June 2011 Quarterly Report

In 2011 Dragon Mining embarked on an extensive exploration, development and capital expenditure program, investing in the future of the Company.

Exploration is directed at enlarging the reserves and resources at the existing mines, as well as expanding the resources at Kuusamo in northern Finland to enable the project to advance to a feasibility study.

Development includes a significant cut back and driving a decline at Svartliden in Sweden, establishing an underground mine at Jokisivu and Kutema decline at the Kutema lodes at Orivesi in southern Finland.

Capital expenditure includes a water treatment plant at Svartliden to treat water from the tailings dam and purchasing new mining equipment for the Orivesi mine including a development drilling jumbo (delivered June 2011), shotcrete unit, long hole drilling rig and a remote controlled front end loader.

The June quarter results reflect treating ore from low grade stockpiles at Svartliden, remnant ore from pillars at Kutema and development ore from Jokisivu. This is a transitional period and should be placed in perspective with the Company's long term objectives.

HIGHLIGHTS:

• Gold production for the Dragon Mining Group of 9,273 ounces at an average cash cost of US$1,603 per ounce.
  
• At Svartliden, Sweden gold production of 5,143 ounces at an average cash cost of US$1,637 per ounce, which includes US$620/oz of waste mining costs associated with cutbacks to the open pit.
  
• At Vammala, Finland gold production of 4,130 ounces at an average cash cost of US$1,570 per ounce.
  
• Exploration at Kuusamo
   
  • Results from a Diamond core program designed to examine the strike and depth extensions of the known lodes in the southern portion of the Juomasuo gold deposit returned a series of very encouraging intercepts, including 13.65m @ 3.13 g/t gold, 9.95m @ 3.81 g/t gold, 3.55m @ 10.39 g/t gold, 7.30m @ 8.18 g/t gold and the exceptional 34.90m @ 9.30 g/t gold. The results confirm the continuity of the lodes at Juomasuo, whilst also highlighting the potential of the mineralised system below the existing resource base. Multi-element analysis has also returned a number of strong cobalt intercepts and elevated levels of Rare Earth Elements.
    
  • A Diamond drilling campaign targeting the strike and depth extensions of the known lodes in the northern portion of the Juomasuo deposit is ongoing. Preliminary results of 8.95m @ 11.42 g/t gold and 8.40m @ 10.06 g/t gold have been received from the top portion of KS/JS-128, the first of 11 holes completed in this program. Final analytical results for this hole and the other completed holes are pending.
    
  • Activites expanded with drilling commencing at the Hangaslampi deposit with the introduction of a third drill rig. Historically, a total of 105 holes were drilled into this deposit, returning a number of very encouraging intercepts, including 23.50m @ 13.25 g/t gold, 26.95m @ 5.78 g/t gold, 19.20m @ 7.00 g/t gold, 21.05m @ 13.70 g/t gold and 13.00m @ 20.41 g/t gold. The drilling of 11 holes of a 21 hole, 2,100 metre program at Hangaslampi, designed to test the strike and depth extensions of the identified lodes have been completed. Results are pending.
    
    
• As at 30 June 2011, Dragon Mining held $21.6m in cash, $3.7m in net gold concentrate receivables and bullion and $4.3m of cash deposits lodged with Swedish authorities as a rehabilitation bond.
  
• Dragon secured 100% ownership in the Svartliden Gold Mine from Pioneer Intertrade Company Limited for the total consideration of US$1,000,000 and 500,000 ordinary, fully paid Dragon shares.
  
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