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Technical Report on the LongnoseIlmenite Project, Minnesota, USA

Report Prepared for

Cardero Resource Corp.

Report Prepared by

|SRK Consulting (Canada) Inc.
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|January 27, 2012            

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|Longnose NI43-101 | Page
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Technical Report on the
Longnose Ilmenite Project, Minnesota, USA

Cardero Resource Corp.Suite 2300  1177 West Hastings StreetVancouver, BC,V6E 2K3website: www.cardero.comTel: +1.604.408.7488Fax: +1.604.408.7499SRK Consulting (Canada) Inc.Suite 2200  1066 West Hastings StreetVancouver, BC, V6E 3X2e-mail: vancouver@srk.comwebsite: www.srk.comTel: +1.604.681.4196Fax: +1.604.687.5532SRK Project Number 2CC031.004Effective date:
    January 19, 2012Report date:
    January 27, 2012


Authored by:

Mike Johnson, P.Geo.
    
    Darrell Farrow, Pr.Sci.NatSenior Consultant (Geology)
    
    Associate Consultant (Geology)**Peer Reviewed by:**Wayne Barnett, Pr.Sci.NatPrinciple Consultant (Geology)


________________Cover Photo: A
meadow on Longnose Property in the summer

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Important
Notice

This report was prepared as a National
Instrument 43-101 Technical Report for Cardero Resource Corp. (Cardero or the
Company) by SRK Consulting (Canada) Inc. (SRK). The quality of information,
conclusions, and estimates contained herein is consistent with the level of
effort involved in SRKs services based on: i) information available at the time
of preparation, ii) data supplied by outside sources, and iii) the assumptions,
conditions, and qualifications set forth in this report. This report is intended
for use by Cardero subject to the terms and conditions of its contract with SRK
and relevant securities legislation. The contract permits Cardero to file this
report as a Technical Report with securities regulatory authorities pursuant to
National Instrument 43-101, Standards of Disclosure for Mineral Projects.

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Executive
Summary

This Technical Report documents the
current technical data and Mineral Resource estimate for the Longnose Project
(the Project). It was prepared following the guidelines of the Canadian
Securities Administrators National Instrument 43-101 (NI 43-101) and Form
43-101F1, and in conformity with generally accepted CIM Estimation of Mineral
Resources and Mineral Reserves Best Practice Guidelines. This report has been
written by SRK on behalf of Cardero.

Property Description and
Location

The Lands making up the Project
(Project Area) are located in northeastern Minnesota in St. Louis County,
Township 59N, Range 13W, Section 30 and is centered at: (Coordinate system:
Universal Trans Mercator, Zone 15 North, North American 1983 Datum) 572200
metres East, 5268300 metres North.

Carderos indirect wholly owned
subsidiary, Cardero Iron Ore (USA) Inc. (CIOUS), holds an option to acquire up
to an 85% interest in the Project by incurring USD 1,850,000 in expenditures (to
acquire 70%) and delivering a feasibility study (to acquire an additional 15%).
Upon CIOUS earning its 70% or 85% interest, the optionor of the Project has the
option to maintain its 30% or 15% interest and enter into a joint venture with
CIOUS, or to convert its working interest to either a 10% or 5% net profits
interest. Advance royalties and production royalties are payable to the
underlying property lessors.

CIOUS has all required licenses,
permits and registrations in place to carry out exploration and resource
definition drilling. Additional permits will be required in the future to
advance to the next stage.

Accessibility, Climate, Local
Resources, Infrastructure and Physiography

Topographic relief is generally low,
and the surface is flat-laying. Elevations range between 465 and 490 metres
(m) above mean sea level. The ground cover at the Project Area is a mixture of
Palustrine, forested wetlands (Cowardin classification system), and higher dry
forested ground. Overburden, consisting of glacial till, is present and the
depth to bedrock is approximately 3 m to 30 m from surface.

Accessibility is excellent, with the
Project located off of a paved county highway via a well maintained gravel
road.

The climate in northeastern Minnesota
is mid-continental. Winter conditions usually begin in mid-December and last
until mid-March, with frozen ground beginning in late December to early January.
The spring thaw usually begins in mid-March to late April, with stable, dry
spring-summer-fall conditions occurring from late April to mid-December.

The population of Aurora, Minnesota
(the nearest major population centre) is approximately 1,850, and the nearby
city of Hoyt Lakes (8 km, 5 miles, east of Aurora), Minnesota has a population
of approximately 2,000 people.

The infrastructure in northeastern
Minnesota related to mining activities is excellent, with low cost electricity,
railroads, paved state and county highways, international shipping ports, mining
professionals, mining vendors, and trained labor all readily available.
International shipping ports are

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located along the north shore of Lake
Superior, including Duluth/Superior, Silver Bay, Taconite Harbor, and Two
Harbors, with linked rail systems to all.

History

The lands making up the Project
(Project Area) were the subject of historical exploration processes between
1950 and 2008. The deposit was initially discovered by Bear Creek Mining, while
exploring for copper-nickel (Cu-Ni) deposits.

Twelve (12) drill holes were completed
by American Shield Corp., Bear Creek Mining, and Nicor during the 1980s and
1990s.

The Project Area was held by a series
of mining companies including American Shield and BHP Minerals International
Inc. (BHP). BHP held the Project Area for some time in the 1990s. Most of the work completed by BHP centered
on metallurgy, and TiO2 recovery. Initial metallurgical testing focussed on the production of an
ilmenite concentrate. Further upgrading analysis was completed as well, the
first of which involved a smelting and sulfation-leaching process developed by
the US Bureau of Mines. Their second investigation involved an
oxidation-reduction roast followed by chemical leaching, using a process called
the Murso process.

Several large (1.5 tonne to 60 tonne)
bulk samples were utilized to complete the metallurgical testwork. The larger
samples were collected from out crop of the Longnose deposit, while smaller test
samples were taken from core. The University of Minnesota, Natural Resources
Research Institute, Coleraine Minerals Research Laboratory houses what remains
of both bulk samples.

Geological Setting and
Mineralization

The Project Area is located within the
Superior Province of the Canadian Shield, and is underlain by intrusive rocks
generated during the formation of the Midcontinent Rift. Mineralization is
hosted by Oxide-bearing Ultramafic Intrusions (OUI or OUIs) that intruded
into layered series intrusions of the Duluth Complex. OUIs are dominantly
composed of coarse-grained to pegmatitic pyroxenite, peridotite, and dunite that
contain approximately 10-40% titanium-iron oxide mineralization, dominantly as
ilmenite with lesser titaniferous magnetite. Typically, zones of massive and
semi-massive oxide are also present throughout the stratigraphy. Locally, some
OUIs also contain abundant copper-nickel sulfide mineralization as well;
however, this style of mineralization has not been intersected within the
Project Area. Most OUIs occur along the western margin of the southern portion
of the Duluth Complex, and display numerous shapes (sheet-, funnel-, dike- and
pipe-like geometries) and inclinations (flat-lying, moderately-dipping, and
sub-vertical).

The Longnose OUI is geologically
interpreted to be a late-stage intrusion that cut early Duluth Complex
stratigraphy, and is associated with magmatism generated by the 1.1 billion year
old Midcontinent Rift system.

The Longnose OUl contains disseminated,
semi-massive, and massive ilmenite and titaniferous-magnetite mineralization.
The Project Area hosts a single intrusion which is at least 150 m thick, dipping
shallowly to the southeast.

Mineralization at the Project Area
dominantly consists of disseminated to net-textured, medium to coarse-grained,
Ilmenite, titaniferous magnetite and magnetite (Paster, 1987). Olivine-rich
ultramafic rocks (peridotite, feldspathic peridotite & dunite) host the
majority of the titanium-iron oxide mineralization found in the Longnose OUI,
and will often be net-textured with oxide minerals

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interstitial to silicates. Visual modal
mineral calculations generally estimate that titanium-iron oxide minerals
compose 15-35% of the peridotitic and dunitic rocks at the Project. Numerous
massive and semi-massive titanium-iron oxide horizons or zones (45-100%
titanium-iron oxide) have been intersected in drill core. These massive and
semi-massive oxides seem to be dominantly hosted by peridotite and dunite,
though they have been intersected within zones of pyroxenite as well. It is
clear that the main mineralized intrusion at the Project is a thick, laterally
and vertically continuous intrusion dominantly composed of a mixture of
oxide-bearing peridotite, oxide-bearing dunite, massive oxide, and semi-massive
oxide with between 15% and 100% titanium-iron oxide mineralization.

Exploration

Exploration at the Project has included
surface sampling, geophysics and diamond drilling.

Twenty-seven diamond drill core holes
have been drilled on the Project Area, including six holes drilled by CIOUS in
2010, and nine holes drilled by CIOUS in 2011. Historic drilling includes 12
drill holes completed by a variety of operators in the 1980s and 1990s. The
historic drill core has been re-sampled by CIOUS during 2009 and 2010, where
such material was available. In total, the twenty-seven holes totalled 5,217 m,
with 1,979 m from historic holes and 3,238 m from CIOUS drill holes.

Drill hole spacing for the Project is
variable (drill holes are not on a regular grid) between 50 m and 100 m. Drill
core has been sampled in 1 m to 6 m intervals.

Exploration data has focussed on the
geology and titanium (Ti) and iron (Fe) analytical sample data; however,
other elements should be reviewed and potentially estimated in future
analysis.  Titanium was measured as TiO2and iron was measured
as Fe2O3.

Sample Preparation, Analyses and
Security

CIOUS has utilized a thorough and
robust procedure for sampling, sample preparation, analysis and security.

Procedures for core handling, logging,
sampling and sample shipping were well thought out and well implemented.
Analysis was completed by ALS, one of the largest commercial laboratories in the
world. A robust program of quality assurance and quality control samples was
implemented and met or exceeded industry standard procedures. Sample security
and chain of custody documentation was maintained throughout the process and was
thoroughly reviewed by SRK.

Data Verifications

Exploration data verification for the
Project has included a site visit by SRK, enforced database structures,
analytical quality assurance and quality control (QA/QC) samples, independent
sampling and assay checking.

SRKs Wayne Barnett, Pr.Sci.Nat visited
the site in July 2009 and Mike Johnson, P. Geo, visited the site in March 2010.
During these site visits, SRK verified drill hole locations, drilling, logging
and sampling procedures, security and documentation. SRK also collected
independent sampling during these site visits and confirmed the TiO2and Fe2O3values for five Longnose samples.

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CIOUS utilized an onsite database which
validated the data entry process as it was being completed and reduced clerical
errors. As well, Carderos head office checked the data upon import into their
main exploration database in order to minimize data errors.

SRK verified 92% of the assay database
by downloading these records directly from the commercial laboratory and
checking them against the Mineral Resource database.

CIOUS completed QA/QC sampling (blanks,
standards, duplicates) totalling 393 samples, equal to 23% of the total samples.
SRK has reviewed the QA/QC sample insertion rate and results, and concluded that
the analytical data should be reliable.

Mineral Processing and Metallurgical
Testing

Most processing and metallurgical
testwork at the Project was completed prior to CIOUS involvement in the
property.

Historical metallurgical testwork
indicated that there is a reasonable chance that a saleable ilmenite and
magnetite concentrate could be created from the Longnose deposit. Metallurgical
testing regarding the Longnose deposit has focussed primarily on optimizing
ilmenite recovery and creation of the ilmenite concentrate.

The historic metallurgical testwork
indicates a relatively simple processing flow sheet. It would include crushing
the material to a selected size and processing the ore by density and then by
magnetic properties. The density separation would remove the silicates from the
much more dense oxides. The oxides would then be split into a non-magnetic /
paramagnetic fraction as well as a magnetic fraction. Magnetite would partition
into the magnetic fraction, while the ilmenite would partition into the
non-magnetic / paramagnetic fraction. The magnetic fraction could be further
upgraded to recover some ilmenite that would partition into that fraction. The
ilmenite concentrate could then be sold to an external processing site, or could
be processed at a newly created process facility as part of a further
beneficiation/added value processing project; however, a potential upgrading
facility would have very significant capital costs.

Historical testwork has shown that the
concentrates created from the Longnose rock can be processed into a potentially
saleable concentrate (Westmont, 1990); however, the quality of the concentrate
may be adversely affected by the high magnesium content of the ilmenite. (Wright
et al, 1984)

CIOUS has completed very limited
metallurgical testing at this stage. Recent work includes only Davis Tube tests,
which are used to determine the proportion of material which is magnetic and
which is commonly associated with magnetite.

CIOUS will have to complete further
metallurgical work for the Project if further economic analysis is
contemplated.

Mineral Resource Estimates

In 2011, SRK was retained by Cardero to
complete a Mineral Resource for the Longnose OUI deposit, as well as update the
technical report for the Project.

SRK utilized Gemcoms Surpac®version 6.2 and several other software packages to complete the
estimation. A comprehensive and validated drill hole database was utilized to
complete the analysis. The database includes twenty-seven drill holes; however,
only twenty-four were utilized in

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the estimation process due to issues
with resampling of some historic drill holes. All 2010-11 drill hole data
included multi-shot downhole surveys; however, historic holes did not have
downhole surveys. The estimation process utilized 1681 samples out of the
databases 1956 samples. A total of 855 specific gravity measurements were
utilized to estimate bulk densities. Estimation of metal grades utilized
regularized 2 m composites.

Two geological domains were defined for
the estimation process. The domains were defined by the presence of peridotite
or pyroxenite oxide bearing rocks. The peridotite domain has higher olivine
content and encompasses higher TiO2grades near the core of the
deposit. The pyroxenite domain includes higher pyroxene content, has lower
TiO2grades and is generally found at the periphery of the deposit.
The geological domains are generalized, with some instances of other rock types
within each domain.

The estimations were made into a
threedimensional block model with 20 m by 20 m by 10 m block size, with
sub-blocking to 5 m by 5 m by 2.5m. Estimated parameters included specific
gravity, TiO2and Fe2O3grades. Metal grade
interpolation was completed through three passes using increasingly larger
search ellipses and lower restrictions on sample inclusion in each pass. Search
ellipses were generally flat pancakes with the shortest direction of
continuity sub-vertically and the longest in the northwest-southeast direction.
The search ellipse orientations, which dip 20 degrees to the east, were based
upon variography completed on the 2 m composite data. Ordinary kriging (OK)
was used to estimate TiO2and Fe2O3, while
inverse distance squared (ID2) was used to estimate the specific gravity data.
Mineral resources were classified in accordance with definitions provided by the
Canadian Institute of Mining (CIM) as stipulated in NI 43-101.

In order to quantify the Mineral
Resources requirement of reasonable prospects of economic extraction, the
block model was subjected to conceptual mining limits using an open pit
optimization program. The process uses reasonable mining and processing
parameters to define a conceptual pit within which the material with reasonable
economic prospects should be contained. For the Project optimization runs, it
was assumed that all TiO2is contained in the mineral Ilmenite.
Fe2O3values were modified to reflect the amount of iron
taken up by ilmenite as well as the component estimated to be within silicates.
However, more detailed testing is required in order to properly quantify the
magnetite content of the resource, so iron was not given any value in the
resource pit optimization limits. Historic metallurgical data indicates that a
very high percentage of the TiO2is contained within ilmenite (Small,
1994), with a relatively small component in titaniferous magnetite and
silicates.

The Mineral Resource Statement for the
Project is presented in Table i below.

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Table i: Mineral Resource
Statement*, Longnose Project, Minnesota, USA, SRK Consulting (Canada) Inc,
effective date, January 19, 2012.

Category**(Open Pit**)**
    Estimated Quantity
    Estimated GradeTiO2
    Adjusted
      Fe2O3***Mt
    %
    %Indicated
    58.1
    16.6
    18.8Inferred
    65.3
    16.4
    19.4*
    Mineral resources are reported in relation to a
      conceptual pit shell. Mineral resources are not mineral reserves and do
      not have demonstrated economic viability. All figures are rounded to
      reflect the relative accuracy of the estimate. All composites have been
      capped where appropriate.**
    Open pit (near surface) Mineral Resources are reported at
      a cut-off grade of 8% TiO2. Cut-off grades are based on a price
      of US$170 per tonne of Ilmenite back calculated to TiO2and
      recoveries of 70 percent, without considering revenues from other metals
      including Fe.***
    Reported Fe2O3has been lowered to
      reflect the amount of Fe estimated contained within ilmenite and
      silicates, based upon Davis Tube testing. At this time, accurately
      quantifying the amount of magnetite contained within this estimate is not
      possible.


As stated above, the Mineral Resource
has been quantified in terms of TiO2and Fe2O3, the 
analytical components captured for assays of titanium and iron. The
Fe2O3values have been  reduced to reflect Fe found
within silicates and within the ilmenite associated with the TiO2,
however  accurately quantifying magnetite is not possible at this time as
further mineralogical work will be  needed. In any potential mining
scenario, the Project would produce ilmenite (FeTiO3) and may produce
titaniferous magnetite (TiFe2O4) and magnetite
(Fe3O4) as a by-product. Using CIOUSs  Davis Tube
test results, historic mineralogy and metallurgy reports, reasonable assumptions
regarding mineralogy of the deposit, estimates of the quantity of ilmenite was
made. The contained ilmenite in the Mineral Resource is summarized in Table ii.

Table ii: Summary of Longnose
Project ilmenite content within the Mineral Resource

Category
    **Quantity**
    Ilmenite Grade
    Contained Ilmenite(FeTiO3)Mt
    %
    Mt.Indicated
    58.1
    31.5
    18.30Inferred
    65.3
    31.2
    20.40


Interpretation and
Conclusions

The Longnose deposit is an ultramafic
intrusion significantly enriched in ilmenite and magnetite oxides. The deposit
is flat lying and provides a geometry that should be amicable to open pit
mining. The Longnose deposit is approximately 700 m long in the north-south
direction, 600 m wide in the east-west direction and 150 m thick.

The Longnose OUI is geologically
interpreted to be late-stage intrusion that cuts early Duluth Complex
intrusives, and is associated with magmatism generated by the 1.1 billion year
old Midcontinent Rift system. The drilling program conducted in 2010 and 2011 by
CIOUS confirmed strong titanium-iron-oxide mineralization at the Project Area,
hosted within troctolitic rocks of the Partridge River intrusion.

The Longnose intrusion is
stratigraphically simple, consisting of a core of olivine-rich dunitic and
peridotitic rocks containing disseminated titanium-iron oxide mineralization
with horizons of massive and semi-massive oxide throughout, that is enveloped by
pyroxenitic rocks, which contain much less mineralization. Disseminated
titanium-iron oxide mineralization is continuous, and the horizons of

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massive and semi-massive oxide may link
up to form layers that dip moderately coincident with dip of the overall
intrusion.

The exploration data for the Project is
robust; viable to support the Mineral Resource defined within this document. The
data has been well validated and the analyses have been found to be repeatable.
Overall, correlation of the mineralization between drill holes is reasonable and
it is expected that the Mineral Resource accurately represents the TiO2and Fe2O3mineralization. Based  on the
TiO2estimates, the mineralogy of the deposit and the Davis Tube test
results, the amount of  ilmenite and magnetite has been quantified.

Ilmenite and, to a lesser extent,
titaniferous magnetite is used as a source material for titanium which is used
to make paint pigment and as a metal alloy. Rutile is the ideal source material
for titanium as it contains nearly twice as much Ti as ilmenite; however,
ilmenite is by far the more common source. Most ilmenite is processed from
ilmenite sands (secondary ilmenite) however several primary ilmenite mines have
been successfully exploited. Processing plants capable of handling ilmenite
concentrates are found in Canada, the US and throughout the world.

Ilmenite is an industrial mineral and
there are risks and uncertainties associated with this ilmenite resource, many
of which are common to industrial mineral deposits. Industrial minerals have
special risks that are not typically associated with precious or base metal
mines. Special concerns include mineralogy of material, deleterious elements
(such as silica, calcium, magnesium and manganese), and special market factors
such as market size or proprietary technology. Because of these and other
issues, industrial mineral deposits carry additional risk compared to more
common metal products. Historic testwork has indicated that the Longnose deposit
produces concentrate with less favourable magnesium levels, which may adversely
affect the potential value of the concentrate.

Historic tests have indicated that a
viable ilmenite concentrate could be created from processing of Longnose
material, although higher than ideal magnesium levels may reduce the product
price somewhat. The ilmenite could potentially be sold as a concentrate to an
existing ilmenite processing plant, as the deposit is amicable to shipping due
to its proximity to rail and a short haul to bulk ports on the western shore of
Lake Superior. As well, local added-value beneficiation is under consideration
by Cardero. This goal of further beneficiation would be to produce a high
TiO2synthetic rutile slag amicable for processing into the paint
pigments; however, such processing facilities are capital intensive and further
work is required to determine if such a process is viable.

Based upon the significant amount of
historical research completed on the Project, a relatively simple processing
flow sheet for ilmenite concentrate, a recent increase in demand for ilmenite
and the projects close proximity to other bulk mines and inexpensive shipping
routes, SRK believes that the Project meets the criteria for having reasonable
prospects of economic extraction.

Recommendations

In order to begin to better understand
the potential economics of the Project, further work is required. At this stage
of the exploration, SRK recommends the following work and expenditures:

- a comprehensive mineralogical study of the oxide
  and sulfide mineralization should be conducted to confirm the specific oxide
  minerals present throughout the defined mineralization;
- metallurgical testwork in conjunction with the
  mineralogical studies, to assist with better understanding of ilmenite and
  magnetite recovery, project economic analysis and provide an update to the
  work completed in the 1990s;

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- completion of a preliminary economic assessment to
  assist with further exploration and provide project specific economic
  criteria;
- further study of the other elements, such as
  vanadium, magnesium and silica contents and how they are distributed through
  the deposit;
- a relatively small infill drilling program
  consisting of 3-5 drill holes; and,
- a small step-out drilling program targeting the
  southern part of the intrusion consisting of 3-5 drill holes.

A budget to complete the recommended
work program is presented in Table iii.

Table iii: Estimated Cost for the
Exploration Program Proposed for the Longnose Project.

Recommendation
    Estimated Cost
      (US$)Mineralogical studies and analytical data
    50,000Metallurgical analysis and testwork
    150,000Preliminary economic assessment analysis
    150,000Geophysical Survey
    30,000Longnose step-out drilling (3-5
      holes/900-1500m @ $165/m*)
    200,000Longnose infill drilling (3-5
      holes/600-1000m @ $165/m*)
    130,000Acquisition of additional mineral
      leases/property boundary survey
    40,000TOTAL
    750,000* Drilling cost per meter includes: Site and
      Trail preparation, drilling, sampling, facility/vehicle lease, and
      staffing


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Table of Contents

Important
      Notice
    2Executive
      Summary
    3Property
      Description and Location
    3Accessibility,
      Climate, Local Resources, Infrastructure and Physiography
    3History
    
    4Geological
      Setting and Mineralization
    4Exploration
    5Sample
      Preparation, Analyses and Security
    5Data
      Verifications
    5Mineral
      Processing and Metallurgical Testing
    6Mineral
      Resource Estimates
    6Interpretation
      and Conclusions
    8Recommendations
    9Table
      of Contents
    11List
      of Tables
    14List
      of Figures
    141
    Introduction
      and Terms of Reference
    171.1
    Work
      Program
    171.2
    Basis
      of Technical Report
    181.3
    Qualifications
      of SRK and SRK Team
    181.4
    Site
      Visit
    181.5
    Acknowledgement
    191.6
    Declaration
    192
    Reliance
      on Other Experts
    203
    Property
      Description and Location
    213.1
    Mineral
      Tenure
    223.2
    Longnose
      Interest
    233.3
    Permits
      and Authorization
    243.4
    Environmental
      Considerations
    244
    Accessibility,
      Climate, Local Resources, Infrastructure and Physiography
    264.1
    Accessibility
    264.2
    Local
      Resources and Infrastructure
    264.3
    Climate
    274.4
    Physiography
    285
    History
    
    305.1
    Titaniferous
      Iron Oxide Mineralization in the Duluth Complex
    305.2
    Longnose
      Property
    305.2.1
    Historic
      Metallurgical Studies
    316
    Geological
      Setting and Mineralization
    346.1
    Regional
      Geology
    346.2
    Property
      Geology
    366.3
    Geology
      of the Longnose Property
    366.4
    Mineralization
      at Longnose
    387
    Deposit
      Types
    40


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8
    Exploration
    429
    Drilling
    
    439.1
    Drilling Results
    449.2
    Historic Drill Hole Sampling
    4610
    Sample Preparation, Analyses, and Security
    4710.1
    Sampling Method and Approach
    4710.2
    Drill Core and Sample Interval
      Preparation
    4710.3
    Sample Collection and Preparation
    4810.4
    Sample Preparation, Analyses and
      Security
    4810.5
    Sample Analysis
    4810.6
    Sample Security
    5010.7
    Quality Assurance and Quality Control Programs
    5011
    A
      total of Data Verification
    5211.1
    Quality Control Results
    5211.2
    Verifications by Cardero
    5611.3
    Verifications by SRK
    5611.3.1
    Site Visit
    5611.3.2
    Verifications of Analytical Quality Control Data
    5711.3.3
    Independent
      Verification Sampling
    5711.3.4
    Independent Assay Verification
    5812
    Mineral Processing and Metallurgical Testing
    5912.1
    Recent Metallurgical Testwork
    5913
    Mineral Resource Estimates
    6013.1
    Introduction
    6013.1.1
    Ilmenite
      and Mineral Resources of Industrial Minerals
    6013.2
    Resource
      Estimation Procedures
    6213.3
    Resource
      Database
    6213.4
    3D
      Modelling
    6313.5
    Bulk
      Density
    6513.6
    Compositing
    6513.7
    Evaluation
      of Outliers
    6613.8
    Statistical
      Analysis and Variography
    6713.8.1
    Composite
      Statistics
    6713.8.2
    Specific
      Gravity Sample Statistics
    7013.8.3
    Variography
    7113.9
    Block
      Model and Grade Estimation
    7413.9.1
    Grade
      Interpolation
    7413.9.2
    Specific
      Gravity Interpolation
    7513.10
    Model
      Validation
    7513.10.1
    Declustered
      Average Grades
    7513.10.2
    Comparison
      of Well Informed Blocks
    7613.10.3
    Swath
      Plot Comparison of Estimates to Composites
    7713.11
    Fe2O3
      estimate adjustment using Davis Tube data
    7813.12
    Mineral
      Resource Classification
    7913.13
    Mineral
      Resource Statement
    8113.14
    Grade
      Sensitivity Analysis
    8314
    Adjacent
      Properties
    8515
    Other
      Relevant Data and Information
    86


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|16 | Interpretation
      and Conclusions | 87
|-- | ------------------------------------ | --
|17 | Recommendations                      | 89
|18 | References                           | 91

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List of Tables

Table
      3.1:
    Mineral
      Tenure Information
    24Table
      4.1:
    Average
      monthly temperatures and precipitation, Hoyt Lakes, Minnesota
    28Table
      9.1:
    Contemporary
      and historic drilling at the Longnose property
    44Table
      10.1:
    Analytes
      and Ranges of ALS Laboratory Group sample analysis method ME- ICP06
    49Table
      10.2:
    Analytes
      and Ranges of ALS Laboratory Group sample analysis method ME- 4ACD81
    49Table
      10.3:
    Analytes
      and Ranges of ALS Laboratory Group sample analysis method ME- MS81
    49Table
      11.1:
    Summary
      of Analytical Quality Control Data Produced By Cardero on the Longnose
      Project, 2010/11
    57Table
      11.2:
    Assay
      Results for Verification Samples Collected SRK on the Longnose Project.
    58Table
      13.1:
    Statistical
      Summary of assay results in the database
    63Table
      13.2:
    Statistical
      summary of specific gravity data in the database
    63Table
      13.3:
    TiO2and Fe2O3variogram parameters for both
      Longnose domains
    71Table
      13.4:
    Block
      Model Summary
    74Table
      13.5:
    Search
      ellipse parameters (Rotations aligned with Search Ellipses)
    75Table
      13.6:
    Declustered
      Average Grade compared to Estimated Grade at Zero Cut-off
    76Table
      13.7:
    Assumptions
      Considered for Conceptual Open Pit Optimization
    81Table
      13.8:
    Mineral
      Resource Statement*, Longnose Project, Minnesota, USA, SRK Consulting
      (Canada) Inc., effective date, January 19, 2012.
    82Table
      13.9:
    Summary
      of Longnose Project Ilmenite content
    82Table
      13.10:
    Global
      block model quantities and grade estimates* at various TiO2cut-off grades, Longnose Project.
    83Table
      17.1:
    Estimated
      Cost for the Exploration Program Proposed for the Longnose Project
    90


List of Figures

|Figure
      3.1: | Location
      of the Longnose property                                                                                                                         | 21
|----------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------- | --
|Figure
      3.2: | Longnose
      Property boundary with 2010 drill collar locations                                                                                               | 22
|Figure
      4.1: | Typical
      Landscape in the Project Area (provided by CIOUS)                                                                                                 | 29
|Figure
      5.1: | Map
      showing the locations of historic diamond drill holes and bulk sample test
      pits on the Longnose property, taken from Patelke and Severson, 2005 | 31
|Figure
      5.2: | 1996
      bulk sample treatment flow sheet                                                                                                                     | 32
|Figure
      6.1: | Mid-continent
      Bouguer gravity anomaly (Source
      geo.umn.edu/mgs/nicegeo/pdfs/boug_grav.pdf)                                                           | 34
|Figure
      6.1  | Geological
      Map of northeastern Minnesota                                                                                                                  | 35

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|Figure
      6.4:   | Schematic
      cross-section through the Longnose Oxide-bearing Ultramafic Intrusion                                                   | 37
|------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | --
|Figure
      6.5:   | Rock
      classification scheme for Duluth Complex rocks, after Severson and Hauck,
      1990                                         | 38
|Figure
      9.1:   | Map
      Showing the Distribution of Longnose Drilling                                                                                 | 45
|Figure
      9.2:   | Example
      of drill holes with the Pyroxenite domain boundary in oblique section,
      looking northeast                            | 46
|Figure
      10.1   | Cardero
      Longnose Project Quality Control/Quality Assurance procedures                                                             | 51
|Figure
      10.1:  | Cardero
      Longnose Project Quality Control/Quality Assurance procedures                                                             | 51
|Figure
      11.1:  | Scatterplot
      graph of TiO2data for quarter core field duplicate data                                                               | 52
|Figure
      11.2:  | Scatterplot
      graph of TiO2data for preparation duplicate data                                                                      | 53
|Figure
      11.3:  | TiO2data presented for internal reference materials TTC-1                                                                               | 53
|Figure
      11.4:  | TiO2data presented for internal reference material LNC-1                                                                                | 54
|Figure
      11.5:  | Scatterplots
      presenting analytical umpire (check) assays versus original assay results
      for Fe2O3(left) and TiO2(right) data | 55
|Figure
      11.6:  | TiO2data presented for the Pokegama Quartzite Blank samples                                                                             | 55
|Figure
      11.7:  | Comparison
      of independent SRK verification samples                                                                                | 58
|Figure
      13.1:  | Titanium
      feedstocks & uses (Westmont, 1990)                                                                                       | 62
|Figure
      13.2:  | Longnose
      three-dimensional (3-D) model domains (100 m grid)                                                                     | 64
|Figure
      13.3:  | Longnose
      3-D models with drill holes (50 m grid, looking northeast)                                                               | 64
|Figure
      13.4:  | Histogram
      of sample lengths                                                                                                       | 65
|Figure
      13.5:  | Peridotite
      Probability Plot (declustered composites)                                                                              | 66
|Figure
      13.6:  | Pyroxenite
      Probability Plot (declustered composites)                                                                              | 67
|Figure
      13.7:  | Peridotite
      composite histogram for TiO2                                                                                           | 68
|Figure
      13.8:  | Pyroxenite
      composite histogram for TiO2                                                                                           | 68
|Figure
      13.9:  | Peridotite
      Composite Histogram for Fe2O3                                                                                          | 69
|Figure
      13.10: | Pyroxenite
      composite histogram for Fe2O3                                                                                          | 69
|Figure
      13.11: | Longnose
      specific gravity histogram, peridotite domain                                                                            | 70
|Figure
      13.12: | Longnose
      specific gravity histogram, pyroxenite domain                                                                            | 70
|Figure
      13.13: | Longnose
      specific gravity histogram, country rocks                                                                                | 71
|Figure
      13.14: | 2-D
      sub-horizontal component of the TiO2variogram                                                                                 | 72
|Figure
      13.15: | Sub-vertical
      component of the TiO2variogram (downhole)                                                                            | 72
|Figure
      13.16: | Major
      (top), semi-major and minor axis (bottom) Fe2O3variograms                                                                   | 73
|Figure
      13.17: | Comparison
      of TiO2from Well Informed Blocks                                                                                       | 76
|Figure
      13.18: | Comparison
      of Fe2O3from Well Informed Blocks                                                                                      | 76
|Figure
      13.19: | Pyroxenite
      Domain TiO2Swath Plots                                                                                                 | 77
|Figure
      13.20: | Peridotite
      Domain TiO2Swath Plots                                                                                                 | 77

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|Figure
      13.21: | Cross section of Longnose OUI showing block grades
      (looking northeast) | 78
|------------------- | ---------------------------------------------------------------------------- | --
|Figure 13.22 :      | Davis
      Tube regression, peridotite domain                               | 79
|Figure
      13.23: | Mineral Resource blocks coloured by Mineral Resource
      classification    | 80
|Figure 13.24:       | Grade Tonnage
      Curves for the Longnose                                  | 84

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|1 | Introduction and Terms of
  Reference
|- | -------------------------------------

This technical report for the Longnose
property, located in Minnesota, USA, has been prepared for Cardero. Cardero is a
mineral exploration company with corporate headquarters in Vancouver, B.C.,
Canada, and is listed on the Toronto Stock Exchange and the NYSE-Amex Stock
Exchange. The Project interest is held by CIOUS, and work on the Project is
carried on through Cardero Iron Ore Management (USA) Inc., an indirectly wholly
owned subsidiary of Cardero.

This report relies on: historical assay
data collected from drilling on the Property from the 1950s to the 1970s;
re-logging of the drill core in the 2000s; re-assaying of the coarse rejects and
quarter core of historical drill cores in 2009. Other geological information has
come from a variety of sources, including the Minnesota Department of Natural
Resources and other governmental sources, publicly available information, the
underlying land owners of the Longnose property and personal communications with
geologists and other professionals active in the area. In addition, this report
incorporates data from drill testing of the Project commissioned by CIOUS in
2010 and 2011.

The Project Area is located in
northeastern Minnesota near Aurora (Figure 3.1 ). It represents one of the
numerous OUIs hosted by the Duluth Complex, which feature strong
titaniferous-iron oxide mineralization. At the ProjectLongnose property, a total
of 26 diamond drill holes have been completed: 11 by Northern Illinois Corp.
(Nicor) and American Shield Corp., dating back to the mid-1970s, and 15 by CIOUS
in 2010 and 2011.

In 2009, Cardero commissioned SRK
Consulting (Canada) Inc. (SRK) to visit the Project and prepare a geological
and Mineral Resource model for the Project. The services were rendered between
July 2009 and January 2012, leading to the preparation of the Mineral Resource
statement reported herein.

This technical report documents a
Mineral Resource statement for the Project prepared by SRK. It was prepared
following the guidelines of the Canadian Securities Administrators National
Instrument 43-101 and Form 43-101F1. The Mineral Resource statement reported
herein was prepared in conformity with generally accepted CIM Estimation of
Mineral Resources and Mineral Reserves Best Practice Guidelines.

|1.1 | Work Program
|--- | ------------

The Mineral Resource statement reported
herein is a collaborative effort between Cardero and SRK personnel. The
exploration database was compiled and maintained by Cardero, and was audited by
SRK. The geological model and outlines for the OUI mineralization were
constructed by SRK from drill hole logs provided by Cardero. In the opinion of
SRK, the geological model is a reasonable representation of the distribution of
the targeted mineralization at the current level of sampling. The geostatistical
analysis, variography and grade models were completed by SRK during the months
between September 2011 and January, 2012.

The Mineral Resource statement reported
herein was prepared in conformity with generally accepted CIM Exploration Best
Practices and Estimation of Mineral Resource and Mineral Reserves Best
Practices guidelines. This technical report was prepared following the
guidelines of NI 43-101 and Form 43-101F1.

The technical report was assembled in
SRK Vancouvers office during January 2012.

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|1.2 | Basis of Technical Report                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | This report is based on information collected by SRK
      during a site visit performed March 12 and March 13, 2010 and on
      additional information provided by Cardero throughout the course of SRKs
      investigations. Other information was obtained from the public domain. SRK
      has no reason to doubt the reliability of the information provided by
      Cardero.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | This technical report is based on the following sources
      of information:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|1.3 | Qualifications of SRK and SRK
  Team                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The SRK Group comprises over 1,000 professionals,
      offering expertise in a wide range of resource engineering disciplines.
      The SRK Groups independence is ensured by the fact that it holds no
      equity in any project and that its ownership rests solely with its staff.
      This fact permits SRK to provide its clients with conflict-free and
      objective recommendations on crucial judgment issues. SRK has a
      demonstrated track record in undertaking independent assessments of
      Mineral Resources and Mineral Reserves, project evaluations and audits,
      technical reports and independent feasibility evaluations to bankable
      standards on behalf of exploration and mining companies and financial
      institutions worldwide. The SRK Group has also worked with a large number
      of major international mining companies and their projects, providing
      mining industry consultancy service inputs.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The resource evaluation work and the compilation of this
      technical report was completed by Michael D. Johnson, P.Geo. By virtue of
      their education, membership to a recognized professional association and
      relevant work experience, Michael D. Johnson is an independent Qualified
      Person as this term is defined by NI 43-101.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The data validation and QA/QC analysis was completed by
      Darrell Farrow, Pr.Sci.Nat. By virtue of education, membership to a
      recognized professional association and relevant work experience, Darrell
      Farrow is an independent Qualified Person as this term is defined by NI
      43-101.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Dr. Wayne Barnett, Pr.Sci.Nat, a Principal with SRK,
      reviewed drafts of this technical report prior to their delivery to
      Cardero as per SRK internal quality management procedures. Dr. Wayne
      Barnett visited the project in July 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|1.4 | Site Visit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | In accordance with NI 43-101 guidelines, Mike Johnson of
      SRK visited the Longnose project on March 12 and 13, 2010, accompanied by
      Chris White, Senior Site geologist for CIOUS.Cardero. Wayne Barnett of SRK
      has also previously visited the site in July 2009 accompanied by Carderos
      Tansy OConnor-Parsons.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The purpose of the most recent site visit was to review
      the digitalization of the exploration database and validation procedures,
      review exploration procedures, define geological modelling procedures,
      examine drill core, interview project personnel, and collect all relevant
      information for the preparation of a Mineral Resource model and the
      compilation of a technical report. During the visit,
  particular                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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attention was given to the treatment
and validation of historical drilling data as well as the procedures being
implemented during drilling, logging and sampling.

The site visit was completed while
drilling was taking place on the Project. SRK staff was able to observe
drilling, surveying, logging, sampling and sample handling and shipping.

SRK was given full access to relevant
data and conducted interviews with Cardero/CIOUS personnel to obtain information
on the past exploration work, to understand procedures used to collect, record,
store and analyze historical and current exploration data.

|1.5 | Acknowledgement
|--- | ---------------

SRK would like to acknowledge the
support and collaboration provided by Cardero/CIOUS personnel for this
assignment, particularly Chris White and Tansy OConnor-Parsons. Their
collaboration was greatly appreciated and instrumental to the success of this
project.

As well, the authors would like to
thank SRKs Dr. Gilles Arseneau, P.Geo., Marek Nowak, P.Eng, and Dr. Adrian
Dance for their contributions, reviews and advice during analysis and reporting
of this Mineral Resource.

|1.6 | Declaration
|--- | -----------

SRKs opinion contained herein and
effective January 19, 2012, is based on information collected by SRK throughout
the course of SRKs investigations, which in turn reflect various technical and
economic conditions at the time of writing. Given the nature of the mining
business, these conditions can change significantly over relatively short
periods of time. Consequently, actual results may be significantly more or less
favourable.

This report may include technical
information that requires subsequent calculations to derive subtotals, totals
and weighted averages. Such calculations inherently involve a degree of rounding
and consequently introduce a margin of error. Where these occur, SRK does not
consider them to be material.

SRK is not an insider, associate or an
affiliate of Cardero, and neither SRK nor any affiliate has acted as advisor to
Cardero, its subsidiaries or its affiliates in connection with the Project. The
results of the technical review by SRK are not dependent on any prior agreements
concerning the conclusions to be reached, nor are there any undisclosed
understandings concerning any future business dealings.

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|2 | Reliance on Other
Experts
|- | -------------------------

In preparing this report, SRK has
relied on information provided by Cardero for matters pertaining to
environmental, socioeconomic, and permitting issues. SRK has not performed an
independent verification of land title and tenure as summarized in Section 3 of
this report. SRK did not verify the legality of any underlying agreement(s) that
may exist concerning the permits or other agreement(s) between third parties,
but have relied on a preliminary title work carried out by Minnesota counsel to
Cardero.

SRK was informed by Cardero that there
are no known litigations potentially affecting the Project.

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|3 | Property Description and
  Location
|- | -----------------------------------

The Project Area is located in
northeastern Minnesota near Aurora ((image sourced from the Minnesota
Department of Transportation)

Figure 3.1 ). The Project Area is
located in St. Louis County, Township 59N, Range 13W, Section 30.



(image sourced from the Minnesota
Department of Transportation)

Figure 3.1: Location of the Longnose
property

The Project Area is centered at:
(Coordinate system: Universal Trans Mercator, Zone 15 North, North American 1983
Datum) 572200 m East, 5268300 m North. CIOUS holds an option to acquire an
interest in mineral leases on 280 acres (113 hectares) at the Project.

Properties in Minnesota are defined
using the Township and Range, Section, quarter-section, quarter-section,
quarter-section method. Sections are marked by corner posts; however corner
posts are not always present. CIOUS has conducted a geographical location survey
on the Project. This survey mainly focused on locating historical drill collars
and the original sampling grid cut baseline. An in-depth property boundary
survey has not been completed; however the Project Area boundaries have been
located on aerial photographs (Figure 3.2) .

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Figure 3.2: Longnose Property
boundary with 2010 drill collar locations.

Mineralization at the Project Area is
approximately centered at: (Coordinate system: Universal Trans Mercator, Zone 15
North, North American 1983 Datum) 572100 m East, 5268300 m North. There have
been no commercial mining operations at the Project Area.

|3.1 | Mineral Tenure
|--- | --------------

Minerals in Minnesota are typically
held as fee simple interests, either as part of the overall land estate or as a
separate property interest. In many cases, ownership of the mineral estate has
been severed from the surface estate, and may be held by a different owner.
Although title to the mineral estate is often held by the State of Minnesota or
the US Federal government, there are significant areas of private mineral
ownership in Minnesota. Thus, there is often split-estate ownership, where the
person or entity owning the surface may be, and often is, different than the
person or entity that owns the mineral rights. Additionally, mineral rights
themselves may also be split (e.g. the hydrocarbon rights owner may be different
than the non-hydrocarbon mineral rights owner). United States law indicates that
in split-estate situations mineral rights are the dominant estate and have
precedence over all other property rights (including surface). However, the
mineral rights owner

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must have due regard for the surface
estate and only occupy/use those portions of the surface that are necessary for
mineral development.

Land holdings at the Project are
primarily a split-estate wherein ALLETE, Inc. (ALLETE; a Minnesota corporation)
(Allete) holds the surface rights, and a collection of individuals and other
corporations holds the mineral rights (although Allete also holds an interest in
some of the minerals). CIOUS has entered a ground license agreement with Allete
dated January 12, 2010, pursuant to which CIOUS pays Allete a fixed fee per bore
hole drilled, and agreed to carry out all required reclamation and indemnify
Allete. In addition, under the ground license CIOUS has a right of first refusal
to match any offer that may be made by a third party to purchase the surface
estate held by Allete over the Project Area.

|3.2 | Longnose Interest
|--- | -----------------

Pursuant to an agreement dated November
26, 2008 and accepted on December 8, 2008 between Cardero Iron Ore Company Ltd.
and Raymond L. Morley (on behalf of The Morley Group Inc.) ("Morley"), CIOUS has
been granted the option to acquire up to an 85% interest in the interest of
Morley in certain existing mineral leases, and in a lease to be entered into,
covering 100% of the fee mineral rights to approximately 200 acres and 50% of
the fee mineral rights to approximately 80 acres, located in St. Louis County,
Minnesota, just north of the town of Hoyt Lakes and referred to as the
Longnose property.

CIOUS can earn an initial 70% interest
in the Morley interest by incurring cumulative expenditures of USD 1,850,000
over 4 years to December 8, 2012 and paying USD 50,000 to Morley on or before
August 15, 2009 (and each and every August 15th thereafter) to be used by Morley
to make the annual USD 50,000 advance royalty payment due to the underlying
landowners under the existing leases. CIOUS can earn an additional 15% interest
in the Morley interest (for 85% overall) by delivering a feasibility study (no
time limit for delivery). Upon CIOUS having earned a 70% or 85% interest, Morley
can elect to convert its interest to a 10% net profits interest (if CIOUS elects
not to earn the additional 15% interest) or a 5% net profits interest (if CIOUS
elects to earn the full 85% interest). If Morley does not so elect, upon CIOUS
having earned its 70% or 85% interest, as applicable, CIOUS and Morley will
enter into a joint venture, with each party being responsible for its pro-rata
share of all joint venture expenditures. If a party to the joint venture is
diluted to a 10% or lesser interest, such interest will be converted to a 2.5%
net profits interest. To October 31, 2011, CIOUS has incurred an aggregate of
USD 1,802,389 in expenditures and made all of the required USD 50,000 payments
to August 15, 2011.

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Table 3.1: Mineral Tenure
Information.

Parcel Description
    Sec/Tsp/Range
    Surface Owner
    Mineral
      OwnerN1⁄2 of NE1⁄4
    30/59 North/13 West
    Allete, Inc.
    Allete, Inc. (1⁄2) American
      Shield Co, Darryl E. Coons & Lloyd K. Johnson (1⁄2)NW1⁄4 of SE1⁄4, SW1⁄4 of NE1⁄4 SE1⁄4 of NE1⁄4
      NE1⁄4 of SW1⁄4
    30/59 North/13 West
    Allete, Inc.
    Darryl E. Coons
      (5/16) Harold A. Knutson (1/16) Duluth Superior Area Community
      Foundation (1/16) Jean Thomas Johnson (1/16) Frederick C. Dean
      (1/8) Lewis F. Bogan (1/8) Agnes Bogan Wells (1/8) Alfred Dean
      Bogan (1/8)SE1⁄4 of NW1⁄4
    30/59 North/13 West
    Allete, Inc.
    Darryl E. Coons (5/16) Harold
      A. Knutson (1/16) Duluth Superior Area Community Foundation (1/16)
      Jean Thomas Johnson (1/16) Frederick C. Dean (1/8) Lewis F.
      Bogan (1/8) Agnes Bogan Wells (1/8) Alfred Dean Bogan (1/8)


|3.3 | Permits and
  Authorization
|--- | ---------------------------

All licenses, permits, and
registrations required to conduct exploratory drilling in Minnesota have been
obtained by CIOUS, and are up to date. The required licenses, permits, and
registrations that CIOUS has obtained are listed below.

- Licensed Exploratory Borer with the Minnesota
  Department of Natural Resources (MDNR); License number: A10-0102 (annual
  renewal).
- Licensed Explorer Company with the Minnesota
  Department of Health (MDH); License number 2850 (annual renewal).
- Licensed Explorer Responsible Individual with the
  Minnesota Department of Health: License number: 2841 (Chris White; lifetime
  license).
- Permit for drilling in wetlands with the United
  States Army Corp of Engineers for the Project and the Titac Project (also held
  by CIOUS) (Permit expired on August 22, 2011).
- Road Use Permit with the U.S. Forest Service for
  use of F.S.R. 117 to access the Project Area (annual renewal).
- Special Uses Permit with the U.S. Forest Service
  for use of spur off of F.S.R. 117 to access the Project Area (3-year permit
  with annual renewal).
- Storm Water Pollution Prevention Plan Permit
  (SWPPP) with the Minnesota Pollution Control Agency (MPCA) for each
  property (permit open until project completion, must notify MPCA upon
  completion of project for closure of permit).

|3.4 | Environmental
  Considerations
|--- | ------------------------------

MDH regulations require that CIOUS must
file a drill plan with the MDNR and the MDH at least 14 days prior to drilling
operations, and the Explorer Responsible Individual must file well abandonment
forms with the MDNR and the MDH within 30 days of completing each drill hole,
and that exploratory bore holes must be sealed upon completion of drilling in
compliance with MDH rules and regulations.

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Upon filing an initial drill plan,
CIOUS may begin drilling operations after 14 days, and may revise, or expand the
drill plan by notifying the MDNR and MDH within one day of executing the new
drill plan.

MPCA regulations state that any ground
disturbance greater than one acre requires the development, approval, and
institution of a SWPPP. The plan must be drafted by a person, or persons,
certified by the MPCA, and a certified SWPPP site manager must oversee
implementation of the plan, and application of the plan throughout the duration
of the project. This plan must be modified as the project progresses to reflect
any change in operations that warrant additional or different pollution
prevention measures. CIOUSs consulting geologist, Chris White, has obtained the
proper certification with the MPCA to draft the SWPPP and to act as the SWPPP
site manager; and Warren Johnson, a CIOUS contractor, is a certified SWPPP
contractor with the MPCA. Chris White has been retained by CIOUS to oversee the
overall and day-to-day project operations, and Warren Johnsons company has been
retained to install all drill trails and drill pads at the Longnose
property.

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|4   | Accessibility, Climate, Local Resources,
      Infrastructure and Physiography
|--- | ------------------------------------------------------------------------------
|    |                                                                               
|4.1 | Accessibility                                                                 

Accessibility is excellent, with the
Project Area located off of a paved county highway via a well maintained gravel
road.

The Project Area is located
approximately 15.7 km (10 miles) east of Aurora, Minnesota. CIOUS is leasing a
large portion of an old school building (Cina Building, 200 S. 2ndSt. E., Aurora, MN 55705) in Aurora, Minnesota that serves as a field
office, a drill core logging, preparation, and sampling facility, and a drill
core, coarse sample, and sample pulp storage facility.

To access the Project Area from Aurora,
MN: Beginning at the intersection between St. Louis County highway 99 and St.
Louis County highway 110, travel east on St. Louis County highway 110 for 8.2 km
(5.1 miles) to St. Louis County highway 666. Turn left, traveling north on St.
Louis County highway 666 for 4.5 km (2.8 miles) to Forest Service Road 117. Turn
right, traveling east on Forest Service Road 117 for 5.6 km (3.5 miles) to an
unnamed spur which travels north. Turn right, traveling north on the unnamed
spur for 0.3 miles (0.5 km) to an open equipment staging area.

|4.2 | Local Resources and
  Infrastructure
|--- | ------------------------------------

The population of Aurora, Minnesota is
approximately 1,850, and the nearby city of Hoyt Lakes, Minnesota (5 miles east
of Aurora) has a population of approximately 2,000 people. Duluth, Minnesota
(pop. 84,419) is located approximately 120.7 km (75 miles) south of the Project.
Virginia, Minnesota (pop. 8,481) is located approximately 56.3 km (35 miles)
west of the Project.

Northeastern Minnesota has been
supporting mining activities since the Soudan Mine opened in 1882. Currently,
northeastern Minnesota facilitates six taconite (iron ore) mines located
approximately within 96.5 km (60 miles) west of the Project in the Iron Range of
Minnesota in the Virginia, and Hibbing, Minnesota area. When at full production,
the taconite (iron ore) mining industry directly employs nearly 4,000 people in
northeastern Minnesota.

The infrastructure in northeastern
Minnesota related to mining activities is excellent with low cost electricity,
railroads, paved state and county highways, international shipping ports, mining
professionals, mining vendors, and trained labor all readily available.
International shipping ports are located along the north shore of Lake Superior
including Duluth/Superior, Silver Bay, Taconite Harbor, and Two Harbors with
linked rail systems to all.

Northeastern Minnesota is easily
accessible through air travel with three airports located within 96.5 km (60
miles) of Hoyt Lakes, Minnesota including the Eveleth Virginia Municipal Airport
located in Virginia, Minnesota; the Range Regional Airport (RRA), located in
Hibbing, Minnesota; and the Duluth International Airport (DIA), located in
Duluth, Minnesota. Commercial flights are offered by Delta Airlines at RRA and
DIA, and also by Allegiant Air at DIA. The Minneapolis/St. Paul airport is
located approximately 321.7 km (200 miles) south of Hoyt Lakes, Minnesota.
Connecting flights are available from Minneapolis/St. Paul to both DIA, and
RRA.

The Laskin Energy Center is located
near Hoyt Lakes, Minnesota (less than 16 km (10 miles) from the Project),
providing 110 megawatts of electric service, and a 138KVA electricity
transmission line

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runs within 5 km (3.1 miles) of the
Project. The DM&IR (Canadian National) Railway services the Laskin Energy
Park, located next to the Laskin Energy Center and a rail spur runs within 2 km
(1.3 miles) of the Project. The Laskin Energy Park also provides natural gas,
water and waste water, and industrial steam power services.

The Erie plant (formerly owned by LTV
Steel Mining Company and currently owned by Polymet Mining Corporation), a large
crushing, grinding, and milling facility, is located approximately 4 miles (6.4
km) west-northwest of the Project. The Erie plant was built in the 1950s, and
processed approximately 100,000 tons of taconite (low-grade iron) ore per day
until 2001 when LTV Steel Mining Company filed for bankruptcy. Polymet intends
to use the Erie plant to process the copper-nickel-platinum group element ore
from its NorthMet deposit, and estimates that the plant will provide 400
full-time jobs.

The Steel Dynamics, Inc. Mesabi Nugget
plant is located just north of Hoyt Lakes, Minnesota. Mesabi Nugget uses an
innovative direct-reduction process to produce pig-iron nuggets. Production
began at Mesabi Nugget in December of 2009, and the plant has a capacity to
produce 500,000 tonnes of pig-iron nuggets a year. The Mesabi Nugget plant
currently provides approximately 90 full-time jobs.

|4.3 | Climate
|--- | -------

The climate in northeastern Minnesota
is mid-continental. Winter conditions usually begin in mid-December and last
until mid-March, with frozen ground beginning in late-December to early-January.
The spring thaw usually begins in mid-March to late-April, with stable, dry
spring-summer-fall conditions occurring from late-April to mid-December. Table
4.1 below displays the monthly average temperatures and precipitation for the
Hoyt Lakes area.

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Table 4.1: Average monthly
temperatures and precipitation, Hoyt Lakes, Minnesota

MONTH
    Avg. High
      Temp (degrees F)
    Avg. Low
      Temp (degrees F)
    Avg.
      Precipitation (inches)January
    16
    -14
    0.76February
    24
    -8
    0.7March
    35
    6
    0.99April
    51
    22
    1.57May
    65
    33
    3.05June
    73
    43
    4.49July
    77
    48
    4.42August
    75
    45
    4.29September
    65
    36
    4October
    52
    26
    2.9November
    34
    12
    1.33December
    20
    -5
    0.61


Source: www.weather.com

|4.4 | Physiography
|--- | ------------

Topographic relief on the Project Area
is generally low, and the surface is flat-laying. Elevations on the Project Area
range between 465 m and 480 m. The ground cover is a mixture of Palustrine,
forested wetlands (Cowardin classification system), and higher dry forested
ground. Longnose creek runs through the Project Area. Overburden, consisting of
glacial till composed of pebbles, cobbles, and boulders within a sand and clay
matrix, covers much of both properties. At the Project Area, bedrock is locally
exposed to the north-northwest with up to approximately 3 m of overburden. The
bedrock surface gently dips to the south-southeast where overburden thickens to
approximately 20 m.

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Figure 4.1: Typical Landscape in the
Project Area (provided by CIOUS)

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|5 | History
|- | -------

Northeastern Minnesota has a strong
history of iron and taconite mining, as well as copper, nickel, and platinum
group element exploration. Titaniferous iron deposits were first discovered in
northeastern Minnesota in the mid to late 1800s in the northern portion of the
Duluth Complex. Additional titaniferous iron deposits were discovered in the
southern part of the Duluth Complex in the mid to late 1900s during
reconnaissance exploration for copper and nickel.

|5.1 | Titaniferous Iron Oxide Mineralization in the Duluth
  Complex
|--- | --------------------------------------------------------------

In 1967, several companies began
exploring magnetic anomalies delineated from state geophysical surveys in the
southern part of the Duluth Complex. Exploration drilling targeted these
magnetic anomalies searching for copper-nickel sulfide mineralization. While
copper-nickel sulfide mineralization was intersected in many drill holes, the
magnetic anomalies were largely composed of titaniferous-iron oxide
mineralization. At the time, these intrusions were generally thought to be of
little importance, because copper-nickel grades were too low to have economic
significance during that time period. However, several titaniferous iron oxide
intrusions have been explored in detail including the Longnose intrusion.

The following summarizes the known
history of the Project Area.

|5.2 | Longnose Property
|--- | -----------------

Twenty seven diamond drill cores have
been drilled at the Project Area. Bear Creek Mining Co. drilled the first hole
in 1958 to investigate a magnetic high and electromagnetic anomaly. This first
hole (A1-1) intersected titanium-iron-oxide mineralization to a depth of 102.1 m
(335 feet), that was hosted by peridotite and pyroxenite. A decade later (1969),
Exxon Corp. drilled a second hole (BA-6) on the property that intersected
titanium-iron-oxide mineralization to a depth of 81 feet (24.7 m). American
Shield Corp began exploration at Longnose in 1975, drilling a single hole
(LN-1), and resumed drilling in 1984 via a joint venture agreement with Northern
Illinois Corp. (Nicor); completing nine more drill holes on the property.
Figure 5.1 displays the locations of historic drill holes on the Property Area
including: A1-1, BA-6, and LN-1 through LN-10 (taken from Patelke and Severson,
2005). Exploration drilling on the Project Area halted until 2010, when CIOUS
drilled six holes followed by nine holes in 2011.

Two bulk samples for metallurgical
testing and TiO2recovery have been collected from the Project Area.
The test pit locations are displayed in Figure 6.1 (Patelke and Severson, 2001).
The first bulk sample measured 32+ tons of material and was collected in 1984 by
the American Shield Corp/Nicor joint venture. The second bulk sample measured 60
tons and was collected in the 1990s by American Shield Corp. The University of
Minnesota, Natural Resources Research Institute, Coleraine Minerals Research
Laboratory houses what remains of both bulk samples.

BHP Minerals International Inc. (BHP)
held the Project Area for some time in the 1990s. Most of the work completed by
BHP centered on metallurgy, and TiO2recovery as well as value-added
beneficiation of the ilmenite to a higher titanium product.

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Figure 5.1: Map showing the
locations of historic diamond drill holes and bulk sample test pits on the
Longnose property, taken from Patelke and Severson, 2005

|5.2.1 | Historic Metallurgical
  Studies
|----- | --------------------------------

Metallurgical Testing was completed on
the Longnose deposit at a variety of scales at different times. This included
several bulk samples on which larger scale processing and metallurgy tests were
completed.

The Coleraine Minerals Research
Laboratory (CMRL) was provided with a sample of approximately 680 kg on March
6, 1991 by the American Shield Corp/Nicor joint venture. The sample was
collected from a large outcrop within the western part of the Longnose deposit.
A processing flow sheet was developed and the sample was beneficiated by
grinding, spiral separation, magnetic concentration, and dry high tension
concentration. The first full-scale pilot plant run was made on October 3, 1994.
(Coleraine Minerals, 1994)

A larger bulk sample was collected in the 1990s by
  American Shield Corp. This 39 tonnes (43-ton) bulk sample of Longnose material
  was also collected from outcrop within the western portion of the deposit. The
  material was crushed to rod mill feed size, minus 3/8 inch, and processed in the
  CMRL wet pilot

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plant by rod-mill grinding, spiral
separation, wet magnetic separation (WLIMS). The WLIMS operation yielded two
streams (magnetic & non-magnetic fractions) that were subsequently
processed. The downstream processing of the magnetic fraction incorporated ball
mill grinding, and a second WLIMS step. The magnetic fraction essentially
concentrated the iron, and the non-magnetic fraction was further processed using
desliming and flotation so as to enrich the titania. The post-flotation stream
comprised ~17% of the final titania concentrate. The previously mentioned
non-magnetic fraction was dried and upgraded using high tension separation. The
conductors from the high tension separation step became ~83% of the final
titania concentrate. A flow sheet showing the average material balance for the
wet & dry processing steps is given in the following table. Overall, the
indicated recovery of TiO2from this process was 66%.



(source CMRL, 1996)Figure 5.2:
1996 bulk sample treatment flow sheet

Value-added pyrometallurgical
processing has also been contemplated for the Longnose deposit. Up to 1996, the
metallurgical analysis of the Longnose material was mainly focused on producing
an Ilmenite concentrate above 45 % TiO2. Further beneficiation by
upgrading of this concentrate to a titanium slag & pig iron has been
contemplated because it is expected that such processing would have significant
economic benefit and provide a site where an optimized process, designed for the
local ilmenite bearing bodies, can be developed. It had been noted that the
magnesium content of the ilmenite was higher than average and that local
beneficiation may be advantageous compared to ilmenite concentrate sale.

BHP completed preliminary down-stream
beneficiation testwork in the 1990s. Their first investigation involved a
smelting and sulfation-leaching process developed by the US Bureau of

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Mines, a somewhat modified version of a
process which is completed at several processing facilities located around the
world, including in the US and Canada. Their second investigation involved an
oxidation-reduction roast followed by chemical leaching. The second process was
based on modifying the Murso process. The Murso process involved an acid leach
of the material which results in a high grade (+94% TiO2) synthetic
rutile. BHP apparently abandoned the Longnose project over a dispute regarding
the ownership of the Murso technology (Ulland, 2000).

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|6   | Geological Setting and
  Mineralization
|--- | ---------------------------------------
|    |                                        
|6.1 | Regional Geology                       

The Project Area is within the Superior
Province of the Canadian Shield. The regional basement rocks are composed of
Archean granitoid intrusions, metasedimentary rocks, and metavolcanic rocks; and
Paleoproterozoic sedimentary rocks. Mafic flows, mafic and felsic intrusives,
and related interflow sedimentary rocks cut these basement rocks during the
development of the Mesoproterozoic Midcontinent Rift System (MCR).

The Midcontinent Rift System stretches
from Lake Superior to Iowa (Figure 6.1), and is largely buried by sediments;
however, MCR bedrock is relatively well exposed in the Lake Superior region. In
northeastern Minnesota, the MCR is dominantly composed of several groups of
rocks including: the North Shore Volcanic Group (NSVG), the Beaver Bay
Complex, and the Duluth Complex. The roof zone of the MCR is largely composed of
NSVG lava flows, and the Duluth Complex is generally the intrusive equivalent of
the NSVG lava flows.



Figure 6.1: Mid-continent Bouguer
gravity anomaly (Source geo.umn.edu/mgs/nicegeo/pdfs/boug_grav.pdf)

Figure 6.1 shows the Mid-continent rift
extending from Lake Superior through Iowa, USA.

The multiple intrusions of the Duluth
Complex occur within an arcing band from Duluth to near the Canadian border that
is 270 km long and up to 40 km wide. In terms of aerial exposure, it is the
second largest mafic intrusive complex on Earth after the Bushveld Complex of
South Africa. The

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Duluth Complex is typically subdivided
into four intrusive series based on dominant lithology, general age, and
internal structure. In order of relative decreasing age, these series are the
felsic series, the early gabbroic series, the anorthositic series, and the
layered series (Miller et al., 2002). Field evidence suggests that the layered
series intruded into the anorthositic series; however, U-Pd dates obtained by
Paces and Miller (1993) show that the anorthositic series and the layered series
are virtually identical in age. This indicates that the layered series likely
intruded into the anorthositic series when it was still quite warm, and possibly
semi-molten. The anorthositic series has not been subdivided into individual
intrusions; however, the layered series has been shown to consist of at least 12
distinct mafic layered intrusions (Miller et al., 2002;).

A geological map of northeastern
Minnesota displaying the Duluth Complex and associated formations with the
layered series intrusions is shown in Figure 6.1.



(Miller et al. 2002).Figure 6.2
Geological Map of northeastern Minnesota

In Figure 6.1, the geological units
defined include: TI  Tuscarora intrusion, L1T  Lake One Troctolite, WLI 
Wilder Lake intrusion, SKI  South Kawishiwi intrusion, BEI  Bald Eagle
intrusion, OLI  Osier Lake intrusion, GLI  Greenwood Lake intrusion, PRI 
Partridge River intrusion, WMI Western Margin intrusion, BLI  Boulder Lake
intrusion, DLS  Layered Series at Duluth (Miller et al. 2002).

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|6.2 | Property Geology
|--- | ----------------

Several layered series intrusions host
numerous OUIs in the Duluth Complex, including (from north to south) the
Partridge River intrusion, the Western Margin intrusion, and the Boulder Lake
intrusion. All known OUIs occur proximal to the western contact of the Duluth
Complex in a straight line beginning just south of Babbitt, Minnesota, and
ending just north of Duluth, Minnesota. Known OUI intrusions in the Duluth
Complex include Section 17, Longear, Longnose, Section 22, Skibo, Water Hen,
Section 34 (Titac), Boulder Creek, Boulder Lake North, and Boulder Lake South.
OUI deposits cut the layered series intrusions, and are generally regarded as
late occurring events in the development of the MCR. Geometrically, OUIs have
various shapes and sizes including pipe-like, sheet-like, and funnel-like, and
their emplacement may be structurally controlled (Severson, 1995).

|6.3 | Geology of the Longnose
  Property
|--- | ----------------------------------

Outcropping bedrock is sparse on the
Project Area with regards for the Longnose intrusion itself, though several
outcrops do exist toward the northern extents of the Project Area, and country
rock is exposed to the south of the intrusion. Most of the known geology of the
Longnose intrusion comes from the 27 drill cores that have been drilled into and
around the intrusion; 12 drill holes are historic, while six holes were drilled
by CIOUS in 2010, and nine in 2011. The Longnose OUI is dominantly hosted by
troctolite and augite troctolite of the Partridge River intrusion. Drilling has
indicated that the Longnose intrusion is approximately 700 m long, by 600 m
wide, by 150 m thick, and it appears to have a sill-like geometry with a
moderate southeastern dip. The eastern, southeastern, and southern margins of
the intrusion are not completely defined, and the intrusion may extend in these
areas at depth. Lithologically, the OUI is composed of medium- to coarse-grained
to pegmatitic pyroxenite, feldspathic pyroxenite, peridotite, feldspathic
peridotite, dunite, semi-massive oxide, and massive oxide, as defined by the
Severson and Hauck (1990) rock classification scheme for Duluth Complex rocks
(Figure 6.3) . The core of the intrusion is composed of olivine-rich rocks
(feldspathic peridotite, peridotite, and dunite), while the outer zones consist
of predominantly pyroxenite. Massive and semi-massive oxides may be crudely
layered or zoned throughout the intrusion. Contacts between country rock and the
OUI are typically sharp (cm scale), and internal lithologic contacts of the OUI
intrusion are also sharp. Titanium-iron oxide mineralization is known to extend
to a true depth of at least 150 m, and may extend deeper to the east, southeast,
and south of the intrusion.

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Figure 6.3: Schematic cross-section
through the Longnose Oxide-bearing Ultramafic Intrusion

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Figure 6.4: Rock classification
scheme for Duluth Complex rocks, after Severson and Hauck, 1990.

|6.4 | Mineralization at
  Longnose
|--- | ----------------------------

Mineralization at Longnose dominantly
consists of disseminated to net-textured, medium- to coarse-grained, ilmenite,
titaniferous magnetite and magnetite. It is quite difficult to tell the
difference between titanium-rich mineralization and iron-rich mineralization in
hand sample; however, it is Carderos experience that drill core exhibiting a
dark-silvery color is ilmenite-rich; drill core exhibiting a dull-black color is
rich in titaniferous magnetite; and drill core exhibiting a shiny-black color is
magnetite-rich. Olivine-rich ultramafic rocks (peridotite, feldspathic
peridotite, & dunite) host the majority of the titanium-iron oxide
mineralization found in the Longnose OUI, and will often be net-textured with
oxide minerals interstitial to silicates. Carderos visual modal mineral
calculations generally estimate that titanium-iron oxide minerals compose 15-35%
of the peridotitic and dunitic rocks at Longnose.

Historic petrography work was completed
by T.P. Paster on behalf of Westmont Mining Inc. in 1987. This work looked at 22
polished sections and three (3) concentrates from the Longnose deposit. Based on
this work, cumulus ilmenite was found to be the dominant oxide, followed by
cumulus

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titaniferous magnetite and intercumulus
titaniferous magnetite. Magnetite was found to be minor and generally a product
of olivine alteration. Cumulus oxides tended to be 0.2 mm to 10 mm in size.
Minor rutile and hematite occurred as rims to ilmenite crystals. Silicate
mineralogy included olivine, hyperthene and augite. (Pastor, 1987)

Numerous massive and semi-massive
titanium-iron oxide horizons or zones (45-100% titanium-iron oxide) have been
intersected by CIOUS in drill core. These massive and semi-massive oxides seem
to be dominantly hosted by peridotite and dunite, though they have been
intersected within zones of pyroxenite as well. It is somewhat unclear if the
massive and semi-massive zones are continuous throughout the intrusion, or if
they exist as discrete pockets.

It is clear, though, that the main
mineralized intrusion at Longnose is a thick, laterally and vertically
continuous intrusion, dominantly composed of a mixture of oxide-bearing
peridotite, oxide-bearing dunite, massive oxide, and semi-massive oxide with
between 15% and 100% titanium-iron oxide mineralization.

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|7 | Deposit Types
|- | -------------

Titaniferous iron oxide intrusions
within the Duluth Complex were first discovered in 1867, approximately
coincident with the discovery of the Mesabi Range iron ores (Winchell, 1897).
Broderick (1917) was the first to classify the intrusions while working in the
northern part of the Duluth Complex, subdividing them into 4 groups: A)
inclusions of Gunflint Iron-Formation, B) gabbroic banded segregations, C)
irregular late intrusions of titaniferous magnetite, and D) dike-like intrusions
of titaniferous magnetite. Severson (1988), and Severson and Hauck (1990)
recognized types 3 and 4 while working in the western and southern portions of
the Duluth Complex and reclassified them together as OUIs, based on their
ultramafic composition, high oxide content, and cross-cutting relationships to
the layered series troctolitic intrusions that host them. Hauck et al. (1997)
reclassified Brodericks (1917) subdivisions into three general types: Type 1,
banded or layered, oxide-rich metasedimentary inclusions in mafic and ultramafic
rocks; Type 2, banded or layered oxide segregations (cumulates) in mafic rocks;
and Type 3, discordant OUIs with semi-massive to massive oxide zones. The
Longnose intrusion is classified as Type 3 titaniferous iron oxide intrusions
(Hauck et al. 1997) as described below.

Type 3 titaniferous iron oxide
intrusions in the Duluth Complex are somewhat similar to the ultramafic
intrusions of the Bushveld Complex, the Stillwater Complex, and the Rio Jacare
Intrusion of Brazil (Hauck et al. 1997). They are typically composed of
coarse-grained to pegmatitic, oxide-bearing (>5% to 30% oxide minerals)
pyroxenite, peridotite, and dunite, which contain lenses of semi-massive
(>30% to 90% oxide minerals) and massive oxide (>90% oxide minerals). OUIs
in the Duluth Complex vary in size and shape, but generally seem to occur as
sheet-like intrusions (sills), funnel-like intrusions, dike-like intrusions, or
pipe-like intrusions. They can be zoned with numerous apophyses around a
centralized ultramafic core. When they are zoned, they tend to feature
pegmatitic pyroxenite, generally surrounding a core of coarse-grained to
pegmatitic peridotite and dunite. They appear to be deep-seated and several
Duluth Complex OUIs seem to be root-less.

Genesis of the Duluth Complex OUIs is
speculative and several theories have been proposed as described below:

| | 1) | Severson (1988, 1991, & 1994), and Severson and Hauck
      (1990) suggest that a spatial/empirical relationship between the Duluth
      Complex OUIs and the Biwabik Iron-Formation exists, and that incorporation
      of the Biwabik Iron-Formation by the Duluth Complex at the basal contact
      may have inspired the genesis of the Duluth Complex OUIs. This does not
      directly explain the high titanium content of the Duluth Complex OUIs;
      however, Muhich (1993) finds that the Biwabik Iron-Formation is locally
      enriched in titanium proximal to the Duluth Complex basal contact.
      Muhichs (1993) observations suggest that the Duluth Complex OUIs may be
      genetically related to the Biwabik Iron-Formation, and may be assimilated
      inclusions of Biwabik Iron-Formation that have been enriched in titanium
      and iron from Duluth Complex magmas and fluids.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | 2) | Severson (1988, 1994) and Severson and Hauck (1990) also
      suggested, as did Ross (1985), that Duluth Complex OUIs formed by
      infiltration metasomatism. Infiltration metasomatism calls on the upward
      streaming of intercumulus fluids that are derived from within a
      crystallizing cumulus pile, or more simply put, the magma itself. This
      genesis mechanism has been suggested for the formation of similar
      ultramafic plugs in the Bushveld Complex (Schiffries, 1982; Viljoen and
      Scoon, 1985).                                                                                                                                                                                                                                                                                                                                                                             

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| | 3) | Bonnichsen (1972) and Mainwaring and Naldrett (1977)
      suggested a magmatic origin for the Duluth Complex OUIs. In this empirical
      magmatic genesis model, the Duluth Complex OUIs would form from
      ferrogabbroic magmas, containing an abundance of suspended plagioclase
      crystals which separate from the magma and rise to the top of the magma
      chamber due to density contrasts, subsequently leaving the much more dense
      iron-rich titaniferous ultramafic magma toward the
  bottom.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Evidence for all three genesis models
exists, thus all three models, or a combination of the three may be accurate in
specific instances. Mineralization at both properties appears to be largely
intrusive in nature, but also exhibits textures near contacts with country rock
that could be metasomatic in nature. It also seems apparent that in some
instances Biwabik Iron formation could have influenced mineralization, based on
the proximity of some OUIs to Biwabik Iron-Formation country rock. However, not
all OUIs in the Duluth Complex show obvious proximity to occurrences of Biwabik
Iron-Formation.

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|8 | Exploration
|- | -----------

Exploration of the Project Area by
CIOUS began in the summer of 2009 with field searches for historic drill collars
and resampling of historic drill holes.

Benchmark Engineering (Mountain Iron,
Minnesota) was contracted to conduct the search with key CIOUS personnel on hand
to oversee the work. At that time, re-assaying of historic drill core from the
Project Area, which is stored at the University of Minnesota, Natural Resources
Research Institute, Coleraine Minerals Research Laboratory, Coleraine,
Minnesota, was also conducted.

Very little bedrock is exposed at the
Project Area. Because of this, no bedrock mapping has been completed by CIOUS,
although at least one bedrock map of the Project Area has been published
(Linscheid, 1991). Bedrock outcrops from Linscheid (1991) were evaluated and
included in the Bedrock Geological Map of Allen Quadrangle (Severson and Miller,
1999; pers. com., Severson, July 2010).

An airborne geophysical survey was
conducted by the Minnesota Geological Survey which provided the initial template
for early exploration. A ground magnetic survey was conducted by American Shield
Corp. and this survey has not been obtained by Cardero; however, the original
grid for the survey is still largely visible in the field.

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|9 | Drilling
|- | --------

Drilling on the Project Area can be
broken into historic and contemporary eras. Prior to 2010, 12 drill holes had
been completed on the Project Area by a variety of operators. These holes should
be considered historic drilling as Cardero had no involvement in the completion
of these holes; however, some collar locations have been found and inferred and
most of these holes were re-sampled by CIOUS.

CIOUS completed drilling of 15 NQ2
diamond drill holes totaling 3480.4 m (11,418.5 feet) on the Project Area
between February 2010 and April 2011, which are the current or contemporary
holes. Drilling depths were recorded in feet, as is the standard in the US.
Drilling was completed by licensed drilling contractor Idea International
Drilling Ltd. (Idea). In 2010, Idea conducted drilling operations using four
different drill rigs (Atlas Copco CS1000, Atlas Copco Diamec U6, Atlas Copco
CT14, and a Sandvik DE130), with two rigs operating at any given point in time.
Drill rigs were skid-mounted (with the exception of the Atlas Copco CT14) and
maneuvered in the field using Caterpillar D5M and D7G tractors. In 2011, one
Morooka mounted drill rig (Boart Longyear LF70) was utilized. Licensed
contractor Warren Johnson Excavating was contracted to install all drill trails,
drill pads, and entrance/exit points. Trails, pads, and entrance/exit points
were installed using a combination of Caterpillar tractors, Caterpillar
excavators, and various logging skidders.

All drill holes were permanently
abandoned per MDH standards, by setting a plug at least 300 feet below the
surface of bedrock and filling the portion of the boring above the plug with
neat cement. One drill hole (LNG-002-2010) was temporarily abandoned per MDH
standards by installing a five foot casing extension on the drill collar and
screwing a cap onto the casing extension. This hole was temporarily abandoned
due to unseasonably warm temperatures, causing swamp-ground to become unworkable
and forcing drilling operations in the swamp to cease and heavy equipment in the
immediate area to be evacuated.

Down-hole surveys have been completed
on all contemporary drill holes. The Idea survey crew conducted down-hole
surveys of each respective drill hole following completion of each hole.
Down-hole surveys were completed using a Gyro-based tool, with survey readings
collected every 20 feet. Data consists of a dip reading in degrees, and easting
and northing readings in feet relative to the starting position of the
survey.

Drill hole locations were recorded at
the time of drilling using a hand held Garmin GPS unit with accuracy to +/- 6
metres. Because casing was pulled upon completion of each drill hole, a steel
fence post was used to mark the location of each hole. A location survey was
completed by the Idea survey crew upon completion of drilling operations.
Licensed surveyors Northern Lights Surveying and Mapping Inc. (Virginia,
Minnesota) were contracted by Idea to place four to five location pins on site.
Upon installation of these pins, Idea surveyed drill hole locations with
sub-metre accuracy, recording the easting, northing, and elevation of each drill
hole.

Some of the historic drill hole collars
have been located by CIOUS and observed by SRK. Only the drill holes completed
prior to approximately 1970 have drill collars that still exist on site. These
drill collars have been located and surveyed with a differential GPS. Since
approximately 1970, drill casings have been mandated to be removed upon
remediation of the drill site, so these drill collars do not exist.
Circumstantial evidence for other historic drill holes, such as drill pad
clearings in the forest, has been found to support the location of many of these
historic holes and their drill collar locations are believed to be within 10 m
accuracy.

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Table 9.1 documents the technical
specifications of all contemporary and historic drilling at the Project
Area.

Table 9.1: Contemporary and historic
drilling at the Longnose property

LONGNOSE PROPERTY
      CONTEMPORARY (drilled by Cardero Iron Ore Company Ltd.)DDH#
    (Survey) m E
    (Survey) m N
    Total Depth (ft)
    Azimuth
    Dip
    Total Depth (m)LNG-001-2010
    572158.1
    5268405.0
    794
    315
    -45
    242LNG-002-2010
    572232.4
    5268492.7
    329.5
    315
    -45
    100.4LNG-003-2010
    571921.7
    5268537.5
    306
    315
    -45
    93.3LNG-004-2010
    571996.9
    5268694.2
    516
    315
    -45
    157.3LNG-005-2010
    572130.6
    5268853.9
    597
    Vertical
    -90
    182LNG-006-2010
    572083.0
    5268744.5
    588
    Vertical
    -90
    179.2LNG-007-2011
    572117.5
    5268372.0
    883
    315
    -45
    269.1LNG-008-2011
    572234.3
    5268492.4
    913
    315
    -45
    278.3LNG-009-2011
    572288.5
    5268586.5
    843
    315
    -45
    256.9LNG-010-2011
    572034.5
    5268259.4
    793
    315
    -45
    241.7LNG-011-2011
    572306.1
    5268273.4
    1053
    315
    -45
    321LNG-012-2011
    572307.1
    5268271.6
    997
    Vertical
    -90
    303.9LNG-013-2011
    572142.6
    5268285.8
    682
    315
    -45
    207.9LNG-014-2011
    572328.4
    5268399.3
    1163
    315
    -45
    354.5LNG-015-2011
    572365.7
    5268496.3
    961
    315
    -45
    292.9LONGNOSE PROPERTY HISTORIC
      (drilled by American Shield Corp., Bear Creek Mining, and Nicor)DDH#
    M E
    M N
    Total Depth (ft)
    Azimuth
    Dip
    Total Depth (m)LN-1
    572034
    5268381
    634
    315
    -45
    193.2LN-2
    572094
    5268489
    570
    315
    -45
    173.7LN-3
    572127
    5268624
    502
    315
    -45
    153LN-4
    572072
    5268421
    612
    315
    -45
    186.5LN-5
    572462
    5268305
    602
    315
    -45
    183.5LN-6
    572232
    5268360
    595
    315
    -45
    181.4LN-7
    572552
    5268394
    602
    315
    -45
    183.5LN-8
    572234
    5268689
    402
    315
    -45
    122.5LN-9
    572118
    5268550
    400
    315
    -45
    121.9LN-10
    572010
    5268483
    330
    315
    -45
    100.6A1-1
    571995
    5268584
    416
    Vertical
    -90
    126.8BA-6
    571869
    5268614
    3085
    Vertical
    -90
    940.3


|9.1 | Drilling Results
|--- | ----------------

The Longnose OUI is defined by drilling
with between 75 m and 125 m between pertinent drill holes. Most drill holes on
the Project Area have intersected thick intervals of titanium-iron oxide
mineralization, and the intrusive stratigraphy of the OUI can be fairly well
correlated. The drilling completed by American Shield Corp. and Nicor follows a
grid pattern in which section lines have a 315 degree bearing, and most of these
holes were drilled with an azimuth of 315 degrees and a dip

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of -45 degrees, except two holes that
were drilled vertically (See Table 9.1) . The drilling completed by CIOUS does
not follow this grid, but instead fills in local gaps, and explores the outer
limits of the defined Longnose intrusion. The intrusive stratigraphy of the
Longnose OUI seems to dip to the southeast at 30-45 degrees; therefore drill
holes with a -45 degree dip should give a reasonably accurate indication of the
true thickness of mineralization.



Figure 9.1 and Figure 9.2 show the
drill holes in typical plan and section views.



Figure 9.1: Map Showing the
Distribution of Longnose Drilling.

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Figure 9.2: Example of drill holes
with the Pyroxenite domain boundary in oblique section, looking
northeast

|9.2 | Historic Drill Hole
  Sampling
|--- | ------------------------------

The twelve historic drill holes were
sampled by previous operators; however, none of the historical assay results
were utilized by SRK or Cardero. Sampling and resampling has been completed by
CIOUS on both contemporary and historic drill holes.

Remnants of historic drill core were
retained by the government of Minnesota. CIOUS undertook to re-sample as much of
the historic core as possible during 2009 and 2010. In rare instances, little or
no material was available, but for the most part, core or assay rejects were
available and were resampled. The procedures used to re-sample the historic core
were largely the same as those used for the modern core (see section 10 &
11).

The sampled historic drill core
material was either half or quarter core (preferentially), or assay rejects from
historic sampling campaigns. In term of material samples, 14% of the historic
resampled material was half core, while 36% was quarter core and 50% was from
rejects. Core material was typically resampled at a 2.5 m interval, while reject
material was sampled at an average interval of 3.1 m.

Only historic drill hole BA-6 could not
be resampled at all. Historic drill hole A1-1 had only two samples that could be
resampled, which encompasses only 7% of the hole length. For the remaining ten
historic holes, approximately 70% of the drill hole intervals were
resampled.

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|10   | Sample Preparation, Analyses, and
      Security
|---- | ------------------------------------------------
|     |                                                 
|10.1 | Sampling Method and
  Approach                  

Modern samples collected by CIOUS for
analysis are from drill core, while historic drill holes were re-sampled from
drill core or sample rejects. Drill core sampling is typically continuous
through the length of each drill hole, except where drill core is obviously not
mineralized. In the cases of re-sampling historic core where no rejects or core
material was available, the intervals have obviously not been re-assayed. Every
effort was made to ensure there were no sample biases, and samples are
representative of the mineralization found. The rocks are intrusive and
competent, typically with limited, localized fracturing. Drill core recovery
averages 92.3% and rock quality is typically good.

|10.2 | Drill Core and Sample Interval
  Preparation
|---- | --------------------------------------------

Drill core is logged lithologically as
it is drilled, and then stored in original cardboard boxes (10 feet per box) on
pallets until additional analysis of core can be performed. As time permits,
data is collected on core regarding rock quality, core recovery, magnetic
susceptibility, and specific gravity. Sample intervals are then set-up, and the
drill core is photographed. All drill core from the 2010 and 2011 drilling
programs has been logged and sampled, and all sample results from the 2010 and
2011 drill core sampling campaign are complete. Lithologic logging and
collection of other data from drill core is done per standard industry practices
as follows:

Lithologic log

Lithologic intervals are recorded in
feet based on run blocks inserted at the time of drilling. Specific data is
collected on rock type, texture, grain-size, lithologic contacts, modal
mineralogy, structures, oxide mineralization, sulfide mineralization, and
alteration.

Rock quality/Core
recovery

Intervals are recorded in feet based on
run blocks inserted at the time of drilling. Actual lengths of intervals are
measured and recorded in inches. The sum of all pieces of core greater than 4
inches is recorded, and total fractures per interval are recorded. RQD for each
interval is determined by dividing the sum greater than 4 inches by the actual
total inches of core recorded, and multiplying by 100.

Magnetic
Susceptibility

Magnetic susceptibility data is
collected on all drill core using a SAIC Exploranium KT-9 magnetic
susceptibility meter. Five readings are collected for each core interval so that
a reading is collected at least every 2 feet.

Specific Gravity

Specific gravity measurements are
collected approximately every 20 feet. Core pieces measuring approximately 4 - 5
inches are weighed first in air (grams), and then in water (grams), using a
manual balance and custom built work station.

Core photography

All drill core is photographed using a
Sony Cyber-shot digital camera, typically with two core boxes per photo. All
pictures are labeled as follows: DDH Box # (#-#).

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Sample intervals

All sample intervals are determined by
visual inspection of drill core, generally based on a visual estimation of oxide
and sulfide mineralization. Attempts are made to not cross lithologic boundaries
within sample intervals; however, given the intrusive, locally lithologically
heterogeneous nature of drill core this is not always possible. Drill core is
pieced together and a line is drawn parallel to the long axis of all drill core
to be sampled. Sample intervals range in length from 0.2 m to approximately 2.5
metres, with most sample intervals from 1.5 - 2.0 metres in length. Sample tags
are stapled into boxes, and sample identification numbers are written on core
for future reference. Sample intervals are recorded, noting the type of sample
(i.e. core, quarter core original, quarter core duplicate, prep duplicate,
standard, or blank), and the general lithology of the sample.

|10.3 | Sample Collection and
  Preparation
|---- | -----------------------------------

Samples are collected by sawing core in
half along the line drawn parallel to the long axis of core with a diamond
tipped blade. The core cutting saw is cleaned at the end of each day, or after
120 m (400 ft) of core has been cut (whichever is earlier), and the saw is
filled with clean water at the time of cleaning. The left half of drill core is
kept and remains in the original cardboard boxes, which are securely stored at
CIOUSs field office in Aurora, Minnesota. The right half of core is collected
and packaged in clear poly bags, along with a sample tag designating the sample
identification number. Bags are labeled in black permanent marker with the
corresponding sample identification number and a zip tie is used to close each
poly bag. The weight of each sample is then recorded (in grams). Poly bags are
packaged in white sand bags (typically five samples per sand bag). Each sand bag
is labeled with the sample identification numbers that it contains, and the
batch number that the samples belong to. Sand bags are first secured with a
standard zip tie, and then a second individually numbered zip tie is placed over
the standard zip tie for security. The security number is recorded along with
the sample numbers that it represents. The sand bags are then transferred to a
standard shipping pallet (generally 10-15 sand bags per pallet). The pallets are
shrink wrapped, and labeled with the sample batch numbers. Generally, each drill
hole is given a unique sample batch number.

|10.4 | Sample Preparation, Analyses and
  Security
|---- | -------------------------------------------

Sample preparation of drill core is
conducted at the CIOUS facility in Aurora, Minnesota by persons under contract
with CIOUS to carry out the exploration, drilling, and sampling programs. Sample
preparation of historic core from the Project Area was carried out by CIOUS
personnel prior to the involvement of contractors hired to carry out the
exploration, drilling, and sampling programs.

|10.5 | Sample Analysis
|---- | ---------------

Samples are prepared for assay analysis
by ALS Laboratory Group (ALS) at their Thunder Bay, Ontario facility. The
laboratory prepares samples for assay using code prep-31, in which samples are
crushed, and 250 g of material from each sample is split off and pulverized so
that better than 85% pass through 75 micron mesh. Samples are dried if necessary
using code DRY-21. The sample pulp is then shipped to the ALS facility in
Vancouver, British Columbia, Canada for assay, while the coarse sample is put in
temporary storage at ALS in Thunder Bay (and eventually shipped back to CIOUSs
field office in Aurora, Minnesota).

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ALS Laboratory Group laboratories are
ISO 17025 certified. The ALS laboratory used for sample preparation is located
at 1160 Commerce Street, Thunder Bay, Ontario, Canada P7E 6EP. The ALS
laboratory used for sample analysis is located at 2103 Dollarton Hwy, North
Vancouver, British Columbia, Canada V7H 0A7.

A whole rock analysis (code: ME-ICP06)
is conducted on samples, and base metals are analyzed using code ME-4ACD81.
Sample analysis method ME-ICP06 returns results for all major oxides from 0.01
-100% as displayed in Table 10.1, and sample analysis method ME-4ACD81 returns
results for base metals as listed in Table 10.2. Numerous samples have also been
analyzed for rare earth and trace elements by ALS using sample method ME-MS81.
The elements and respective ranges for sample method MA-MS81 are displayed in
Table 10.3.

Table 10.1: Analytes and Ranges of
ALS Laboratory Group sample analysis method ME-ICP06

Analyte
    Range (%)
    Analyte
    Range (%)
    Analyte
    Range (%)SiO2
    0.01-100
    Na2O
    0.01-100
    P2O5
    0.01-100Al2O3
    0.01-100
    K2O
    0.01-100
    SrO
    0.01-100Fe2O3
    0.01-100
    Cr2O3
    0.01-100
    BaO
    0.01-100CaO
    0.01-100
    TiO2
    0.01-100
    LOI
    0.01-100MgO
    0.01-100
    MnO
    0.01-100


Table 10.2: Analytes and Ranges of
ALS Laboratory Group sample analysis method ME-4ACD81

Analyte
    Range (ppm)
    Analyte
    Range (ppm)
    Analyte
    Range (ppm)Ag
    0.5-100
    Cu
    1-10,000
    Ni
    1-10,000As
    5-10,000
    Hg
    1-10,000
    Pb
    2-10,000Cd
    0.5-1,000
    Mo
    1-10,000
    Zn
    2-10,000Co
    1-10,000


Table 10.3: Analytes and Ranges of
ALS Laboratory Group sample analysis method ME-MS81

Analyte
    Range (ppm)
    Analyte
    Range (ppm)
    Analyte
    Range (ppm)g
    1-1,000
    Ho
    0.01-1,000
    Ta
    0.1-10,000Ba
    0.5-10,000
    La
    0.5-10,000
    Tb
    0.01-1,000Ce
    0.5-10,000
    Lu
    0.01-1,000
    Th
    0.05-1,000Co
    0.5-10,000
    Mo
    2-10,000
    Tl
    0.5-1,000Cr
    10-10,000
    Nb
    0.2-10,000
    Tm
    0.01-1,000Cs
    0.01-10,000
    Nd
    0.1-10,000
    U
    0.05-1,000Cu
    5-10,000
    Ni
    5-10,000
    V
    5-10,000Dy
    0.05-1,000
    Pb
    5-10,000
    W
    1-10,000Er
    0.03-1,000
    Pr
    0.03-1,000
    Y
    0.5-10,000Eu
    0.03-1,000
    Rb
    0.2-10,000
    Yb
    0.03-1,000Ga
    0.1-1,000
    Sm
    0.03-1,000
    Zn
    5-10,000Gd
    0.05-1,000
    Sn
    1-10,000
    Zr
    2-10,000Hf
    0.2-10,000
    Sr
    0.1-10,000


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Copper analyses that return values
greater than the detection limits (>10,000 ppm) of sample method ME-4ACD81
are re-analyzed by ALS using sample method Cu-OG62, which has detection limits
of 0.01 -40%.

The key elements for the Project are
titanium (Ti), which is measured as TiO2and iron (Fe) which is
measured as Fe2O3.

|10.6 | Sample Security
|---- | ---------------

Drill core is retrieved from drill
sites on a daily basis by CIOUS staff, and delivered directly to the CIOUS field
office in Aurora, Minnesota. Drill core is securely stored on-site at the field
office until sampling can be conducted by CIOUS personnel. The CIOUS field
office is locked at night and when personnel are not present at the facility and
the local Aurora police force regularly patrol the area.

Upon collection of samples they are
packaged as described above and shipped via chartered and bonded independent
carrier Valley Carthage Transport and Manitoulin Transport for customs brokerage
to ALS Laboratory Group Laboratories in Thunder Bay, Ontario, Canada. There have
been no reported incidents regarding the individually numbered security zip ties
placed on each sand bag, and thus there are no issues regarding the security of
sample shipment.

There were no issues regarding drill
core or sample security.

|10.7 | Quality Assurance and Quality Control
  Programs
|---- | ------------------------------------------------

CIOUS has instituted extensive QA/QC
procedures to ensure the integrity of sample analyses. The QA/QC procedures
followed for all drill core sampling conducted by CIOUS at the Project are
outlined in Figure 10.1 below.

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Figure 10.1 Cardero Longnose Project
Quality Control/Quality Assurance procedures

Field duplicates (FDUP) in this case
refer to quarter core duplicates of the same sampling interval. A preparation
duplicate (CDUP) consists of a poly bag containing only a sample tag with
instructions for laboratory personnel to prepare the sample from the preceding
standard drill core analysis by taking a split after the coarse crushing stage.

Three different reference materials are
used in the Longnose sampling program. TTC-1 and LNC-1, which are in-house
reference materials created by Cardero and, DH6701 which is a certified
reference materials manufactured for Brammer Standard Company, Inc.

Blank material is collected locally in
Minnesota from bedrock outcroppings of the Pokegama quartzite near Virginia,
Minnesota. Pokegama quartzite is a suitable blank reference because it is
dominantly composed of SiO2.

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|11   | A total of Data Verification
|---- | ----------------------------
|     |                             
|11.1 | Quality Control
  Results   

Quality control samples (duplicates,
blanks and standards) are used to monitor laboratory sample preparation,
potential for contamination and analytical accuracy.

A total of 105 reference materials and
61 Pokegama quartzite blank samples were submitted blindly to the laboratory
during the re-analysis of historical drill core samples in 2009 and the core
sampling campaign and in 2010 and 2011. A total of 90 quarter core duplicate
pairs were collected and submitted to the laboratory and 137 preparation
duplicate pairs were prepared by the laboratory. Only the quarter core
duplicates were blind to the laboratory. All analytical data including quality
control samples were checked and verified by Carderos senior geochemist, Tansy
OConnor-Parsons and reviewed by SRK.

In the opinion of SRK, the sampling
preparation, security and analytical procedures used by CIOUS are consistent
with generally accepted industry best practices and are therefore adequate.

Quarter-core and preparation duplicate
data for TiO2are presented in Figure 11.1 and Figure 11.2. These
data exhibit good to excellent correlation for the elements of interest.



Figure 11.1:Scatterplot
graph of TiO2data for quarter core field duplicate data

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Figure 11.2:Scatterplot graph of TiO2data for preparation
duplicate data

Two internal reference materials (LNC-1
and TTC-1) and one commercial standard reference material (DH6701) were utilized
by Cardero. Reference material results are plotted against their known
concentration with tolerance levels within 10% (Figure 11.3, Figure 11.4, and
Figure 11.5) . Overall, performance of the certified reference materials was
satisfactory. TTC-1 shows a slightly high bias and relatively larger scatter,
while LNC-1 shows no bias but significant scatter.



Figure 11.3:TiO2data presented for internal reference materials TTC-1

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Figure 11.4:TiO2data presented for internal reference material LNC-1



Figure 11.5TiO2data presented for standard reference material DH6701

To monitor the analytical accuracy of
the laboratory, umpire/check assays were submitted to a second laboratory (Acme
Analytical Laboratories in Vancouver, BC) where the sample pulps were analysed
by the 4A04 package (lithium metaborate fusion/ICP-ES finish). All 303 samples
from a single drill hole were submitted for the umpire assay, as the drill hole
intersected all levels of ferro-titanium mineralization. The drill hole
(TTC-019) is located at a nearby CIOUS ilmenite project with identical
mineralization style as occurs at the Project) referred to as Titac. The Titac
drilling program was concurrent with the Longnose program and adhered to the
same procedures, so the check assay results are considered to be comparable. The
results for TiO2and Fe2O3are presented

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in Figure 11.6. The data correlate very
well for both analytes, however there is a slight low bias at the concentrations
of > 27% TiO2for the data from the ALS Minerals laboratory. This
is not considered to be significant, as the data is within 10% analytical
precision.



Figure 11.5: Scatterplots presenting
analytical umpire (check) assays versus original assay results for
Fe2O3(left) and
TiO2(right) data

Coarse blank samples (Figure 11.7) show
a slightly higher than background value for TiO2, indicating that the
blank is not devoid of titanium. SRK normally compares the blank data to five
times the detection limit, in this case a value of 0.05 % TiO2;
however, this blank has an average TiO2value ten times the detection
limit. When the individual values are compared to a low baseline value of
0.1%TiO2, the blank sample results indicate very low-level carryover
contamination during the preparation through to analytical stage.



Figure 11.6:TiO2data presented for the Pokegama Quartzite Blank samples

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SRK has reviewed the results of all
QA/QC samples. Duplicate and umpire analysis performed very well and blank
samples performed adequately. The results of analytical, standard results are
less ideal. Both internal standard results showed a large amount of scatter and
standard TTC-1 showed a slight high bias. Also, CIOUS did not complete full
round robin testing on the standards, making them difficult to properly use as a
reference. CIOUS should be more careful to appropriately utilize reference
standards for future drill programs.

In the opinion of SRK, the results of
the analytical QA/QC program used by CIOUS provide sufficient support that the
analytical data is viable to support the exploration analysis and the Mineral
Resource.

|11.2 | Verifications by
  Cardero
|---- | --------------------------

Cardero completed several processes to
verify the exploration data that has been captured at the Project.

Firstly, all exploration data was
entered into a database which provided a level of data checking to ensure that
errors are minimized. This includes standardized naming conventions and limits
on field entries.

Secondly, all field records were
retained by CIOUS and spot checks were made by Cardero head office staff to
ensure that the database accurately reflected the data captured.

Data from the site database is backed
up weekly to Carderos Vancouver office server.

|11.3 | Verifications by
  SRK
|---- | ----------------------

SRK completed a series of verifications
to ensure that the exploration data is reliable enough for the creation of the
Mineral Resource. These verifications included the site visits review of field
procedures, reviewing analytical quality control data, independent sampling and
independent verification of the assay results.

|11.3.1 | Site Visit
|------ | ----------

During the site visit completed on
March 12 & 13, 2010, SRK was able to verify:

- Exploration planning;
- Selection of drill hole sites;
- Mobilization of drill rigs;
- Drilling processes and drill rig core handling;
- Down-hole surveying;
- Collar site marking & surveying;
- Core logging;
- Core sampling;
- Sample QA/QC insertion;
- Sample shipping and security; and
- Data capture and backup.

In the opinion of SRK the site
procedures used by CIOUS are consistent with generally accepted industry best
practices and are therefore adequate.

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|11.3.2 | Verifications of Analytical Quality Control
  Data
|------ | --------------------------------------------------

Table 11.1 summarizes CIOUSs insertion
rate for analytical QA/QC samples.

Table 11.1: Summary of Analytical
Quality Control Data Produced By Cardero on the Longnose Project,
2010/11

Sampling Program
    Drilling andSamplingPrograms2009-11
    Percent ofSamples (%)
    CommentSample Count
    1695Field Blanks
    61
    3.6
    Locally derived
      quartzite materialStandards
    105
    6.2TTC-1
    48
    2.8
    Internal Cardero
      reference materialLNC-1
    49
    2.9
    Internal Cardero
      reference materialDH6701
    8
    0.5
    Certified
      Commercial Standard, BrammerField Duplicates
    90
    5.3
    Quarter CorePreparation Duplicates
    137
    8.1
    Split of course
      crushTotal QC Samples
    393
    23.2


SRK believes that the QA/QC sample
insertion rates described above meet industry standard rates. Generally, SRK
expects 5% blanks, 5% standards and 5% duplicates for an overall insertion rate
of 15 %. CIOUS has exceeded these thresholds for all sample types aside from
blanks.

SRK noted in their review that the
standard performance and internal standard analysis could be improved.

The internal standards did not have
multi-laboratory round robin analysis and expected values for these standards
have been calculated only through utilization as standard material and averaging
results. This is not recommended and for further program, SRK recommends that
multi-laboratory and round robin testing should be completed on all internal
standards.

SRK has reviewed the results of the
analytical QA/QC samples and found that the results are sufficient to provide
confidence in the sampling and assay results.

|11.3.3 | Independent Verification
  Sampling
|------ | -----------------------------------

During the SRK site visits, independent
verification samples were collected and sent to ALS for processing. Samples were
collected from both the Longnose and Titac deposits.

In total, five independent samples from
the Project Area were collected and processed. The results are shown in Table
11.2 and Figure 11.7. Even though only a small number of samples were collected,
the samples showed very good correlation between the original Cardero TiO2and Fe2O3assays, and the independent duplicate
results.

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Table 11.2 : Assay Results for
Verification Samples Collected SRK on the Longnose Project.

HoleID
    From(m)
    To(m)
    OriginalTiO2(%)
    SRKDuplicateTiO2(%)
    OriginalFe2O3(%)
    SRKDuplicateFe2O3(%)LN-8
    51.82
    54.86
    18
    17.55
    35.2
    34.9LN-8
    112.78
    115.82
    24.3
    24.4
    46.4
    45.3LN-8
    67.06
    70.10
    14.6
    14.75
    25.9
    26LN-9
    54.87
    57.91
    17.8
    16.7
    32.7
    31.3LN-10
    73.15
    76.20
    28.1
    26.5
    54.3
    50.5




Figure 11.7: Comparison of
independent SRK verification samples

|11.3.4 | Independent Assay
  Verification
|------ | --------------------------------

SRK independently verified 92% of the
assay results by downloading the assay certificates directly from the laboratory
and comparing the compiled results in an Access database. SRK found no errors in
the TiO2and Fe2O3analytical data.

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|12 | Mineral Processing and Metallurgical
      Testing
|-- | --------------------------------------------------

Significant amounts of historical
beneficiation work has been conducted by the Coleraine Minerals Research Lab (
CMRL)) which is part of the University of Minnesota Duluths ((UMDs))
Natural Resources Research Institute ((NRRI),), located in Coleraine,
Minnesota, USA. The work predates the NI 43-101 standards and therefore is not
compliant. However, the work was completed to high standards and will be useful
in designing the future beneficiation work. This work was described in Section 5
of this report.

|12.1 | Recent Metallurgical
  Testwork
|---- | -------------------------------

Since Carderos involvement in the
project, little metallurgical analysis has been completed by Cardero. However,
in December 2011, Davis Tube tests were completed in order to determine the
proportion of magnetic material and the Fe analytical value within this magnetic
concentrate. At this time, only preliminary results of these tests have been
received.

Approximately 160 Longnose samples were
selected for Davis Tube processing. Davis Tube tests utilize an electromagnet to
separate material into magnetic and non-magnetic/para-magnetic material. Samples
were selected to cover a wide range of grades as well as being spatially
representative. Analytical pulp rejects were utilized for the tests. The samples
were shipped to G&T Metallurgical (G&T) in Kamloops BC.

At G&T each sample was assayed for
Fe% (direct Fe% analysis as opposed to Fe2O3that was
completed in the main assay work). Then 10 g or 30 g of the material was
selected for the tests. This material was pulp reject material (pulverized to
80% passing 200 mesh) and was not further re-crushed in any way by G&T. The
material was separated into a magnetic and non-magnetic fraction by passing over
a magnet set at 3000 gauss. The magnetic fraction was then weighed and the
magnetic concentrate re-assayed for Fe%.

A total of 151 of these samples were
from within the peridotite and pyroxenite domains. The results of this test were
reviewed for each domain.

In a deposit with magnetite as the
dominant Fe bearing mineral, this test provides data to calculate a regression
of the proportion of magnetite expected at a range of Fe grades and the
conversion of the Fe2O3or Fe% analysis into a magnetite
estimate. However, due to the fact that Fe partitions into ilmenite and a small
but unknown amount of ilmenite would have partitioned into the magnetic
concentrate, further work must be performed to properly quantify the magnetite
content of these samples. A mineralogical study of a subset of these samples and
concentrates would assist with determining the amount of ilmenite in the
concentrate and TiO2assays of the concentrate would allow for
determination of the titaniferous magnetite as well.

Regression of the Davis Tube results
has been utilized to adjust the Fe2O3values reported in
the Mineral Resource statement (Table i and Table 13.8) . This regression has
reduced the values in order to account for the Fe contained within the ilmenite
as well as silicates. However, without mineralogical analysis of the samples and
magnetic concentrate, the results are not conclusive enough to be used to
definitively quantify magnetite without the risk of double counting iron already
accounted for in the ilmenite values.

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|13   | Mineral Resource Estimates
|---- | --------------------------
|     |                           
|13.1 | Introduction              

The Mineral Resource Statement
presented herein represents the first Mineral Resource evaluation prepared for
the Project in accordance with NI 43-101

The mineral resource model prepared by
SRK considers 24 core boreholes drilled, and in the case of historic drilling
re-sampled, by CIOUS during the period of 2009 through 2011. The resource
estimation work was completed by Michael D. Johnson, P.Geo (APEGBC, No. 34923)
an appropriate independent qualified person as this term is defined in NI
43-101. The effective date of the resource statement is January 19, 2012.

This section describes the resource
estimation methodology and summarizes the key assumptions considered by SRK.

In the opinion of SRK, the resource
evaluation reported herein is a reasonable representation of the global
TiO2and Fe2O3Mineral Resources found in the
Project at the current level of sampling. The mineral resources have been
estimated in conformity with generally accepted CIM Estimation of Mineral
Resource and Mineral Reserves Best Practices guidelines and are reported in
accordance with the Canadian Securities Administrators National Instrument
43-101. Mineral resources are not Mineral Reserves and do not have demonstrated
economic viability. There is no certainty that all or any part of the Mineral
Resource will be converted into a Mineral Reserve.

The database used to estimate the
Project Mineral Resources was thoroughly audited by SRK. SRK is of the opinion
that the current drilling information is sufficiently reliable to interpret with
confidence the boundaries for Ilmenite and magnetite mineralization and that the
assay data are sufficiently reliable to support a Mineral Resource estimate.

Surpac®version 6.2 was used
to construct the geological solids, prepare assay data for geostatistical
analysis, construct the block model, estimate metal grades and tabulate mineral
resources. The Geostatistical Software Library (GSLib) family of software were
used for geostatistical analysis. Surpac®was used for the
variography analysis and Leapfrog®version 4.2 was utilized in the
solid model creation.

This section describes the work
undertaken by SRK and key assumptions and parameters used to prepare the Mineral
Resource model for the Project.

|13.1.1 | Ilmenite and Mineral Resources of Industrial
  Minerals
|------ | -------------------------------------------------------

The Longnose deposit is primarily of
interest for ilmenite and to a lesser extent magnetite. Ilmenite is a
titaniumiron oxide with a chemical formula of TiFeO3, containing
approximately 32% Ti and37% Fe. The other significant source mineral for Ti is
rutile, which has a chemical formula of TiO2and is believed to be
only a minor constituent of this deposit.

Magnetite within the Longnose deposit
is made up of pure magnetite and titaniferous magnetite. Titaniferous magnetite
has the chemical formula TiFe2O4(50% Fe, 31% Ti) while
pure magnetite is Fe3O4(72% Fe). The ratio of
titaniferous to pure magnetite likely varies throughout the deposit.

Chemical analysis of titanium in any
form is measured as TiO2, while the current methods measureall iron
as Fe2O3.

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As stated above, the Mineral Resource
has been quantified in terms of TiO2and Fe2O3,
the analytical components of Ti and Fe. In any potential mining scenario, the
Project would produce ilmenite (FeTiO3) and potentially magnetite
(TiFe2O4, Fe3O4) as a
by-product.

The CIM guidelines highlight the
special care that should be undertaken when developing a Mineral Resource
estimate for an industrial mineral deposit. A list of considerations
includes:

- These deposits differ from more common precious and
  base metal deposits;
- Customer specifications for industrial products are
  often based on both physical and chemical properties;
- An industrial mineral may have multiple market
  applications with different requirements or limits;
- The physical properties of an industrial mineral
  deposit may vary from deposit to deposits or within a single deposit;
- Use of multi-parameter estimation techniques may be
  desirable, such as the use of multiple indicators or co-kriging;
- Published specifications and standards for
  industrial minerals should be used as a guide and not replace detailed market
  investigations;
- Test results may be subject to scale-up effects and
  larger scale tests may be required; and,
- Identification of market price factors are critical
  in determining value for an industrial mineral.

Ilmenite concentrate should be viable
for a variety of processes and uses such as pigment and metal markets.

Processing of OUI material to create an
ilmenite concentrate would include crushing the rock to a specified size and
then completing density separation to remove the silicates to a float waste
product and concentrating the heavy oxides. The oxide concentrate would then be
separated into a magnetic and non-magnetic fraction. An example of such a flow
sheet is shown in Figure 13.1. The ilmenite would be concentrated into the
non/para-magnetic fraction, ideally containing >50 % TiO2and
recovering more than 70% of the TiO2. Magnetic minerals/elements of
potential economic benefit would include magnetite and potentially vanadium.

General sources, processes and end uses
of titanium bearing material are shown in Figure 13.1. Ilmenite is most commonly
used as a pigment in paints as well as in a metal alloy in lightweight component
construction (aerospace, aircraft, auto industry and bicycles). Ilmenite can be
viable for production into synthetic rutile, sorel slag and low-alkali slag, as
well as pigments through the sulphate and chloride processes.

Based upon the work summarized in a
paper by Westmount Mining (Westmount, 1990), ilmenite from the Longnose deposit
would be a saleable as an ilmenite concentrate; however, may be priced at the
lower end of the pricing spectrum due to magnesium levels. Beneficiation to a
Sorel slag, low-alkali slag or synthetic rutile would, however, be advantageous
and increase market options. This type of beneficiation will require significant
further testwork.

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Figure 13.1: Titanium feedstocks
& uses (Westmont, 1990)

|13.2 | Resource Estimation
  Procedures
|---- | --------------------------------

The resource evaluation methodology
involved the following procedures:

- Database compilation and verification;
- Construction of wireframe models for the boundaries
  of the oxide mineralization;
- Definition of resource domains;
- Data conditioning (compositing and capping) for
  geostatistical analysis and variography;
- Block model creation, coding and grade
  interpolation;
- Resource classification and validation;
- Assessment of reasonable prospects for economic
  extraction and selection of appropriate cut- off grades; and
- Preparation of the Mineral Resource Statement.

|13.3 | Resource Database
|---- | -----------------

SRK audited and reviewed data provided
by Cardero to create a Surpac®database from which the Mineral
Resource estimation was based. The database includes the following tables:

- Drill hole collar information such as location and
  length;

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- Downhole survey information such as direction and
  dip;
- Lithology information including rock group codes
  and interpreted geology;
- Downhole magnetic susceptibility data;
- Downhole specific gravity measurements ; and,
- Chemical analytical (assay) records.

The data encompassed 27 drill holes,
544 downhole survey readings and 1695 assays. Lithology data was only available
for the 15 modern holes completed by CIOUS in 2010 and 2011.

Three historical drill holes were not
utilized for the Mineral Resource due to lack of significant CIOUS sampling in
these holes. Neither the drill core nor the assay rejects were available for
re-sampling. Historical assays in these holes were not used in the estimation,
but did not contradict the results of the estimates.

Basic statistics for the drill hole
assay and specific gravity data are presented in Table 13.1 and .Table 13.2

Table 13.1: Statistical Summary of
assay results in the database

TiO2
    Fe2O3
    LengthCount
    1695Minimum
    0.09
    5.38
    0.30Maximum
    41.70
    69.70
    6.10Mean
    13.46
    31.11
    2.08Standard Deviation
    7.60
    11.39
    0.60


Table 13.2: Statistical summary of
specific gravity data in the database

Specific GravityCount
    855Minimum
    2.59Maximum
    4.7Mean
    3.31Standard Deviation
    0.41


|13.4 | 3D Modelling
|---- | ------------

Solid models were created to provide
spatial limits for each of the mineralization domains within the Longnose
deposit. The domains were largely created by interpretation of the drill hole
lithology data from 2010/11 drill holes, in conjunction with analysis of the
TiO2and Fe2O3assay values from all holes.
There historic holes lack the lithology data that the modern holes have, so
assay data was used as a surrogate for geology where required.

The domains were broadly defined based
upon the designation of drillcore intervals as peridotite or pyroxenite
dominated oxide bearing ultramafic rocks, or country rocks. The two domains were
created by generalizing the lithology, so each domain is dominated by either
peridotite or pyroxenite material, but may contain shorter intervals of other
rock types.

Surpac®6.2 and
Leapfrog®software was used to create the wireframes. The boundaries
were limited to below the surface and/or overburden boundary and so that no
overlap or gap is created between the two domains.

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Topographic and overburden surfaces
were modelled from the drill hole data. These surfaces were used to code the
appropriate portions of the block model as air or overburden.

Figure 13.2 and Figure 13.3 show the
interpreted domains in plan view and orthographic views.



Figure 13.2: Longnose
three-dimensional (3-D) model domains (100 m grid)



Figure 13.3: Longnose 3-D models
with drill holes (50 m grid, looking northeast)

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|13.5 | Bulk Density
|---- | ------------

The Longnose database contains 855
specific gravity (SG) measurements, 501 of which fall within the interpreted
boundary of the Longnose OUI deposit. 354 SG measurements lie outside the
mineralization domains, while 186 measurements lie within the peridotite domain
and 315 measurements lie within the pyroxenite domain.

Specific gravity was measured on core
samples by Cardero using a laboratory scale and recording the mass of drill hole
core pieces in air and water. Drill hole core was not covered by wax or plastic
film prior to immersion; however, porosity is not likely to be an issue with
this type of rock. No strong correlation between specific gravity measurements
and TiO2or Fe2O3assay results was noted.

SG data was utilized to estimate bulk
density.

|13.6 | Compositing
|---- | -----------

Drill hole assay sample lengths are
summarized in Figure 13.4; a histogram of sample lengths. Approximately 60% of
the samples are less than 2 m in length, so a compositing interval of 2 m was
selected.



Figure 13.4: Histogram of sample
lengths

Composites of 1 m or less were tagged
as short composites and not used in the estimation process so they did not
have an unrepresentative influence on the estimates. Since the domains are
relatively thick in all directions and these short composites only occur at
domain boundaries, they are not significant to the estimation process.

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|13.7 | Evaluation of
  Outliers
|---- | ------------------------

Block grade estimates may be unduly
affected by high grade outliers. Evaluation of the sample data for outliers
which should be capped or otherwise restriceted was copmleted by looking at
cumulative probability graphs. Theses plots are shown for TiO2in
both domains within Figure 13.5 and Figure 13.6.

Overall, the two domains show a
relatively consistent trend of a single population from approximatley 15%
TiO2and above. At TiO2values less than 15%, there is
evidence of mixing of lower grade material such as pyroxenite in the Peridotie
domain or country rock (troctolites) material within either of the mineralized
domains.

For the Peridoite domain, there is a
significant lower grade population which has been included within the domain and
accounts for aporixatmly 20% of the samples. These samples are scattered
throughout the deposit and cannot be modelled out at the current state of the
data. The domain includes a very small percentage (< 5%) of very low grade
(country rock) samples.

The pyroxenite domain also inlcudes a
lower grade population (< 8% TiO2) which accounts for
approximatley 5% of the samples. These samples are also mixed throughout the
domain and cannot be easiliy modelled out at the current state of the data.

SRK determined that capping was
uncessary for both TiO2and Fe2O3in either
domain.



Figure 13.5: Peridotite Probability
Plot (declustered composites)

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Figure 13.6: Pyroxenite Probability
Plot (declustered composites)

|13.8   | Statistical Analysis and
  Variography
|------ | --------------------------------------
|       |                                       
|13.8.1 | Composite
  Statistics                

Composite statistics for TiO2and Fe203as well as sample statistics for specific
gravity are described below.

TiO2 Composites Statistics

Figure 13.7 and Figure 13.8 show
histograms of the TiO2composites within each domain, as well as the
basic statistics for each. The average peridotite TiO2value is
18.9%,while the average in the pyroxenite is 13.75% .

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Figure 13.7: Peridotite composite
histogram for TiO2



Figure 13.8: Pyroxenite composite
histogram for TiO2

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Fe2O3Composites Statistics

Figure 13.9 and Figure 13.10 show the
histograms of the Fe2O3composites within each domain, as
well as the basic statistics of each. The average peridotite
Fe2O3value is 41.12%, while the average in the pyroxenite
is 30.32% .



Figure 13.9: Peridotite Composite
Histogram for Fe2O3



Figure 13.10:Pyroxenite
composite histogram for Fe2O3

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|13.8.2 | Specific Gravity Sample
  Statistics
|------ | ------------------------------------

Figure 13.11 and Figure 13.12 show the
histograms of the SG composites within each domain, as well as the basic
statistics of each. The average peridotite domain SG is 3.64, while the average
in the pyroxenite domain SG is 3.49. The surrounding country rock has an average
SG of 2.97.



Figure 13.11: Longnose specific
gravity histogram, peridotite domain



Figure 13.12: Longnose specific
gravity histogram, pyroxenite domain

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Figure 13.13: Longnose specific
gravity histogram, country rocks

|13.8.3 | Variography
|------ | -----------

Kriging parameters were derived from
variogram analysis completed on the composites for each metal (Table 13.3) . A
single variogram was used for both domains based upon the relatively limited
data within any single domain. The nugget effects were established from downhole
variograms.

The nugget values are 12% of the total
sill for both TiO2and Fe2O3respectively. Note
that the sill represents the grade variability at a distance beyond which there
is no correlation in grade.

Table 13.3:TiO2and Fe2O3variogram parameters for both Longnose
domains

**Element**
    **Nugget**C0
    SillC1, C2
    Surpac®Rotations Rule (LRL)
    Ranges a1, a2around Z
    around X
    around Y
    Y-Rot
    X-Rot
    Z-RotTiO2
    5
    14
    130
    -20
    0
    135
    135
    6823
    200
    200
    100Fe2O3
    12
    29
    135
    -20
    -10
    70
    29
    2253
    350
    146
    109


A viable three-dimensional TiO2variogram was not apparent in the data; however, a shallowly east-dipping
omnidirectional variogram was fit to the data in two-dimensions (Figure 13.14) .
It was decided that the downhole variogram would be utilized as a surrogate for
determining the 3rddimension ranges (Figure 13.15) .

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Figure 13.14:2-D
sub-horizontal component of the TiO2variogram



Figure 13.15:Sub-vertical
component of the TiO2variogram (downhole)

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Analysis of the Fe2O3composite data resulted in a viable three-dimensional variogram, which are
shown in Figure 13.16.



Figure 13.16: Major (top),
semi-major and minor axis (bottom)Fe2O3variograms

The ranges of continuity are generally
longer for the Fe2O3 sample data (~350 m / ~100 m) compared to TiO2(~200 m / ~100 m).

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|13.9 | Block Model and Grade Estimation
|---- | --------------------------------

A block model was constructed to encompass the entire domain models as well as the surrounding rock.  The block model was constructed in order to provide a matrix database which can be populated by data such as geology codes, density data and grade estimates. The Longnose block model was created with the parameters described in Table 13.4.

Table 13.4: Block Model Summary

Type
    Y
    X
    Z
    UnitsMinimum Coordinates
    5,267,800
    571,500
    50
    UTM metresMaximum Coordinates
    5,269,100
    572,900
    500
    UTM metresParent Block Size
    20
    20
    10
    metresMin. Sub-block Size
    5
    5
    2.5
    metresRotation
    0
    0
    0
    degreesBlock Model Size
    1,300
    1,400
    450
    metresParent Blocks
    65
    70
    45
    blocksTotal Parent Blocks
    204,750
    blocks


Parent blocks were estimated, while  sub-blocking was used only to improve volumetric accuracy only.

Key  attributes of the block model included:

- Material code with a numeric  value to represent domain or air, overburden or waste;
- TiO2 grades as ID2  and Ordinary kriging (“OK”) grade interpolations and averages of block  composites;
- Fe2O3  grades as ID2 and OK grade interpolations and averages of block  composites;
- Various other ID2  and OK estimation parameters such as number of samples, average distance to  composites, kriging variance; and,
- Specific gravity data as  interpolated using ID2 methods.

Estimation  was completed for both TiO2 and Fe2O3 values  using both ID2 and OK methods.  Estimation of specific gravity was also completed  by ID2 methods.

|13.9.1 | Grade Interpolation
|------ | -------------------

Block grades were estimated by ordinary kriging into the domain models. All wireframe boundaries were treated as “hard” boundaries, meaning that blocks within a selected domain were only estimated by composites from within that domain.

TiO2 and Fe2O3 grades were estimated in multiple passes with increasing search radii.  Successive passes only calculated grades into blocks that had not been interpolated by the previous passes. Table 13.5 summarises the search ellipse parameters used to estimate metal grades into the model.

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Table 13.5: Search ellipse
parameters (Rotations aligned with Search Ellipses)

Metal
    SearchPass
    EmptyOctantsAllowed
    Search Ellipse Size
    Number of Composites
    Max.Samples**per DDH**X (m)
    Y (m)
    Z (m)
    Min.
    Max.TiO2
    1
    4
    125
    125
    63
    6
    16
    4TiO2
    2
    6
    200
    200
    100
    5
    16
    4TiO2
    3
    8
    250
    250
    125
    2
    16
    3Fe2O3
    1
    4
    125
    52
    39
    6
    16
    4Fe2O3
    2
    6
    200
    83
    63
    5
    16
    4Fe2O3
    3
    8
    250
    104
    78
    2
    16
    3


|13.9.2 | Specific Gravity
  Interpolation
|------ | --------------------------------

Block density data was interpolated
from specific gravity point measurements using ID2methods. The
estimate was created in two passes for each domain, including the country rock
external to the mineralization.

The search ellipse for the ID2estimates was aligned parallel to the Fe2O3 search ellipse, which is
relatively similar to the trend of the TiO2search ellipse.
Estimation of density outside the mineralization domains was completed with an
isotropic search ellipse. Passes were completed at a search ellipse of 150 m and
then 300 m in the longest direction.

Minimum samples were generally three on
the first pass and two on the second pass with a maximum number of samples of
eight and a maximum of three from any drill hole for all passes.

Country rock blocks that were not
estimated were assigned an average value of 2.99 g/cm3. Overburden
blocks were assigned a value of 2.0 g/cm3, which is an estimated
value and not based upon any project measurements.

|13.10 | Model
  Validation
|----- | ------------------

|13.10.1 | Declustered Average
  Grades
|------- | ----------------------------

In order to check for global bias
between the sample data and the estimate, the global estimated grades for
TiO2and Fe2O3have been compared to the
declustered average composite data. Cell declustering had been utilized for this
exercise, using GSLib software.

The results of cell declustered average
composite grades compared to zero cut-off OK estimated grades are shown in Table
13.5. Overall, the results compare well, with estimated grades within 5% of the
declustered composites grades for all but the TiO2 estimate in
the pyroxenite domain.

In the case of the pyroxenite domain,
the OK estimated grade is 12% higher than the declustered average to a volume
within the Inferred Mineral Resource where drill holes having only penetrated
partially through the mineralized zone and end in higher grade material. These
higher grade assays at the end of these holes are extrapolated into a larger
volume of material, where is reasonable to expect that higher grade
mineralization exists.

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Table 13.6 : Declustered Average
Grade compared to Estimated Grade at Zero Cut-off

Domain
    TiO2DeclusteredGrade
    OK Estimated TiO2Grade
    Fe2O3DeclusteredGrade
    OK EstimatedFe2O3Grade(TiO2%)
    (Fe2O3%)Pyroxenite
    13.8
    15.4
    30.4
    30.4Peridotite
    18.9
    18.7
    41.0
    41.2


|13.10.2 | Comparison of Well Informed
  Blocks
|------- | ------------------------------------

In order to validate how well the
estimation process is estimating grades near samples, estimated blocks which
also contain composite samples are selected (well informed blocks). The
estimated grades for these blocks are compared to the average of the composite
grades using a scatter plot. The scatter plots for TiO2and
Fe2O3within each of the pyroxenite and peridotite domains
are shown in Figure 13.7 and Figure 13.18.

Overall, the estimates appear to
reasonably represent the sample data with some smoothing of grades evident and
expected.



Figure 13.17:Comparison of
TiO2from Well Informed Blocks



Figure 13.18:Comparison of
Fe2O3from Well Informed Blocks

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|13.10.3 | Swath Plot Comparison of Estimates to
  Composites
|------- | --------------------------------------------------

Swath plots are used to compare the
trends in composite grades, across the X, Y and Z axis, to the grade
estimates.

Figure 13.19 and Figure 13.20 show the
trends in TiO2composite, OK estimated and ID2 estimated grades, for
each of the pyroxenite and peridotite domains. Overall, the trends of the
composites are reflected in the estimates; however, the estimates are
smoother.

SRK believes that the swath plots
reflect a reasonable correlation between sample and estimation trends. As well,
the trends in the OK estimation are very similar to that of the ID2estimation.



Figure 13.19:Pyroxenite
Domain TiO2Swath Plots



Figure 13.20:Peridotite
Domain TiO2Swath Plots

A cross section of the Longnose OUI
deposit showing drill holes and block model grades is shown in Figure 13.21. The
correlation of the assays and the block model grades seems to visually align.
Smoothing of the drill hole grade is evident in the model.

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Figure 13.21: Cross section of
Longnose OUI showing block grades (looking northeast)

|13.11 | Fe2O3 estimate adjustment
  using Davis Tube data
|----- | -------------------------------------------------

As discussed in Section 12, Davis Tube
tests were used to help quantify the amount of Fe which partitions to a magnetic
fraction.

SRK utilized 151 Davis Tube tests in
order to establish a relationship between assayed Fe %, and magnetite assumed to
be contained within the magnetic fraction. The maximum amount of magnetite
possible in the concentrate was calculated using the Fe % concentrate assay,
using the conversion:

Maximum Magnetite% in Concentrate =
1.382 * Fe% in Concentrate.

This magnetite percentage in the
concentrate was then multiplied by the total concentrate weight, to determine
the potential weight of magnetite in the concentrate. The weight of the
potential magnetite in the concentrate was divided by the starting sample weight
to establish the maximum weight percent of magnetite in the starting sample.

Linear regression of the maximum
magnetite content versus the Fe % head assay, was completed to determine the
relationship between Fe % and Magnetite %. This was completed for both domains
and the regression for the peridotite domain is presented in Figure 13.22.

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Figure 13.22 : Davis Tube
regression, peridotite domain

The indicated regression for the
peridotite and pyroxenite domains were:

Predicted Peridotite Domain Magnetite
Grade % = 1.55 X Fe% - 22.5

Predicted Pyroxenite Domain Magnetite
Grade % = 1.27 X Fe% - 10.5

Unfortunately, due to the uncertainty
of the amount of ilmenite partitioning to the magnetic concentrate, as well as
the amount of titaniferous magnetite, there is a risk that the predicted
magnetite is overstated. SRK, therefore, adjusted the Mineral Resource
Fe2O3(Table 13.8) grade using the regression, but has not
quantified the amount of magnetite at this time. Further mineralogical study and
chemical analysis of the magnetic concentrates is required.

|13.12 | Mineral Resource
  Classification
|----- | ---------------------------------

Block model quantities and grade
estimates for the Project were classified according to the CIM Definition
Standards for Mineral Resources and Mineral Reserves (December 2005) by Michael
D. Johnson, P.Geo. (APEGBC, No. 34923), an appropriate independent qualified
person for the purpose of NI 43-101.

Mineral resource classification is
typically a subjective concept; industry best practices suggest that resource
classification should consider both the confidence in the geological continuity
of the mineralized structures, the quality and quantity of exploration data
supporting the estimates, and the geostatistical confidence in the tonnage and
grade estimates. Appropriate classification criteria should aim at integrating
both concepts to delineate regular areas at similar resource
classifications.

SRK is satisfied that the geological
modelling honours the current geological information and knowledge. The location
of the samples and the assay data are sufficiently reliable to support

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resource evaluation. The sampling
information was acquired primarily by diamond (core) drilling on sections spaced
at 50 m to 100 m.

Portions of the Project mineral
resource has been classified as Indicated and Inferred. Generally, the core of
the deposit has been sufficiently drilled to warrant Indicated classification,
while the periphery and deeper eastern mineralization has been classified at
Inferred.

The criteria used to classify blocks as
Indicated included:

- estimated in the first estimation pass;
- blocks estimated by more than 8 composites; and,
- blocks with average distances to their composites
  of less than 100 m.

SRK feels that blocks which conform to
these criteria have demonstrated geological continuity and sufficiently dense
sampling data to support mine planning. Blocks that met these criteria were
selected and then volumes, which were dominated by these blocks and formed a
cohesive and generally continuous volume, were coded as Indicated through the
creation of a solid containing those blocks. In this way, the Indicated material
has been interpreted to avoid disseminated blocks coded as Indicated
interspersed with Inferred.

Blocks that did not conform to these
criteria and fell outside the interpreted Indicated volume were classified as
Inferred.

Approximately 44 % of the Mineral
Resource is classed as Indicated with the remaining 56% classed as Inferred. The
blocks comprising the Mineral Resource are shown in plan view in Figure 13.22,
with the blocks colour coded by resource classification.



Figure 13.23: Mineral Resource
blocks coloured by Mineral Resource classification (100 m grid)

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|**13.13** | Mineral Resource
      Statement
|--------- | --------------------------------

CIM Definition Standards for Mineral
Resources and Mineral Reserves (December 2005) defines a mineral resource
as:

(A) concentration or occurrence of
diamonds, natural solid inorganic material, or natural solid fossilized organic
material including base and precious metals, coal, and industrial minerals in or
on the Earths crust in such form and quantity and of such a grade or quality
that it has reasonable prospects for economic extraction. The location,
quantity, grade, geological characteristics and continuity of a Mineral Resource
are known, estimated or interpreted from specific geological evidence and
knowledge.

The reasonable prospects for economic
extraction requirement generally implies that the quantity and grade estimates
meet certain economic thresholds and that the mineral resources are reported at
an appropriate cut-off grade taking into account extraction scenarios and
processing recoveries. In order to meet this requirement, SRK considers that
major portions of the Project are amenable for open pit extraction.

In order to determine the quantities of
material offering reasonable prospects for economic extraction by a potential
open pit, SRK used a pit optimizer (Gemcom Whittle®4.4) and
reasonable mining assumptions to evaluate the proportions of the block model
that could be reasonably expected to be mined from an open pit.

For this exercise, TiO2 values were converted to Ilmenite grades by dividing by 0.5264.
Fe2O3estimates provided no value in the pit
optimizer by setting price and recovery to zero.

The optimization parameters (Table
13.7) were selected based on experience and benchmarking against similar
projects. The reader is cautioned that the results from the pit optimization are
used solely for the purpose of testing the reasonable prospects for economic
extraction by an open pit and do not represent an attempt to estimate Mineral
Reserves. There are no Mineral Reserves defined for the Project.

The results are used as a guide to
assist in the preparation of a Mineral Resource statement and to select an
appropriate resource reporting cut-off grade.

Table 13.7: Assumptions Considered
for Conceptual Open Pit Optimization.

Parameter
    Value
    UnitTiO2 : Ilmenite Ratio
    0.5264:1
    n/aIlmenite Price
    170
    $US per tonneMining Cost
    2.50
    US$ per tonne minedProcessing
    8.00
    US$ per tonne of feedGeneral and Administrative
    1.00
    US$ per tonne of feedMining Dilution
    0
    percentMining Loss
    0
    percentOverall Pit Slope
    50
    degreesIlmenite Process Recovery
    70
    percentMagnetite Process Recovery
    0
    percent


With industrial minerals such as
ilmenite, product pricing is subject to many more modifying factors than
precious or base metals. SRK has utilized a consensus of market forecasts to
choose this ilmenite price. SRK believes that site specific product pricing is
unrealistic at this stage of the

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Project. SRK feels that pricing risks
are offset by not planning for the potential value of magnetite which would
reasonably be an expected as a by-product at such a deposit. As well, ilmenite
pricing as low at $100 per tonne of ilmenite had little effect on the blocks
contained within the conceptual pit shell.

SRK considers that the blocks located
within the conceptual pit envelope show reasonable prospects for economic
extraction and are well quantified, and therefore can be reported as a Mineral
Resource. When running the optimizer, SRK found that the entire mineralized
domains fell within the shell; therefore the optimization process essentially
placed no constraints on the Mineral Resource.

The Mineral Resource statement is
summarized in Table 13-8.

Table 13.8: Mineral Resource
Statement*, Longnose Project, Minnesota, USA, SRK Consulting (Canada) Inc.,
effective date, January 19, 2012.

Category(Open Pit**)
    Estimated Quantity
    Estimated Grade**TiO2**
    **Adjusted
      Fe2O3*****Mt
    **%**
    **%**Indicated
    58.1
    16.6
    18.8Inferred
    65.3
    16.4
    19.4


| | *   | Mineral resources are reported in relation to a
      conceptual pit shell. Mineral resources are not mineral reserves and do
      not have demonstrated economic viability. All figures are rounded to
      reflect the relative accuracy of the estimate. All composites have been
      capped where appropriate.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | **  | Open pit (near surface) mineral resources are reported at
      a cut-off grade of 8% TiO2. Cut-off grades are based on a price
      of US$170 per tonne of Ilmenite back calculated to TiO2and
      recoveries of 70 percent, without considering revenues from other metals
      including Fe.                   
| | *** | Reported Fe2O3has been lowered to
      reflect the amount of Fe estimated contained within ilmenite and
      silicates, based upon Davis Tube testing. At this time, accurately
      quantifying the amount of magnetite contained within this estimate is not
      possible.                                     

As stated above, the Mineral Resource
has been quantified in terms of TiO2and Fe2O3,
the analytical components captured for assays of titanium and iron. The
Fe2O3values have been reduced to reflect Fe found within
silicates and within the ilmenite associated with the TiO2; however,
accurately quantifying magnetite is not possible at this time as further
mineralogical work will be needed. In any potential mining scenario, the
Longnose Project would produce ilmenite (FeTiO3) and may produce
titaniferous magnetite (TiFe2O4) and magnetite
(Fe3O4) as a by-product. Using Carderos Davis Tube test
results, historic mineralogy and metallurgy reports, reasonable assumptions
regarding mineralogy of the deposit, estimates of the quantity of ilmenite were
made.

The contained ilmenite in the Mineral
Resource is summarized in Table 13.9

Table 13.9: Summary of Longnose
Project Ilmenite content

Category
    Quantity
    Ilmenite Grade
    Contained Ilmenite(FeTiO3)Mt
    %
    Mt.Indicated
    58.1
    31.5
    18.30Inferred
    65.3
    31.2
    20.40


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|13.14 | Grade Sensitivity
  Analysis
|----- | ----------------------------

The mineral resources of the Longnose
Project are sensitive to the selection of the reporting cut-off grade. To
illustrate this sensitivity, the block model quantities and grade estimates
within the conceptual pit used to constrain the mineral resources are presented
in Table 13.10 at different TiO2 cut-off grades. The reader is
cautioned that the figures presented in this table should not be misconstrued
with a Mineral Resource Statement. The figures are only presented to show the
sensitivity of the block model estimates to the selection of cut-off grade.
Figure 13.24 presents this sensitivity as grade tonnage curves.

Table 13.10: Global block model
quantities and grade estimates* at various TiO2 cut-offgrades, Longnose
Project.

Cut-off Grade
    Quantity
    GradeTiO2(%)
    (Mt)
    TiO2(%)5
    125.1
    16.46
    125.0
    16.47
    124.7
    16.48
    123.4
    16.59
    121.5
    16.610
    117.0
    16.911
    109.8
    17.312
    101.8
    17.813
    93.2
    18.314
    85.0
    18.715
    76.7
    19.216
    67.8
    19.617
    58.0
    20.218
    47.8
    20.719
    37.1
    21.420
    26.6
    22.125
    2.4
    26.930
    0.2
    30.8


* The reader is cautioned that the figures in this table
      should not be misconstrued with a Mineral Resource statement. The figures
      are only presented to show the sensitivity of the block model estimates to
      the selection of cut-off grade.


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Figure 13.24: Grade Tonnage Curves
for the Longnose.

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|14 | Adjacent Properties
|-- | -------------------

The Project is situated at the western
edge of the Duluth geological complex, bordering on the archean
Granite-Greenstone Terraines of the Canadian Shield.

This area is a prolific mining area,
including several massive Taconite (Iron ore) mines of the Mesabi Range. The
western margin of the Duluth Complex contains a series of Cu-Ni deposits in
close proximity to the Project. These Cu-Ni deposits include Tecks Mesaba
deposits and Polymets NorthMet deposit. These deposits lie near the basil
contact between the Duluth Complex and the underlying older Precambrian
rocks.

There are also numerous OUI bodies
similar to Longnose within 20 km of the Project Area. The closest is Longyear
which lies 1 km north of the Project Area. Section 17 OUI deposits lie about 2
km north of the Project Area and Section 22 lies 5km south-southwest. CIOUSs
other OUI ilmenite project, Titac (formerly called Section 34), which is
similar but smaller and lower grade than the Project, lies approximately 40 km
south of the Project Area.

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|15 | Other Relevant Data and
  Information
|-- | -------------------------------------

There is no additional data or
information not contained in this report which is relevant to the Project.

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|16 | Interpretation and
  Conclusions
|-- | --------------------------------

The Longnose deposit is an ultramafic
intrusion significantly enriched in ilmenite and magnetite oxides. The deposit
is flat lying and provides a geometry that should be amicable to open pit
mining. The Longnose deposit is approximately 700 m long in the north-south
direction, 600 m wide in the east-west direction and 150 m thick.

The Longnose OUI is geologically
interpreted to be late-stage intrusion that cuts early Duluth Complex intrusives
and is associated with magmatism generated by the 1.1 billion year old
Midcontinent Rift system. The drilling program conducted in 2010 and 2011 by
CIOUS confirmed strong titanium-iron-oxide mineralization at the Project Area.
The Longnose OUI is hosted by troctolitic rocks of the Partridge River
intrusion.

The Longnose intrusion is
stratigraphically simple, consisting of a core of olivine-rich dunitic and
peridotitic rocks containing disseminated titanium-iron oxide mineralization
with horizons of massive and semi-massive oxide throughout, that is enveloped by
pyroxenitic rocks, which contain much less mineralization. Disseminated
titanium-iron oxide mineralization is continuous, and the horizons of massive
and semi-massive oxide may link up to form layers that dip moderately coincident
with dip of the overall intrusion. The dominant oxide mineral is ilmenite with
lesser amounts of titano-magnetite.

The exploration data for the Project is
robust; viable to support the Mineral Resource defined within this document. The
data has been well validated and has been found to be repeatable. Overall,
correlation of the mineralization between drill holes is reasonable and it is
expected that the Mineral Resource accurately represents the TiO2 and
Fe2O3mineralization. Based on the TiO2estimates and the mineralogy of the deposit, the amount of ilmenite has
been quantified. Potentially viable iron products (titaniferous-magnetite /
magnetite) have not been quantified at this time.

Ilmenite and, to a lesser extent
titaniferous magnetite, is used as a source material for titanium used as
pigments and as a metal alloy. Rutile is the ideal source material for titanium
as it contains a nearly twice as much Ti as ilmenite; however, ilmenite is by
far the more common source.

Ilmenite is an industrial mineral and
there are risks and uncertainties associated with this ilmenite resource, many
of which are common to industrial mineral deposits. Industrial minerals have
special risks that are not typically associated with precious or base metal
mines. Special concerns include mineralogy of material, deleterious elements
(such as silica, calcium, magnesium and manganese), and special market factors
such as market size or proprietary technology. Because of these and other
issues, industrial mineral deposits can carry additional risks compared to more
common metal products.

Historic tests have indicated that a
viable ilmenite concentrate could be created from the processing of Longnose
material, although higher than ideal magnesium levels may reduce the product
price somewhat. The ilmenite may be sold as a concentrate to an existing
ilmenite processor as the deposit is amicable to shipping due to its proximity
to rail and a short haul to bulk ports on the western shore of Lake Superior. As
well, local beneficiation could be considered, particularly when other nearby
OUI bodies are considered for increased scale. The main hurdle to overcome with
future exploitation of the Longnose deposit revolves around metallurgical
optimization to create the highest grade concentrate while reducing potential
magnesium contamination of the concentrate or

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utilizing a beneficiation process that
can handle the higher magnesium values. As further economic analysis of the
Project is completed, solving these processing issues will be a focal point of
the work.

Ilmenite and magnetite are industrial
minerals and subject to the specifics of a relatively limited market with very
special restrictions on saleable products. Although it is reasonable to expect
that that the Longnose deposit mineralization can be concentrated into a
potentially saleable product, a huge amount of data collection and analysis must
be completed before more detailed economic assessment can be completed. The
relative amounts of ilmenite, titaniferous magnetite and magnetite have yet to
be fully understood, which prevents quantifying magnetite within the Mineral
Resource.

Based upon the significant amount of
historical research completed on the Project, a relatively simple processing
flow sheet for ilmenite concentrate, a recent increase in demand for Ilmenite,
and the projects close proximity to other bulk mines and inexpensive shipping
routes; SRK believes that the Project meets the criteria for having reasonable
prospects of economic extraction.

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|17 | Recommendations
|-- | ---------------

The drilling program conducted in 2010
and 2011 conducted by CIOUS has confirmed strong titanium-iron-oxide
mineralization at the Project Area. The Project merits additional work.

The exploration data for the Project
should be expanded and SRK recommend the following work:

- a comprehensive mineralogical study of the oxide
  and sulfide mineralization should be conducted to confirm the specific oxide
  minerals present throughout the defined mineralization;
- metallurgical testwork in conjunction with the
  mineralogical studies, to assist with better understanding of ilmenite and
  magnetite recovery, project economic analysis and provide an update to the
  work completed in the 1990s;
- completion of a preliminary economic assessment to
  assist with further exploration and provide project specific economic
  criteria;
- further study of the other elements, such as
  vanadium, magnesium and silica contents and how they are distributed through
  the deposit;
- a relatively small infill drilling program
  consisting of 3-5 drill holes; and
- a small step-out drilling program targeting the
  southern part of the intrusion consisting of 3-5 drill holes.

The Longnose intrusion is fairly well
defined by historic drilling, and has been further defined by the drilling
conducted by CIOUS in 2010 and 2011. However, some infill drilling is warranted
to better define the boundaries of the peridotite domain as well as the
pyroxenite domain to the northwest. As well, further step-out exploration
drilling is recommended in the southeastern area of the Project Area. This
drilling should consist of approximately 6-10 holes 100-300 m drill holes,
totaling approximately 1500-2500 m.

In all ongoing drill programs, basic
geotechnical data should be recorded in order to provide data to assist with
economic analysis and preliminary investigations into potential open pit
limits.

Mineralogical studies in conjunction
with metallurgical testwork and further chemical analysis should be completed to
provide a better understanding of the Ti and Fe bearing minerals and their
relative proportions. During the current analysis, Ti has been assumed to be
dominantly contained within Ilmenite.

A preliminary economic assessment is
recommended. This is particularly important for an industrial mineral deposit,
is relatively uncommon, and there is a specialized market for titanium products.
Economic assessment can begin to qualify potential pitfalls for the project as
well as help to set some project specific economic criteria that can assist with
further drilling programs.

A 2011 budget to complete the
recommended work program is presented in Table 17.1.

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Table 17.1: Estimated Cost for the
Exploration Program Proposed for the Longnose Project.

Recommendation
    Estimated Cost (US$)Mineralogical studies and analytical data
    50,000Metallurgical analysis and testwork
    150,000Preliminary economic assessment analysis
    150,000Geophysical Survey
    30,000Longnose step-out drilling (3-5 holes/900-1500m @ $165/m*)
    200,000Longnose infill drilling (3-5 holes/600-1000m @ $165/m*)
    130,000Acquisition of additional mineral leases/property boundary
      survey
    40,000TOTAL
    750,000*Drilling cost per meter includes: Site and Trail
      preparation, drilling, sampling, facility/vehicle lease, and staffing


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|18 | References
|-- | ----------

Bankes, et al, 2003, Estimation of
Mineral Resources and Mineral Reserves Best Practice Guidelines for Industrial
Minerals., CIM, 7 p.

Bonnichsen, B., 1972, Southern part of
the Duluth Complex in Sims, P.K., and Morey, G.B., eds., Geology of Minnesota: A
centennial volume, St. Paul, Minnesota Geological Survey, p. 361-387.

Broderick, T.M., 1917, The relation of
the titaniferous magnetites of northeastern Minnesota to the Duluth Gabbro,
Economic Geology, v. 12, p. 663-696.

Coleraine Minerals Research Laborarory.
April 26, 1996. Preliminary, unpublished report by . B. Niles, Research
Coordinator. CMRL/TR-96-29. University of Minnesota  Duluth, Natural Resources
Research Institute, 5013 Miller Trunk Highway, Duluth, Minnesota, 55811.

Coleraine Minerals Research
Institute,Pilot Plant Beneficiation Tests of a Bulk Sample of Ilmenite Ore
Provided by American Shield Company, December 1994. CMRL/TR-94-15. University
of Minnesota  Duluth, Natural Resources Research Institute, 5013 Miller Trunk
Highway, Duluth, Minnesota, 55811.

Hauck, S.A., Severson, M.J., Zanko, L.,
Barnes, S.J., Morton, P., Alminas, H., Foord, E.E., and Dahlberg, E.H., 1997, An
overview of the geology and oxide, sulfide, and platinum-group element
mineralization along the western and northern contacts of the Duluth Complex, in
Ojakangas, R.W., Dickas, A.B., and Green, J.C., eds., Middle Proterozoic to
Cambrian Rifting, Central North America: Boulder, Colorado, Geological Society
of America Special Paper 312.

Henderson, K., Ripke, S., 2011,
Longnose ande Titac Iron-Titanium exploration projects, Minnesota, USA,
Exploration Results 2010/2011, 43-101 Technical Report, 73 p.

Linscheid, E.K., 1991, The petrography
of the Longnose peridotite and its relationship to the Duluth Complex, Duluth,
University of Minnesota, Masters thesis, 121 p.

Mainwaring, P.R., and Naldrett, A.J.,
1977, Country rock assimilation and genesis of Cu-Ni sulfides in the Water Hen
Intrusion, Duluth Complex, Minnesota, Economic Geology, v. 72, 1269-1284.

Muhich, T.G., 1993, Movement of
titanium across the Duluth Complex-Biwabik Iron Formation contact at Dunka Pit,
Mesabi Iron Range, northeastern Minnesota [M.S. thesis], Duluth, University of
Minnesota, 154 p.

Paster, T.P., 1987, Petrography of the
Longnose Ilmenite Deposit, Duluth Complex, Minnesota, Westmont Mining Inc.,
Consultant Report, 36 p.

Patelke, R.L., and Severson, M.J.,
2005, A history of Copper-Nickel and Titanium Oxide test pits, bulk samples, and
related metallurgical testing in the the Keweenawan Duluth Complex, northeastern
Minnesota, Duluth, University of Minnesota, Natural Resources Research
Institute, Technical Report NRRI/TR-2005/01, 121 p.

Ross, B.A., 1985, A petrologic study of
the Bardon Peak peridotite, Duluth Complex [M.S. thesis], Duluth, University of
Minnesota, 140 p.

Schiffries, C.M, 1982, The petrogenesis
of a platiniferous dunite pipe in the Bushveld Complex: Infiltration
metasomatism by a chloride solution, Economic Geology, v. 77, p. 1439-1453.

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Severson, M.J., 1988, Geology and
structure of a portion of the Partridge River Intrusion: A progress report,
Duluth, University of Minnesota, Natural Resources Research Institute, Technical
Report, NRRI/GMIN-TR-88-08, 78 p.

Severson, M.J., 1991, Geology,
mineralization, and geostatistics of the Minnamax/Babbitt Cu-Ni deposit (Local
Boy area), Minnesota, Part I: Geology, Duluth, University of Minnesota, Natural
Resources Research Institute, Technical Report, NRRI/TR-91/13a, 96 p.

Severson, M.J., 1994, Igneous
stratigraphy of the South Kawishiwi Intrusion, Duluth Complex, northeastern
Minnesota, Duluth, University of Minnesota, Natural Resources Research
Institute, Technical Report, NRRI/TR-93/34, 210 p.

Severson, M.J., 1995, Geology of the
southern portion of the Duluth Complex, Duluth, University of Minnesota, Natural
Resources Research Institute, Technical Report, NRRI/TR-95/26, 185 p.

Severson, M.J., and Hauck, S.A., 1990,
Geology, geochemistry, and stratigraphy of a portion of the Partridge River
Intrusion, Duluth, University of Minnesota, Natural Resources Research
Institute, Technical Report, NRRI/GMIN-TR-89-11, 230 p.

Severson, M.J., and Hauck, S.A., 2008,
Finish logging of Duluth Complex drill core (And a Reinterpretation of the
Geology at the Mesaba (Babbitt) deposit), Duluth, University of Minnesota,
Natural Resources Research Institute, Technical Report, NRRI/TR-2008/17, 62
p.

Severson, M.J., and Miller, J.D., 1999,
Bedrock Geological Map of Allen Quadrangle, Minnesota Geological Survey,
Miscellaneous Map Series, Map M-91.

Small, J., 1992, Longnose MN Prospect
Summary, BHP Minerals International, Internal Memo, 20 p.

Ulland, W., 2000, The Longnose and
associated titanium deposits of Minnesota: a compilation of reports (June 19,
2000): On file at the MDNR, Lands and Minerals Division, Hibbing, Minnesota, 76
p.

Viljoen, M.J., and Scoon, R.N., 1985,
Distribution and main geologic features of discordant intrusions of iron-rich
ultramafic pegmatite in the Bushveld Complex, Economic Geology, v. 80, p.
1109-1128.

Weather.com, December 20, 2010,
http://www.weather.com/outlook/health/fitness/wxclimatology/monthly/USMN0370

Winchell, H.V., 1897, Reputed nickel
mines in Minnesota, Engineering Mining Journal, v. 64, p. 578. Westmont Mining,
1990, Westmont Mining Inc.s Minnesota Titanium Project, Westmont Mining Inc.,
Interval Report, p. 53.

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|19 | Date and Signature
Page
|-- | -----------------------

This technical report was written by
the following Qualified Persons. The effective date of this technical report
is January 19th, 2012.

Qualified Person
    Signature
    DateMichael D. Johnson, P.Geo
    original signed
    January 27, 2012Darrell J. Farrow, Pr.Sci.Nat.
    original signed
    January 27, 2012


Reviewed by

| | Original signed             | 
| | ----------------------------- | 
| | Dr. Wayne Barnett, Pr.Sci.Nat | 
| | Project Reviewer              | 

All data used as source material plus
the text, tables, figures, and attachments of this document have been reviewed
and prepared in accordance with generally accepted professional engineering and
environmental practices.

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---

CERTIFICATE OF QUALIFIED PERSON

To accompany the report entitled:
Technical Report on the Longnose Ilmenite Project, Minnesota, USA,
January 27, 2012(Technical Report)

I, Michael D. Johnson, residing at 2021
Berkshire Crescent, Coquitlam, BC, V3E 3N5, do hereby certify that:

|1)  | I am a Senior Geologist with the firm of SRK Consulting
      (Canada) Inc. (SRK) with an office at Suite 2200, 1066 West Hastings
      Street, Vancouver, BC, V6E 3X2;                                                                                                                                                                                                                                                                                                                                                 
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|2)  | I am a graduate of the Queens University, Kingston,
      Ontario in 1996, where I obtained a B.Sc. (H) in Geological Sciences. I
      have practiced my profession continuously since graduation in April, 1996.
      I have been employed as a geologist, exploration manager, mine geologist
      and open pit mine manager. I have extensive experience in resource
      estimation within many deposit types. I have worked with ultramafic
      intrusions and related mineral deposits for more than 10 years;
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|3)  | I am a Professional Geoscientist registered with the
      Association of Professional Engineers and Geoscientists of BC
      (registration # 34923);                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|4)  | I have personally inspected the property that is the
      subject of the Technical Report in March 2010;                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|5)  | I have read the definition of qualified person set out
      in National Instrument 43-101 and certify that by virtue of my education,
      affiliation to a professional association and past relevant work
      experience, I fulfill the requirements to be a qualified person for the
      purposes of National Instrument 43-101;                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|6)  | I am responsible for the preparation of all sections of
      the Technical Report except Section 11;                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|7)  | I am independent of the issuer as defined in Section 1.5
      of National Instrument 43-101;                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|8)  | I have had no prior involvement with the property that is
      the subject of the Technical Report;                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|9)  | I have read National Instrument 43-101 and the sections
      of the Technical Report for which I am responsible have been prepared in
      compliance therewith;                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10) | As of the effective date of the Technical Report, to the
      best of my knowledge, information and belief, the sections of the Report
      for which I am responsible contain all scientific and technical
      information that is required to be disclosed to make the portions of the
      Technical Report for which I am responsible not
  misleading;                                                                                                                                                           

|January 27, 2012 | [signed and sealed]     
|---------------- | --------------------------
|Vancouver        | Michael D. Johnson, P.Geo.
|                 | Senior Geologist, SRK     

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CERTIFICATE OF QUALIFIED PERSON

To accompany the report entitled: Technical Report on the
Longnose Ilmenite Project, Minnesota, USA, January 27, 2012

I, Darrell Farrow, residing at 40  4055 Indian River Drive,
North Vancouver, Canada, do hereby certify that:

| | 1)  | I am an associate with the firm of SRK Consulting
      (Canada) Inc. (SRK) with an office at 22nd Floor, 1066 West Hastings
      Street, Vancouver, BC, Canada;                                                                                                                                                                                                                                                                                                                                                    
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2)  | I am a graduate of the University of Pretoria, Pretoria,
      South Africa (M.Sc. Geology 1989) and the University of Cape Town, Cape
      Town, South Africa (B.Sc.(Hons) 1982). I have practiced my profession
      continuously since graduation and have been employed as a research
      geochemist for four years, as a geologist at two mining operations over a
      period of ten years, as a manager of an exploration laboratory for three
      years, and as a consulting geologist for eleven years;
| | 3)  | I am a Professional Natural Scientist in the field of
      practice of Geological Science, registered as a member of the South
      African Council for Natural Scientific Professions, South Africa, Reg. No.
      400163/07;                                                                                                                                                                                                                                                                                      
| | 4)  | I have not personally inspected the Longnose project but
      have relied on a site visit conducted by Mike Johnson P.Geo., co-author of
      this technical report in March 2010;                                                                                                                                                                                                                                                                                                                                   
| | 5)  | I have read the definition of qualified person set out
      in National Instrument 43-101 and certify that by virtue of my education,
      affiliation to a professional association and past relevant work
      experience, I fulfill the requirements to be a qualified person for the
      purposes of National Instrument 43-101 and the sections to which I have
      contributed in this technical report have been prepared in compliance with
      National Instrument 43-101 and Form 43-101F1;     
| | 6)  | I as a qualified person am independent of the issuer as
      defined in Section 1.5 of National Instrument 43-101;                                                                                                                                                                                                                                                                                                                                                                                                    
| | 7)  | I am a co-author of this report and responsible for
      section 11;                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 8)  | I have had no prior involvement with the property that is
      the subject of this Technical Report;                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 9)  | I have read National Instrument 43-101 and confirm that
      the section of the Technical Report for which I am responsible has been
      prepared in compliance therewith;                                                                                                                                                                                                                                                                                                                                          
| | 10) | As of the effective date of the Technical Report, to the
      best of my knowledge, information and belief, the section of the Technical
      Report for which I am responsible contains all scientific and technical
      information that is required to be disclosed to make the portions of the
      Technical Report for which I am responsible not
  misleading.                                                                                                                                             

|Vancouver         | [signed and sealed]             
|----------------- | ----------------------------------
|January, 27, 2012 | Darrell Farrow, M.Sc., Pr.Sci.Nat.

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