Overview of our Main Operations

Nalunaq Gold Mine, South Greenland

Property Description and Location

Nalunaq Gold Mine was officially opened on August 25th 2004 after nearly 10 years of exploration and development. The opening of Nalunaq marked a milestone for Greenland, being its first gold mine and the first new mine to be developed in the country for over 30 years. The mine is a high-grade gold deposit which is located approximately 40 kilometers from Nanortalik in southern Greenland. Transportation to Nalunaq takes approximately forty minutes by helicopter from the international airport at Narsarsuaq.

The terrain is moderately alpine with mountain peaks reaching 1,200-1,600 m above sea level. Nalunaq Mountain, which hosts the gold deposit, is 1,340 m high and located in a wide glacial valley reaching into the Saqqa Fjord about 9 kilometres from the mine site. The deep, icefree fjords allow easy access for shipping and the overall climate is moderate allowing full operations around the year.

Ownership and Management

The Company acquired 50% interest in the Nalunaq project in 1998, and in June 2001 it gained operational control of Nalunaq by increasing its ownership to 82.5% in exchange for funding the continued development of the project and also providing project loan guarantees. Crew’s Joint-Venture partner, NunaMinerals A/S, converted its interest in Nalunaq into an interest of 17.5%.

In December 2002 the Joint Venture transferred the ownership of the Nalunaq assets to a Greenlandic limited liability company, Nalunaq Gold Mine A/S (“NGM”). NGM became the operator of the gold mine and the holder of the licenses from the Greenlandic and Danish authorities.

The Nalunaq Exploitation (Mining) License was granted by the Greenlandic and Danish Governments in 2003 for 30 years. The license covers an area of 16 km2 around the mine site, which was carved out from the original regional exploration license. After the formal approval of the license NGM was granted permits to conduct pre-mining development work, including construction of a permanent mine camp, improvements to the infrastructure and access roads and also the building of the ship loader facility and stockpile pad near the Fjord.

Geology

The Nalunaq deposit is a Proterozoic, shear-zone hosted gold mineralization. As a generic type, the Nalunaq deposit is a mesothermal vein-type gold mineralization, hosted in amphibolite-facies metavolcanic rocks. The high-grade gold mineralization is associated with sheeted quartz veins which are located in a large-scale shear structure that appears to be related to regional thrusting. However, possibly due to extensive post-mineralization deformations there is no simple relationship between the gold grade and amount of quartz at Nalunaq.

The most pronounced structure at Nalunaq is a narrow zone of ductile shearing surrounded with relatively brittle margins. The Main Vein itself is hosted in a 1-2 meter wide shear zone with a remarkably constant orientation. The regular sheet has an average strike of 45º-50º and an average dip of 36º SE, varying between 22º and 45º.

The presence of quartz in the shear zone is the single most important indicator of gold mineralization and appears principally as sheeted veins with stripes and bands of included calc-silicates. The quartz veins vary from 0.05 meters to 1.8 meters in width and often display pinch- and swell - structure with clear evidence of both compressive and dilational post-mineralization deformation. Systematic sampling of the underground exposures of the vein has shown that gold grade is subject to a pronounced nugget effect. Despite this variation a regular zonation in grade is clearly identifiable as a series of high-grade ore shoots or “bands” running approximately NW-SE throughout the mine area. The reason for this regularity is not clear. Observations suggest the highest-grade sections occur where the structure is hosted in medium-grained metadolerite sills or is located very near the metadolerite/metapillow basalt contact. Lower grade segments generally seem to be hosted in finer-grained metapillow basalt.

Resources

The exploration strategy for Nalunaq is two-fold. The first objective aims at replacing resources so that accessible reserves are maintained at a level of around 400,000 ounces. The second objective of ongoing exploration work is to increase the resource base to a point where the installation of an on-site processing plant could be economically feasible.

In 2004, three areas were targeted as areas of potential expansion. Each of these were identified as having the potential for expansion of resources to replace mined ore and additionally to support potential investment in a local processing plant.

Resources at Nalunaq cannot be defined by drilling alone. In the past drilling has often proven to be an unreliable indicator. Low-grade intercepts have been found in areas which subsequently proved to be high-grade; however high grade drill intercepts are usually a good sign of high-grade areas.

This irregularity is due to the uneven distribution of gold in the narrow vein, which makes systematic sampling of drift faces the only viable source for resource calculations.

Surface drilling is considered only the first stage of a resource development program at Nalunaq. Underground drifting is required for reserves to be classified as being proven or probable.

In calendar year 2005, an aggressive surface and underground drilling program was conducted with Nalunaq’s own drilling equipment. The underground drilling was performed with the Company’s Diamec-250 drill while the surface drilling was conducted with Boyles 17 & 25 drilling equipment. The exploration program for the South Block (valley sector) had a duration of approximately six months and was then moved to the Upper Block (mountain sector between 600-900 levels).

The exploration drilling in the South Block and the Upper Block of Nalunaq in 2005 was very successful as the overall resource base was increasing to 1.2 million ounces. The program provided results, which allowed an independent consultant, Snowden Mining Industry Consultants Inc (“Snowden”), to define an Inferred Resource of 2.1 million tonnes with a grade of 18 g/t (range: 16-21 g/t), using a conservative payability factor averaging 40% for the drill-indicated resources.

More than 6,000 m of systematic core drilling from 37 holes in the South Block was completed. The result of the drilling confirms a geologically continuous mineralized sheet in an area of nearly 400,000 m2. This sheet is a direct continuation of the known structure previously established by drifting. As expected, the narrow vein returns irregular assay results from the drill intercepts. The best results of 104 m-g/t Au gold and 36m-g/t Au are in line with results of previous drilling in the Target Block and confirm the presence of local high-grade mineralization (m-g/t is assay grade multiplied by sample width in meters, i.e. the grade over a nominal 1-meter width). These values may not be indicative of the contained grade, as the inherent strong, pronounced nugget effect means that sample repeatability and zone of influence are low. In the Upper Block, 8 holes totalling 572 m have demonstrated continuous mineralization over an area of about 255,000 m2.

Due to the nature of the high-grade, narrow-vein mineralization the new resources cannot be classified as proven and probable reserves before underground drifting into the structures has been completed.Management is convinced that the consistent drilling results are supportive of a significant mineralization and has adopted a conservative payability factor averaging 40% to adjust for the uncertainty. The results of the exploration programme can be summarized as follows:

The permitting process of a plant on site has commenced. The Company is evaluating how to optimize the resource exploitation until such time as a plant is commissioned.

1. The above table has been extracted from the Report entitled “Independent Review and Resource Estimate” dated August 5, 2005. The Report was prepared for the Company by the independent consulting group, Snowden Mining Industry Consultants Limited (“Snowden”). The resource estimate has been compiled in accordance with the Canadian National Instrument 43-101 and reported to the 2004 CIM Definition Standards (“Mineral Resources and Mineral Reserves”) by Snowden. Dr Simon C Dominy, the “Qualified Person” as defined by 43-101, has verified the estimate. Dr Dominy is a Principal Mining Geologist and has extensive experience of narrow-vein high nugget systems such as Nalunaq. A copy of the report can be obtained at www.sedar.com.
2. Payable tonnages have been rounded to the nearest 10,000 tonnes to reflect the uncertainty in the estimate. Tonnage has been estimated using a bulk density of 3.0 t/m3 and diluted to a “mineable” stope width of 1.4 m.
3. The global resource grade is reported at a zero cut-off grade, and has a best-estimate grade of 18 g/t Au within the range of 16-21 g/t Au. The best estimate grade of 18 g/t Au is based on extensive underground bulk sampling of the Target Block undertaken during 2000, with the grade range reflecting the likely grade variability inherent in such a coarse-gold system. Current production reconciles within this range.
4. Contained ounces are rounded to the nearest 1,000 ounces to reflect resource uncertainty.
5. The application of a best estimate for grade quoted within a grade range is an unusual practice within the mining industry. However, the precedent exists when quoting grades for high-nugget effect veins systems that carry high inherent grade variability.

Mining

Nalunaq has posed some considerable challenges due to its simple yet difficult geometry. The main parameters being the narrow vein width of 0.7 metres and the 40 degree dip which is just on the angle of repose of rock. The narrow width calls for a high degree of drilling and blasting accuracy to prevent dilution, and the dip both precludes efficient footwall layouts for mechanized mining and also requires some additional rock handling activities to ensure all the ore reports to the bottom of the stope for cleaning.

Following the extensive pre-productions studies two mechanised mining methods were implemented, longhole open stoping and Alimak raise mining. At an early stage in 2004 the Alimak raise test stopes were abandoned due to low productivity and unacceptable dilution. The amount of mine development was then increased to convert the entire mine to the longhole method. This development was further increased once it was established, after two winter seasons on site, that the use of outside infrastructure was not productive and the severe weather conditions resulted in unacceptable production losses.

The longhole method comprises drifting horizontally on strike at 10 metre vertical spacing resulting in a ore block of about 16 metres on dip. The ore drifts are either mined as a whole face or in two cuts separating the ore and the waste (resue). This block is then subdivided into 14 metre wide stopes between 1.5 metre stability pillars. Each block is opened with a short raise along one pillar and then blasted using long blast-holes drilled either from the top or the bottom, giving the method its name. Following stoping, the removal of the ore, the stope has to be cleaned of any residual fine ore, some of which is at a high grade.

To access the drifts, from which all operations are carried out, a ramp is necessary and other mine openings to transfer the ore and waste to lower levels for transport or to supply access for mine services such as ventilation, power and water.

A great deal of emphasis has been made during this year to first meet production targets and then to start optimising the method to reduce costs and increase productivity. To this end an exhaustive study based on the last two years experience is underway with Snowden and Australian Mining Consultants (“AMC”). A report and plan for the long-term development of the mine is expected by the end of this year. Part of this study will be the examination of the plans to implement a waste and ore washing and separation plant and the full treatment plant.

Design and Engineering plans for the above plants and for the application to the Greenland government for permitting have been prepared.

The mine at Nalunaq now encompasses most of the original Target Block and some 40,000 square metres of ore has been mined as stopes or resue ore drives. The extremely encouraging exploration results have resulted in new planning layouts for accessing the areas in the Upper and South Blocks and development has now started.

As part of the Resource Expansion Program, the Independent Consultants concluded that a significant amount of gold could remain in the stopes after mining. NGM has secured the equipment to facilitate the commencement of a sweeping and vamping programme. This will enable the extraction of the fine particles of ore and gold which have accumulated in the stopes and the drives.

Ore Shipping

During the last two years the program to treat ore in Spain at the El Valle plant of Rio Narcea Gold Mines Ltda (“RNGM”) has continued with independent analysis and verification of the campaigns of treatment.

The ore is trucked down to the stockpile area by 25 tonne trucks operated by a contractor to a 60, 000 tonne capacity ore stockpile at Nyhavn, the port facility established on the Saqqaa fjord 11km from the mine site.When there is sufficient ore a ship is requested from Fednav of Montreal. The 28,000 to 40,000 tonne capacity vessels load at about 250 tonnes per hour and then travel to Spain across the North Atlantic. The ore is unloaded in Aviles in Spain by the harbour authorities and contractors under RNGM’s contract and supervision, and then trucked 60 km to the El Valle plant site.

Gold Processing

Rio Narcea Gold Mines Ltd (“RNGM”) conducts regular batch processing of the Nalunaq ore at RNGM’s “El Valle” plant in northern Spain. The plant is a modern gold processing facility with a capacity of 2,000 tpd, suitable to process a batch of 30,000-40,000 tonnes NGM ore in around 20 days.

The processing is based on a conventional combination of fine grinding and removal of the gold using gravity separation, flotation and carbon-in-pulp (“CIP”) cyanidation methods. The ore is passed through a primary crusher then milled in a single stage semi-autogenoeus grinding “SAG”) mill and a recycling ball mill. The milling circuit has an integral multiple stage gravity circuit, comprising spirals, Knelson concentrators and shaking tables that remove the free gold. The discharge from the milling circuit passes through a flotation circuit, where small amounts of gold and most sulphides are recovered, to a cyanide leach circuit where the remaining gold is dissolved and recovered onto coarse activated carbon fragments. Gold is recovered from the gravity and flotation concentrates by intense cyanidation and electrowinning. The gold on the loaded carbon is eluted and electro-won. The electro-won gold is smelted into doré bars for sale to commercial refineries.

The Mine Village

The Nalunaq mining camp currently consist of 14 building units distributed in nine 10-person dormitory modules with larger units for the mine office, emergency facilities, drying rooms and showers, kitchen and cantina, storage rooms, a planning office and a recreational unit. The camp currently holds accommodation for about 100 people.

The camp layout creates the impression of a small village situated in the middle of the valley. The camp complex has its own borehole for potable water, a purification system and a biological wastewater treatment plant. Power is supplied from two 200 kVA generator units and telecommunication systems, provided by TeleGreenland, allows for individual room telephones and high-speed Internet connection.

The camp has an approved helistop facility and there are regular flights from Qaqortoq via Narsarsuaq with onwards connections to transatlantic flights. The construction of the mine village has left few marks of disturbance outside the camp area and the surroundings have remained largely untouched. Preparations to restore and re-vegetate temporarily affected areas are underway.

The Assay Laboratory

Nalunaq is equipped with a fully functional assay laboratory. It consists of a preparation lab, a wet chemistry lab and an assay section with computerized AAS instrumentation.

The preparation lab consists of a drying oven, a conventional jaw crusher and splitting tables. Milling is done in an LM5 or LM1 gyratory steel mill which enables grinding of up to 4 kg of crushed rock to 80% less than 75 microns (0.075mm) in a single batch. This provides an exceptional homogenisation of gold samples. The LM5 mill is considered the best for any gold sample preparation on the market today.

After milling, a 500 g fraction is transferred to a polyethylene container for leaching. This sample is substantially larger than conventional 50 g samples used for fire assay (FAA) and thus provides a much more reliable assay basis than FAA. NGM has conducted an extensive comparison of the recovery of the Leachwell method it applies with traditional FAA methods and found the results to be remarkably consistent.

In the wet chemistry section of the lab, samples are leached in a cyanide solution from which the dissolved gold is extracted and prepared for analysis. The final analysis of the gold content is then determined in an AAS-instrument and compared with assays of a known standard solution.

Every 10th sample is sent to an independent external assay lab and control assays are conducted using the FAA method with gravimetric or AAS finish, dependent on grade levels.

Environmental Work

Since its inception, NGM has been the subject of detailed environmental monitoring. Continuously operated weather stations have been established within the mine and the fjord areas and ongoing environmental monitoring programs are being maintained in the license area. Meteorological data from the mine village and the weather station in the fjord are downloaded regularly.

The monitoring programs also include water samples which are collected on a bi-weekly basis from various parts of the river and including the mine village sanitary installation as well as the mine water runoff. River flow monitoring is conducted with a pressure transducer which will enables continuous measurement of water flow.

Detailed environmental studies conducted before the start of mining operations have been summarized in the Environmental Impact Assessment study in which independent consultant Dr Geoff Ricks concludes that in the opinion of SRK (UK) Ltd. there would be no environmental issues which could negatively affect the viability of the project.