GEOLOGY

Mineral Deposits

The Borealis district contains multiple coalescing hydrothermal centers having alteration and mineralization characteristic of high-sulfidation systems. Gold deposits of the district typically have high-grade gold mineralization centrally located along steeply dipping structures and have lower-grade gold mineralization both surrounding the high-grade and commonly occurring in more permeable volcanic rocks in relatively flat-lying zones. The gold deposits with minor amounts of silver mineralization are hosted by Miocene andesitic flows, laharic breccias and volcaniclastic tuffs, which generally strike northeasterly and dip shallowly to the northwest. Pediment gravels cover the altered-mineralized volcanic rocks at lower elevations along the mountain front and there is potential for discovery of more blind deposits, similar to the Graben and the Freedom Flats deposits.

The surface "footprints'' of the high-grade pods found to date are rather small and can be easily missed with patterns of too widely spaced geophysical surveys and drill holes. Most of the drill holes on the property completed by prior operators, including the Graben deposit, are oriented vertically and therefore did not adequately sample the steep higher-grade zones. Drill-hole spacing and orientation have compounded the historical underestimation of grades within the district. In addition an indicated coarse gold component can best be captured with very careful sampling of drill cuttings and core and by collecting large samples.

Several drill holes to the north of Freedom Flats and west of Borealis encountered gold within the younger alluvium down drainage from known deposits. These holes trace a gold-bearing zone that, in plan, appears to outline a paleochannel of a stream or a gently sloping hillside that may have had its origin in the eroding Borealis deposit. The zone is at least 2,500 feet long, up to 500 feet wide, and several tens to 100 feet thick. At this point, it is unknown if this is a true placer deposit, an alluvial deposit of broken ore, or some combination of both. Additional drilling and beneficiation tests are needed to determine if an economic gold deposit exists in the alluvium.

Exploration

Since the late 1970s, considerable exploration has been completed at the Borealis Property, with the primary objective of finding near-surface deposits with oxide-type gold mineralization. Exploration work has consisted of field mapping, surface sampling, geochemical surveys, geophysical surveys and shallow exploration drilling. Only limited drilling and geological fieldwork have been completed in areas covered by pediment gravels, even though Freedom Flats and Graben were unknown blind deposits without surface expression when discovered beneath the younger pediment gravels.

Many geophysical surveys have been conducted by others in the Borealis district since 1978. In addition, regional magnetics, gravity maps, and other information are available through governmental sources. The most useful geophysical data from the exploration programs has been induced polarization (IP) (resistivity and chargeability) and aeromagnetics. A more detailed IP survey of the Central Borealis district was conducted in November and December 2005.

Areas with known occurrences of gold mineralization that has been defined by historical exploration drilling and has had historical mine production include: Borealis, East Ridge and Gold View, Northeast Ridge, Freedom Flats, Deep Ore Flats (also known as Polaris), Cerro Duro, and Jaimes Ridge. All of these deposits still have gold mineralization remaining in place, contiguous with the portions of each individual deposit that previously has been mined.

Discovery potential of the Borealis Property includes: 1) oxidized gold mineralization adjacent to existing pits, 2) gold associated with sulfide minerals below and adjacent to the existing pits, 3) possible higher-grade feeder zones below surface-mined ore, 4) new oxide gold deposits at shallow depth in the pediment within the large land position, and 5) deeper gold-bearing sulfide mineralization beneath the hypothesized oxide deposits and elsewhere on the Property. Both oxide- and sulfide-bearing gold deposits exhibit lithologic and structural controls for the locations and morphologies of the gold deposits.