Pretty rough quarter for Dynasty. Almost appears the company was back to processing development material from the decline with the very low average grade processed. Just squeaking through with barely any money in the bank at end of Q2 .


Q3 is shaping up to be half decent, with $5.2 million in gold already sold or in transit as of this date. At least there was enough cash on hand for Q2 to meet all their obligations.


The company did basically exceed guidance (12,000 tonnes per month) for tonneage for Q2 with 37,065 tonnes processed, more than doubling the tonnes processed in Q1. Works out to 411 tpd on average, when accounting for the one lost day of production due to a smoke incident in the mine.


Grade was down drastically to 4.42 gpt in Q2. As mentioned above, it almost appears that they were processing alot of development material from the decline extension work.


Just thinking out loud here, how many mining companies would welcome the 4.42 gpt that Dynasty had to use while driving the declines to access the next levels of the high grade ore bodies ? The Zaruma Mine is ranked in the top 10 of mines in the world in regards to grade at 13 gpt.


On the positive side ..... about 2850 ounces produced in the first month of Q3 (10,300 t x 8.6 gpt / 31.1 gr/oz). Averaged out would be about 8550 ounces for Q3, but could vary widely depending on grades encountered for the rest of Q3.

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Excerpts from Q2's MD&A

Page 3

The average grade of material processed during the three months ended June 30, 2014 was 4.42 grams per tonne (“g/t”) which represents a decrease from the average grade in the three months ended March 31, 2014 of 10.81 g/t. The decrease in grade for the three months ended June 30, 2014 is attributable to limited access to regions of veins with higher grade while development work on these areas was ongoing.

As mentioned in previous Management’s, Discussion and Analysis’s it is not uncommon or unexpected to encounter areas of the deposit with significantly higher or lower grades as compared to the average grade previously disclosed in the Company’s mineral resource estimate for its Zaruma Project, since the resource at Zaruma is known to contain a significant variability in grade between different areas, which are often in close proximity to each other. As a result it is unlikely that the Company will achieve a consistent monthly production profile during this early production phase of operations, until material is mined from multiple veins.This was further demonstrated in July 2014, the first month of the third quarter of the year ended December 31, 2014, where approximately 10,300 tonnes of material was mined and delivered to the mill with an approximate extractable gold grade of 8.6 g/t.



Cash costs per ounce and all-in sustaining cash costs per ounce for the six months ending June 30, 2014 were $1,099 and $1,465 respectively. Cash costs per ounce and all-in sustaining cash costs per ounce for the three months ending June 30, 2014 were $1,310 and $1,646 respectively. Cash costs per ounce and all-in sustaining cash cost per ounce in fiscal 2014 to date have shown a considerable increase compared to the three months ended December 31, 2013 when cash costs per ounce and all-in sustaining cash costs per ounce were $592 and $791 respectively. This was the result of the combination of a number of factors, including:

- Normal course maintenance and development work which resulted in decreased tonnage delivered to the mill in the first quarter of 2014;

- The above mentioned decrease in average grade of material mined during the second quarter of 2014;

- The Company has adopted a policy to expense any further development expenditure as it is incurred in respect of a mine property subsequent to the commencement of commercial production, unless substantial new future economic benefits are derived from such expenditure at which point it will be capitalized. As a result the cost of carrying out the decline maintenance and development work was all expensed in the period and therefore included in the per ounce cost calculations; and

- the Company’s operations consist of a large fixed cost proportion, with the actual cash expenditure not varying a great deal between periods.





Page 10

Subsequent to June 30, 2014 to date, the Company has shipped dore bars containing approximately 4,000 ounces of gold from the Zaruma Project, with an approximate value of $5.2 million, which have either been sold or are in transit to the refinery and are soon expected to be available for sale