Nalunaq Gold Mine – existing operation in southern Greenland

The grades achieved from Nalunaq for the 2006 fiscal year were consistently higher than those of the previous year. The average grade of gold shipped and processed for the 2006 fiscal year was 19.0 g/t compared to 15.9 g/t for the 2005 fiscal year – an improvement of 19.5%.

Nalunaq Gold Mine – Greenland’s first gold mine – was officially opened on August 25th 2004 after nearly ten years of exploration and development.

The Corporation has a 82.5% interest in and operational control of Nalunaq Gold Mine (NGM) and funds the continued development of the project. NunaMinerals A/S owns the remaining 17.5% of NGM shares.

NGM and the Corporation own the mining equipment, manage the operation, and operate the camp and harbour. Mining operations and maintenance are contracted out, as are surface ore haul, on-site construction work, catering and janitorial work. In total, over 35% of the employees are locally hired.

Location and geology
The mine is located approximately 40 kilometers from Nanortalik in southern Greenland. 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 nine kilometers from the mine site. The fjords are deep and usually ice free, allowing easy access for shipping, and the moderate overall climate allows full year-round operations.

The Nalunaq deposit is a high-grade, gold-only mineralization associated with quartz-veins in a major shear zone. As a generic type, the deposit is a mesothermal vein-type gold mineralization, hosted in Proterozoic amphibolite-facies metavolcanic rocks. Visible gold is found in 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 deformation, 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 m wide shear zone with a constant orientation. The regular sheet has an average strike of 45-50 degrees and an average dip of 36 degrees to the South East.

The presence of quartz in the shear zone is the single most important indicator of gold mineralization. The quartz veins vary from 0.05 m to 1.8 m in thickness and often display evidence of both compressive and dilational post-mineralization deformation.

Systematic sampling of the underground exposures of the vein has shown that the gold grade is subject to a pronounced nugget effect. Despite this variation, a regular zonation in grade is identifiable as a series of high-grade ore shoots or “bands” running approximately NW-SE throughout the mine area.

Overview of Operations

Nalunaq Gold Mine – existing operation in southern Greenland

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.

Resources and reserve development
The exploration strategy for Nalunaq aims at continuously demonstrating more resources than are being mined out so that measured and indicated resources can be maintained at a level of at least 400,000 ounces.

In 2006, two areas were targeted as areas of potential resource expansion. One target area was immediately to the west and northwest of the current active mining area – the Target Block. Another target area was the up-dip extension of the mineralization in the Upper Block. Each of these has been identified as having the potential to expand resources to replace ore mined.

Resources at Nalunaq cannot be defined by drilling alone. In the past drilling has often proven to be an unreliable grade indicator. Low-grade intercepts have frequently been found in areas that subsequently proved to be of higher grade; however, high-grade drill intercepts are usually a good sign of high-grade areas. This irregularity makes underground drifting the only viable source for resource calculations.

In calendar year 2005 an exploration program commenced in the third quarter. The resultant drilling in the South Block and the Upper Block of Nalunaq was positive and the program’s results allowed an independent consultant, Snowden Mining Industry Consultants Inc (“Snowden”), to define a total inferred resource of 2.1 million tonnes with an average grade of 18 g/t (using a conservative payability factor averaging 40% for the drill-indicated resources). This increased the overall inferred resource base to 1.2m ounces. The complete Snowden report can be found on the Company’s website at www.crewgold.com.

The exploration drilling confirmed 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 the typical nugget effect from the drill intercepts.

The summer 2006 diamond drill programme at Nalunaq was a continuation of the 2005 program. Of the 15 holes drilled in the 2006, the main vein structure was identified in 10. The highest intercept from the 2006 program was 174.9 g/t over 0.51 m within the main vein.

Based on the 2006 results, a re-interpretation of results suggests the main vein plane in the western part of the Upper Block is now consistent with the interpretation to the west in other parts of the mine. Consideration will be given for future exploration drilling at depth, but virtually all the possible drill platform locations on the mountain have now been utilized.

The high-grade, narrow-vein mineralization with a high nugget effect means the new resources cannot be classified as measured and indicated resources before underground drifting into the structures has been completed. Management believes that the consistent drilling results are supportive of a significant mineralization and has adopted a conservative payability factor of 40% to adjust for the ore bodies uncertainty.

Mining
Nalunaq has posed considerable challenges to mining, mainly as a result of the narrow vein width of 0.7 m to 1,8 m and the 30-40 degree dip. The narrow width calls for a high degree of drilling and blasting accuracy to prevent excessive dilution, and the dip both precludes efficient footwall layouts for mechanized mining and also requires additional rock handling activities to ensure all the ore is successfully transferred to the bottom of the stope for cleaning.

The preferred mining method utilizes longhole mining, which comprises drifting horizontally along strike at 11 m vertical spacing resulting in ore blocks of about 14-16 m length on dip. The ore drifts are either mined as a whole face or in two cuts separating the ore and the waste (residue). This block is then subdivided into 14m wide stopes between 1.5 m stability pillars (rib 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. Following stoping and removal of the ore, the stope has to be cleaned of any residual fine ore, to ensure maximum recovery of high grade material.

The opening of Nalunaq marked a milestone for Greenland, being the country’s first gold mine and the first new mine to be developed in the country for over 30 years.

The mine at Nalunaq now encompasses most of the original Target Block and some 40,000 m2 of ore has been mined as stopes or residue ore drives. An access ramp to the bottom of the Upper Block is expected to be completed before the end of calendar 2006 and will permit the development of the high grade ore known to outcrop above the 600 m elevation.

Nalunaq’s ongoing focus is to improve the grade delivered to the plant. During the 2006 fiscal year, the Corporation engaged Snowden to review the mining operations and identify areas where efficiencies could be improved. This mine optimization program is now being implemented. The first phase has focused on reducing mining dilution through improved blast design, geological control, and supervision and washing of stopes. The second phase has been to review the mining equipment to ensure a sustainable balance between mine development and stope production to increase production rates. Management anticipates further improvements to mining efficiencies and production rates in the second half of 2006 as new equipment is delivered to the site.

The grades achieved from Nalunaq for the 2006 fiscal year were consistently higher than those of the previous year. The average grade of gold shipped and processed for the 2006 fiscal year was 19.0 g/t compared to 15.9 g/t for the 2005 fiscal year – an improvement of 19.5%.

Management believes the implementation of the optimization programme has contributed to these improvements, but cautions that the grade variation observed between milling campaigns is also typical of the nature of the narrow-vein high-grade deposit being mined in Nalunaq.

Ore shipping
Nalunaq has no processing facilities on site. During the last two years, ore processing was carried out at the El Valle plant of Rio Narcea Gold Mines Ltd (RNGM) in Spain. This plant has a conventional circuit comprising grinding with gravity recovery of free gold, flotation recovery of fine gold with minor sulphides to a concentrate, and leach recovery of fine gold in a carbon-in-leach circuit. The process is fully documented and an independent consultant is in attendance when the Nalunaq ore is treated.

During the year, the Corporation was informed that the processing at Rio Narcea Gold Mines' El Valle process plant in Spain would terminate by the end of 2006. The Corporation is currently discussing a different arrangement at El Valle. Other alternatives for the long-term processing for NGM’s ore are also being examined, including the acquisition of a processing plant that will be owned and operated by the Corporation and be a better long-term processing solution.

Environmental issues
Since its inception, NGM has been the subject of detailed environmental monitoring. Baseline studies included sampling of water and plant materials and the installation of a weather station in the valley. Another sampling regime covers the biological population, including fish, in the stream extending from the mine area to the sea and in the fjord itself. Lichen samples are collected to monitor the effects of heavy metals in dust dispersion.

Although effects on the environment from the mining operation can be detected, all these remain well within permitted limits. NGM has a program of continual operational improvements to reduce its environmental footprint.