**Management’s
Discussion and Analysis**
 *(The
following discussion and analysis should be read in conjunction with the
consolidated financial statements and the corresponding notes)*
 
 (Figures
are expressed in Canadian dollars except where otherwise indicated)
 
 January
31, 2005
 
 ***Overview***
 
 With
the price of gold averaging US$409 per ounce during the year and having closed
at US$439 at the end of fiscal 2004, the Company has continued to principally
focus its efforts in advancing the Atlanta Gold property in Idaho, USA
(“Atlanta”) towards production in the near term, contingent upon completion of
the Environmental Impact Study (“EIS”).
 
 The
Company also advanced its Jackson Inlet Diamond property on Baffin Island,
Nunavut (“Jackson Inlet”) after entering into two agreements during the year.
Pursuant to a letter agreement entered into in April 2004 with Kennecott Canada
Exploration Inc. (“Kennecott”) in connection with 270,644 acres of the north
claim block (the “Jackson East & West”) of the Jackson Inlet Diamond
property on Baffin Island, Nunavut (“Jackson Inlet”), Kennecott incurred
expenditures in excess of $615,000 in completing a 15,700-line kilometre MIDAS
II TM aeromagnetic survey over 200,000 acres of Jackson East & West using 50-metre
spacing for one block of claims (“Block 1”) and 75-metre spacing for a second
block of claims (“Block 2”). The final results of the survey, which were
received by the Company during the first quarter of 2005, revealed as many as 78
new potential kimberlite drill targets. The agreement with Kennecott was
terminated in July 2004 as a result of discussions of the Company’s obligations
towards a third party having an interest in Jackson Inlet not producing the
necessary results within the anticipated time frame. The Company remains
committed to honoring the third party agreement and to continue advanced
exploration at Jackson Inlet.
 
 In
August 2004, the Company entered into an agreement with Stornoway Diamond
Corporation (“Stornoway”) in respect of the south claim block running along the
Vista River (“Vista”) covering over 980,000 acres of Jackson Inlet. Under the
terms of this agreement, Stornoway has the option to earn a 51% interest in
these claims by, among other things, incurring a minimum of $3 million in
exploration expenditures on Vista over a three-year period. Prior to Stornoway
having to elect to take up the option and commence expenditures, the Company is
required to complete a minimum $900,000 exploration program mutually acceptable
to the parties and to deliver to Stornoway a report thereon. The Company
completed a 1,200-sample soil/till sampling program in the third quarter of
2004. The samples were processed for kimberlite indicator minerals at a
processing laboratory in Vancouver. Heavy mineral concentrates were sent to two
labs for selecting and counting kimberlite indicator indicator minerals. **** Results
from the counting, expected to be completed by the end of the first quarter of
2005, will be used to complete the exploration program. Discussions are ongoing
with Stornoway in respect of the nature of the report to be delivered by the
Company.
 
 The
Company has also retained its interest in a total of 124 mining claims totaling
6,942 acres comprising its Abitibi gold property located along the Abitibi gold
belt in Eastern Quebec (“Abitibi”). The Company holds an option to acquire 62 of
these claims, totaling 4,500 acres, in four groups (Normar, Mouskor, Malartic H,
and Malartic H Annex) pursuant to an option agreement entered into with
Breakwater Resources in August 2003 and staked an additional 62 claims in
December 2003. Certain other claims optioned from Breakwater on the Joannes
North and Joannes West portions of the property covering 2,540 acres, were
returned to Breakwater during 2004. The Company anticipates resuming exploration
activities on Abitibi in the second quarter of 2005.
 
 
 ***Financial
Summary***
 
 ***2004***
 During
the year, cash increased by $1,177,000 (compared to a decline of $931,000 in
2003), as the Company was successful in raising gross proceeds of in excess of $9.2
million, by means of equity private placements. Pursuant to these financings,
the Company issued a total of 42,322,888 units (consisting of shares and
warrants) (see “ *Liquidity
and Capital Resources”* below). The proceeds of these financings were primarily used on mineral property and
capital asset expenditures, which totaled $5,561,000 in 2004 (2003 -
$4,794,000). Of this total, $4,572,000 of development expenditures were incurred
in 2004 on Atlanta (2003 - $1,701,000) as the Company completed the feasibility
study, continued with preparation of the EIS and prepared for the commencement
of the mine construction phase. The Atlanta property was reactivated in late
2002, with extensive activity continuing in 2003, when the feasibility study and
EIS process commenced, and extensive work continued throughout 2004, with
assaying, test work, and environmental analysis also being undertaken. With the
feasibility study having been completed in November 2004, the objective of the
Company is to bring Atlanta into production in the near term contingent upon
completing the EIS. As this project advances, the Company anticipates that the
majority of its expenditures in 2005 will continue to be in respect of Atlanta,
with funds required for construction, additional personnel and equipment at
Atlanta.
 
 Exploration
expenditures incurred by the Company in 2004 were primarily the result of the
1,200 sample till and soil sampling program on Vista at Jackson Inlet, which
totaled $1,620,000 (2003 - $1,411,000). The increase in expenditures on Jackson
Inlet in 2004 compared to 2003 was primarily due to the Company complying with
the agreements with Kennecott (prior to termination) and Stornoway to complete
exploration programs on Jackson East & West and Vista, respectively. In
2005, exploration expenditures on Jackson Inlet are expected to decline somewhat
because the Company’s primary focus will continue to be on bringing Atlanta into
production. Whether Stornoway will elect to take up its option on Vista and
thereby be committed to commence expenditures of not less than $1 million during
the first year of the option, has not as yet been determined.
 
 Cash
from head office activities declined during 2004 by $1,793,000 (compared to an
increase in 2003 by $1,053,000), primarily because amounts owing to suppliers
for work incurred in 2003 were paid in 2004. Also, head office expenses in 2004
of $1,201,000 were higher compared to the same period in 2003 ($1,036,000)
mainly due to higher professional fees arising from the financings undertaken by
the Company in 2004 and the negotiations with Kennecott and Stornoway, higher
travel costs in 2004 incurred in marketing the financings and as a result of the
incurrence of $111,000 in Part XII.6 tax in respect of flow-through financing
completed in 2003. This compared to $89,000 incurred in 2003 in Part XII.6 tax
in respect of 2002 flow through financing.
 
 During
the year, the Company recorded an income tax provision of $4,574,200, which
includes a valuation allowance of $3,416,202 in respect of non-capital looses
carried forward that will, more likely than not, expire before they are
utilized.
 
 - 2
-
 
 ***2003***
 General
and administrative expenses for the year ended December 31, 2003 increased
compared to the same period in 2002, primarily because (a) Part Xll.6 tax was
incurred in 2003 whereas none was incurred in 2002, and (b) an additional salary
that was incurred when the Company hired a Vice President, Exploration. The
position was vacated in September 2003 and a replacement has not been named.
Offsetting these increases was a sharp decline in investor relations costs
primarily because of the largely non-brokered financing completed during the
year (note 5 (d)), compared to the brokered financing carried out in 2002.
Interest income for the year remained unchanged from 2002 because the bank
balances were relatively the same throughout both 2003 and 2002. Since the
Company pays its Atlanta Gold costs in US dollars, the stronger Canadian dollar
resulted in a foreign currency gain for the year.
 
 Five
Jackson Inlet mining claims were allowed to lapse during the year and as a
result, the Company has written off total acquisition and exploration costs of
$31,219 related to these lapsed claims.
 
 Mineral
property expenditures incurred in 2003 were significantly higher than in 2002
primarily because: (a) over $1.6 million was spent on a 22,000-metre BQ (35mm)
core-drilling program and sample assaying at Abitibi; (b) over $1.7 million was
incurred on Atlanta, specifically for base line work on flora and fauna, air,
and water quality, as the Company commenced the EIS preparation stage in July
2003; and (c) over $1.4 million was spent on Jackson Inlet, primarily on a
ground magnetometer survey, a soil sampling program, and two major claim-staking
campaigns carried out during the year. Since the Company’s focus in 2003 was on
Abitibi, Atlanta and Jackson Inlet, expenditures on TORNGAT and Indonesia were
essentially limited to that required to renew permits and annual filings, as the
Company sought joint venture participation to advance both properties.
 
 ***2002***
 General
and administrative expenses for the year ended December 31, 2002 remained
relatively unchanged from similar expenses incurred in 2001, except that no Part
XII.6 tax was incurred in 2002 compared to $135,825 in Part XII.6 incurred in
2001. Conversely, interest income for the year declined by approximately 88% to
$23,767 from $210,655 in 2001 due to lower bank balances reflecting expenditures
being incurred on both Jackson Inlet and Atlanta. The flow-through share
financing completed in December 2002 resulted in Part XII.6 tax being incurred
in 2003.
 
 Property
acquisition, drilling and field exploration, and project administration
expenditures incurred on Jackson Inlet totaled $2,238,288 during 2002 (compared
to $3,946,298 incurred in 2001). These costs were incurred in conducting ground
geophysical surveys, core drilling program, and soil sample extraction and
analysis in 2002 (compared to a mini-bulk sampling program and a 6,641-line
kilometre air-borne geophysical survey completed in 2001). Costs incurred on
TORNGAT during 2002 totaled $72,779, compared to $622,862 incurred in 2001
(before writing off $218,060 relating to two abandoned exploration permits,
which were allowed to lapse in 2001). Total mine development expenditures
incurred on Atlanta in 2002 was $475,900 (compared to $12,649 incurred in 2001).
Included in these costs were $310,715 for completing a 13-hole core-drilling
program, $61,091 for risk and sample analysis and $42,397 for consulting
fees.
  ***Capital
Expenditures***
 **- 3
-**
 *Atlanta:*
 In
2004, mining expenditures of $4,385,000 focused predominantly on completing the
initial wildlife survey, monitoring water and air quality, designing
geo-technical facilities, entering into of an option to lease the work camp site
and water rights for ten years, and supervising engineering activities carried
out in connection with the feasibility study, completed in November 2004, and
the EIS, expected to be completed by mid-2005. This compares with $1,535,000
incurred on Atlanta in 2003, when work on the feasibility study and EIS had just
begun.
 
 *Jackson
Inlet:*
 On
Jackson East & West, final results of the geological flight data from the
airborne survey commissioned and funded by Kennecott during the third quarter,
indicated as many as seventy-eight magnetic anomalies on Blocks 1 and 2.
 
 On
Jackson Inlet, the Company incurred $1,033,000 during 2004, including $604,000
during the fourth quarter related to completing the processing and diamond
indicator mineral selection from 1,213 till samples collected on Vista. This
compared to $1,273,000 in 2003, including $112,000 incurred in the fourth
quarter of 2003, when the Company was conducting a similar till sampling
program. After the Company filed assessment reports with Indian and Northern
Affairs Canada (“INAC”) in 2004 in respect of claims covering 558,087.5 acres,
paid filing fees of $55,808 (2003 - $12,999) and completed the till sampling
program , the Company believes that it has performed sufficient exploration work
to keep all of its 532 claims in good standing until May 2005, at which time,
Stornoway is expected to commence incurring expenditures on Vista. The Company
expects INAC to provide confirmation of assessed claims early in 2005.
 
 As
at the end of fiscal 2004, the Company holds a 100% interest in 532 contiguous
mining claims at Jackson Inlet covering 5,075 sq. km (approx. 1,254,000 acres).
 
 *Abitibi:*
 The
Company incurred expenditures in 2004 on Abitibi of $76,000, and paid $25,000 in
December 2004 in accordance with the terms of its option agreement with
Breakwater in respect of 62 of the 124 claims comprising Abitibi. Technical
reports prepared during the first quarter of 2004, in respect of the
core-drilling program completed in the winter of 2003 on the Normar, Mouskor,
Malartic H and Malartic H Annex sections of Abitibi, will be used to prepare for
an exploration program, including a 10-hole diamond drilling program on the
Normar group of twenty-five mining claims (1,043 acres), which is expected to
start in the second quarter of 2005. After twenty-nine claims were returned to
Breakwater in 2004, the Company has incurred sufficient exploration
expenditures, paid all relevant filing fees and has filed all relevant
assessment reports with the Quebec Ministry of Natural Resources (“QMNR”) to
maintain all of its remaining Abitibi mineral claims in good standing until
September 1, 2006. The Company will pursue several alternatives, including
seeking joint venture participation, to further advance the Mouskor, Malartic H
and Malartic H Annex areas of Abitibi.
 
 *Torngat:*
 With
the Company focusing its attention primarily on the Atlanta, Jackson Inlet, and
Normar area of Abitibi, the Company did not incur any costs on its TORNGAT
Diamond property, in Northern Quebec, (“TORNGAT”) during 2004 (2003 - $18,000).
The Company did incur property acquisition costs of $34,335 during 2004 ($34,335
in 2003). The Company has carried out exploration work on TORNGAT and filed
assessment reports with the QMNR sufficient to keep the three mining permits
covering TORNGAT in good standing until 2006. The Company continues pursuing
several options, including seeking joint venture participation, to further
advance TORNGAT.
 
 - 4
-
 *Layuh:*
 The
Company’s Layuh gold property in Kalimantan, Indonesia (“Layuh”) was on care and
maintenance, awaiting a recently-elected federal government administration to
provide political and economic stability since 1999. **** In
June 2004, the Company submitted a request to extend the Approval in Principle
for a Seventh Generation Contract of Work (C.O.W.), first granted in 1998, for
another twelve months. By the end of the year, the Company wrote-off Layuh’s
carrying value of $1,450,626 because it decided to focus its time and effort on
Atlanta, Jackson Inlet and Abitibi. However, it will continue pursuing third
party participants, including one that’s presently conducting due diligence on
Layuh.
 
 After
writing off the Layuh property, the Company has mining properties in Canada and
United States. Corporate administrative activities are carried out from Canada.
The Company has an interest in four mineral properties, of which two are gold
properties and two are diamond properties **.** As
previously noted, the Company’s activities during 2004 have been principally
focused on its Atlanta gold project located in Idaho, the Abitibi gold property
located in Quebec and on its Jackson Inlet diamond property, located in
Nunavut.
 
 ***Liquidity
and Capital Resources***
 
 In
fiscal 2004, the Company raised aggregate gross proceeds of $9,261,275 by means
of equity financings, an increase of approximately $6.32 million over the amount
raised by the Company in 2003. The financings consisted of the private placement
of units, with each unit consisting of one common share and one common share
purchase warrant, with each warrant being exercisable for two years with
exercise prices ranging from $0.24 to $0.50 per share. Pursuant to these
financings, the Company issued warrants in payment of commissions and advisory
fees, consisting of 1,642,500 warrants exercisable at $0.205 per share and
1,589,136 warrants exercisable at $0.23 per share. The Company has also agreed
to pay early in 2005 fees totaling $248,456. Of the aggregate amount raised,
$4,896,100 was raised during the fourth quarter of 2004.
 
 Pursuant
to the various financings, three directors of the Company subscribed for, in
aggregate, 4,934,221 units for aggregate proceeds to the Company of $1,250,075.
The warrants included in the units subscribed for by the directors are
exercisable at prices ranging from $0.24 to $0.50 per share.
 
 The
Company anticipates raising an additional $1.0 million early in 2005. With these
funds, together with the $3,496,100 raised in December, 2004, the Company
anticipates that it will have sufficient funds to adequately finance the planned
expenditures on the Atlanta, Jackson Inlet and Abitibi properties described
above, as well as for general working capital purposes for the first half of
2005. The Company is currently securing project financing for Atlanta. A delay
in arranging project financing on terms satisfactory to the Company could result
in construction at Atlanta and ultimately production from Atlanta, being
delayed. The Company also anticipates that, subject to Stornoway electing to
take up the earn-in option, Stornoway will begin incurring a minimum of $1.0
million in exploration expenditures on Vista in 2005.
 
 Despite
the significantly higher level of financing by the Company completed in 2004 as
compared to 2003, cash increased modestly from the commencement of the current
year ($1,177,000) (compared to a decline of $931,000 experienced in 2003),
reflecting primarily the $3.0 million reduction in amounts owing to suppliers
and the increase in expenditures made by the Company on the Atlanta property
over those made during 2003.
 
 - 5
-
 Refundable
mining and tax credits from the Quebec Ministry of Revenue (“QMR”) and the QMNR
totalling $743,000 in respect of expenditures incurred in Quebec during 2003,
will require that the Company carry out additional Canadian Exploration
Expenditures (“CEE”) prior to August 2005, so as to comply with flow-through
share requirements. Part XII.6 tax arising from receipt of these tax credits and
from CEE renounced in 2003 but incurred in 2004, is estimated to be $113,000 and
is payable by the Company prior to March 2005.
 
 During
the fourth quarter of 2004, the Company renewed its office and equipment leases
resulting in operating lease commitments for these leases totaling $357,500
until January 2010 as follows:
 
 Year
    Payments
      due2005
    $50,3002006
    $73,7502007
    $73,7502008
    $75,7602009
    $77,700
 
 The
Company has made commitments in respect of its mineral properties that are
required to keep the various properties in good standing as follows:
 
 Year
    Jackson
      Inlet
    TORNGAT
    Abitibi
    Atlanta
      - $US2005
    -
    34,335
    25,000
    67,5002006
    100,000
    34,335
    25,000
    209,5002007
    -
    34,335
    25,000
    70,0002008
    -
    34,335
    25,000
    70,0002009
    -
    34,335
    -
    20,0002010
      - 2011
    -
    -
    -
    20,0002012
      - 2015
    -
    -
    -
    10,000
 
 
 The
Company has also made expenditure commitments of $3,500,000 necessary for it to
earn a 60% interest on Abitibi as follows:
 
 
 On
      or before
    Exploration
      expenditures incurred $2004
    150,0002005
    350,0002006
    600,0002007
    1,000,0002008
    1,400,000
 
 To
date, the Company has incurred over $1,691,000 in expenditures at Abitibi in
respect of the Abitibi property.
 
 The
Company files assessment reports in respect of its Canadian mineral properties
(i.e. Jackson Inlet, Torngat, and Abitibi) that are required to keep the
properties in good standing and to maintain the Company’s rights in such
properties. The Company may decide to allow certain non-productive claims or
permits to lapse, and lose some or all of its interest in such properties.
Currently, the Company has incurred sufficient exploration expenditures, paid
for all relevant filing fees and has filed all relevant assessment reports with
QMNR or INAC to keep all of its Canadian mineral claims and permits in good
standing until May 1, 2005.
 
 - 6
-
 ***Selected
Annual Information***
 
 The
following sets forth selected financial data for each of the three most recently
completed financial years, prepared in accordance with Canadian generally
accepted accounting principals (“GAAP”). All amounts are expressed in Canadian
currency.
 
 **2004**
    **2003**
    **2002**Total
      Revenues(1)
    Nil
    Nil
    NilLoss
      before discontinued operationsand
      extraordinary items
    $7,144,000
    $105,000
    $856,000Per
      share
    $0.071
    $0.001
    $0.011Net
      Loss
    $7,144,000
    $105,000
    $856,000Net
      loss per share
    $0.071
    $0.001
    $0.011Total
      assets
    $37,134,000
    $31,782,000
    $27,609,000Total
      long-term financial liabilities
    $Nil
    $Nil
    $NilCash
      Dividends per share
    Nil
    Nil
    Nil
 (1)  The
Company is a development-stage company and does not generate
revenue.
 
 The
higher net loss in 2004 as compared to both 2003 and 2002 was primarily the
result of a future income tax provision of $4,574,200 taken in 2004, including a
valuation allowance of $3,416,000 taken in respect of Canadian non-capital
losses carried forward of $6,039,000 that are likely to expire without being
utilized. This compared to a future income tax recovery of $922,000 recorded in
2003, including a valuation allowance of only $55,180 taken in respect of unused
Canadian non-capital losses carried forward, and none taken in 2002. In
addition, the higher loss recorded in 2004 was due to the following (a) the
Company write off of the carrying value of the Layuh gold property; and (b)
general and administrative costs incurred in 2004 were $165,000 higher than in
2003, mostly due to (i) higher Part XII.6 tax in respect of 2003 flow through
financing; (ii) interest expense of $40,000 incurred in respect of late payment
for a 2003 balance outstanding; and (iii) higher insurance costs. Professional
fees and travel costs also increased in fiscal 2004 compared to fiscal 2003
primarily because of the ongoing financings carried out throughout the current
year. Also, interest income earned in 2004 was lower compared to that earned in
2003, reflecting reduced cash levels until the December 2004 financing was
completed near year end. A gain of $79,000 was realized from foreign exchange
transactions during the current year, compared to a gain of only $18,000
realized in fiscal 2003, because amounts due to the Canadian dollar
strengthening relative to the U.S. dollar, at a time when major expenditures
were being incurred in respect of Atlanta contractors and
suppliers.
 
 ***Summary
of Quarterly Results***
 
 During
the fourth quarter of 2004, the Company’s cash position increased by $1,759,000.
While $1,966,000 was invested during the quarter on its mineral properties (2003
- $2,861,000), including $1,332,000 (2003 - $1,134,000) on Atlanta and $604,000
(2003 - $112,000) on Jackson Inlet (see *“Capital
Expenditures* ”
below), these cash outflows were offset from net proceeds received during the
quarter from private offering of securities of the Company of $4,223,000 (2003 -
$1,207,000), net of $673,000 (2003 - $46,000) share issue costs (see
“ *Liquidity
and Capital Resources”* below). A refundable tax credit of $103,000 in respect of 2003 exploration
expenditures incurred in Quebec was received from the QMR during the quarter.
Also, a mining duties credit of $212,000 from QMNR is expected to be received in
the first quarter of 2005. During the quarter, salary costs of $43,000 in
respect of senior management were incurred but not paid by the Company, as
management elected to defer receipt of such compensation pending a strengthening
of the Company’s cash position. After completing the financing in December 2004,
the Company set up a payment schedule whereby unpaid 2004 salaries will be fully
paid by July 2005. The increased expenditures in Atlanta during the fourth
quarter of 2004 compared to the same period for 2003 reflect: a) completion of
the feasibility study; b) advancement of the environmental impact statement
(“EIS”) and permitting process (expected to be completed during the Summer of
2005); and c) preparation for mine construction (expected to commence in the
latter half of 2005). Expenditures were also increased during the fourth quarter
on Jackson Inlet as the Company completed its 1,200-sample till sampling program
on the Vista claims.
 
 - 7
-
 General
and administrative costs incurred during the fourth quarter of 2004 were
$388,000 compared to $195,363 during the same period in 2003. Professional fees
increased for the third consecutive quarter arising primarily from the ongoing
financings. Travel costs incurred in the fourth quarter of 2004 increased
compared to the same period in 2003 because of management’s efforts to secure
higher levels of financing in the current year and because the Company incurred
$70,000 in Part XII.6 tax in respect of the 2003 flow through financing.
Interest expense of $40,000 was incurred during the fourth quarter of 2004,
compared to nil in 2003. Also, interest income earned in the fourth quarter of
2004 was lower compared to that earned during the same period in 2003,
reflecting reduced cash levels until the December 2004 financing was completed
near year end. A gain of $7,000 was realized from foreign exchange transactions
during the fourth quarter, compared to a gain of $16,000 for the same period in
2003, because amounts due to Atlanta contractors and suppliers were denominated
in U.S. dollars and paid using Canadian dollars converted at more favourable
exchange rates. ****
 
 The
following table discloses certain financial data for the eight most recently
completed quarters, expressed in Canadian dollars (thousands)(except per share
data - basic and fully diluted):
 Period
    Totalrevenues***(1)***
    General
      and administrativeexpenses
    Net
      Loss (gain)
    Loss
      / (gain) Per shareQuarter
      ended December 31, 2004
    -
    388
    6,316***(2)(4)***
    0.062Quarter
      ended September 30, 2004
    -
    273
    255
    0.003Quarter
      ended June 30, 2004
    -
    258
    258
    0.003Quarter
      ended March 31, 2004
    -
    281
    315
    0.003Quarter
      ended December 31, 2003
    -
    375
    (525)***(2)(3)***
    -0.006Quarter
      ended September 30, 2003
    -
    210
    200
    0.002Quarter
      ended June 30, 2003
    -
    237
    224
    0.003Quarter
      ended March 31, 2003
    -
    394
    386
    0.005


***(1)***
    Since
      the Company is a development-stage company, it does not generate any
      revenue. ***(2)***
    Includes mineral property costs of $1,451,000 written
      off in 2004 and $31,000 written off in fiscal 2003 and future income tax
      provision of $4,574,200 taken in 2004 compared to a recovery of $922,000
      incurred in 2003.
 ***(3)***
    Restated to include stock based compensation expense of
      $179,622 incurred in fiscal 2003 ($465,523 incurred in fiscal
    2002).
 ***(4)***
    Includes stock based compensation expense of $19,430
      incurred in fiscal 2004.
 
 Exploration
work, particularly at the Company’s Jackson Inlet and TORNGAT properties, is
significantly affected by the weather and light conditions that prevail in the
Canadian Arctic in the Fall and Winter seasons. The level of the Company’s
activities at Atlanta and Abitibi are also somewhat impacted by winter weather
conditions. These factors result in lower overall levels of activity on the
Company’s properties during these seasons. However, as a property advances
toward the production stage and permanent facilities are constructed, the impact
of adverse weather conditions on operations will be reduced.
 
 - 8
-
 ***Share
Capital of the Company***
 
 As
at December 31, 2004 and as at January 30, 2005, the Company had 132,363,542
common shares outstanding, incentive stock options outstanding to purchase
4,350,000 additional common shares with exercise prices ranging from $0.285 to
$0.63 per share and warrants to purchase 47,054,524 **** common
shares of the Company with exercise prices ranging from $0.205 to $0.50 per
share. Stock options outstanding expire between February 2005 and November 2009.
Warrants outstanding expire between May 2005 and December 2006.
 
 ***Off-Balance
Sheet Arrangements***
 
 The
Company does not have any off-balance sheet arrangements.
 
 ***Transactions
with Related Parties***
 
 During
2004, there have been no related party transactions involving the Company except
as hereafter described. Directors of the Company have subscribed for 142,857
units of the Company at a price of $0.35 per unit, 1,905,000 units at $0.315 per
unit, 1,136,364 units at $0.22 per unit and 1,750,000 units at $0.20 per unit,
for aggregate gross proceeds to the Company of $1,250,075.
 
 ***Critical
Accounting Estimates***
 
 Estimates
were used in 2004 to record stock-based compensation and assess whether there
was any impairment in the carrying value of any of the Company’s mineral
properties. The fair value of stock-based compensation assumed a risk-free rate
of 4.0%, an expected life of 4.9 years and an estimated volatility in the market
price of the common share set at 52%. After the feasibility study on Atlanta was
completed in November 2004, the cash cost per ounce and total proven and
probable gold reserves were used to assess if a write-down or write-off was
required in respect of the carrying value of Atlanta. Since the Company’s other
mineral properties are in the exploration stage, no such data is available, and
hence, a similar assessment is not possible at this time. Actual results could
differ from those reported.
 
 ***Changes
in Accounting Policies including Initial Adoption***
 
 Stock
options
 The
Company issues stock options from time to time to its employees, officers,
directors and consultants to the Company. Commencing in 2002, the Company
adopted new recommendations for accounting for stock options, whereby disclosure
of the pro forma effect of any options granted in the current year is made using
the fair value method of accounting. Commencing in 2004, all stock based
compensation awards (including stock options) are expensed as incurred and will
be permitted retroactive application, without restatement, of recognition
provisions to awards not previously accounted for at fair value in accordance
with Canadian Accounting Standards Board (AcSB). Stock based compensation
expense for fiscal 2004 was $19,430. Sstock based compensation expense incurred
in 2002 and 2003 was $466,523 and $179,622, respectively. The cumulative total
of $646,145 was applied to the accumulated deficit at the start of the 2004
fiscal year.
 
 - 9
-
 ***Uncertainties
and Risk Factors***
 The
Company does not currently hold any interest in a mining property in production
and its future success depends upon its ability to find, develop, exploit and
generate revenue from mineral deposits. Exploration and development of mineral
deposits involve significant financial risks, which even a combination of
careful evaluation, experience and knowledge may not eliminate and there can be
no assurance that any of the Company’s current projects will ultimately be
developed into a profitable mining operation. A number of factors beyond the
control of the Company may affect the marketability of any diamonds, gold or any
other minerals discovered. Resource prices have fluctuated widely and are beyond
the Company’s control. Revenue and profitability will be determined by the
relationship of the Company’s production costs and in respect of diamonds, the
relative quality of the diamonds extracted and in respect of gold, the recovered
grade of gold, to resource prices. The effect of these factors cannot accurately
be predicted. The Company has limited financial resources and there is no
assurance that additional funding will be available to it for further
exploration and development of its projects or to fulfill its obligations under
applicable agreements. Although the Company has been successful in the past in
obtaining financing through the sale of equity securities, there can be no
assurance that the Company will be able to obtain adequate financing in the
future or that the terms of such financing will be favourable. Failure to obtain
such additional financing could result in delay or indefinite postponement of
further exploration and development of the Company’s properties with the
possible dilution or loss of such interests. In particular, as the Company’s
Atlanta property advances toward production, significant project financing,
whether by way of equity, debt or a combination thereof, will be required to
construct the mine and related facilities and to acquire the necessary
equipment. While management believes that Atlanta will be an attractive project
for potential investors, there can be no assurance that sufficient financings
will be obtained on terms favourable to the Company or in a timely manner. The
operations of the Company require licenses and permits from various governmental
authorities and while the Company currently holds all necessary licenses and
permits required to carry on its activities and believes it is complying with
such licenses, permits and all applicable laws and regulations, such licenses,
permits and laws are subject to change and there can be no assurance that the
Company will in future be able to obtain all necessary licenses and permits,
including those permits necessary to commence construction on Atlanta.
Furthermore, the cost of complying with changes in governmental laws and
regulations has the potential to reduce the profitability of future operations.
The acquisition of title to mineral projects is a very detailed and
time-consuming process and although the Company has taken precautions to ensure
that legal title and interest to its properties are properly recorded, there can
be no assurance that the interests of the Company in any of its properties may
not be challenged or impugned. In management’s view, there has been no material
change in the nature or magnitude of any of the risks faced by the Company
during fiscal 2004 from those risks faced by the Company in prior
years.
 
 *Forward
Looking Statements*
 Statements
in this report that describe the Company’s objectives, estimates, expectation or
predictions and other statements in this report preceded by words such as
“should, “anticipate” or similar expressions may be “forward looking statements”
within the meaning of applicable securities legislation. The Company cautions
that such statements involve risk and uncertainty and that actual results could
differ materially from those expressed or implied. Important factors that could
cause differences include, but are not limited to, global diamond and gold
prices and supply and demand, changes in government regulation, competitive
factors, litigation and other factors including those set out in the annual
report on form 20-F of the Company as filed with securities regulatory
authorities.
 
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 Additional
information relating to the Company, including the Company’s Form 20F, may be
accessed by visiting the SEDAR website at *www.sedar.com* .
 
 
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