Document:

exhibit_10-3.htm

    Trilliant Exploration Corporation
10-K

     

     

    Exhibit 10.3

     

     

    GEOLOGICAL REPORT OF THE MULUNCAY DEPOSIT

OF THE
PORTOVELO-ZARUMA-AYAPAMBA AREA

     

    EL ORO
PROVINCE, ECUADOR

     

     

     

    Prepared For
Ecuadorgoldcorp S.A

     

     

     

     

     

    AUTHOR: WIMER
CASTRO

     

    FEBRUARY,
2008

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    TABLE OF
CONTENTS

    
      
        
          
            
              	 
      	 
      
	
                      INTRODUCTION 

                    	
                      1 

                    
	
                      HISTORY 

                    	
                      1 

                    
	
                      DESCRIPTION AND
      LOCATION 

                    	
                      4 

                    
	
                      ACCESABILITY, CLIMATE, VEGETATION
      AND LOCAL FACILITIES 

                    	
                      4 

                    
	
                      LOCAL AND REGIONAL GEOLOGICAL
      SETTING 

                    	
                      6 

                    
	
                      DEPOSIT
      TYPES 

                    	
                      7 

                    
	
                      LOCAL AND REGIONAL
      MINERALIZATION 

                    	
                      8 

                    
	
                      EXPLORATION 

                    	
                      10 

                    
	
                      DDH
      DRILLING 

                    	
                      12 

                    
	
                      SAMPLING
      METHOD 

                    	
                      12 

                    
	
                      SAMPLE PREPARATION FOR
      TESTING 

                    	
                      12 

                    
	
                      ADJACENT
      CONCESSIONS 

                    	
                      12 

                    
	
                      EXPLORATION
      POTENTIAL 

                    	
                      13 

                    
	
                      CONCLUSIONS AND
      RECOMENDATIONS 

                    	
                      13 

                    

            

          

        

      

    

     

     

    i

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    SUMMARY

     

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

    	a site visit
  in January 2008;
        
	interviews
  with Company management and other consultants engaged to assist

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

     

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

     

    HISTORY

     

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

     

    In
1880, Grant Zaruma Company, from England, bought controlling shares of a newly
formed

     

     

    - 3
-

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    Ecuadorian-Chilean mining
company. Operational rights were immediately endorsed to Southern American
Development Company (SADCO), an American
company, who operated the mine from 1897 to 1950 by gaining control of the
district’s main gold deposits in 1897. Exploration programs of SADCO commenced
in 1896 and brought the mine into production at 108t/day in 1905. The mine was
subsequently deepened to 13 level located at an elevation of 270m above sea
level, 800m below the uppermost workings (PRODEMINCA, 2000 in Spencer, R.M. et
al., 2002). In the 53years that followed, SADCO recovered some 3.5 million
ounces of gold and 12 million ounces of silver from 7.6 million tones of ore at
a cut-off grade of 14.4 g/t Au and 48.9 g/t Ag (Van Thournout et al.,
1996).

     

    After the lower levels of
the Portovelo mine were flooded in 1944 and facing increasing costs, taxes and a
complicated political situation, SADCO finally withdrew from the country in 1950
and the Ecuadorian government took over the mine. A state-owned company, CIMA,
took over the mining operations in the area until 1980 and it is estimated to
have produced a further 375,000 oz of gold by 1965. In 1984, thousands of poverty-stricken miners
invaded the old SADCO pits and small-scale and artisan mining has been going on
in the area ever since. An additional 35,000 to 50,000 oz of gold has been
produced each year since then by informal miners, small-scale operating mining
societies and principally from the family-owned BIRA. In the 1990 ́s statistical
information, mining from the Zaruma and Portovelo areas totaled 3 million
tons.

     

    In
the mid-1990s several overseas companies attempted to consolidate the area and
carried out systematic exploration
programs.

     

    Current exploration by
ECUADORGOLDCORP SA involved site visits and samples of vein material were taken
from the Gen and Cristina veins. Gold values from several samples taken range up
to 10.40 g/T. Other samples taken in other workings show values of up to 58.6
g/T gold, up to 209 g/T silver, up to 4.86% copper and up to 16.85% zinc. Data
provided by the company notes that there are eight (8) mines on the concession.
The two main producing mines, Nueva Esperanza and Aguacate (in a production
stage) contain the three main major veins Cristina, Gen, and a third vein (name
unknown to the author). In these two mines development work was seen to be
carried out. This work includes advancing an additional 50 m

     

     

    - 4 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    beyond
the actively mined veins to a fourth mineralized vein. The two tunnels are being
advanced along this new vein to prepare it for exploitation. The tunnels are
being reconditioned to allow a more efficient mining equipment transportation,
in order to extract ore material with 10 two-tonne ore cars (20 tons) per trip
from underground to the ore stockpile or primary crusher. The processing plant
is currently operating and it contains the primary crusher, secondary crusher, a
series of Chilean grinding mills and a series of Denver floatation cells to
concentrate sulphide mineralization to capture both mineral ore and any
gold-silver associated with those sulphides. There is a 125 hectare property
less than one kilometer from the current processing plant. It is being
considered to increase the capacity of the processing plant in such property.
Company engineering and geological staff of ECUADORGOLDCORP S.A. are planning
the additional six additional mines on the concession be brought to the
production level of the two currently operating mines.

     

    SADCO
operated mines in the Zaruma-Portovelo-Ayapamba district for 46 years. During
this time approximately 3.6 million ounces of gold and 12 million ounces of
silver were produced. Production rates at the Grand Mine, the major producer in
the district, are estimated up to a maximum of 200,000 tonnes per year, and gold
grades were approximately 20-30 g/T. Significant quantities of silver, lead and
zinc were also produced. The old SADCO operations, scattered throughout the
district, generally (with the exception of the Grand Mine) only extended to a
depth of approximately 200m below surface. The Grand Mine contains a
gold-mineralized zone which extended to a depth of at least 660 m below surface.
It was collared at an elevation 700 m below mine workings in the Muluncay
concession area. This indicates that there is significant additional potential
at depth of up to 1500 m within the Muluncay concession. A preliminary estimate
of the resource is made by the author on the Muluncay Concession, from the two
currently active veins (Gen and Cristina) with an estimated strike length of 1
km (the N-S length of the concession), an average width of 1.0 m and an average
depth of 1000 m. Using a grade of 6 g/T as the average grade, this would produce
an estimated tonnage of 400,000 T for each vein. There are presently 4 known
veins, which would give a total current resource of 1,600,000 T, for a total of
9,600,000 g (300,000 oz) gold. Additional veins will be found during ongoing
development and exploration. The tonnage estimate will very likely increase
significantly. Secondary veins, stringers, breccia and disseminated
mineralization in the wall rocks have never been exploited, or even properly
assessed. It is the author’s opinion that with the improved, more economic
mining and milling methods this resource can be taken advantage of, so that it
is probable that this resource can be increase to greater than 2.0 million tons
which would produce 9,600,000 g (375,000 oz) Au. However, this is a relatively
low grade estimate when one

     

     

    -
5 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    considers that the cut-off
grade for the SADCO operations was 14.6 g/ton. Using that value as an average
grade 2.0 million tons of ore would produce 29,200,000 grams (912,500 oz) of
gold. No estimate of the value derived from silver or sulphide concentrate has
been made, but it would add a significant amount to the value of this resource.
The history of the Zaruma mining operations indicates that there is a
significant opportunity to apply modern mining methods to a major resource which
has had only limited exploitation in the past.

     

    DESCRIPTION AND
LOCATION

     

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

     

     

    
      
        
          
            
              	
                      Table 1 – Muluncay Boundary
      Coordinates 

                    
	
                      Easting -
      m 

                    	
                      Northing -
      m 

                    
	
                      652000

                    	
                      9599400

                    
	
                      653100

                    	
                      9599400

                    
	
                      653100

                    	
                      9596800 

                    
	
                      651600

                    	
                      9596800 

                    
	
                      651600

                    	
                      9599000 

                    
	
                      652000

                    	
                      9599000

                    
	
                      652000

                    	
                      9599400

                    

            

          

        

      

    

     

     

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

     

    ACCESSIBILITY, CLIMATE,
PHYSIOGRAPHY,
LOCAL RESOURCES AND
INFRASTRUCTURE

     

    Access to the district
from the coast is by a paved 2-lane road in good condition. It is approximately
a 2 hour
drive from the coastal city of Machala to the town of Portovelo, at the
confluence of the Rio Amarillo

     

     

    - 6 -

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    and
Rio Calera. From within the district access to most of the properties, including
the Muluncay concession, is by secondary 1- to 2-lane paved roads which often
continue to specific sites by tertiary single lane gravel roads, usually in
conditions for 4 wheel drive vehicles. Access to these sites from Portovelo
takes approximately 30 minutes.

     

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

     

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

     

     

     

     

    -
7 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

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

     

    GEOLOGICAL
SETTING

     

    Regional

     

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

     

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

     

    There are two major
regional faults. These are the Pinãs Fault and the Puente Busa –Palestina Fault.
These faults
have produced three tectonic blocks which have exposed bedrock to different
depths. Between these

     

     

    - 8 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

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

     

     

    -
9 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

     

    -
11 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

    Concession

     

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

     

    DEPOSIT
TYPES

     

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

     

     

    -
13 -

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    indicate (especially the
presence of significant galena –(lead) that the system has reached upper
mesothermal
depths.

     

    MINERALIZATION
Regional

     

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

     

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

     

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

     

     

    - 14 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

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

     

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

     

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

     

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

     

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

     

    Concession
The two best-known and
most continuously worked veins within the southern side of the
Muluncay

     

     

    - 16 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

    Typical Mine-Mill
Complex, Muluncay Concession

     

    FOTO 1:
MOLINO TRAPICHE CHILENO

     

      

     

     

    -
17 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

     

     

     

     

    - 18 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    The
Gen and Cristina veins consist of milky quartz, being hard but brittle, and
contain chalcopyrite (copper), sphalerite (zinc) and galena (lead) sulphide
minerals. This mineralization is similar to that found in the Portovelo-Zaruma
area mines, where it is quite common. The principal mineral accompanying the
gold is pyrite (FeS2), but other minerals
include safflorite (CoAs2), proustite
(Ag3AsS3), tetrahedrite
(Cu3SbS3-4), freibergite
((CuAg2ZnFe)3Sb2S6) and minor Au-Pb
telluride minerals. These are indicative of a low-temperature near-surface
environment.

     

    EXPLORATION
Historical
Systematic exploration
activity closely related to mining advance was carried out by SADCO from 1897 to
1950. However, only limited information is available from that period. Detailed
underground maps and 103,657 assay result records have been recovered from local
miners and from local archives by TVX Gold Corp. and IAMGOLD. Much of the SADCO
data can be acquired from certain parties in Machala.

     

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

     

    680 surface rocks channel
and chip samples 
2,126 underground channel
samples 
5,415 soil samples
37 diamond drill hole
results including sample assay results 
1,114 DDH core samples 
2,591
topographical control points survey 
39 stream sediments samples 
369
channel samples form surface trenching

     

     

    - 19 -

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

     

    -
20 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

     

     

    Gold
values from these samples range between 0.13 and 10.40 g/T. Numerous samples
taken by the author from other workings within the concession (# 483029 to
438050) show values of up to 58.6 g/T gold, up to 209 g/T silver, up to 4.86%
copper and up to 16.85% zinc.

     

    Personal communication
with one of the representatives of the Company notes that as of the date of this
report there are eight (8) mines on the concession. The two main producing
mines, Nueva Esperanza and Aguacate (Lopez) contain the three main major veins
Cristina and Gen, and a third vein. These two mines have had development work
carried out. This work includes advancing an additional 50 m beyond the actively
mined veins to a fourth mineralized vein. Tunnels are being advanced along this
new vein in order to remove ore. Slashing is also being carried out, to give a 3
m high by 2.5 m wide haulage tunnel in each of the two active mines. Steel track
has been installed. This now allows the use of an electric locomotive capable of
hauling 10 two-tonne ore cars (20 tons) per trip from underground to the ore
stockpile or

     

     

    - 21 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    primary
crusher.

     

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

     

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

     

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

     

    SAMPLING METHODS AND
APPROACH

     

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

     

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

     

     

    -
22 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SAMPLE PREPARATION,
ANALYSES
General

     

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

     

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

     

    EXPLORATION
POTENTIAL
Measured and Indicated
Resources

     

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

     

    Exploration
Potential

     

    Like
so many veins in the district which have been exploited for centuries, the
near-surface easily accessible high-grade gold mineralization is being
exhausted. Most of the mines in the district are currently extracting ore in the
range of 3-7 g/T gold. It is the author’s opinion that new investment and
detailed exploration will show that there is continuity of historical high-grade
mineralization both along strike and at depth. The fact that ECUADORGOLDCORP SA
has 5 currently undeveloped mines and has just opened a new mineralized vein
indicates that there is excellent potential for finding new exploitable
mineralized zones within the concession. Like most of the old SADCO operations
(with the exception of the Grand Mine) workings only extended to a depth of
approximately 200 m below surface. This is not because mineralization stops at
that depth. The Grand Mine contains a gold-mineralized zone which

     

     

    -
23 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

    CONCLUSIONS

     

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

     

    The
history of the Zaruma mining operations indicates that there is a significant
opportunity to apply modern mining methods to a major resource which has had
only limited exploitation in the past. It is the author’s opinion, based on site
visits to various mines and mills in the district, and having reviewed
reports

     

     

    - 24 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    on
the district produced by other mining and exploration personnel, that there is
significant additional mineral potential at depth of up to 1500 m for most of
the concessions in the district. This includes those veins, both developed and
known but undeveloped, contained within the Muluncay concession.

     

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

     

    This
report is a true and accurate representation of the assessment of the mineral
potential of the Muluncay Project.

     

     

    -
25 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

     

    - 26 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    GRANDE
Mining Company located in Canton Pasaje, El Oro province, from January 1990 to
September 1993.

     

    Geological
exploration - Underground miner for A . GRANDA C. Mining Company in the area of
Molleturo, Azuay province, from January to April 1998.

     

    Audit
of the Information of Mining production of LEON 1 area, code No. 2364,
corresponding to 2001 and 2002 years in February 2003.

     

    Audit
of the Report of Mining Production of LA VIÑA area, code No. 310, corresponding
to 2002 year, in March 2003 ; in March 2004;, in March 2005; and in March
2006.

     

    Audit
of the Report of Commercial Mining Production of the ASSOCIACIÓN MINEROS
INDEPENDIENTE AUTÓNOMOS SOCIEDADES MULUNCAY area, Code No. 338, corresponding to
the years of 2002 - 2003, in March 2004 and in 2004, in March 2005.

     

    Audit
of the Report of Mining Production of ANDREIMA area, Code No. 700114,
corresponding to 2003, in March 2004, and in March 2005.

     

    Audit
of the Report of Mining Production of LORRAINE area, Code No. 318, corresponding
to 2004, March 2005; March 2006, and March 2007.

     

    Audit
of the Report of Mining Production of NUEVA ESPERANZA area, Code 152,
corresponding to 2004 year, and March 2005.

     

    Audit
of the Report of Mining Production of LIMONCITO area, Code No. 2017,
corresponding to 2003, March 2004, and March 2005.

     

    Audit
of the Report of Mining Production of CAROLINA J-A area, Code No. 300148,
corresponding to 2005, March 2006, and March 2007.

     

    Audit
of the Report of Commercial Mining Production of SAN FERNANDO 1 area, code No.
6231.1, corresponding to 2005 - March 2006.

     

    Audit
of the Report of Commercial Mining Production of AMAYA and AMAYA II areas, codes
No. 300385 and 300659, respectively corresponding to March 2006.

     

     

    -
27 -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

     

    - 28 -exhibit_10-4.htm

    Trilliant Exploration Corporation 10-K

     

    Exhibit 10.4

     

     

         REPORT ON
EXPLORATION POTENTIAL 

     

    MULUNCAY
EPITHERMAL GOLD PROJECT 

     

    PORTOVELO-ZARUMA-AYAPAMBA
AREA

     

    PROVINCE
OF EL ORO, ECUADOR

     

     

     

     

     

    Latitude
3°
36' 30”
South, Longitude 79° 40' West

     

     

     

     

     

    Written
For:  
Minera Del Pacifico, S.A.

     

     

    
      
        	
                Prepared
      By: 

              	 
      
	 
      	 
      
	
                D.
      Bain, B.Sc., P.Geo.

              	
                49 Midale
      Crescent 

              
	
                Consulting
      Geologist 

              	
                London,
      Ontario, 

              
	
                DUNCAN BAIN CONSULTING
      LTD. 

              	
                Canada N5X
      3C2 

              
	
                E-mail:
      djbain@aol.com 

              	
                November 30,
      2006 

              

      

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    1

     

    Summary

     

    The
Portovelo-Zaruma-Ayapamba district of southern Ecuador has been mined for gold
and silver for centuries. The Incas were already extracting gold and silver in
the area prior to the arrival of the Spanish conquistadors in 1549. For 450
years exploitation of the Zaruma and Portovelo gold mines has continued. Modern
exploration, development and mining methods were applied with the arrival of
SADCO in the late 1800s. Since 1905, the earliest available mining records,
SADCO mining activities have produced in excess of 4.5 million oz. (144 million
grams) of gold, when the cut-off grade for ore was 14.5 g/T gold. SADCO left in
1950. Only local mining continued for the next 40 years. Starting in the early
1990s, TVX and IAMGOLD have acquired and explored much of the district. In
November 2006 Minera Nevada acquired a 100% interest in the Muluncay Project. It
is centred at Latitude 03o36 ́30” South and Longitude 79o 40’ West, a distance of
175 kilometres south and 60 kilometres southeast of the major Pacific port
cities of Guayaquil and Machala, respectively. The MuluncayProject lies
approximately 100 km west of the Aurelian gold district and 120 km south of
IAMGOLD’s multi-million ounce Quimsacocha deposit. IAMGOLD hold a series of
concession surrounding the Muluncayconcession. These three gold districts are
part of a regional epithermal mineralizing system which covers the southern half
of Ecuador. The local population is experienced in the recognition and mining of
narrow vein gold deposits, making them a valuable asset for future exploration,
development and production throughout the entire region.

     

    Triassic
age Tahuin Series gneisses, schists and amphibolites, overlain byCapiro
Formation mica schists, phyllites and quartzites form the basement rocks of the
region. This basement is unconformably overlain by Celica Formation massive
andesitic lavas and tuffs. The Celica Formation is intruded by small Lower
Cretaceous age diorite/granodiorite plutons. This entire mass has been
interpreted as a continental volcanic arc. These units are unconformably
overlain by Oligocene Saraguro Formation felsic volcanic lavas and pyroclastics,
and by later Miocene age Chincillo Formation (Pisayambo Formation) rhyolite
flows and pyroclastics. There are two major regional faults, the Pinãs Fault and
the Puente Busa –Palestina Fault, which have produced three tectonic blocks with
down-dropped sides to the SW. Celica Formation mafic to intermediate volcanics
lie between these two faults. Within the Celica Formation is the Portovelo
Series andesitic lavas. Two hydrothermally altered intermediate composition
volcanic series and their subvolcanic feeder systems unconformably overlie the
Celica Formation. They are composed of intermediate pyroclastics and breccias,
crosscut by younger rhyolite stocks, dykes and sills.

     

    Significant second order structures include NW, NE and N-S trending
high-angle faults. The N-S trending veins, dipping generally 70o
to
90o
NE, are
the dominant structures for hosting gold, silver, lead, zinc and copper
mineralization. Propylitic, argillic, silicic and sericitic alteration form
concentric district-size zones. These represent a Miocene collapse caldera.
Supergene enrichment of gold mineralization is recognized. Silicification
represents the core of this alteration “aureole”. The deposits are classified as
adularia-sericite low- to intermediate sulphidation epithermal gold
system.

     

    Regionally these mineralized veins extend horizontally for at least 15 km
(the Portovelo-Zaruma-Ayapamba region), and have known depths of at least 1500
m. Past-producing veins in the district range from 60 cm to 8 m, with an average
width of 1.3 m. “Stringers” and narrow veins, as well as silicified wallrock,
are virtually untested for their gold potential. As is typical in a standard
epithermal gold system, there are some zones of “bonanza-type” high-grade gold
mineralization (locally termed “clavos”) in the 30 to 200 g/tonne range. Veins
within the Muluncay concession include a minimum of 2 major veins. Unexplored
and undeveloped veins are also present. Structures are oriented
NNW.

     

    Current
exploration by Minera Nevada involved a site visit by the author to the district
and to a series of mine workings within the Muluncay concession. Within the
concession several samples of vein material were taken by the author from the
Jena and Cristina veins, which are strong and persist through the entire
concession over a known depth of 200 m and a strike length of 1500 m. Gold
values from these samples range up to 10.40 g/T.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    2

     

    Numerous
samples taken by the author in other workings within the concession show values
of up to 58.6 g/T gold, up to 209 g/T silver, up to 4.86% copper and up to
16.85% zinc.

     

    SADCO
operated mines in the Zaruma-Portovelo-Ayapamba district for 46 years. During
this time approximately 3.6 million ounces of gold and 12 million ounces of
silver were produced. Production rates at the Grand Mine, the major producer in
the district, are estimated up to a maximum of 200,000 tonnes per year, and gold
grades were approximately 20-30 g/T. Significant quantities of silver, lead and
zinc were also produced. SADCO operated its mines during the years when the
price of gold was US$20-$35/ounce. Despite a commodity price low by today’s
standards the company was profitable because of the high grades of ore available
for mining.

     

    The old
SADCO operations, scattered throughout the district, generally (with the
exception of the Grand Mine) only extended to a depth of approximately 200m
below surface. The Grand Mine contains a gold-mineralized zone which extended to
a depth of at least 660 m below surface. It was collared at an elevation 700 m
below mine workings in the Muluncay concession area. This indicates that there
is significant additional potential at depth of up to 1500 m for most of the
concession in the district, including those veins contained within the Muluncay
concession. A preliminary estimate of the resource is made by the author on the
Muluncay Concession, from the two currently active veins (Jena and Cristina)
with an estimated strike length of 1 km, an average width of 1.0 m and an
average depth of 1000 m. Using the SADCO cut-off grade of 14.6 g/T as the
average grade below current workings, this would produce an estimated tonnage of
400,000 T for each vein, or a total current resource of 800,000 T, for a total
of 11,680,000 g (365,000 oz) gold. Should additional veins be found during
exploration (known but not presently developed) then that tonnage estimate would
increase significantly. Secondary veins, stringers, breccia and disseminated
mineralization in the wallrocks have never been exploited, or even properly
assessed. It is the author’s opinion that with improved, more economic mining
and milling methods this resource can be taken advantage of, so that it is
probable that a resource of greater than 1.6 million tonnes, with a somewhat
lower grade in the order of 12 g/T (due to dilution by secondary veins and
disseminations) could produce 19,200,000 g (600,000 oz) Au. No estimate of the
value derived from silver or sulphide concentrate has been made, but it would
add a significant amount to the value of this resource. The history of the
Zaruma mining operations indicates that there is a significant opportunity to
apply modern mining methods to a major resource which has had only limited
exploitation in the past.

     

    Near-term exploration should consist of the surface mapping and
prospecting. Stream sediment sampling and lithogeochemical sampling should be
carried out to check for sulphide content, halo effects, alteration patterns and
pathfinder elements. Airphoto/satellite imagery should be examined to outline
structures. All current or past underground workings should be mapped, surveyed
and sampled to develop an idea of size and grade of ore blocks. Sampling should
include not only vein material but wallrock to at least a metre on either side
of each vein sample. Surface and underground samples should be taken
approximately every 3 m along the vein. Analysis of all samples would be for
gold by Fire Assay and other elements by ICP-MS. This Phase 1 program is
estimated to cost $107,000.00 USD.

     

    Using
the underground sampling data an underground diamond drill program would be
conducted. This work would produce a more detailed estimate of grade and tonnage
for the current mine workings and for the concession. Estimated cost of this
Phase 2 program is approximately $178,000.00 USD. Further work is dependent on
the results of this program.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    3

     

    INTRODUCTION

     

    The
Zaruma-Portovelo-Ayapamba district of southern Ecuador has been a prolific
producer of both gold and silver for over 450 years. No records of mine
production exist for the first 300 years, but since 1905, over a period of only
50 years, mining activities have produced in excess of 4.5 million ounces of
gold, when the cut-off grade for ore was 14.6 g/T gold. The district, an area of
150 km2, contains at
least 15 major veins. Artesanal mining has continued to the present but lack of
funding has prevented the use of modern exploration and mining methods to
significantly increase reserves and maintain historical high grades, both along
strike of these structures and to depth. Strike length of major veins can range
up to 1 kilometre. Depth potential can range up to 1500 m where current mining
has exploited only the first 200 m below surface.

     

    This report has
been prepared at the request of Minera Nevada S.A. and is intended to document
the potential of the Muluncay concession for hosting one or more
gold-silver-lead-zinc-copper deposits of sufficient grade and tonnage to be
economically viable.

     

    TERMS OF
REFERENCE

     

    The writer has
been requested by Minera Nevada S.A. to make a site visit to the Muluncay Gold
Project and to make a preliminary assessment of the Project for hosting
sufficient quantities ofvarious mineral commodities to allow those commodities
to be mined and processed at a profit.

     

    For the purpose
of this Technical Report the author, Duncan J. Bain, B.Sc.(Geology), P.Geo. is
an

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4

     

    independent
Qualified Person in accordance with National Instrument 43-101 and as defined in
the CIM Standards
on Mineral Resources and Reserves.

     

    Grade and
tonnage numbers are reported by various authors in a variety of forms, some of
which include ounces per ton or % per ton. Distance measurements are often
reported in feet. Wherever possible these numbers have been converted to metric
equivalents, such as grams per tonne or % per tonne, and metres or centimetres,
with the original values inserted to show the conversion.

     

    This report is
to be submitted to regulatory bodies including the British Colombia Securities
Commission and is to be used by the Company to raise funds for further
exploration on the Project.

     

    RELIANCE
ON OTHER EXPERTS

     

    The author, Mr.
Duncan J. Bain, P.Geo., visited the Portovelo-Zaruma district, including the
Muluncay Project, from June 26 to July 3, 2006. The author also visited the
district and was on the Muluncay Property on September 2 to 10, 2006. He was
joined by Mr. Al Beaton, P.Eng., Mining Engineer and Mr. J.Ed Dhonau, a
representative of Minera Del Paciofico, S.A. These site visits included both
underground and surface observations of exploration, development and mining
activities both within the district and on several of the mine workings located
within the Muluncay concession. Detailed mapping and sampling of these and the
other mines of the concession have not been carried out during these two visits.
However, in September samples of vein material were taken by the author from the
underground workings of the Muluncay concession. This material was considered by
the author to be highly prospective for containing economic gold values and was
taken to confirm mineralization being mined economically by local miners, and to
compare with

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    5

     

    metal values
taken by other parties and reported in historical studies of the district. A
sampling program had been carried out by the previous owner from various mine
sites within the concession. These are included in this report. The field trip
also gave the author a detailed appreciation of the topography, climate,
infrastructure and workforce available in the area.

     

    In the
compilation of this Report the author relied on the advice and experience in
underground mining provided by Mr. Al Beaton, P.Eng. (B.C.), who is a Mining
Engineer with over 35 years experience. From 1970 to 1974 Mr. Beaton worked at a
large underground copper mine in Zambia. From 1974 to 1979 he worked at
Cominco’s lead-zinc open pit Sullivan Mine in southern British Columbia, Canada.
From 1979 to 1986 he was Mine Manager at Erikson Gold Mine at Cassiar, B.C. He
has spent the last 25 years specialized in contract work and consulting, with
the majority of that involved in small underground track and trackless mining
operations in the Cordillera of British Columbia.

     

    The author has
not relied, without verification by the author, on a report or statement of an
expert who is not a
Qualified Person as laid out in accordance with National Instrument
43-101.

     

    The author has
received and reviewed the registered ownership documents covering the concession
that makes up the Muluncay Project. However the author has not formed a legal
opinion of the documentation.

     

    All projections
and opinions in this report have been prepared on the basis of information made
available to
the author, and are subject to uncertainties and contingencies which are
difficult to

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    6

     

    accurately
predict. Nevertheless, the author considers this report to be a true and
accurate representation
of the preliminary assessment of the mineral potential of the Muluncay
Project.

     

    DESCRIPTION
AND LOCATION

     

    In November,
2006 Minera Del Pacifico S.A. acquired a 100% interest in the workings contained
by the Aguacate Mine from Sr. Manuel Lopez of Muluncay, Province of El Oro,
state of Ecuador. This is located within the centre of the Muluncay concession
(Figure 6).
The owner
directs those seeking additional information on the ownership issue to
representatives of the Minera Nevada.

     

    The Muluncay
concession lies in the centre of the Portovelo-Zaruma mining camp, which is
found in the cantons of Ayapamba and Paccha, Province of El Oro, southern
Ecuador. It is centered at Latitude 03o 36’ 30” South and Longitude 79o40’ West
(Figure 1, 2, 3). It covers an area of 374 hectares. Boundary co-ordinates for
the Project are found in Table 1 below. These are based on a metric UTM grid
system referenced to PSAD-56 datum and geographic zone 17.

     

    Table 1 –
Muluncay Boundary Coordinates

     

    
       

      
        
          
            
              
                
                  	
                          Easting -
      m 

                        	
                          Northing -
      m 

                        
	
                          652000

                        	
                          9599400

                        
	
                          653100

                        	
                          9599400

                        
	
                          653100

                        	
                          9596800 

                        
	
                          651600

                        	
                          9596800 

                        
	
                          651600

                        	
                          9599000 

                        
	
                          652000

                        	
                          9599000

                        
	
                          652000

                        	
                          9599400

                        

                

              

            

          

        

      

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    7

     

     

    The project is
situated about 175 kilometres southeast and 60 kilometres east of the major
Pacific port cities of Guayaquil and Machala, respectively. It lies on the
western slope of the Andes Mountains, part of the Western Cordillera which runs
the length of the west coast of North and South America.

     

    ACCESSIBILITY,
CLIMATE, PHYSIOGRAPHY, 
LOCAL RESOURCES AND
INFRASTRUCTURE

     

    Access to the
district from the coast is by a paved 2-lane road in good condition. It is
approximately a 2 hour drive from the coastal city of Machala to the town of
Portovelo, at the confluence of the Rio Amarillo and Rio Calera. From within the
district access to most of the properties, including the Muluncay concession, is
by secondary 1- to 2-lane paved roads which often continue to specific sites by
tertiary single lane gravel roads, usually though not always in good enough
condition for 2 wheel drive vehicles. Access to these sites from Portovelo takes
approximately 30 minutes.

     

    The climate is
subtropical and humid with temperatures ranging from 18o
to
30o
C. Yearly
rainfall averages 1,341
mm, with heaviest rainfalls occurring in the months from January to
June.

     

    Within the
district, hill slopes are moderately steep to very steep with elevations ranging
from the 950 to 1650 m
above sea level (ASL). The Portovelo-Zaruma-Ayapamba district is
traditionally

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    8

     

    an underground
mining camp. Those areas not disturbed by mining activity are used for
farmlands, grazing and local minor secondary forestry. Any early stages of
surface exploration work carried out by Minera Nevada will involve minimal
disruption to current surface activities. Underground

     

     

     

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

     

    exploration,
including additional drifting, sampling, mapping and possible drilling should
have even less of an
effect than the surface work.

     

    The population
within the project area is approximately 50,000. Zaruma, with a population of
29,000, and Portovelo, with a population of 14,000 make up the majority, but
there are numerous small villages of a few hundred people each (e.g. Ayapamba,
Muluncay). The population has extensive experience in the recognition and mining
of narrow vein high-grade gold deposits, making them a valuable asset for future
exploration, development and production throughout the

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    9

     

    entire region.
Hotels, food and material supplies, communication resources, public security and
government institution representatives are all available locally, and in Pinãs,
approximately 20 km distance to the west. High-tension power lines providing
electricity are connected to both Zaruma and Portovelo. Cell phone use in this
area allows communication with major centres in the country The Rio Amarillo and
Rio Calera rivers are able to supply adequate water for large scale mining
operations throughout the year.

     

    HISTORY

     

    The hills of
Portovelo, Zaruma and Ayapamba have been mined for gold and silver for
centuries. The Incas were already extracting gold and silver in the area with
hydraulic mining of the oxidized parts of veins when Mercadillo, one of
Pizzarro ́s force, followed the Rio Amarillo upstream, encountered the Inca mine
and founded the town of Zaruma in 1549 (Holly and Maynard, 2006). Exploitation
of the Zaruma and Portovelo districts continued during the time of Spanish
colonization until 1870 when an Ecuadorian-Chilean mining company was
established. Operational rights were immediately acquired by Southern American
Development Company (SADCO), a subsidiary of a major American mining company.
SADCO operated the mines from 1897 to 1950 by gaining control of the district’s
main gold deposits in 1897. The most extensively mined of these workings was the
Grand Shaft on the Casa Negra concession, on the eastern edge of the town of
Portovelo. Exploration programs of SADCO commenced in 1896 and brought the Grand
Mine into production at 108t/day in 1905. The mine was subsequently deepened to
13 level, 800m below the uppermost workings. In the 53 years that followed,
SADCO recovered some 3.5 million ounces (approx. 112 million grams) of gold and
12 million ounces (384 million grams) of silver from 7.6 million tonnes(T) of
ore at a cut-

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    10

     

    off grade of
14.6 g/T Au and 48.9 g/T Ag (Van Thournout et al., 1996). The lower levels of
the Grand Mine were flooded in 1944, and facing increasing costs, taxes and a
complicated political situation, SADCO withdrew from Ecuador in 1950. A
state-owned company, CIMA, took over the mining operations in the area until
1980 and it is estimated to have produced a further 375,000 ounces (12 million
grams) of gold by 1965. In 1984, thousands of poverty-stricken miners invaded
the old SADCO pits and small-scale and artesanal mining has been going on in the
area ever since. An additional 35,000 to 50,000 ounces (1.12 to 1.6 million
grams) of gold has been produced each year since then by informal miners,
small-scale operating mining societies and family-owned operations. Statistical
information from the 1990 ́s reported that mining from the Zaruma and Portovelo
areas totalled 3 million tonnes (T).

     

    In the
mid-1990s several overseas companies attempted to consolidate the area and
carried out systematic exploration programs. From 1995 to 1996 TVX Corporation,
a Canadian exploration company, conducted underground and surface mapping. After
TVX Corp. withdrew from Ecuador in 1998 all information was acquired by IAMGOLD.
IAMGOLD continued with more extensive exploration programs including surface
trenching, surface and underground sampling, surveying, diamond drilling and
geological modelling. The author does not currently have direct access to this
data and is relying in large part on reports published by IAMGOLD on SEDAR
(www.sedar.com) and other
Internet sites. The author visited the district in late June/July 2006, and in
September 2006. This report is the result of those site visits and review of
available data. In November 2006 Minera Nevada acquired a 100% interest in the
Aguacate Mine within the Muluncay concession, giving it the right to mine within
the concession.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    11

     

    GEOLOGICAL
SETTING 
Regional

     

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

     

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

     

    There are two
major regional faults. These are the Pinãs Fault and the Puente Busa –Palestina
Fault. These faults have produced three tectonic blocks which have exposed
bedrock to different depths. Between these two faults exposure consists of
Celica Formation mafic to intermediate volcanics. Within the Celica Formation
(Figure 4) is a thick series of andesitic lavas termed the Portovelo Series
which occurs along a central N-S trending axis. These lavas act as host rocks to
most of the vein systems in the Portovelo-Zaruma-Ayapamba region. Recent mapping
has shown that the Celica Formation is unconformably overlain by two
hydrothermally altered volcanic series,

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    12

     

    and is crosscut
by their subvolcanic feeder systems. These volcanics are composed of
intermediate pyroclastics and breccias, crosscut by younger small rhyolite
stocks, dykes and sills. These rhyolitic rocks are concentrated along two NW
trends in the central mountain ranges (Zaruma-Urca and Santa Barbara) and are
due to resistant weathering caused by regional silicification. Most of the
district vein-cavity fillings, including base- and precious metals
mineralization, are closely associated with this volcanic activity.

     

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

     

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

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    13

     

    Concession

     

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

     

    DEPOSIT
TYPES

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    14

     

    MINERALIZATION

Regional

     

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

     

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

     

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

     

    Regionally
these mineralized veins extend horizontally for at least 15 km (the
Portovelo-Zaruma-Ayapamba region), and have known depths of at least 1500 m
(from local height of land to known depth of the Casa Negra Concession SADCO
Grand Mine). Past-producing veins in the district range from 60 cm to 8 m, with
an average width of 1.3 m. “Stringers” and narrow veins, as well as silicified
wallrock, are virtually untested for their gold potential. As is typical in a
standard epithermal gold system, there are some zones of “bonanza-type”
high-grade gold mineralization

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    15

     

    (locally termed
“clavos”) in the 30 to 200 g/tonne range. Clavos of this grade were reported by
the owner on the
Muluncay concession on one of the major veins (Cristina or Jen).

     

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

     

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

     

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

     

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

     

    Concession

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    16

     

    Veins within
the Muluncay concession include Jen and Cristina. Other veins exist parallel to
these two main structures but are not presently developed. The mineralization in
the concession area ranges from a gold : silver ratio of 1:10 near surface to
1:15 at depth. Veins range up to 1500 m in strike length, and mines in the
immediate area range from 1650 m ASL to 950 m ASL, giving a known depth of
mineralization of at least 700 m. Vein widths range from 0.40 m to 1.40 m and
are steeply dipping (70° to 90°) to the NE.

     

     

     

    Plate 2
–Typical Mine-Mill Complex, Muluncay Concession

     

    The Jen and
Cristina veins consisted of milky quartz, being hard but brittle, and containing
chalcopyrite
(copper), sphalerite (zinc) and galena (lead) sulphide minerals. This
mineralization is

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    17

     

    similar to that
found in the Portovelo-Zaruma area, where it is quite common. The principal
mineral accompanying the gold is pyrite (FeS2), but other
minerals include safflorite (CoAs2), proustite
(Ag3AsS3), tetrahedrite
(Cu3SbS3-4), freibergite
((CuAg2ZnFe)3Sb2S6) and minor
Au-telluride minerals. These are indicative of a low-temperature near-surface
environment.

     

     

     

    Plate 3 –
Underground Workings, Muluncay Concession; average vein width

     

    EXPLORATION
Historical

     

    Systematic
exploration activity closely related to mining advance was carried out by SADCO
from 1897 to 1950. However, only limited information is available from that
period. Detailed underground maps and 103,657 assay result records have been
recovered from local miners and from local archives by TVX Gold Corp. and
IAMGOLD. Much

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    18

     

    of the SADCO
data can be acquired from certain parties in Machala, and Minera Nevada is in
the process of
purchasing that data.

     

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

     

    680 surface
rocks channel and chip samples 
2,126 underground channel samples 
5,415
soil samples
37 diamond
drill hole results including sample assay results 
1,114 DDH core samples

2,591 topographical control points survey 
39 stream sediments samples

369 channel samples form surface trenching

     

    The Aguacate
Mine has been mapped by previous owners. Although the map is presently
unavailable information on sample sites and assays is found in Appendix 2. The
author is confident that the data is reliable within the limits imposed by a
lack of check samples and standard Quality Control protocols. Data is available
from the author on the other mines within the concession but are not included in
this report.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    19

     

    Current

     

    Current
exploration by Minera Nevada involved a site visit by the author to the Muluncay
concession. The author visited at three separate mines within the concession.
These included Fatima, Nueva Esperanza 1 and Aguacate (see Figure 6). Numerous
other workings are present within the concession but were not investigated at
this time. Several samples of vein material were taken by the author from the
various workings. Assay results (see certificates, Appendix 1) are shown in
Table 2 below:

     

     

     

    Gold values
from these samples range up to 10.40 g/T. Numerous samples taken by the author
in other workings within the concession (# 483029 to 438050) show values of up
to 58.6 g/T gold, up to 209 g/T silver, up to 4.86% copper and up to 16.85%
zinc.

     

    DRILLING

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    20

     

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

     

    SAMPLING
METHODS AND APPROACH

     

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

     

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

     

    SAMPLE
PREPARATION, ANALYSES AND SECURITY 
General

     

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

     

    Sample
Preparation Procedures

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    21

     

    Samples were
dried at 110-120°C and then crushed with either an oscillating jaw crusher or a
roll crusher. The lab Quality Control (QC) specification for crushed material is
that >70% of the sample must pass a 2 mm (10 mesh) screen. The entire sample
is crushed, but typically 250 g to 1 kg, is subdivided from the main sample by
use of a riffle splitter. If splitting is required, a substantial part of the
sample (the "reject" or “spare”) remains. A whole or split portion derived from
the crushing process is pulverized using a ring mill. QC specification for final
pulverizing is that >85% of the sample be less than 75 microns.

     

    Analytical
Methods 
ICP-MS Method

     

    In plasma mass
spectroscopy, the inductively coupled argon plasma (ICP) is used as an
excitation source for the elements of interest. The plasma in ICP-MS is used to
generate ions that are then introduced to the mass spectrometer. These ions are
then separated and collected according to their mass to charge ratios. The
constituents of an unknown sample can then be identified and measured. ICP-MS
offers extremely high sensitivity to a wide range of elements. It is a
multielement analytical technique capable of determining an extremely wide range
of elements to very low detection limits (typically sub ppb).

     

    Detection
limits for this method are shown below. Values are in ppm or
percent.

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    22

     

    Fire Assay
Method

     

    Gravimetric
methods involve the use of balances to weigh the element of interest, either in
its pure elemental form or as a chemical compound. One of the most common
gravimetric determinations is that of gold and silver following a fire assay
fusion and cupellation. The precious metal bead that remains following
cupellation is an alloy of silver and gold. Weighing this bead will give the
total weight of silver and gold. If the bead is then treated with dilute nitric
acid, it is possible to remove the silver quantitatively. The residual mass
consists of pure gold which can then be weighed separately, thus allowing the
silver to be determined by the difference. The balances used for this purpose
are microbalances capable of weighing to the nearest microgram (one millionth of
a gram). The fire assay procedure is universally accepted as the definitive
method for the analysis of gold. When an atomic absorption spectroscopy finish
is selected, the upper reporting limit is set at 10 g/T (0.3 oz/ton) and samples
higher than this must be re-analyzed using additional silver in the firing
process and a larger dilution factor. Alternatively, gravimetric finish can be
used.

     

    Security

     

    No blanks or
samples with known values were added to the total samples delivered to the lab.
No check samples were submitted to other labs for confirmation of values. For
any sample preparation activities the lab maintains sample sequence logs. These
logs detail which samples have been prepared in what order and are very helpful
for investigative purposes.

     

    Analyses

     

    The assay
certificate was received by e-mail from ALS-Chemex to the author only. A hard
copy of

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    23

     

    the results
arrived in the mail to the author only. Those certificates are found in Appendix
1.

     

    DATA
VERIFICATION

     

    Although
positions of many of the samples taken by earlier workers on the Project are
known, because this was a preliminary assessment of the Project to simply
confirm values, data verification is only on a very general basis.

     

    ADJACENT
PROPERTIES

     

    The Muluncay
Project lies surrounded by of the IAMGOLD concessions (Figure 3). Current
activities by IAMGOLD can be found in their news releases on SEDAR. Minera
Nevada also holds the Grand Shaft, of Casa Negra concession. It lies south of
Muluncay, and although veins at Casa Negra may not extend continuously to
Muluncay, the general trend of mineralized veins does. North of Muluncay this
trend swings NW and continues through the Maria Olivia concession.

     

    MINERAL
PROCESSING AND METALLURGICAL TESTING

     

    The current
artesanal miners of the various mining operations within the Muluncay concession
operate a series of Chilean mills (crushing facilities) which are used to
liberate free-milling gold from the quartz and sulphide gangue. A
lead-zinc-copper concentrate is also produced which is stockpiled for possible
future processing. Production from these mills is low, averaging perhaps 30
tonnes per day with a head grade (ore grade) of 3-4 g/T (local miner, personal
communication). This grade is due to hundreds of years of hand mining of only
high grade (> 20 g/T to hundreds of g/T) gold. Up to this point a lack of
funding has prevented those locals from conducting any extensive underground
development, but based on SADCO mine plans for the Grand Mine and others there
is every reason to believe that high grade mineralization continues to a depth
of up to

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    24

     

    1500 m below
surface.

     

    To the author’s
knowledge no metallurgical testing has been carried out on the Muluncay
veins.

     

    MINERAL
RESOURCES 
Mine Planning

     

    At this time
Minera Nevada has no plans to take this Project to production. A detailed
investigation of the surface geology and underground workings is required to
confirm and outline estimated tonnage and grade.

     

    SADCO operated
mines in the Zaruma-Portovelo-Ayapamba district for 46 years. During this time
approximately 3.6 million ounces of gold and 12 million ounces of silver were
produced. Production rates at the mine are estimated up to a maximum of 200,000
tonnes per year, and gold grades were approximately 20-30 grams per tonne.
Significant quantities of silver, lead and zinc were also produced as
by-products. Flotation was used to produce a concentrate which was sold to
smelters to recover the lead and copper and some additional gold and silver.
SADCO operated during the years when the price of gold was controlled at
US$35/ounce. Notwithstanding, the company was profitable because of the high
grades of ore available for mining.

     

    Exploration
Potential
Measured
and Indicated Resources

     

    The author
visited 3 known operating mines (Fatima, Nueva Esperanza and Aguacate) within
the Muluncay concession. Figure 6 shows numerous other mine workings. However,
there are no known records of measured or indicated reserves from the
concession.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    25

     

    Inferred
Resources

     

    Note that
neither the “reserve” nor the “resource” estimates referred to in this report
comply with the current definition of such reserves as stated in National
Instrument 43-101 F1 or in the CIM Standards on Mineral Resources and Reserves.
Also note that commodity prices used to estimate ore cutoff grades by previous
operators have changed significantly from those used by SADCO. Like so many
veins in the district which have been exploited for centuries, the near-surface
easily accessible high-grade gold mineralization is being exhausted. It is
currently extracting ore in the range of 3-7 g/T gold. It is the author’s
opinion that new investment and detailed exploration will show that there is
continuity of historical high-grade mineralization both along strike and at
depth. The old SADCO operations generally (with the exception of the Grand Mine)
only extended to a depth of approximately 200m below surface. The Grand Mine
contains a gold-mineralized zone which extended to a depth of at least 660 m
below surface. It was collared at an elevation 700 m below mine workings in the
Muluncay concession area. This indicates that there is significant additional
potential at depth of up to 1500 m for most of the concessions in the district,
including those veins contained within the Muluncay concession. A preliminary
estimate of the resource is made by the author on the Muluncay Concession, from
the two currently active veins (Jena and Cristina) with an estimated strike
length of 1 km, an average width of 1.0 m and an average depth of 1000 m. Using
the SADCO cut-off grade of 14.6 g/T as the average grade below current workings,
this would produce an estimated tonnage of 400,000 T for each vein, or a total
current resource of 800,000 T, for a total of 11,680,000 g (365,000 oz) gold.
Should additional veins be found during exploration (known but not presently
developed) then that tonnage estimate would increase significantly. Secondary
veins, stringers, breccia and disseminated mineralization in the

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    26

     

    wallrocks have
never been exploited, or even properly assessed. It is the author’s opinion that
with improved, more economic mining and milling methods this resource can be
taken advantage of, so that it is probable that a resource of greater than 1.6
million tonnes, with a somewhat lower grade in the order of 12 g/T (due to
dilution by secondary veins and disseminations) could produce 19,200,000 g
(600,000 oz) Au. No estimate of the value derived from silver or sulphide
concentrate has been made, but it would add a significant amount to the value of
this resource. The history of the Zaruma mining operations indicates that there
is a significant opportunity to apply modern mining methods to a major resource
which has had only limited exploitation in the past.

     

    INTERPRETATIONS
AND CONCLUSIONS

     

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

     

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

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    27

     

    RECOMMENDATIONS

     

    Near-term
exploration should consist of the following. Within the concession the surface
should be mapped and prospected in detail. Stream sediment sampling and
lithogeochemical sampling should be carried out. These surface samples would be
analyzed for gold by Fire Assay, with A.A. or gravimetric finish. Other elements
would be tested for a 35-element suite by Induced Coupled Plasma (ICP-MS) to
check for sulphide content, halo effects, alteration patterns and pathfinder
elements such as mercury and antimony. Airphoto or similar satellite imagery
should be examined to outline structural elements within the area, and to assist
in tracing continuity of known mineralized structures. Concurrent with this work
all current or past underground workings should be mapped, surveyed and sampled
to develop an idea of size and grade of ore blocks. Sampling should include not
only vein material but wallrock to at least a metre on either side of each vein
sample. Samples should be taken approximately every 3 m along the vein. Analysis
of these samples would be for gold by Fire Assay and other elements by ICP-MS.
This Phase 1 program is estimated to cost $107,000.00 USD.

     

    Using the
underground sampling data an underground diamond drill program would be
conducted to show continuity of known mineralized veins and to discover new
mineralized veins, stringer zones and disseminations. This work would produce a
more detailed estimate of grade and tonnage for the current mine workings and
for the concession. Cost of this Phase 2 program is an estimated $178,000.00
USD. Further work is dependent on the results of this program.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    28

     

     

    
      
        
          
            
              
                
                  
                    
                      
                        	
                                ESTIMATED
      PHASE 1 BUDGET

                              
	
                                Surface mapping of the
      concession, estimate 5 days X 2 persons X $300 per
      day 

                              	 	$	3000.00	 
	
                                Sampling of surface veins and
      silicified zones, approx. 30 samples, 

                              	 	$	2000.00	 
	
                                2 person X 5 days X $200 per
      day 

                              	 	 	 	 
	
                                Stream sediment sampling, approx.
      50 samples, 2 persons X 5 days X $300 per day 

                              	 	$	3000.00	 
	
                                Surveying of all underground
      workings, 2 persons X 25 days X $200 per day 

                              	 	$	10,000.00	 
	
                                Mapping of all underground
      workings, 2 persons X 30 days X $200 per day 

                              	 	$	12,000.00	 
	
                                Detailed sampling of all
      underground veins, approximately every 3 m,
      estimate 

                              	 	$	18,000.00	 
	
                                500 samples, 3 persons X 20 days
      X $300 per day 

                              	 	 	 	 
	
                                Assaying of surface and
      underground samples, including preparation, 

                              	 	$	21,000.00	 
	
                                transport to Quito, sample 35
      element ICP-MS and gold by Fire Assay-AA/ 

                              	 	 	 	 
	
                                gravimetric Finish, $35 per
      sample, estimate 600 samples 

                              	 	 	 	 
	
                                Local accommodation and meals, 3
      persons X 30 days X $100/day 

                              	 	$	9,000.00	 
	
                                Mobilization/demobilization of
      crew 

                              	 	$	5,000.00	 
	
                                Report, with recommended
      work 

                              	 	$	5,000.00	 
	
                                Contingencies
      at 15% on $88,000 

                              	 	$	12,000.00	 
	
                                Sub-total 

                              	 	$	100,000.00	 
	
                                GST
      on $100,000.00 

                              	 	$	7,000.00	 
	
                                TOTAL COST,
      Phase 1 Program 

                              	 	$	107,000.00	 USD

                      

                    

                  

                

              

            

          

        

      

    

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    29

     

     

    
      
        
          
            
              
                
                  
                    
                      	
                              ESTIMATED
      PHASE 2 BUDGET

                            
	 
	
                              Underground diamond drilling,
      1500 m at $40 per metre 

                            	 	$	60,000.00	 
	
                              Geologist, 60 days at $300 per
      day 

                            	 	$	18,000.00	 
	
                              Sampler/splitter, 60 days at $200
      per day 

                            	 	$	12,000.00	 
	
                              Mobilization/demobilization of
      crew 

                            	 	$	15,000.00	 
	
                              Local accommodation and meals, 6
      persons X 60 days X $100/day 

                            	 	$	36,000.00	 
	
                              Report, with recommended
      work 

                            	 	$	5000.00	 
	
                              Contingencies at 15% on
      $146,000.00 

                            	 	$	22,000.00	 
	
                              Sub-total 

                            	 	$	168,000.00	 
	
                              GST on
      $168,000.00 

                            	 	$	10,000.00	 
	
                              TOTAL COST,
      Phase 2 Program 

                            	 	$	178,000.00	 USD

                    

                  

                

              

            

          

        

      

    

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    30

     

    Bibliography

     

    Andrade, G.and
Faldez, M., 2001, Exploration Report, Minanca’s Concesion.

     

    Dodd, K.C.
2006, A Preliminary Summary of the Zaruma Gold Project in Ecuador. unpublished
Company Report for Dynasty Metals and Mining Inc.

     

    Hedenquist,
J.W., Arribas R., A. and Gonzalez-Urien, E., 2000, Exploration for Epithermal
Gold Deposits. In Soc. Ec. Geol. Reviews, vol. 13, p. 245-277

     

    Holly, W.J.,
and Maynard, A.J., 2006, Form 43 -101F1 Technical Report, Independent
Preliminary Assessment, Zaruma Project, El Oro Province, Ecuador. SEDAR
published Company Report For Dynasty Metals And Mining Inc.

     

    Kalinaj, M.,
2004, Zaruma Project, Ecuador, Technical Report. Unpublished Company Report for
Dynasty Metals and Mining Inc.

     

    Marikovsky, Z.,
1958, Estudio Geologico-Minero Sobre La Mina Cerro de Oro (Ayapamba), Distrito
Minero Canton Zaruma, Ecuador. Unpublished Company Report for CIMA (Compania
Industrial Minera Asociada, S.A.)

     

    Maynard, A.J.,
2005, Independent Geological Evaluation, Zaruma Project, El Oro Province,
Ecuador. Unpublished Company Report for Dynasty Metals and Mining
Inc.

     

    Speechly, B.,
2005, Mine Plan for the Zaruma Gold Project. Unpublished Company Report for
Dynasty Metals and Mining Inc.

     

    Spencer, R.M.,
Montenegro, J.L.,Galbar, A., Perez, E.P, Manilla, G.,Viera,F. and Spencer, C.E.,
2002: The Portovelo-Zaruma Mining Camp, Southwest Ecuador. in Porphyry and
Epithermal Environments. SEG Newsletter, Society of Economic Geologists, 2002,
Number 49, 14 p.

     

    Van Thournout,
Salemink, J., Valenzuela, G., Merlyn, M., Boven, A. and Muchez, P., 1996,
Portovelo: a volcanic-hosted epithermal vein-system in Ecuador, South America.
Mineralium Deposita 31, pp. 269-276

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    31

     

    STATEMENT
OF QUALIFICATIONS STATEMENT
OF QUALIFICATIONS

     

    I,
DUNCAN JAMES BAIN, of the CITY of LONDON, in the PROVINCE of ONTARIO, do herein
certify that:

     

    I am a
Consulting Geologist and reside at 49 Midale Crescent, London, Ontario, Canada
N5X 3C2.

     

    I
graduated from the University of Western Ontario in London, Ontario, and
received my Bachelor of Science degree in Geology in 1977. I have practised
continuously as an exploration, development and mine geologist from that time
until the present.

     

    I am a
Fellow of the Geological Association of Canada.

     

    I have
been a Professional Geoscientist (P.Geo) of the Association of Professional
Engineers and Geoscientists of British Columbia since 1991 and am also a
Professional Geoscientist (P.Geo.) in the Province of Saskatchewan (October
2003) and in the Province of Ontario (October 2004).

     

    I was on
the Muluncay gold property in June 2006 and again in September
2006.

     

    This
report is based on a study of all information made available to me, both
published and unpublished. I am not aware of any material fact or material
change with respect to the subject matter of this technical report which is not
reflected in this technical report, the omission to disclose which makes the
technical report misleading.

     

    My
Company has been contracted to review the mineral potential of the
Muluncaypropertyand produce a report on behalf of Minera Nevada S.A. Other than
funds paid for work performed, I am independent of the issuer based upon the
tests set out in National Instrument 43-101 section 1.5

     

    I have
read National Instrument 43-101 and Form 43-101F1, and the technical report has
been prepared in compliance with National Instrument 43-101 and Form 43-101F1. I
am a Qualified Person as defined in the CIM Standards on Mineral Resources and
Reserves.

     

    I
consent to the use of this report in a Prospectus, a Statement of Materials
Facts or any other form of filing required by Minera Nevada S.A., the British
Columbia Securities Commission or any other similar institution.

     

    DATED in the CITY of LONDON, in the PROVINCE of ONTARIO, this 30thday of
November, 2006.

     
 

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    32

     

     

     

     

     

     

     

    APPENDIX ‘A’ –
Assay Certificates

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    33

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    34

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    35

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    36

     

     

     

     

     

     

     

    APPENDIX ‘B’ –
Aguacate Samples from Previous Owners

     
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    37

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      38

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00157-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00157-of-00352.parquet"}]]