Nalunaq Gold Mine - Greenland

In the third quarter of 2008, the Corporation undertook a comprehensive review of the ore resources at Nalunaq as the ore strike lengths have not been meeting management’s expectations. As a result of the review and the economics of current mining, Crew decided to suspend mining operations at Nalunaq. Upon completion of the extraction of the currently developed ore body, Nalunaq will be placed on care and maintenance. It is anticipated that this will occur prior to December 31, 2008. The processing of the remaining ore will continue at the Nugget Pond facility in Newfoundland, Canada and upon completion of this processing the Nugget Pond facility may also be placed on care and maintenance unless profitable toll milling contracts are successfully concluded.

Property Description and Location

Nalunaq Gold Mine commenced commercial mining operations on July 1, 2004 and has been operating uninterrupted since then, producing approximately 58,700 oz gold in fiscal 2007. For the first three years of its operation the mine was 82.5% owned by the Corporation, with NunaMinerals A/S (Nuna) holding 17.5% equity. In November 2007 Crew concluded an agreement with Nuna to purchase its interest in Nalunaq Gold Mine.

The opening of Nalunaq was 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 located approximately 40 km NE of the town of Nanortalik in the southernmost tip of Greenland and is a Proterozoic narrow-vein, high-grade gold deposit. Transportation to Nalunaq takes approximately 40 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 is located in a wide glacial valley reaching into the Saqqa Fjord about 9 km from the mine site. Deep fjords allow access for shipping and the overall climate is moderate allowing full operations around the year.

In late 2006, Crew acquired Nugget Pond to process ore produced from Nalunaq. Refurbishment and recommissioning of the processing plant was completed in February 2007. The first gold was poured at Nugget Pond in March 2007. Ore has been shipped to South Brook, Newfoundland and trucked to Nugget Pond for processing from February 2007. Prior to that time, all mined ore from Nalunaq was shipped for processing to Rio Narcea’s El Valle plant in Spain.

Ownership and Management

The Corporation owns 100% of the Greenlandic limited liability company, Nalunaq Gold Mine A/S (NGM), which operates the mine and holds the mining license, granted by the Greenlandic and Danish Governments in 2003 for 30 years. The license covers an area of 16 km² around the mine site. In 2004, NGM received its final permits for the underground operation and commercial production started in July 2004.

Nalunaq has a staff of 25 people to manage the operation and operate the camp and harbour. Mining operations and maintenance is contracted to Procon Mining and Tunnelling Ltd. of Canada on a labour hire basis. Procon has between 40 and 50 people on site at any time. Mining equipment is owned by NGM and the Corporation. Locally owned contractors are engaged for surface ore haul, on-site construction work, catering and janitorial work. In total, over 35% of the employees are locally hired.

Geology

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 by relatively brittle margins. The Main Vein itself is hosted in a 1-2 m wide shear zone with a remarkably constant orientation. The regular sheet has an average strike of 45-50° and an average dip of 36º SE, varying between 22° and 55°.

The presence of quartz is the single-most important factor for the gold occurrence and is found as sheeted veins with stripes and bands of included calc-silicates. The quartz veins vary from 0.05 m to 1.8 m in width and often display pinch and swell structure with clear evidence of both compressive and dilatational post-mineralization deformation.

Systematic sampling of the underground exposures of the vein has shown that distribution of gold grade is erratic in nature, due to a pronounced nugget effect. Despite this variation, a regular zonation in grade can seemingly be identified in a series of high-grade segments running approximately northeast-southwest throughout the mine area. The reason for this regularity is not clear, but observations suggest that the highest-grade sections occur in or near the contact to medium-grained metadolerite sills. Lower-grade segments generally seem to be hosted in finer-grained metapillow basalt, which has suffered more intense shearing.

Resources and Reserves

The exploration strategy for Nalunaq aimed at continuously demonstrating more resources than are being mined out. In 2006, two areas were targeted as areas of potential expansion: one target area was immediately to the west and northwest of the current active mining area, while another target area was the up-dip extension of the mineralization in the Upper Block. Each of these was identified as having the potential for expansion of resources to replace ore that has been mined. Resources at Nalunaq cannot be defined by drilling alone.

In the past drilling has often proven to be an unreliable grade indicator. One 2006 drill-hole, which intersected the Main Vein only 27 m from the 2005 hole that had returned 3,777 g/t over 0.8 m returned a value of only 1.0 g/t over 0.5 m. The comparison of these two results underlines the difficulty in obtaining representative grade information from diamond drilling.

Due to the nature of the high grade, narrow vein mineralization, the new resources could not be classified as measured and indicated resources before underground drifting into the structures has been completed. The majority of Resources at NGM are classified as Inferred, due to the narrow vein, nuggety nature of the deposit, whereby drilling alone does not provide reliable grade estimation. Measured and Indicated Resources are only defined after underground drifting on structure and detailed sampling has been completed.

The previously reported resources and reserves for Nalunaq are no longer material to the Corporation’s operations given the decision to suspend operations and place the mine on care and maintenance.

Crew believes that the high operating costs of the operation and the requirement to spend further significant amounts on exploration to delineate the ore body justifies the decision to place the mine on care and maintenance.  While there remains a significant gold resource at Nalunaq, the current cost of mining, shipping and processing renders the mine uneconomic for the Company to pursue at this time. 

Mining

Nalunaq has posed considerable challenges due to the simple, yet difficult geometry of the Main vein. The main factors being a narrow vein width of 0.7 m and a 30-40 degree dip. 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 additional rock handling activities to ensure all the ore is successfully transferred to the bottom of the stope for mucking and cleaning.

The preferred mining method is 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 (resue). This block is then subdivided into 14 m 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 blastholes drilled either from the top or the bottom, giving the method its name. Following stoping and removal of the ore, the stope has to be cleaned of any residual fine ore, some of which is at high grade.

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

Nalunaq produced 16,110 ore tonnes during the quarter ended September 30, 2008 (quarter ended September 30, 2007 – 32,668 tonnes). Ore produced in the nine months to September 30, 2008 totalled 78,062 tonnes (nine months ended September 30, 2007 – 101,182 tonnes).  During the quarter ended September 30, 2008, stoping operations at the mine were suspended and stockpiled material was prepared for shipping to Nugget Pond. The strategy was to allow for the large stockpiles of previously mined material to be shipped and to reduce costs while exploration of the Mountain block was accelerated through concentrated development of the internal ramp access to the area. The Mountain block cannot be effectively drilled from the surface due to the terrain. The Mountain block incline was extended from the 680, 690, 700 and 720 levels. On each level ore strike drives were developed to the east and west to verify the exploration data. The overall results have been very discouraging and scheduled stope production was restarted in mid-September on the available ore blocks. The impact for the quarter was reduced mine production and lower total costs.

Ore Shipping

The Nalunaq operation has no processing facility on site. During the first years of operation, ore from Nalunaq was processed at the El Valle plant of Rio Narcea Gold Mines Ltd in Spain. The process was fully documented and an independent consultant was in attendance when the Nalunaq ore was treated.

In October 2006, the Corporation acquired the Nugget Pond processing plant in Newfoundland Canada from New Island. Following refurbishment of the plant, ore shipments to Nugget Pond commenced in February 2007. Nalunaq has entered into a milling agreement with Nugget Pond. The ore and resultant gold remains the property of Nalunaq until sold after final refining.

Environmental

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. A new weather station was established in the fjord in 2001 and ongoing environmental monitoring programs are being maintained within the license area.

The monitoring program includes a regime of water sample collection from the surrounding watershed and the operation’s discharge areas including the mine water. 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. The results of the monitoring are published annually by the Danish National Research Institute. Effects on the environment from the mining operation can be detected but all these remain well within permitted limits. NGM has a program of making continual operational improvements to reduce its environmental footprint.

Mining at Nalunaq has incurred no displacement of residents as the area is uninhabited. The Corporation’s main responsibility to the government of Greenland through its Bureau of Minerals and Petroleum is to comply with all environmental requirements, the main one being to return the environment to its original condition when mining terminates. The main benefit to Greenland of mining at Nalunaq is the income derived through the taxes that Crew Gold pays.