Maco Gold Mine - Philipines

The Company’s principal gold asset in the Philippines is the Maco Gold Mine in south-eastern Mindanao Island, which originally ceased production in March 2000. The Maco Gold Mine was previously referred to as the Masara Gold Mine by the Company, however the Company determined this past year that it was more appropriate to rename the project to recognize the entire municipality where the mining occurs rather than one particular village near the mine.

The Company acquired its interest in Maco through its acquisition, with its associated Philippine partner, of approximately 72.9% of Apex Mining Company Limited (“Apex”), which operates Maco.

Apex is listed on the Philippine Stock Exchange. Maco is a gold, silver and copper mineral property located in the Maco municipality of the Compostela Valley Province in Eastern Mindanao, Philippines. Workings on the site date from before the Second World War. Apex followed several other operators on the site and, following extensive working in the 1980s and 1990s, maintained limited operations till 2000, when it ceased regular production, and leased out various parts of its property to sub-contractors in exchange for royalty and rental payments. These contractors operated on a small-scale basis on different parts of the property.

The Company inherited a processing plant with its acquisition of Maco and set about its refurbishment. This process has been completed and the plant was commissioned in Q1, 2007. This pilot plant processes the development ore that would otherwise need to be stockpiled and has continued to operate on this ore in 2008. With an improvement in pumping capacity the plant will be able to sustain a crushing and milling rate of up to 700 tpd.;

The pilot plant allows the batch treatment of ore with variable grade and variable concentrations of base metals and has identified the appropriate treatment route. At the same time in the initial aim of reducing reagent consumption, off-site testing has established a very promising future for installing flotation up front to reduce overall reagent cost, increase gold recovery and produce saleable copper and zinc concentrates.

A higher capacity tailings management facility at Maco has been constructed with no disruption to operations. The timely completion of this facility will allow for sustainable production. The design is such that subsequent upgrades can be done in-house using mine waste and low permeability material from on site.

In 2007, an expanded exploration license was granted, including an additional area containing potential copper porphyry. New exploration has focused on providing infill drilling to better define the known and most accessible resources with a lesser emphasis on drilling for extensions. The extension and interpretation of the orebodies has been mainly through surface mapping and review of historical data.

The Company has, for some time, been evaluating the copper-gold porphyry potential of the Maco property. The Company has now commenced discussions with a limited number of major international mining companies relating to exploration and possible development of the copper-gold porphyry resources that exist on the concession.

Ore mined in the quarter ended September 30, 2008 was 39,260 tonnes at an average grade of 4.8 g/t (quarter ended September 30, 2007 – 23,367 tonnes at 3.5 g/t). Ore mined in the nine months to September 30, 2008 was 116,731 tonnes at an average grade of 5.0 g/t (nine months ended September 30, 2007 – 54,947 tonnes at an average grade of 4.1 g/t). During the current quarter, the plant processed 38,980 tonnes at 4.6 g/t (quarter ended September 30, 2007 – 24,774 tonnes at 3.3 g/t). Total ore processed in the nine months to September 30, 2008 was 123,744 tonnes at an average grade of 4.4 g/t (nine months ended September 30, 2007 – 58,064 tonnes at an average grade of 3.4 g/t).

Gold produced in the quarter was 5,053 oz (quarter ended September 30, 2007 – 2,136 oz) and for the nine months to September was 15,264 oz (nine months to September 30, 2007 – 5,356 oz). Gold poured and sold in the quarter ended September 30, 2008 was 5,013 oz and 4,080 oz respectively (quarter ended September 30, 2007 – gold produced of 2,095 oz and gold sold of 2,321 oz). Year-to-date total gold poured and sold were 15,051 oz and 13,351 oz respectively (nine months ended September 30, 2007 – gold poured of 5,271 oz and gold sold of 4,959 oz).

Geology

The Maco property lies west within the vicinity of the Philippine Fault System, a major tectonic lineament that has been active from the Miocene to recent times. The fault system and its many splays can be traced passing from south-southeast to north-northwest across the Philippine archipelago through an island arc assemblage of Cretaceous to Pliocene pelagic sediments, volcanic and volcaniclastic rocks, and hypabyssal intrusives. Numerous porphyry-copper-gold deposits and epithermal gold vein systems are spatially aligned with the Philippine Fault System throughout most of the archipelago.

A simplified stratigraphy of the Maco property area consists of a Cretaceous to Lower Miocene sequence of pelagic sediments and volcanic and volcaniclastic rocks intruded by Middle Miocene dioritic and quartz-dioritic plutonic rocks, Upper Miocene to Lower Pliocene dioritic and andesitic plugs and dykes. A number of porphyry-copper systems containing significant amounts of co-products gold are found around the Maco property peripheral to the epithermal gold deposits. Pliocene to Pleistocene andesitic to dacitic flows, flow domes, plugs and pyroclastic rocks appear to be associated with the most intense period of gold, silver and related base metal mineralization.

The porphyry-copper-gold in quartz-sulphide stockwork-style mineralization is associated with the Middle Miocene dioritic intrusions located in the western part of the Maco property. That they pre-date the epithermal gold-silver veins is shown by examples of gold-silver veins that have cut and hydrothermally altered the porphyry-type mineralization. The mineralized veins are NW-SE to WNW-ESE striking, moderately to steeply dipping and have been structurally interpreted as tension gashes developed in a left-lateral shear stress field associated with the Philippine Fault System.

The central vein system at Maco comprises the following sub-systems: 1) Masara (Masara-Lumanggang-Hitch-Manganese Jessie-Sandy veins); 2) Masarita (Masarita-Wagas-Don Calixto; 3) Don Alberto; 4) Don Fernando (Don Fernando- Don Mario- Don Joaquin-Maria Inez; and 5) St Francis (St Francis-St George-St Vincent-St Rafael). These vein deposits have been empirically classified into either ‘clean ore’ or ‘complex ore’. Clean ore is characterised by low sulphide content and occurs in generally clean-walled tensional structures. Clean ore is characteristic of the veins Don Fernando, Don Joaquin, Don Mario, St. Vincent, Don Calixto and St. Benedict. Complex ore, on the other hand, has higher sulphide content and often occurs in wider and deeper shear structures. Complex ore characterises the veins along the main Masara trend and include Maria Inez, Sandy, Masara, Bonanza, Manganese and St. Francis veins. Pyrite, chalcopyrite, sphalerite and galena are the predominant sulphide minerals and the mineralization is often associated with appreciable amounts of manganese both occurring as oxide and carbonate-facies.

All the gold vein systems, including copper porphyry systems, are currently being re-evaluated in preparation for diamond drilling. This re-evaluation will provide an updated geological model to guide the definitive plan for drilling for 2009.

Resources and Mine Development

On 25 June 2007, the second Mineral Production Sharing Agreement (MPSA) covering 1558.5 hectares was awarded to Apex. This completes the re-licensing of the Apex historic claims. The new license covers the west side of the property in which there are several known porphyry deposits and the extensions of the known vein systems.

Based on diamond drilling and underground development, the indicated resource for Maco, as at February 28, 2007, increased by 15% to 0.304 million ounces (1.46 million tonnes @ 6.5 g/t Au) compared with 0.263 million ounces (1.26 million tonnes @ 6.5 g/t Au) reported previously in August 2006. Inferred resources have increased by over 60% to 1.847 million ounces (9.60 million tonnes @ 6.0 g/t Au) compared with 1.145 million ounces (5.74 million tonnes @ 6.3 g/t Au) in previous estimates.

Inferred Resources

Quality Assurance and Control, Qualified Person and Notes to resource and reserve estimates

Mining

The mining methodology of the vertical vein systems chosen for the redevelopment of the property is sub level open stoping, with mechanized and non-mechanized stoping. Such mining requires substantial underground development, both infrastructural and the vein sub levels. The upper levels of the mine left by historical mining between the surface and 200 m below are largely inaccessible and mined out. It appears that there are resources that may occur immediately below the historic workings and a further down dip that can be accessed. The sub level system provides for vein drive at 15 m vertical intervals with major footwall drives and haulages at 60 m vertical intervals. Ramp systems to access the horizontal drives will be provided approximately every 500 m along the strike of the vein systems.

Stoping commenced early in 2007. Additional mining areas are also being developed which will allow for flexibility and possible changes in production due to exploration and sampling results. The production ramp up, however, will be dependent on a number of factors most notably the availability of mining equipment, the rate of underground development and the granting of necessary operational permits.

In Q3 2008 stoping commenced as planned on the sill level 530 on the western extremity of the Bonanza main vein. Production from the five trial slopes meant that Maco was able to sustain a higher grade of ore delivery to the plant.

Processing

The pilot plant allows the batch treatment of ore with variable grade and variable concentrations of base metals and has identified the appropriate treatment route. At the same time in the initial aim of reducing reagent consumption, off-site testing has established a very promising future for installing flotation up front to reduce overall reagent cost, increase gold recovery and produce saleable copper and zinc concentrates.

Experience during processing in 2007 and more recently in early 2008 confirmed that the 500 t/d plant would be capable of processing up to 700 t/d with good recoveries. The upgrading of certain pumps and lines has been achieved and 700 t/d is now being achieved on a consistent basis.

During the last quarter of 2007, the design of the new tailings management facility was completed and work commenced. The first phase of construction will provide tailings capacity into 2009 as the tailings underground backfill is installed. The use of the tailings as backfill means that the current site can provide capacity for several years’ production.