation mineral substances).

The new mining tax regime is intended to provide incentives for direct investment and to promote the mining industry in Mauritania. The stated goal of the new Mining Act is to clarify certain provisions that were rather summarily dealt with under the prior law of 1999. Also, the new regime introduces certain tax and customs relief measures, particularly in the form of: a cap on the tax on industrial/commercial earnings (known as BIC); and an exemption from tax and/or duties for certain mining equipment during the research and development phase as well as during the first years of exploitation.

The new mining tax regime has three distinct development phases-each of which is subject to its own specific regime-and has created a classification of goods for purposes of applying customs duties and value added tax (VAT)

Phase I, the “Research Phase” corresponds to the period of mineral prospecting and research work, which lasts until the finalization of the feasibility study culminating in the decision to open a mine or quarry on the site in question.

Phase II, the “Installation Phase” covers the period from the end of the research phase to the beginning of the “break-in” work (known as rodage). Under Article 103(2), the break-in work begins on the first day of the second month following the date when the daily production exceeds 10percent of the production provided for by the feasibility study submitted to the government minister in charge of mines.

Phase III, the “Production Phase” begins at the same time as the break-in work and is divided into two sub-phases: under one sub-phase, known as “Preliminary Production,” the mining enterprise may benefit from a tax grace period or a tax holiday for a 36-month period that begins with the start of the break-in work; and a second sub-phase, known as “Normal Production,” extends from the end of the tax holiday period until the end of the life of the mine or quarry, as marked by the completion of the site-restoration work.

Direct Taxation Rules That Apply to Mining Activities:

Profits realized from the exploitation of mines or quarries are subject to tax on industrial/commercial earnings (BIC) and the minimum fixed tax (IMF). However, under Articles 113 to 116 of the Mining Act, industrial mining and quarry operators are exempt from BIC and IMF during the 36 months corresponding to the tax holiday phase (described above). Beyond this 36-month period, these mining enterprises are subject to the following taxes: to BIC, at the then-effective rate, but capped at 25percent, and the enterprises are also entitled to deduct research expenses incurred within the Mauritian territory; to IMF at a rate equal to one-half the IMF rate provided for by the general tax code (2.5percent), though this rate may not exceed 1.75percent.

In addition, the Mining Act states that interest on loans used entirely with respect to mining or quarry operations are fully deductible from the borrower’s taxable income. For purposes of this deduction, the borrower’s debt must not exceed a ratio of three times the amount of its shareholders’ equity. This debt-to-equity ratio must be met throughout the entire fiscal year in question. Any portion of interest exceeding this ratio is non-deductible. Moreover, when interest is paid to non-residents of Mauritania, the interest payment is subject to a withholding tax at the rate in effect at the time of payment, but the withholding tax rate cannot exceed 10 percent.

If in a given fiscal year, a net operating loss (NOL) is reported, the NOL is considered to be an expense for the following fiscal year and is deducted from that year’s profits. If the profits for the following year are not sufficient to allow for full deduction of the prior year’s NOL, the amount of excess NOL can be carried forward successively over the following fiscal years for five years following the loss-making year. A 10percent withholding tax is also imposed on dividends paid to shareholders other than Mauritian parent or affiliated companies.

Salaries paid to expatriate employees of companies that have entered into a mining agreement with the State, as well as their direct contractors or subcontractors, are subject to the tax on wages and salaries. However, the applicable rate of individual income tax that applies to these employees is equal to half the standard rate (which ranges from 15 percent to 30 percent), though it may not exceed 20 percent.

Compensatory Fees and Mining Royalties:

Taxes specific to mining include compensatory fees (droits rémunératoires), annual “surface area” royalties (redevance superficiaire), and exploitation royalties. The compensatory fee must be paid by the owner or holder of a small-scale quarry authorization upon execution of the following actions with respect to the deed: issuance, extension, reduction, renewal, early termination or transfer of a research permit; issuance, extension, reduction, renewal, early termination, transfer or contribution of an exploitation permit; issuance, transfer or renewal of a small-scale mining exploitation permit; issuance, renewal or transfer of a mining exploitation authorization; and issuance, renewal or transfer of an industrial or small-scale exploitation authorization.

The annual surface area royalty is owed by any owner of a quarry or mining title and any holder of a small-scale quarry authorization. The amount of the royalty is set by decree and is not deductible from annual taxable income. The exploitation royalty is an amount owed by the holder of an exploitation permit, a small-scale mining exploitation permit, or an industrial quarry exploitation authorization. It is calculated based on the sales price of the product at its last stage of transformation in Mauritania, or on the product’s FOB value if it is exported prior to sale. The royalty is owed on all sales or exports, except for bulk samplings, and the rate of this royalty varies from 1,5 percent to 6percent, depending on the group to which the mineral substances belong. Moreover, for industrial quarries, the rate of the exploitation royalty is adjusted according to the following three subgroups: Subgroup 1, construction material: 1.4percent; Subgroup 2, industrial material: 1,6 percent; and Subgroup 3, decorative material: 1.8percent.

Value Added Tax (VAT):

The following imports by those holding an exploitation permit, a small-scale mining exploitation permit, or an industrial quarry exploitation authorization, are subject to VAT: on automobile vehicles during the installation, tax holiday and normal production periods; on industrial inputs, oil products, lubricants and spare parts other than equipment, during the preliminary and normal production phases; and for other imports-including fuel for heavy equipment-the rules applicable to customs duties (exceptional temporary admission or total exemption from customs duties and taxes) are also applicable to VAT.

Exported mineral substances are subject to VAT at the rate of zero percent (0percent). The VAT credit arising from the exportation of mining or quarry production is reimbursed by the State within three months of submission of the related request. The above-described VAT regime also applies to the mining companies’ contractors and direct subcontractors.

Customs Duties:

The imposition of customs duties and taxes depend on the phase of activity. During the research phase, mining companies benefit from the following advantages: an “exceptional temporary admission” regime, under which all customs duties and taxes are suspended for automobiles and equipment; and a total exemption from customs duties and taxes for spare parts for equipment, inputs (raw materials and consumables), fuels and lubricants, and spare parts for light vehicles.

During the installation and production phases (tax holiday and normal production), the entry tax regime is as follows: an “exceptional temporary admission” with a suspension of all entry taxes and duties on equipment; total exemption on spare parts for equipment and light vehicles, inputs, fuels and lubricants; and payment of a single 5percent customs duty on automobiles.

The Company is expanding the Tasiast processing facility to a nominal throughput of 3 mtpa. The expansion work includes an enhancement of the crushing circuit, a second ball mill, an additional CIL tank and a gold room with associated elution capacity. Commissioning of the enhanced crushing circuit and second ball mill was completed near the end of the second quarter. The other elements of the expanded plant are expected to be operational before the end of the third quarter of 2009.