Citadel Resource Group Limited (ASX:CGG) Quarterly Report For The Period Ending 30 September 2009

Melbourne, Oct 28, 2009 AEST (ABN Newswire) - Citadel Resource Group Limited's (ASX:CGG) cash at the end of the quarter was A$38.7m. Expenditure for the quarter on project exploration, development and evaluation activities totalled A$10.8m. This was above forecast largely due to the early commencement of engineering works associated with the Engineering, Procurement and Construction Management (EPCM) and the work associated with the pre-feasibility mining and metallurgy study for the Lode 1 expansion. Expenditure for the coming quarter is budgeted to be A$8.26m which will include purchasing vendor engineering data and partial mobilisation costs for the mining contractor as well as EPCM costs.

Quarterly Operations

1.0 JABAL SAYID COPPER GOLD PROJECT (50%)

During the quarter the following work was completed for the Jabal Sayid Project.

Engineering

Key activities completed this quarter.

- Appointment of SNC Lavalin as the Engineering, Procurement and Construction Manager (EPCM), completed on 1 October.

- Engineering and the commencement of detailed engineering around the long lead items such as the construction camp, mills, flotation cells, filters and thickeners.

- Issue of all packages, equipment and contracting, for definitive pricing for input into the DFS.

- Normalisation of vendor responses and uploading of information into the cost estimates for the capital and operating costs.

- The DFS capital and operating cost estimate, with mining currently in draft.

- Progress of the DFS document compilation.

- Lode 2 and 4 draft Resource estimates.

- Underground mine design and scheduling.

Jabal Sayid Drilling

Limited geotechnical drilling was undertaken during the quarter. A drilling program to support the Lode 1 expansion pre-feasibility was planned and has commenced. The final assays were received from drilling completed early last quarter with significant intercepts including:

- 278m at 3.4% Cu, 0.3g/t Au, from 92m to 371m (BDH4053).

- 287m at 3.6% Cu, 0.3g/t Au, from103m to 390m (BDH4050B).

- 262m at 3.8% Cu, 0.5g/t Au, from 101m to 363m (BDH4048).

- 80m at 4.2% Cu, 0.8g/t Au, from 87m to 167m and 155m at 2.7% Cu from 223m to 379m (BDH4043).

- 88m at 2.8% Cu, 0.4g/t Au, from 327m to 425m (BDH4042).

- 71m at 3.1% Cu, 0.4g/t Au, from 99m to 171m (BDH4041).

- 100m at 2.45% Cu, 0.5g/t Au from 306m to 406m (BDH 4038).

- 80m at 3.5% Cu, 0.7g/t Au from 92m to 172m and 65m at 3.6% Cu, 0.05g/t Au from 262 to 327m.

Lode 1 Open Cut Expansion
The Jabal Sayid Lode 1 deposit is being evaluated as a potential ore source with both open pit and underground mining zones examined. Lode 1 has an oxide gold gossan overlaying the main copper ore body and both of these areas show good gold and copper grades. Optimisations have been run using various recovery parameters for both the gold and copper ore. Initial indications show potential for a sizable open pit which is 180m deep combined with a smaller underground stoping component.

The gold gossan outcrop and top 35m of the proposed open pit are weathered and will allow for free dig excavation. Below this, the sulphide copper ore body will require a standard drill and blast open cut mining approach. Lode 1 has approximately 1Mt of gold ore, 0.5Mt oxide copper and 3Mt of sulphide copper ore in various Resource categories. Metallurgical test work is currently underway to enable Lode 1 to be fully evaluated and potentially included into the mining plan. Lode 1 expansion studies will be completed in early 2010. Citadel is planning to use the copper, gold and zinc mineralisation in Lode 1 to expand production. This expansion may potentially reach 5Mt/pa.

Mining License & Project Implementation

The application for the Jabal Sayid Exploitation (mining) License has been lodged with the Deputy Ministry for Mineral Resources (DMMR). It was hoped that the License may have been processed and granted prior to Ramadan and Eid but unfortunately the Government timetable did not make this possible.

The Company is closely following the process and an announcement will be made as soon as information becomes available. The Managing Director, Ines Scotland, is currently in Saudi Arabia and has reported that in various meetings with the Deputy Ministry for Mineral Resources there have been assurances provided that the grant of the mining license is in progress and is on the Government agenda to complete the required internal paperwork.

The Company has no reason to believe that there are any outstanding issues associated with the grant of the license and that once due Government process is complete the license will be granted.

Operational Readiness planning continued including the commencement of IT and Business System projects to support the EPCM team and ongoing operations.

Marketing, Shipping and logistics

Agreement on rates and charges has been reached with the Yanbu Port Authority for port access and rental of a storage shed within the port area. Formal documentation of a rental agreement has commenced. Key commercial terms have also been agreed with the port stevedore, Ajwa Port Services, for loading of Jabal Sayid concentrate onto vessels for export in bulk with formal documentation to be completed in the coming quarter. Tenders for road logistics and port stockpile management were sent out during the quarter and responses are expected back by November. The Red Sea Port of Yanbu is approximately 400km from the Jabal Sayid Project and is connected to the mine site by a system of existing two and six lane sealed highways. The port has a draft which will comfortably accommodate handy-size and handy-max vessels for shipment of concentrates in bulk to ports in the Middle East, Europe, India and Asia.

Copper concentrate demand is very strong and the market is forecast to be in deficit for a number of years due to planned smelter expansions and continual supply side constraints. The Jabal Sayid concentrate contains a good copper grade at 25-27% and is exceptionally clean, containing no elements subject to penalty. During the quarter a five year 50,000 dry metric tonne per annum offtake contract was agreed with international trading house Transamine SA. Transamine SA is one of the oldest, independent, privately held commodities trading companies in the world specialising in raw materials. Over the balance of the year, off-take contracts will be negotiated with preferred counterparties for the majority of the mine's annual production.

Finance

During the quarter WestLB and Riyad Bank were appointed to act as joint lead advisors in relation to the arranging of the debt financing of the Jabal Sayid copper project.

Preparatory work for the debt financing of the Jabal Sayid copper project is well underway. WestLB and Riyad Bank are assisting and advising on debt structuring and transaction execution with a view to launching a small bank club loan this quarter. A number of independent experts have been appointed to conduct due diligence for the financing including Behre Dolbear Australia ("BDA") as the banks' independent technical expert. Work on due diligence has commenced on those aspects of the project which have been completed. A site visit by BDA is planned for November. Marketing of the project to potential financiers in the Middle East, Europe and Australia is ongoing. Over the balance of this year the Company will work with a small number of local Saudi banks and international banks to arrange and complete negotiations of the project financing.

For the complete Citadel Resource Quarterly Report for the period ending 30 September 2009, please click the link below:

http://www.abnnewswire.net/media/en/docs/61656-ASX-CGG-326862.pdf

Contact

Citadel Resource Group Limited Ines Scotland (CEO) Tel: +61-3-8680-4609 ines.scotland@citadelrg.com.au