March30, 2004

 

 

HunterGold Mining Corporation

3rdFloor 1665 Ellis

Kelowna,BC

V1Y 2B3

 

 

Attention:Mr. George Otten, President

 

 

 

DearMr. Otten:

 

 

Pursuantto an assignment of a Purchase Option Agreement dated January 26, 2004, KenSwaisland assigned to Cardinal Minerals Inc. all of his rights, title andinterest to his option to acquire the Hunter Gold Mining Corporation as per theagreements with yourself and the Hunter Gold Mining Corporation dated December2, 2003 and an amending agreement dated January 13, 2004 (herein after referredto as The Original Agreements).

Followingyour recent conversations with Mr. Glen O'Gorman and Mr. Swaisland, we wouldlike to confirm the following amendments, additions and clarifications relativeto The Original Agreements:

-  Cardinal    hereby confirms its acceptance of Glen O'Goman's Exploration and Development    Plan for the Bates-Hunter Project dated March 1, 2004 a copy of which you    are in receipt of. Cardinal agrees that it will fund Phase I and 2 of this    report as set out in attached *Schedule A,* at its own risk , for the    completion of Phase 1 by October 31, 2004 and Phase 2 by June 30, 2005 or    else this agreement is null and void. Cardinal reserves the right should the    results of Phase 1 be unfavorable to return the option.Cardinal    will now initiate the preparation of formal closing agreements based on the    purchase for $3,000,000 of all the assets of Hunter Gold Mining Corporation's    wholly owned US subsidiary Hunter Gold Mining Inc. Those assets are listed    as *Schedule B* attached. The formal agreements will be based on an    asset purchase rather than a stock purchase as contemplated in the original    agreements, provided that there should be no withholding or transfer tax    applicable to the said transaction, otherwise the transaction will revert to    a stock purchase as originally contemplated.-  A    contract for the dewatering of the Bates-Hunter mine-shaft as recommended by    Mr. Glen O'Gorman will be entered into between Cardinal and a corporation    controlled by George Otten. The general terms of the contract will call for    Mr. Otten to organize and manage the dewatering of the mine shaft on a cost    plus overhead basis. A formal contract encompassing the dewatering process    is targeted for execution on or before April 15, 2004. Mr. Glen O'Gorman    will be retained by Cardinal to manage the contract and its related    payments.The    July 31, 2004 closing date as specified in the January 31, 2004 extension    agreement is hereby further modified. Formal closing by Cardinal of the    purchase of the assets of the Hunter Gold Mining Corporation shall now occur    within 90 days following the receipt of data from the underground drilling    program recommended by Glen O'Gorman, or September 30, 2005 which ever is    earlier. All    other clauses not expressly modified in this agreement, shall remain valid    as set out in the original agreement.
Kindly  acknowledge your agreement and acceptance of the above modifications and/or  additions to The Original Agreements, which were assigned to Cardinal on  January 26, 2004.

 

 

Yours  Sincerely,
** 

/s/  Roland  Vetter                  **
Roland  Vetter

President

 

 

 

 

Agreed  to and Accepted this _____ day of March, 2004

 

_________________________________________

President  , Hunter Gold Mining Corporation

 

 
*(Please  initial on bottom of each page and fax to Mr. K Swaisland 1-604-925-3592

and  to Mr. R Vetter 1-604-264-9012)***ScheduleA**
 

Asper the independent Report by Glen O'Gorman, Cardinal Minerals plans to follow astaged systematic approach. Cost and timing estimates are outlined below.Currencies are US$ and do NOT include any contingencies.
 
**Phase1: ($500,000 - 3 to 6 Months): Dewater and rehabilitate the shaft andlevels, map and sample all accessible historical workings and undertakepreliminary metallurgical testwork.

 

Theinitial dewatering and rehabilitation to the 212 foot level has already beenaccomplished during the 1980's. Timbered areas which have remained submergedwill be in good condition and should not require much rehabilitation. It isestimated that the shaft could be dewatered and rehabilitated in as little as 3months based on a 300 GPM pumping rate. However, a 3 to 6 month time frame and asubstantial contingency should be allowed due to uncertainties associated withunderground dewatering and rehabilitation. The costs associated with this areestimated to be in the $500,000 range excluding corporate overhead charges andcontingencies. The overall time frame necessary to undertake Phase 2 activitiesis in the 3 to 6 month range.

 

Atthe end of Phase 1, Cardinal will have confirmed some of the historicalinformation regarding the Bates-Hunter property, defined some mineable ore, andhave a good idea regarding the geological continuity, grade and thickness of themineralization and its metallurgical characteristics. Cardinal will then be ableto asses whether to continue to the next phase.

 
**Phase2: (650,000 - 4 months) : After dewatering and rehabilitation have beencompleted, a diamond drill station will need to be established on the 745 levelabout 150 feet away from the Bates vein to conduct underground diamond drilling.Establishing this diamond drill station will entail driving a small crosscut andexcavation of a diamond drill station. This should take about 1 month toaccomplish.

 

Diamonddrilling should be targeted to explore both above and beneath the old workingsand attempt to pinpoint thick high grade areas at vein intersections. The drillholes should be drilled to lengths that will allow them to pass through theBates vein and intersect the Vasa-Levitt vein as well and explore it from it'sintersection with the Bates vein. It is estimated that approximately 10,000 feetof drilling will be needed over a 3 month period.

 

Concurrentwith these activities, investigations should be undertaken to define themetallurgical characteristics of the mineralization and develop a suitableprocess flow sheet prior to sourcing a processing plant and mining equipment.Exposed vein materials in the old workings will be sampled so that freshmaterial is available for metallurgical testwork. Drill core sample rejects canalso be used to aid in this task. It is expected that detailed metallurgicaltestwork will take about 3 months to complete.

 

Assayingdelays, data compilation and report preparations will add about 3 months to thistime line before a positive decision can be reached regarding furtherexpenditures on the project.

Thecosts associated with this are estimated to be in the $650,000 range excludingcorporate overhead charges and contingencies. The overall time frame necessaryto undertake Phase 2 activities is in the 7 month range.

 

Ifthe above efforts prove to be successful, the Bates-Hunter shoot on the Batesvein as well as the Vasa Levitt vein near its intersection with the Bates veinshould be sufficiently defined to estimate ore reserves and decide if furtherexpenditures are warranted.

 
**Phase3: ($2,711,500 - 9 Months) If the tonnages and grades encountered from thediamond drilling are high enough (say 100,000 tons in the 1 ounce range)Cardinal could exercise its opportunity to purchase the property and place itinto early production at a small scale (in the range of 100 TPD). A new gravity,flotation and cyanidation mill will have to be built. It would cost about $2million to undertake this including constructing a small (expandable) mill andtake a little less than one year to accomplish. If Cardinal is able to place theproject into production at the end of Phase 2, further exploration anddevelopment can be internally funded.

 
**Phase4: ($1,200,000 - 9 Months): Phase 4 is designed to expand the reservepotential. One of the levels (probably the 600 foot level) should be drivenapproximately 1,000 feet to the east and west of the shaft roughly parallel tothe Bates vein but at a distance of about 40 feet into the footwall. Anadditional 8,000 feet of diamond drilling from surface will be needed in orderto position this exploration drift. Detailed diamond drilling from thisexploration drift would then be undertaken to establish mineable ore reservessufficient to support a production rate of about 400 TPD. This will take about 6months to complete and cost in the range of about $1.2 million dollars. Areserve base of about 750,000 tons grading 0.40 oz. Au/ton would be required tosupport the capital expenditures required.
** 

Phase5: ($4.2 Million - 9 Months): If early results of the Phase 4 programsupport a mill throughput in the 400 TPD range, pre-production development canbe carried out concurrent with the exploration drifting described above. Whenthe above underground exploration program has detailed sufficient stopingreserves, stope preparation can begin and the mine can be prepared forproduction. The hoist will need to be replaced with a double drum hoist and theshaft outfitted for production. If pre-production development and stopepreparation activities are not carried out concurrent with the undergroundexploration activities outlined above, they are expected to take about 15 monthsto complete at a cost of about $2.6 million including contingencies and addabout 6 months to the schedule.

 

Concurrentwith undertaking pre-production development and stope preparation activities,the 100 TPD mill will need to be expanded at an estimated cost of about $2.5 to$3.5 million.

 

Ifall goes well and sufficient high grade is found to warrant going intoproduction at 100 TPD, the project could be producing cash flow to fund otheractivities in as little as 18 months at a cost of about $4 million. Ifunderground exploration is successful (phase 4), expanding the operation to 400TPD (Phase 5) will take about another year to complete at an added cost of about$5.5 million TPD. The above costs exclude property acquisition payments,contingencies and corporate expenses. Capital payback in both instances isexpected to be less than one year.

 

Asmining proceeds, the depth extension of the property needs to be explored alongwith the acquisition of more past producing mines in order to expand theoperation. A new shaft will need to be sunk within a few years in order to beable to mine beneath the present workings.
******ScheduleB

 

 **
Theassets are listed in this schedule are as follows:

 

BatesHunter Mine & all contiguous claims on the Bates Vein

68'Headframe & Hoist

HoistHouse with Dry Room and Machine Shop

300gallon a minute water treatment plant

Terix- front end loader

Mustage- skid loader

2 Aircompressors - 250 cfm - 1250 cfn

75 tonper day gravity mill

Miscmining tools, mucker, ore cars, cages, vic 4" pipe & fifling**********