Kula Gold Ltd : September Quarterly Report

ASX Code: KGD

30 October 2013

Quarterly Report For the period ending 30 September 2013 Highlights

• Permitting applications for the Woodlark Island Gold Project remain on track for approval in the December 2013 quarter.

• Public review of the Environmental Impact Statement is complete and a draft of the

Environmental Permit conditions has been prepared by Independent Expert.

• PNG Government equity position negotiated with Petromin PNG Holdings Limited and PNG Department of Treasury; awaiting final decision.

• September 30 cash position A$1.7 million.

• Project review identifies improvement in After Tax NPV of US$9M or 5% by a reduction of

11M tonnes of waste, an increase of 9,000 ounces of gold production and reduction of US$10M in costs in the first 3 years of the Project life.

• Independent 4Mtpa Scoping Study quantifies significant NPV benefits of further Resource growth and potential Stage 2 expansion of Project capacity.

Permitting

Activities for the permitting for the Woodlark Island Gold Project (Project) progressed with the Papua New Guinea (PNG) Mineral Resource Authority (MRA) and Department of Environment and Conservation (DEC) in line with the agreed process.
The DEC completed the public consultation and review of the Environmental Impact Statement (EIS). This involved the public display of the EIS documents at various locations and copies being provided to a number of public and educational institutions within PNG and Australia. A number of DEC led public meetings were held with the Milne Bay Provincial Government and the Woodlark Island Local Level Government and landowners group regarding the EIS
The DEC's Independent Expert, BMT WBM, completed the draft assessment of the EIS and prepared draft Environmental Permit conditions. The final EIS assessment and Environmental Permit conditions are expected to be completed in October. These reports form part of the final DEC submission to the PNG Environmental Council. The PNG Environmental Council is an independent group of

PNG professionals which review the final assessment of the EIS and permit conditions and make recommendations to the Minister of the Environment regarding the approval of the Project Environmental Permit. The Environmental Permit is a key requirements leading to the grant of the Mining Lease.

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September 2013 Quarterly Report
Figure 1 - Woodlark Island landowners gathering at the DEC public consultation meeting on Woodlark Island.
The PNG State team conducted a site visit to Woodlark Island. Representatives from the MRA, Department of Treasury (Treasury), Petromin PNG Holdings Limited (Petromin), State Solicitors Office, Milne Bay Provincial Government and other departments attended to review the Mining Lease application.

Figure 2 - PNG State Team Visit to Woodlark Island
The MRA presented a briefing paper on the Project to the Mining Advisory Council (MAC) and commenced the preparation of briefing papers to the Minister for Mining and to the National Executive Council (NEC).
The MRA led landowner education and training planned for the September quarter was postponed and is expected to be completed in November.
The Company held a number of meetings with Government officials and agencies in preparation for the Development Forum, which is expected to be held in the December quarter. The Development forum results in the Memorandum of Agreement (MoA) which formalises the sharing of benefits and commitments between the PNG National Government, the Milne Bay Provincial Government, the Woodlark Landowner Association and the Company.

Financing and Government Equity

Technical and financial due diligence was completed with Petromin and Treasury regarding the PNG Government's option to acquire up to 30% of the Project, which would require payment of a corresponding percentage of past project expenditure and future development costs.
It is expected that Treasury will make a recommendation on the level of Government Equity to the National Executive Council in the December Quarter.
No further work was completed on Project financing during the quarter. The Company has a consensus term sheet with a shortlisted group of banks and other financial institutions.

Cost Control Programs

The Company continued with cost control measures to conserve the Company's cash position during the permitting process.

Project Enhancement and Stage 2 Expansion

Potential

Detailed engineering work was completed on an improved ore and waste schedule, which increased the Project's after tax NPV by US$9M, an improvement of 5%. The improvement in NPV was driven by an additional 9,000 ounces of gold production, a reduction in waste movements of 11M tonnes and a reduction in mining costs by US$10M, during the first 3 years of the Project.
A significant proportion of the improvement in the production schedule was achieved at the Busai deposit, by focusing on low cost ore areas within the deposit and deferring waste movement from years 2 and 3 into years 4 and 5. This delay of waste movement also delays the mobilisation of a third mining fleet from year 2 until year 4.
The engineering work also profiled equipment operating costs over the equipment life cycle, rather

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September 2013 Quarterly Report
than on a flat cost per hour basis as in the Feasibility
Study.
A Scoping Study was completed by Lycopodium Minerals which assessed the possibility of an increase in process plant and mining fleet capacity for the Project from 1.8Mtpa to 4Mtpa and the use of a leased mining fleet of 250 tonne excavators and 200 tonne trucks.
The study used key input parameters from the Feasibility Study along with Lycopodium Mineral's recent construction cost experience and Woodlark Island specific requirements, to determine capital and operating cost estimates for the upgraded scenario. The work considered all of the Measured, Indicated and Inferred Resources in estimating a mining inventory, new mining and processing schedule, costs and potential value.
The study estimated the capital costs of the 4Mtpa scenario to be in the range of US$240 to US$260M, a C1 production cost in the range of US$700 to US$750 per ounce and, based on a US$1,400 per ounce gold price, an after tax NPV in the range of US$150M to US$170M. The study estimated gold production between 180k and 220k ounces of gold per annum and a 4.5 year Project life.
If the Project could increase its Mineral Resources through future exploration success, a staged expansion to a 4Mtpa scenario could be anticipated to deliver improved outcomes.
Further work is planned to develop the increased capacity scenario as a Stage 2 expansion of the existing 1.8Mtpa Project development proposal and the identification of Resource expansion and regional exploration targets which would support the Stage 2 expansion.

Woodlark Island Gold Project Operations

No Lost Time Injuries (LTI) or Serious Incidents occurred at the Project.
All cost reduction programs were implemented and the demobilisation of drilling equipment belonging to United Pacific Drilling was completed.
Environmental survey work was completed on the proposed DSTP pipeline route and the road to the proposed wharf, as part of the approval process. Coffey International provided specialists assistance with Flora and Fauna survey and data collection techniques and training of the Woodlark Mining personnel in the process. The work forms the basis of Project development and operational environment management system.

Corporate

As at 30 September 2013, the Company had cash of approximately A$1.7 million.

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September 2013 Quarterly Report

Background on Woodlark Island Gold Project, PNG

Kula Gold Limited is developing the 100% owned Woodlark Island Gold Project (Project), located 600 kilometres east of Port Moresby in the Milne Bay Province, Papua New Guinea.
The Feasibility Study, completed in September 2012, defined a JORC Resource of 2.1M ounces and an Ore Reserve of 766,000 ounces based on an optimised gold price of US$1200 per ounce. The 9 year Project is based around three open pit mining areas and a
1.8Mtpa gravity and carbon in leach plant.
The Company is currently working to gain Government approvals and confirm the PNG State equity position, which together will lead to the grant of the Mining Lease for the Project. Thereafter, the Company will be able to move towards project funding and the start of construction.
The Project has excellent upside potential through the conversion of Inferred Resources and numerous nearby exploration targets within a short distance of the proposed process plant location.

For further information, contact: Stuart Pether
Chief Executive Officer
Kula Gold Limited
Tel [phone]
Directors
David Frecker
Chairman
Lee Spencer
Non-executive director
Louis Rozman
Non-executive director
Mark Stowell
Non-executive director
Company secretary
Leanne Ralph
Registered office
Suite 2, Level 15, 1 York Street
Sydney, NSW 2000, Australia
T: + 61 2 9262 5651
F: + 61 2 9262 5680
E: [e-mail]
W: www.kulagold.com.au
Auditor
Ernst & Young
Ernst & Young Centre,
680 George Street,
Sydney, NSW 2000, Australia
Office: [phone]
Share registry
Link Market Services Limited Level 12, 680 George Street Sydney, NSW 2000, Australia
T: 1300 554 474 or [phone]

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September 2013 Quarterly Report

Competent Persons Statements

The information in this report that relates to Exploration Results is based on information compiled by Lee Spencer. Lee Spencer was the CEO of Kula Gold Limited until 1 July

2013 and remains on the Kula Gold Board as a Non- executive director. Mr. Spencer is a Member of The Australasian Institute of Mining and Metallurgy and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Mr. Spencer consents to the inclusion in the report of these matters based on information in the form and context in which it appears.

The information in this announcement that relates to the Mineral Resource estimates for Kulumadau, Busai and Woodlark King is based on information compiled by Mr. John Doepel, Principal Geologist for Continental Resource Management Pty Limited (Resource Report, Woodlark Island). CRM has acted as independent consulting geologist to WML since 2005 and has undertaken several visits to the island and to the sample preparation facilities. Mr. Doepel is a Member of The Australasian Institute of Mining and Metallurgy and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Mr. Doepel consents to the inclusion in this announcement of these matters based on information in the form and context in which it appears.

The information in this announcement that relates to Ore Reserves is based on information compiled by Mr.Linton Putland, Principal of LJ Putland & Associates and a consultant to Kula Gold's 100% subsidiary, Woodlark Mining Limited. Mr.Putland is a Member of The Australasian Institute of Mining and Metallurgy and has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration

and to the activity which he is undertaking to qualify as a

Competent Person as defined in the 2004 Edition of the

'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Mr. Putland consents to the inclusion in this announcement of these matters based on information in the form and context in which it appears.

Forward Looking Statements

All statements other than statements of historical fact included in this announcement including, without limitation, statements regarding future plans and objectives of Kula Gold Limited (Kula Gold) are forward- looking statements. When used in this announcement, forward-looking statements can be identified by words such as 'may', 'could', 'believes', 'estimates', 'targets',

'expects' or 'intends' and other similar words that involve risks and uncertainties.

These statements are based on an assessment of present economic and operating conditions, and on a number of assumptions regarding future events and actions that, as at the date of this announcement, are expected to take place. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, assumptions and other important factors, many of which are beyond the control of the company, its directors and management of Kula Gold, that could cause Kula Gold's actual results to differ materially from the results expressed or anticipated in these statements.

Kula Gold cannot and does not give any assurance that the results, performance or achievements expressed or implied by the forward-looking statements contained in this announcement will actually occur and investors are cautioned not to place undue reliance on these forward- looking statements. Kula Gold does not undertake to update or revise forward-looking statements, or to publish prospective financial information in the future, regardless of whether new information, future events or any other factors affect the information contained in this announcement, except where required by applicable law and stock exchange listing requirements.

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