GEOLOGICAL REPORT OF THE MULUNCAY DEPOSIT
OF THE
PORTOVELO-ZARUMA-AYAPAMBA AREA

EL ORO PROVINCE, ECUADOR

Prepared For Ecuadorgoldcorp S.A

AUTHOR: WIMER CASTRO

FEBRUARY, 2008

 
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TABLE OF CONTENTS

INTRODUCTION
1
 
 
HISTORY
1
   
DESCRIPTION AND LOCATION
4
   
ACCESABILITY, CLIMATE, VEGETATION AND LOCAL FACILITIES
4
   
LOCAL AND REGIONAL GEOLOGICAL SETTING
6
   
DEPOSIT TYPES
7
   
LOCAL AND REGIONAL MINERALIZATION
8
   
EXPLORATION
10
   
DDH DRILLING
12
   
SAMPLING METHOD
12
   
SAMPLE PREPARATION FOR TESTING
12
   
ADJACENT CONCESSIONS
12
   
EXPLORATION POTENTIAL
13
   
CONCLUSIONS AND RECOMENDATIONS
13

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SUMMARY

This assessment report has been prepared by Wilmer Castro who has researched the
mining, treatment, economic analysis and further development potential of the
property. The Muluncay District comprises a total area of 343 hectares in a
readily assessable region of southern Ecuador. The gold mineralization found in
the district is associated with an extensive high grade gold and silver
epithermal vein system. This Preliminary Assessment Report was prepared by the
author at the request of Ecuador gold Corp. S A. and is based on:

• a site visit in January 2008;

• interviews with Company management and other consultants engaged to assist

I have visited the Muluncay District numerous times and am very familiar with
the area and it’s potential.

The writer has been requested by the Management of Ecuadogold to summarize the
geology and mineral potential of the Muluncay Project within the prospective
gold and silver-bearing vein systems in the Occidental Andean Cordillera
primarily the Gen and Cristina veins.

HISTORY

The hills of Zaruma and Portovelo have been mined for gold and silver for
centuries. The Incas were already extracting gold and silver in the area with
hydraulic mining of the oxidized parts of veins when Mercadillo, one of
Pizzarro´s force, followed the Rio Amarillo River upstream and encountered the
Inca mine and founded the town of Zaruma in 1549 (Billingsley, 1926).
Exploitation of the Zaruma and Portovelo districts continued during the time of
Spanish colonization until 1870 when an Ecuadorian-Chilean company was
established.

 
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In 1880, Grant Zaruma Company, from England, bought controlling shares of a
newly formed Ecuadorian-Chilean mining company. Operational rights were
immediately endorsed to Southern American Development Company (SADCO), an
American company, who operated the mine from 1897 to 1950 by gaining control of
the district’s main gold deposits in 1897. Exploration programs of SADCO
commenced in 1896 and brought the mine into production at 108t/day in 1905. The
mine was subsequently deepened to 13 level located at an elevation of 270m above
sea level, 800m below the uppermost workings (PRODEMINCA, 2000 in Spencer, R.M.
et al., 2002). In the 53years that followed, SADCO recovered some 3.5 million
ounces of gold and 12 million ounces of silver from 7.6 million tones of ore at
a cut-off grade of 14.4 g/t Au and 48.9 g/t Ag (Van Thournout et al., 1996).
 
After the lower levels of the Portovelo mine were flooded in 1944 and facing
increasing costs, taxes and a complicated political situation, SADCO finally
withdrew from the country in 1950 and the Ecuadorian government took over the
mine. A state-owned company, CIMA, took over the mining operations in the area
until 1980 and it is estimated to have produced a further 375,000 oz of gold by
1965. In 1984, thousands of poverty-stricken miners invaded the old SADCO pits
and small-scale and artisan mining has been going on in the area ever since. An
additional 35,000 to 50,000 oz of gold has been produced each year since then by
informal miners, small-scale operating mining societies and principally from the
family-owned BIRA. In the 1990´s statistical information, mining from the Zaruma
and Portovelo areas totaled 3 million tons.
 
In the mid-1990s several overseas companies attempted to consolidate the area
and carried out systematic exploration programs.

 
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Current exploration by ECUADORGOLDCORP SA involved site visits and samples of
vein material were taken from the Gen and Cristina veins. Gold values from
several samples taken range up to 10.40 g/T. Other samples taken in other
workings show values of up to 58.6 g/T gold, up to 209 g/T silver, up to 4.86%
copper and up to 16.85% zinc. Data provided by the company notes that there are
eight (8) mines on the concession. The two main producing mines, Nueva Esperanza
and Aguacate (in a production stage) contain the three main major veins
Cristina, Gen, and a third vein (name unknown to the author). In these two mines
development work was seen to be carried out. This work includes advancing an
additional 50 m beyond the actively mined veins to a fourth mineralized vein.
The two tunnels are being advanced along this new vein to prepare it for
exploitation. The tunnels are being reconditioned to allow a more efficient
mining equipment transportation, in order to extract ore material with 10
two-tonne ore cars (20 tons) per trip from underground to the ore stockpile or
primary crusher. The processing plant is currently operating and it contains the
primary crusher, secondary crusher, a series of Chilean grinding mills and a
series of Denver floatation cells to concentrate sulphide mineralization to
capture both mineral ore and any gold-silver associated with those sulphides.
There is a 125 hectare property less than one kilometer from the current
processing plant. It is being considered to increase the capacity of the
processing plant in such property. Company engineering and geological staff of
ECUADORGOLDCORP S.A. are planning the additional six additional mines on the
concession be brought to the production level of the two currently operating
mines.

SADCO operated mines in the Zaruma-Portovelo-Ayapamba district for 46 years.
During this time approximately 3.6 million ounces of gold and 12 million ounces
of silver were produced. Production rates at the Grand Mine, the major producer
in the district, are estimated up to a maximum of 200,000 tonnes per year, and
gold grades were approximately 20-30 g/T. Significant quantities of silver, lead
and zinc were also produced. The old SADCO operations, scattered throughout the
district, generally (with the exception of the Grand Mine) only extended to a
depth of approximately 200m below surface. The Grand Mine contains a
gold-mineralized zone which extended to a depth of at least 660 m below surface.
It was collared at an elevation 700 m below mine workings in the Muluncay
concession area. This indicates that there is significant additional potential
at depth of up to 1500 m within the Muluncay concession. A preliminary estimate
of the resource is made by the author on the Muluncay Concession, from the two
currently active veins (Gen and Cristina) with an estimated strike length of 1
km (the N-S length of the concession), an average width of 1.0 m and an average
depth of 1000 m. Using a grade of 6 g/T as the average grade, this would produce
an estimated tonnage of 400,000 T for each vein. There are presently 4 known
veins, which would give a total current resource of 1,600,000 T, for a total of
9,600,000 g (300,000 oz) gold. Additional veins will be found during ongoing
development and exploration. The tonnage estimate will very likely increase
significantly. Secondary veins, stringers, breccia and disseminated
mineralization in the wall rocks have never been exploited, or even properly
assessed. It is the author’s opinion that with the improved, more economic
mining and milling methods this resource can be taken advantage of, so that it
is probable that this resource can be increase to greater than 2.0 million tons
which would produce 9,600,000 g (375,000 oz) Au. However, this is a relatively
low grade estimate when one considers that the cut-off grade for the SADCO
operations was 14.6 g/ton. Using that value as an average grade 2.0 million tons
of ore would produce 29,200,000 grams (912,500 oz) of gold. No estimate of the
value derived from silver or sulphide concentrate has been made, but it would
add a significant amount to the value of this resource. The history of the
Zaruma mining operations indicates that there is a significant opportunity to
apply modern mining methods to a major resource which has had only limited
exploitation in the past.

 
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DESCRIPTION AND LOCATION

Ecuadorgold is doing some development works at Muluncay concession, which is
located in the Portovelo-Zaruma mining area, situated in the cantons of Ayapamba
and Paccha, Province of El Oro of southern Ecuador and covers an area of 374
mining hectares at Latitude 03º 36’ 30” South and Longitude 79º40’ West. The
following co-ordinates are based on a metric UTM grid system referenced to
PSAD-56 datum and geographic zone 17.

Table 1 – Muluncay Boundary Coordinates

Easting - m
 
Northing - m
 
652000
    9599400  
653100
    9599400  
653100
    9596800  
651600
    9596800  
651600
    9599000  
652000
    9599000  
652000
    9599400  

The project is situated about 175 kilometres southeast and 60 kilometres east of
the major Pacific port cities of Guayaquil and Machala, and lies on the
cordillera occidental of the Andes, which runs the length of the west coast of
North and South America.

ACCESSIBILITY, CLIMATE, PHYSIOGRAPHY,

LOCAL RESOURCES AND INFRASTRUCTURE

Access to the district from the coast is by a paved 2-lane road in good
condition. It is approximately a 2 hour drive from the coastal city of Machala
to the town of Portovelo, at the confluence of the Rio Amarillo and Rio Calera.
From within the district access to most of the properties, including the
Muluncay concession, is by secondary 1- to 2-lane paved roads which often
continue to specific sites by tertiary single lane gravel roads, usually in
conditions for 4 wheel drive vehicles. Access to these sites from Portovelo
takes approximately 30 minutes.

 
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The climate is subtropical and humid with temperatures ranging from 18º to 30º
C. Yearly rainfall averages 1,341 mm, with heaviest rainfalls occurring in the
months from January to June. Within the district, topography is moderately steep
with elevations ranging from the 950 to 1650 m above sea level (ASL). The
Portovelo-Zaruma-Ayapamba district is traditionally an underground mining camp.
Those areas are not disturbed by mining activity used for farmlands and
livestock raising. Any early stages of surface exploration work such as sampling
and possible DDH drilling carried out by ECUADORGOLDCORP SA will involve minimal
disruption to current surface activities of the communities.

Plate 1 – Typical Topography and Vegetation, area of Muluncay Concession

[ex10-4pg7.jpg]

 
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The population within the project area is approximately 50,000. Zaruma, has a
population of 29,000, and Portovelo, with a population of 14,000 make up the
majority, but there are numerous small villages of a few hundred people each
(e.g. Ayapamba, Muluncay). The population has extensive experience in the
recognition and mining of vein high-grade gold deposits, making them a valuable
asset for future exploration, development and production throughout the entire
region. Hotels, communication resources, public security and government
institution representatives are pleased. In Pinãs, approximately 20 km distance
to the west there are high-tension power lines providing electricity and are
connected to both Zaruma and Portovelo. Cell phone use in this area allows
communication with major centres in the country. The Rio Amarillo and Rio Calera
rivers are able to supply adequate water for large scale mining operations
throughout the year.

GEOLOGICAL SETTING

Regional

Regional geology of the southern part of Ecuador consists of basement rocks of
the Triassic age Tahuin Series. These include San Roque Formation medium- to
high-grade gneisses, schists and amphibolites overlain by a thick sequence of
Capiro Formation low-grade mica schists, phyllites and quartzites, with a minor
component of interfingering volcanic rocks.

This metamorphic basement is unconformably overlain by a thick sequence of Lower
Cretaceous age Celica Formation massive, homogeneous volcanic lavas and tuffs.
These are of andesite composition and are intercalated with minor sedimentary
layers. The Celica Formation is intruded by small plutons of diorite to
granodiorite composition, also Lower Cretaceous in age. This entire mass has
been interpreted as a continental volcanic arc. All of these units are capped
unconformably by Tertiary (Oligocene age) Saraguro Formation felsic volcanic
lavas and pyroclastics, by later Miocene age Chinchillo Formation (currently
referenced as Pisayambo Formation) rhyolite flows and pyroclastic.

 
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There are two major regional faults. These are the Pinãs Fault and the Puente
Busa –Palestina Fault. These faults have produced three tectonic blocks which
have exposed bedrock to different depths. Between these two faults exposure
consists of Celica Formation mafic to intermediate volcanics. Within the Celica
Formation (Figure 4) is a thick series of andesitic lavas termed the Portovelo
Series which occurs along a central N-S trending axis. These lavas act as host
rocks to most of the vein systems in the Portovelo-Zaruma-Ayapamba region.
Recent mapping has shown that the Celica Formation is unconformably overlain by
two hydrothermally altered volcanic series, and is crosscut by a subvolcanic
feeder systems. These volcanics are composed of intermediate pyroclastics and
breccias, crosscut by younger small rhyolite stocks, dykes and sills. These
rhyolitic rocks are concentrated along two NW trends in the central mountain
ranges (Zaruma-Urco and Santa Barbara) and are due to resistant weathering
caused by regional silicification. Most of the district vein-cavity fillings,
including base and precious metals mineralization, are closely associated with
this volcanic activity.

 
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[ex10-4pg10.jpg]

 
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Significant structures in the district (Figure 5) include NW, NE and N-S
trending high- and low-angle faults and circular structures. The N-S trending
veins, dipping generally 70º to 90º NE, are the dominant though not the only
structures for hosting gold, silver, lead, zinc and copper mineralization in the
district. They are bound to the SW by the NW-trending Pinas Fault. The Puente
Busa –Palestina Fault lies directly NE of the centre of the district and does
not interfere with the continuity of faults, veins or mineralization beyond it
to the NE.

 
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[ex10-4pg12.jpg]

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Concentric district-size zones of propylitic, argillic, silicic and sericitic
alteration cover the region and represent the collapse of a Miocene age volcano
and the formation of a caldera. Supergene enrichment of gold mineralization is
recognized in certain areas by the presence of strong patches of argillic
alteration. Silicification represents the core of this alteration “aureole”.
Silicification formed in two stages. One type, associated with most of the
gold-silver-base metals mineralization, is related to the Portovelo-Zaruma axis.
The second type is found in the Santa Barbara Mountain and is associated with
rhyolite dykes and plugs, and with intense argillic alteration. A third type of
silicification is found as wallrock alteration haloes of
quartz-chlorite-sericite-adularia-calcite-(pyrite).

Concession

Bedrock underlying the Muluncay concession consists of Lower Cretaceous age
Celica Formation massive volcanic lavas of andesitic composition. To the
author’s knowledge no detailed mapping has been carried out on these host rocks.
Within these host rocks are a series of sub-parallel structures. These local
area structures encompass those veins found within the Muluncay concession, such
as Gen and Cristina. This system of veins is the northern continuation of the
large system of veins (e.g. Abundancia, Portovelo) which have been so vigorously
mined in the Zaruma-Portovelo area for the last 400 years.

DEPOSIT TYPES

Gold mineralization within the district is considered to be a low- to
intermediate sulphidation stage epithermal (Hedenquist, 2000) to upper
mesothermal gold-silver-lead-zinc-copper system. Typically this type of
mineralizing system includes pyrite-pyrrhotite-arsenopyrite and high-Fe
sphalerite. Gangue minerals vary from vein through stockwork to disseminated
forms. Gold is typically associated with quartz-adularia ± calcite ± sericite.
This contrasts with high-sulphidation types which typically contain
gold-pyrite-enargite-luzonite-covellite hosted by a leached residual core, with
quartz-alunite, kaolin, pyrophyllite or diaspore. A subset of the
low-sulphidation stage assemblage contains
pyrite-tetrahedrite/tennantite-chalcopyrite and low-Fe sphalerite. This subset
is also silver and base metal rich compared to low-sulphidation end members.
Base metals within the Muluncay veins, as well as within much of the district
mineralization may be an indicator for this intermediate assemblage. It could
also indicate (especially the presence of significant galena –(lead) that the
system has reached upper mesothermal depths.

 
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MINERALIZATION
Regional

The gold bearing north-south trending sub-parallel systems of quartz veins
occurring within the Portovelo-Zaruma district are found exclusively within the
Cretaceous altered andesitic rocks (Portovelo Series).

Spatially the mineralization is arranged in three zones. In Zone 1 pyritization
with little gold is seen in stockwork, shattering and brecciation around the
Santa Barbara and Zaruma Mountains. Zone 2 contains gold-bearing quartz and
quartz-adularia veins with abundant sulphides and is found in the
Portovelo-Zaruma axis and NE of the Santa Barbara Mountains. A large aureole of
gold-bearing quartz-calcite and quartz-chlorite, with abundant sulphosalts and
minor sulphides, representing Zone 3, surrounds the core of sulphide
mineralization. Muluncay lies within the NNW continuation of the Zone 2 type of
mineralization. Based on the presence of adularia-sericite, the vein textures,
the abundance of sulphides and calcite, the mineralization is considered to be
part of an adularia-sericite low- to intermediate sulphidation epithermal gold
system.

The quartz veins are predominately fault and fracture filling structures
exhibiting pinch and swell, branching, composite banding, braided and loop
features.

 
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[ex10-4pg15.jpg]

 
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Regionally these mineralized veins extend horizontally for at least 15 km (the
Portovelo-Zaruma-Ayapamba region), and have probable depths of at 1500 m (from
local height of land to known depth of the Casa Negra Concession SADCO Grand
Mine). Past-producing veins in the district range from 60 cm to 8 m, with an
average width of 1.3 m. “Stringers” and narrow veins, as well as silicified
wallrock, are virtually untested for their gold potential. As is typical in a
standard epithermal gold system, there are some zones of “bonanza-type”
high-grade gold mineralization (locally termed “clavos”) in the 30 to 200
g/tonne range. Clavos of this grade were reported by the owner on the Muluncay
concession on one of the major veins (Cristina or Gen).

Most of the known gold is free-milling. Other mineralization includes silver (as
electrum, sulphosalts and with galena) and copper-lead-zinc sulphides
(chalcopyrite-galena-sphalerite).

The dominant north-south strike of the gold bearing quartz veins shows local
variations in the proximity of cross faults. To the south of Rio Amarillo, the
veins swing in a south-east direction, sub-parallel to the Pinas-Portovelo
fault.

Three main types of gold bearing veins are present in the district. These are:
1) Quartz veins with disseminated pyrite, minor chlorite as streaks, bands and
patches, and 2) Quartz veins with abundant pyrite and subordinate chalcopyrite,
galena and sphalerite occurring as bands, patches and coarse disseminations, and
3) Carbonate veins with coarse calcite and calcite-quartz gangue occasionally
with coarse galena, sphalerite and chlorite beside ubiquitous pyrite. Visible
gold is not a common occurrence within the Portovelo-Zaruma-Ayapamba district.
As a general rule, gold occurs as fine particles, often less than 100 mesh in
size. According to microscopic studies carried out in the past, gold locally
replaces sphalerite. Locally gold mineralization is present in the wall rock
following north-east trending faults and fractures.

Post mineralization faulting along north-west striking cross faults has locally
caused displacements of up to 40 metres in several gold bearing structures.
Local detailed mapping and drilling is required to trace the continuity of this
mineralization.

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Concession

The two best-known and most continuously worked veins within the southern side
of the Muluncay concession include Gen and Cristina. Other veins exist parallel
to these two main structures but are not presently developed. Both the major and
secondary veins are being mined on the north half of the concession but they
have not been traced the entire length of the concession. The mineralization in
the concession area ranges from a gold:silver ratio of 1:10 near surface to 1:15
at depth. Veins range up to 1500 m in strike length, and mines in the immediate
area range from 1650 m ASL to 950 m ASL, giving a known depth of mineralization
of at least 700 m. Vein widths range from 0.40 m to 1.40 m and are steeply
dipping (70° to 90°) to the NE.

Typical Mine-Mill Complex, Muluncay Concession

FOTO 1: MOLINO TRAPICHE CHILENO

[ex10-4pg17.jpg]

 
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FOTO 2. MOLINO DE BOLAS

[ex10-4pg18a.jpg]

FOTO 3: PLANTA DE CIANURACION

[ex10-4pg18b.jpg]

 
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The Gen and Cristina veins consist of milky quartz, being hard but brittle, and
contain chalcopyrite (copper), sphalerite (zinc) and galena (lead) sulphide
minerals. This mineralization is similar to that found in the Portovelo-Zaruma
area mines, where it is quite common. The principal mineral accompanying the
gold is pyrite (FeS2), but other minerals include safflorite (CoAs2), proustite
(Ag3AsS3), tetrahedrite (Cu3SbS3-4), freibergite ((CuAg2ZnFe)3Sb2S6) and minor
Au-Pb telluride minerals. These are indicative of a low-temperature near-surface
environment.
 
EXPLORATION
 
Historical
 
Systematic exploration activity closely related to mining advance was carried
out by SADCO from 1897 to 1950. However, only limited information is available
from that period. Detailed underground maps and 103,657 assay result records
have been recovered from local miners and from local archives by TVX Gold Corp.
and IAMGOLD. Much of the SADCO data can be acquired from certain parties in
Machala.

Modern exploration activity within the Zaruma – Portovelo Mining District begun
in 1995 when a one-year property area consolidation and district-scale
exploration was made by TVX Gold Corporation, a Canadian-based company. During
this period, over 40 km of underground workings were surveyed and mapped on a
1:500 scale. Total amount of underground samples collected by TVX is estimated
to be over 4,000. IAMGOLD reported 733 samples although many of these were from
older maps and reports. Following TVX´s withdrawal from Ecuador in 1998, all
information was acquired by IAMGOLD who continued exploration. This work
including surface trenching, surface and underground sampling, surveying and
diamond drilling and geological modelling. IAMGOLD databases contained the
following:

680 surface rocks channel and chip samples

2,126 underground channel samples

5,415 soil samples

37 diamond drill hole results including sample assay results

1,114 DDH core samples

2,591 topographical control points survey

39 stream sediments samples

369 channel samples form surface trenching

 
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[ex10-4pg20.jpg]
 
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Current

Current exploration by ECUADORGOLDCORP SA involved a numerous visits to the
Muluncay concession visiting three separate mines within the concession. These
included Fatima, Nueva Esperanza 1 and Aguacate (see Figure 6). Numerous other
workings are present within the concession but were not investigated at these
times. Several samples of vein material were taken by the author from the
various workings, including samples from Gen, Cristina and a third vein. Assay
results are shown in Table 2 below:

Table 2 – Assays from Independent Sampling, Mina Aguacate, Sept/06

Sample
 
Au
g/T
   
Ag
g/T
   
Cu
%
   
Pb
%
   
Zn
%
 
483051
    0.013       0.70       0.053       0.001       0.02  
483052
    0.015       7.0       0.089       0.02       0.02  
483053
    0.361       16.5       0.26       0.009       0.06  
483054
    2.76       37.1       0.85       0.03       0.19  
483055
    6.64       36.4       0.82       0.06       0.15  
483056
    3.25       23.8       0.69       0.03       0.21  
483057
    10.40       27.4       0.30       0.07       0.09  

 
Gold values from these samples range between 0.13 and 10.40 g/T. Numerous
samples taken by the author from other workings within the concession (# 483029
to 438050) show values of up to 58.6 g/T gold, up to 209 g/T silver, up to 4.86%
copper and up to 16.85% zinc.
 
Personal communication with one of the representatives of the Company notes that
as of the date of this report there are eight (8) mines on the concession. The
two main producing mines, Nueva Esperanza and Aguacate (Lopez) contain the three
main major veins Cristina and Gen, and a third vein. These two mines have had
development work carried out. This work includes advancing an additional 50 m
beyond the actively mined veins to a fourth mineralized vein. Tunnels are being
advanced along this new vein in order to remove ore. Slashing is also being
carried out, to give a 3 m high by 2.5 m wide haulage tunnel in each of the two
active mines. Steel track has been installed. This now allows the use of an
electric locomotive capable of hauling 10 two-tonne ore cars (20 tons) per trip
from underground to the ore stockpile or primary crusher.

 
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The primary crusher is located at the one currently operating processing plant.
This processing plant contains the primary crusher, secondary crusher, a series
of Chilean grinding mils being modified by the Company, and a series of Denver
floatation cells to concentrate sulphide mineralization to capture both base
metals and any gold-silver associated with those sulphides.

A temporary tailings pond is present on site to satisfy government environmental
requirements for the current low tonnage production rate. There is a 125 hectare
property less than one kilometer from the current processing plant, which is
being studied by an independent consultant to conduct a required Environmental
Impact Study in the area. This report will determine the viability of the sites
use as along-term tailings pond and processing plant. Company engineering and
geological staff are reviewing and planning which of the additional six
additional mines on the concession should be considered to bring to the
production level of the two currently operating mines.

DRILLING

Although modern diamond drilling has been carried out on the IAMGOLD claims, the
author does not currently have access to the positions or logs of those holes.
Therefore he has no knowledge of drilling done within the Muluncay concession.

SAMPLING METHODS AND APPROACH
 
As this was a preliminary investigation of the entire district, with no specific
focus at the time of the visits on the Muluncay concession, the only intent of
these assay results was to confirm assay values presented by other groups. The
width of the vein (as well as could be seen) at each of these sample points was
measured and recorded. The average width of these veins is 1.0 m, although the
width can range up to 4 m.

The samples were bagged and sealed on the property. They, along with several
other samples from the district, were delivered to the office of ECUADORGOLDCORP
SA, based in Machala. From that office they were transported to the ALS-Chemex
lab in Quito, Ecuador for sample preparation and analysis which weighed
approximately 1 to 2 kg each. No blanks and standards were submitted by the
author with the sample for Quality Control purposes.

 
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SAMPLE PREPARATION, ANALYSES

General
 
For the multi-element analysis of 35 elements, Induced Coupled Plasma Mass
Spectrometry (ICP-MS) was used. Au and Ag content was determined by Fire
Assay-Atomic Absorption method from 30 g pulps. Pulps and rejects will be stored
by the lab for a minimum of 90 days.

ADJACENT PROPERTIES
 
The Muluncay Project lies surrounded by the Dynasty concessions (Figure 3).
Current activities by Dynasty can be found on their website.
 
EXPLORATION POTENTIAL

Measured and Indicated Resources
 
I visited 3 known operating mines Fatima, Nueva Esperanza and Aguacate, now
known as the Jaceth Ethan and Mary Jane respectively within the Muluncay
concession. Figure 6 shows numerous mine workings.

 
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Exploration Potential
 
Like so many veins in the district which have been exploited for centuries, the
near-surface easily accessible high-grade gold mineralization is being
exhausted. Most of the mines in the district are currently extracting ore in the
range of 3-7 g/T gold. It is the author’s opinion that new investment and
detailed exploration will show that there is continuity of historical high-grade
mineralization both along strike and at depth. The fact that ECUADORGOLDCORP SA
has 5 currently undeveloped mines and has just opened a new mineralized vein
indicates that there is excellent potential for finding new exploitable
mineralized zones within the concession. Like most of the old SADCO operations
(with the exception of the Grand Mine) workings only extended to a depth of
approximately 200 m below surface. This is not because mineralization stops at
that depth. The Grand Mine contains a gold-mineralized zone which extended to a
depth of at least 660 m below surface. It was collared at an elevation 700 m
below mine workings in the Muluncay concession area. This indicates that there
is significant additional potential at depth of up to 1500 m for the Muluncay
concession. A preliminary estimate of the resource is made by the author on the
Muluncay Concession, from the two currently active veins (Gen and Cristina) with
an estimated strike length of 1 km (the N-S length of the concession), an
average width of 1.0 m and an average depth of 1000 m. Using a grade of 6 g/T as
the average grade, this would produce an estimated tonnage of 400,000 T for each
vein. There are presently 4 known veins, which would give a total current
resource of 1,600,000 T, for a total of 9,600,000 g (300,000 oz) gold.
Additional veins will be found during ongoing ECUADORGOLDCORP development and
exploration. Although the grade and tonnage reserve of these new workings is not
yet known the tonnage estimate will very likely increase significantly.
Secondary veins, stringers, breccia and disseminated mineralization in the
wallrocks have never been exploited, or even properly assessed. Slashing of
haulage tunnels will assist in the examination of these zones. It is the
author’s opinion that with the improved, more economic mining and milling
methods this resource can be taken advantage of, so that it is probable that
this resource can be increase to greater than 2.7 million tons which would
produce 12,960,000 g (405,000 oz) Au. However, this is a relatively low grade
estimate when one considers that the cut-off grade for the SADCO operations was
14.6 g/ton. Using that value as an average grade 2.7 million tons of ore would
produce 39,552,000 grams (1´236,000 oz) of gold. No estimate of the value
derived from silver or sulphide concentrate has been made, but it would add a
significant amount to the value of this resource. The history of the Zaruma
mining operations indicates that there is a significant opportunity to apply
modern mining methods to a major resource which has had only limited
exploitation in the past.

CONCLUSIONS
 
Descriptions of gangue and ore minerals, as well as the style of structures and
their continuity along strike and to significant depth, indicates that the
Portovelo-Zaruma-Ayapamba gold camp represents a low/intermediate sulphidation
epithermal to upper mesothermal gold-silver base metals system associated with
the structures related to a Miocene age collapse caldera.

The history of the Zaruma mining operations indicates that there is a
significant opportunity to apply modern mining methods to a major resource which
has had only limited exploitation in the past. It is the author’s opinion, based
on site visits to various mines and mills in the district, and having reviewed
reports on the district produced by other mining and exploration personnel, that
there is significant additional mineral potential at depth of up to 1500 m for
most of the concessions in the district. This includes those veins, both
developed and known but undeveloped, contained within the Muluncay concession.

 
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This data has been prepared at the request of ECUADORGOLDCORP SA and is intended
to inform about the potential of the Muluncay concession for hosting one or more
gold-silver-lead-zinc-copper deposits of sufficient grade and tonnage to be
economically viable.

This report is a true and accurate representation of the assessment of the
mineral potential of the Muluncay Project.
 
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RESUME
 
PERSONAL DATA
  [ex10-4pg26.jpg]    
Names:
Wilmer Guillermo
Last names:
Castro Vaca
City:
Machala
Address:
Décima Sur y Av. Las
Palmeras
   
Telephone Number:
085 502703
Marital Status:
Married
Nationality:
Ecuadorian
ID. card:
0701649998
Date of Birth:
Febrero 10, 1962
Place of Birth:
El Guabo
   
ACADEMICAL BACKGROUND
         
SECONDARY SCHOOL
Colegio Fiscal 9 de Octubre
Majoring: Physics – Mathematics
Machala – El Oro
   
SUPERIOR STUDIES
Universidad Estatal de Guayaquil
Faculty de Natural Sciences
School of Geology
   
ACADEMIC DEGREE
Geologist
 
Geology Engineer
   
WORK EXPERIENCE
Teaching assistant of the subject of
 
MINERALOGY II of the School of Geology, Faculty of
 
Natural Sciences, from June 1983 to February 87.
     
Geologic exploration - Underground Miner for BIRA S.A. Company located in Canton
Zaruma, El Oro province, from February to August 1987.
   
 
Geological exploration - Underground Miner in BARBASCO 1 in Canton Portovelo, El
Oro Province, from June to Augusto 1988.
     
Geological exploration – Alluvial Miner in KOLLA S.A. Company located in Canton
Santa Rosa, province of El Oro, from October/88 to September/89.
   

 
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Geological exploration - Underground Mining in BOCA GRANDE Mining Company
located in Canton Pasaje, El Oro province, from January 1990 to September 1993.
     
Geological exploration - Underground miner for A . GRANDA C. Mining Company in
the area of Molleturo, Azuay province, from January to April 1998.
     
Audit of the Information of Mining production of LEON 1 area, code No. 2364,
corresponding to 2001 and 2002 years in February 2003.
     
Audit of the Report of Mining Production of LA VIÑA area, code No. 310,
corresponding to 2002 year, in March 2003 ; in March 2004;, in March 2005; and
in March 2006.
     
Audit of the Report of Commercial Mining Production of the ASSOCIACIÓN MINEROS
INDEPENDIENTE AUTÓNOMOS SOCIEDADES MULUNCAY area, Code No. 338, corresponding to
the years of 2002 - 2003, in March 2004 and in 2004, in March 2005.
     
Audit of the Report of Mining Production of ANDREIMA area, Code No. 700114,
corresponding to 2003, in March 2004, and in March 2005.
     
Audit of the Report of Mining Production of LORRAINE area, Code No. 318,
corresponding to 2004, March 2005; March 2006, and March 2007.
     
Audit of the Report of Mining Production of NUEVA ESPERANZA area, Code 152,
corresponding to 2004 year, and March 2005.
 
Audit of the Report of Mining Production of LIMONCITO area, Code No. 2017,
corresponding to 2003, March 2004, and March 2005.
 
 
 
Audit of the Report of Mining Production of CAROLINA J-A area, Code No. 300148,
corresponding to 2005, March 2006, and March 2007.
     
Audit of the Report of Commercial Mining Production of SAN FERNANDO 1 area, code
No. 6231.1, corresponding to 2005 - March 2006.
     
Audit of the Report of Commercial Mining Production of AMAYA and AMAYA II areas,
codes No. 300385 and 300659, respectively corresponding to March 2006.

 
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Audit of the Report of Commercial Mining Production of PINGLIO 1 area, Code No.
6, corresponding to 2005- March 2006, and 2006 - June 2007.
     
Geologic exploration - Underground Miner at Asociación de Producción, Beneficio,
Fundición, Refinación, Comercialización de Oro y Otros Minerales “PLAYAS DE
DAUCAY” in Canton Chilla, El Oro province, from January 2006 to date.
   
SEMINARIES
Economy and Policy of Hydrocarbons at the University of Guayaquil from February
21 to 25, 1983.
     
Civil Work Blast with Explosives at Escuela Politécnica del Litoral
(University), from July 27 to 29, 1983.
     
Seminary and Workshop on Opaque Mineral Identification, at the University of
Guayaquil, from June 11 to 23, 1984.
     
Evaluation of Hidrocarbon Deposits, at the University of Guayaquil,
from November 12 to 16, 1984.
   
CONGRESS
III Geologic International Congress of Mining in the city of Guayaquil, from
October 8 to 11, 1991.
   
COURSE
Training course on Mining Audit at the University of Guayaquil from October to
Noviember 2001.
   
POSTGRADUATE
Degree in Business Management, Post graduate diploma equivalent to 15 credits,
at the center of Superior Studies of Business Management of the University of
Guayaquil from May 6 to July 16, 2000.
   
CERTIFICATE
Certificate of Registry of the Undersecretary’s office of Mines of the Ministry
of Energy and Mines of the Republic of Ecuador as MINING CONSULTANT-AUDITOR,
Registry No. 046, January 11, 2003.

[ex10-4pg28.jpg]
Ing. Góel. WILMER CASTRO VACA
Consultor – Auditor Minero
Registro 046 SUBSECRETARIA DE MINAS
Machala, 13 de febrero del 2008

 
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