MULUNCAY PROJECT

    


    Gold-Silver
Deposit

     

    Arcapamba,
Ecuador

    


    

    


    Report
Prepared by Exploration Alliance Ltd

    


    Authors:
A. Tunningley and C.Wilson

    


    July
2008

     

    
      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              Muluncay
      Project, Ecuador

            


    

    


    
      	
              1.0

            	
              Introduction

            


    

    
      
        The
Muluncay Project comprises three past producing gold mines located in the El Oro
Province of Ecuador, 60 kilometres east of the major port of Machala (Figure 1).
The project is currently operated by Minera Del Pacifico. Access is via paved
road in good condition, and partial gravel track. The local towns of Portovelo
and Zaruma are easily accessible from the property and can provide experienced
labor.

      

       

    

    
      	
              2.0

            	
              Terms
      of Reference

            


    

    
      Exploration
Alliance Ltd (EAL) geologists visited the Aguacate Mine on 23rd April 2008 as
part of a review of gold projects in Ecuador. A field assessment of the geology,
including underground observations, was undertaken. A 43-101 Technical Report
was provided by the client.

    

    


    
      	
              3.0

            	
              Historical
      Production

            


    

    
      The
Muluncay Project lies within a major historic gold-silver producing district
known as the Portovelo-Zaruma-Ayapamba district (Figure 1). Production commenced
in 1905 and the district has since yielded approximately 4.5 million ounces of
gold. The majority of this production is from the Grand Shaft Mine, Casa Negra
concession which produced 3.5 million ounces of gold and 12 million ounces of
silver at 14.6 g/t gold and 48.9 g/t silver.

    

     

    
      	
              4.0

            	
              Muluncay
      Concession

            


    

    
      Three
mines are held under the Muluncay concession; Aguacate, Fatima and Nueva
Esperanza 1. Also held is an operational processing plant which is currently
being upgraded to 110 tons per day, with a final estimated capacity of 500 tons
per day. Modernisation of mining methods and mine preparation are
ongoing.

      


      The Aguacate Mine is the main focus of
current work. Mineralisation is hosted in two subparallel veins, Jen and
Christina, which have an estimated vertical extent of approximately 800
metres and a strike length of approximately 1500 metres. Average vein width is
1.2 metres.

      


      High
grade ore has been extracted manually, almost exhausting bonanza grade material
to a depth of 200 metres. However, vein material below approximately 20 g/t Au
has not been considered economic in the past and there has been no drilling to
test depth potential. Mineralisation in the district occurs over a 1400 metre
vertical range, and the nearby Casa Negra mine has been developed over 800
metres vertically.

    

     

    
      	
              4.1
      

            	
              Mineralisation

            


    

    
      Previously
described as a low sulphidation vein type deposit, mineralisation at Muluncay is
now believed to represent a mesothermal vein and breccia target (Figure
2).

      


      Jen and
Christina breccias have been the focus of historic development. Exploration of
other sub-parallel veins and breccias situated between the Jen and Christina
structures is required. Additionally, stockwork quartz-sulphide veins in the
hanging walls of the main structures have not been worked historically due their
relatively low grade, however modern mining and processing techniques means this
style of mineralisation should also be considered (Figure 3).

      


      Mineralisation
occurs mainly in the form of breccias (Figure 2), composed of sub-angular,
chlorite-pyrite altered andesite fragments supported in a coarse-grained, banded
and comb texture quartz (Figures 4 and 5). Mulitple stages of sulphide
mineralisation associated with later quartz, quartz-calcite and calcite veins is
recognised (Figures 6 and 7). The main sulphides are iron rich sphalerite,
galena and pyrite. High gold grades are typically associated with high pyrite
content, whereas high silver grades are associated with high galena
content.

      


      Stockwork
quartz-sulphide veins have formed in the hanging wall of breccias and have not
been mined historically. Such zones may increase the size potential of the
target and represent a good exploration target if proximal to high grade
breccias (Figure 3).

    

     

    
      	 
      	 
      
	
              Report prepared by Exploration Alliance
      Ltd.

            	
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              Muluncay
      Project, Ecuador

            


    

    


    
      	
              4.2

            	
              Conceptual
      Model

            


    

    
      Mineralisation
at Muluncay is of the polymetallic gold-silver mesothermal vein type. These
systems are typified by coarse-grained, banded, cockade quartz-sulphide (for
example galena-sphalerite-pyrite) occuring in veins and as breccia cement. Many
deposits of this type can be mis-interpreted as epithermal due to quartz vein
textures, however in epithermal systems quartz is very fine- to fine-grained and
saccharoidal.

      


      Mineralisation
is hosted in en-echelon faults related to regional scale shear zones, and form
multiple parallel vein zones which pinch and swell along strike and down dip. In
contrast to epithermal systems, polymetallic gold-silver systems can display
precious metal deposition over a large (greater than one kilometre) vertical
extent (Figure 8).

       

    

    
      	
              5.0

            	
              Conclusion

            


    

    
      Excellent
potential exists at Muluncay for the existence of a low tonnage, high grade gold
and silver deposit with possible lead and zinc by-products. Despite the fact
that near surface (within 200 metres) high grade material has been largely
exhausted by previous workers, it appears economic ore blocks still exist in
current workings due to the present gold price and the introduction of modern
mining and processing technologies. Furthermore, there has been no drilling to
test the depth potential of the system despite the deposit being situated in a
district where other mines have been exploited to 800 metres below
surface.

      


      The
Muluncay Project also benefits from the existence of an operational processing
plant with an estimated final capacity of 500 tons per day. Mine development to
allow the mechanical extraction of ore is ongoing.

       

    

    
      	
              6.0

            	
              Recommendations

            


    

    Further
work to include:

    
      
        
          	 	 	 
	
                	
                  
                    ·

                  

                	
                  Channel
      sampling of existing adits with a rigorous QA/QC
  protocol;

                
	 	 	 


        

      

    

    
      
        	
              	
                
                  · 

                

              	
                Digital
      capture of mine plans, long sections and historic production
      data;

              
	 	 	 


      

    

    
      
        	
              	
                
                  ·

                

              	
                3
      dimensional modelling and resource-reserve estimate;

              
	 	 	 


      

    

    
      
        	
              	
                
                  · 

                

              	
                Bench
      scale metallurgical scoping study to maximise gold-silver recovery and
      assess potential Pb-Zn by- product;

              
	 	 	 


      

    

    
      
        	
              	
                
                  · 

                

              	
                Diamond
      drilling to test depth potential, distribution of grade in hanging wall of
      breccias and potential blind shoots;

              
	 	 	 


      

    

    
      
        	
              	
                
                  · 

                

              	
                Continuation
      of mine development and modernisation;

              
	 	 	 


      

    

    
      	
            	
              
                · 

              

            	
              Design
      parameters of processing plant should be revised upon completion of bench
      scale metallurgy study.

            


    

    


    
      	
              7.0

            	
              References

            


    

    
      Bain, D.,
2006, Report on Exploration Potential, Muluncay Epithermal Gold Project,
Portovelo-Zaruma-Ayapamba area, Province of El Oro, Ecuador. Technical
Report.

      


      Corbett, G.J., 2002, Epithermal Gold
for Explorationists: AIG Presidents Lecture, AIG Online Journal April
2002. AIG website www.aig.asn.au.

      


      Thournout,
F.V., Salemink, J., Valenzuela, G., Merlyn, M., Boven, A. and Muchez, P., 1996,
Portovelo: a volcanic-hosted epithermal vein system in Ecuador, South America.
Mineralium Deposita v31, p.269 - 276.

    

     

    
      	 
      	 
      
	
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              Muluncay
      Project, Ecuador

            


    

    


    

    


    Figure 1: Simplified geology,
Portovelo-Zaruma-Arcapamba gold district, Ecuador (modified from Bain, 2006 and
Thournout et al., 1996.


    
      	 
      	 
      
	
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              Muluncay
      Project, Ecuador

            


    

    


    


    Figure 2: Typical breccia. Note
moderate to steep dip of breccia, multi-phase mineralisation, sharp contact with
footwall and subparallel to weakly stockworked veining in hanging
wall.

    


    


    Figure 3: Stockwork vein zone and
narrow breccias have not been considered economic in the past. The economic
potential of these zones should be re-assessed to reflect present metal
prices.


    
      	 
      	 
      
	
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              Muluncay
      Project, Ecuador

            


    

    


    


    Figure 4: Breccia composed of banded
quartz-sulphide-chlorite fragments supported in a quartz-sulphide cement. Assays
pending.

    


    


    Figure 5: Banded
quartz-sphalerite-chlorite vein with disseminated pyrite. Note coarse-grained
quartz and andesite fragments. Assays pending.


    
      	 
      	 
      
	
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              Muluncay
      Project, Ecuador

            


    

    


    


    Figure 6: Monomict breccia supported by
coarse-grained, cockade quartz-galena-sphalerite, crosscut by banded and massive
quartz and quartz-carbonate veins. Breccia is offset by late normal faults. Weak
limonite as fracture fill.

    


    


    Figure 7: Banded and brecciated
quartz-sulphide vein crosscut by massive quartz veins. Disseminated
pyrite-galena-sphalerite associated with all phases of quartz
deposition.


    
      	 
      	 
      
	
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              Muluncay
      Project, Ecuador

            


    

    


    


    Figure 8: Conceptual model for
mineralisation at Muluncay Project (modified from Corbett, 2002). Note this model
presents a much greater potential vertical extent for mineralisation than true
low sulphidation type deposits.


    
      	 
      	 
      
	
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              Muluncay
      Project, Ecuador

            


    

     

    REPORT AUTHORS

    


    
      	
              Chris
      Wilson, PhD, FAusIMM (CP), FSEG

            	 
      	
              
                Principal
      Consultant

              

            


    

    Chris is
an exploration geologist with over 15 years industry experience who specialises
in design, implementation and management of exploration projects from grassroots
to pre-feasibility, field mapping and core logging, implementation of appropriate
Best Practice and QA/QC, and audits of preparation and assay laboratories. Chris
has significant experience in mapping and assessment of mesothermal lode gold
systems, low and high sulphidation Au-Ag epithermal systems, Au-Cu-Mo porphyry
and porphyry related stockwork and breccia targets, secondary copper blankets,
sediment hosted gold systems and iron oxide-copper-gold. Chris has some
experience with Fe-Cu-Au skarns and VMS systems.

    


    Prior to
becoming an independant consultant, Chris was the exploration manager for
Ivanhoe Mines in Mongolia, where he was responsible for countrywide grassroots
exploration and area selection, and management of an exploration portfolio
consisting of over 125 exploration licences totalling over 11 million
hectares.

    


    
      	
              Andrew
      Tunningley, MGEOL (Hons), MAusIMM, MSEG

            	 
      	
              
                Exploration
      Geologist

              

            


    

    Andrew is
an exploration geologist with five years varied exploration experience in China,
Central Asia, Laos, Northeast Africa, Iran, Canada and Peru. Andrew has a broad
geological skills set developed whilst working as an exploration geologist for
Ivanhoe Mines in Mongolia and China, and more recently as an independant
consultant including: regional reconnaissance resulting in area selection and
target generation, design, management and interpretation of regional and
prospect scale GIS datasets, design and implementation of advanced project field
mapping, geochemical sampling and reverse circulation/diamond drill programs.
Andrew is fully conversant with all aspects of Best Practice as defined by the
JORC and National Instrument 43-101 codes, and the design and monitoring of
project specific sampling, sample preparation and QA/QC protocols.

    


    Andrew
has specific experience with Au-Cu-Mo porphyry systems and associated oxide
deposits, Cu-Au breccias, Au mesothermal vein systems, Au-Ag-base metal
epithermal systems and intrusion hosted gold systems.


    
      	 
      	 
      
	
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