The Elk gold deposit is an intrusive related, structurally controlled quartz vein system. The gold and silver bearing quartz veins are characterized as mesothermal based on fluid inclusion studies. The fluid inclusions within quartz crystals in the veins indicate gold mineralization formed at a minimum temperature of 250°C and a pressure of 2.5 kilobars, corresponding to lithostatic pressure at a depth of 7 km (Geiger, 2000). The vein systems consist of structurally controlled, narrow, pyritic quartz veins hosted in granitic as well as volcanic rocks near the contact between these two primary lithologies. Emplacement of quartz veins is thought related to Tertiary Otter intrusions.

Mineralization is thought to be Tertiary in age and associated with the intrusion of the Otter dikes and stocks (Jakubowski, 2006). Gold occurs primarily in native form, in places as aggregates of fine flakes in quartz, in quartz pyrite boxwork and in fractures within the vein. Veins are dominated by quartz with patches of sulphides, muscovite and ankerite (Payne, 1990). Sulphides are dominated by pyrite, with traces of pyrrhotite/marcasite, and arsenopyrite as seen in polished thin sections. Traces of chalcopyrite, sphalerite, and galena are seen in quartz veins, rarely ranging up to percent grades in some samples.

Native gold occurs in some quartz-sulphide veins, mainly in fractures in pyrite grains (Payne, 1990). In the 1989 petrographic samples, most native gold grains were not associated with base metal sulphides. In a few samples gold is intergrown coarsely with galena (in blebs in pyrite) and with galena tetrahedrite (in a fracture in pyrite). In general, there seems to be a correlation between bismuth, copper, zinc, and gold. Native gold grains are mainly from 0.03 to 0.10 mm in size though grains up to millimetre size have been photographed.

At surface, most of the sulphides are leached out leaving only minor pyrite and chalcopyrite in quartz (Jakubowski, 2006). Gold is closely associated with pyrite and a blue mineral (possibly a goldbismuth alloy called maldonite) or a copper-bismuth-antimony sulphosalt. Metallic minerals in the quartz veins (listed in decreasing abundance) are pyrite, chalcopyrite, sphalerite, galena, tetrahedrite, maldonite(?), phyrrhotite and gold (Jakubowski, 2006). Gangue minerals consist primarily of quartz and altered wall rock clasts. Ankerite and lesser amounts of calcite, minor barite, and fluorite occur locally.

Quartz veins on the Elk Property measure from less than one centimetre to rarely over a metre in thickness, with 8 cm to 15 cm being the most common width observed in drill core. Veins vary in composition from white, fluid inclusion rich and barren of sulphide to being crudely banded smokygray and sulphide-bearing. Vein hosted sulphide minerals consist dominantly of pyrite often in concentrations of 5% to 10% and rarely to more than 50%, but can also include occasional trace to 5% chalcopyrite, sphalerite, and minor galena. Quartz veins can consist of pure quartz ± sulphide material or contain varying amounts of wall rock as inclusions that if present are usually green, sericite altered and silicified to the point of textural destruction. These veins occur in all of the rock units mapped on the Elk Property (including some early dikes), but are more prevalent and best developed in the granodiorite and quartz monzonite that encompasses the historical and current bulk sample open pits.

SRK has considered only an open pit extraction method for mining the mineralized vein material at the Elk Project. If the property is confirmed as a viable open pit, then access from the pit to underground workings should be integrated into the pit design. There will be an optimum level for the open pit below which an underground operation will be more economic, and this level should be studied further as part of a pre-feasibility study and allowed for in the pit design. Underground mining considered as an extension to the project could be attractive, because access from the pit could be relatively quick and inexpensive, and the processing plant and infrastructure would already be built and operating.

It is assumed that the mine will use conventional drill and blast mining methods and mid-sized mining equipment such as 120 t excavators and 100 t trucks for mining most of the waste. The operation will work two eleven hour shifts seven days per week and will be carried out by a mining contractor.

When mining is close to the mineralized veins, flitches will be reduced in height to 2.5 m, and the excavators, assisted by bulldozers will clean off the hanging wall waste working from the top and bottom of the flitch. Cleaning the hanging wall waste immediately adjacent to the vein and then digging the vein will be carried out only on day shift .The contractor nominated a fleet of smaller equipment for vein mining (30-50 t excavators and matching trucks), although it may be found that a larger excavator will be better because of its superior horizontal reach. Such an excavator might work vein during dayshift and move to waste, with more trucks, at night.

Based on previous experience at this property, it is believed that the vein material will not require blasting, but the costs allow for mechanical rock breaking and limited drilling and blasting if required. Blasting is simple to carry out, but may cause losses of vein, and possibly disproportionately large losses of gold in fines, so will be avoided if possible. The way the vein peels away from the hanging and foot walls will also influence the success of the selective mining .The mine policy will always be to include waste in the plant feed rather than to lose gold.

The vein material will be mined irregularly and only on day shift. It will be stockpiled as necessary, and reclaimed when pit output is inadequate for the needs of the processing plant.

Mining of the footwall will require a dedicated track-mounted drill to stand on the footwall and drill the part bench, or to drill horizontal holes from the flitch below. This drill can also be used for drilling and blasting vein if necessary.

Snowfall would impede selective operations and a shorter operating season of only eight months per year is envisaged. In summary, the vein mining is seen as a low –productivity, high cost activity.

Waste will be hauled to external dumps; dumps will be re-contoured and revegetated.

For the PEA it is assumed that: The processing will involve crushing and grind ng followed by gravity and flotation circuits at a plant production rate of 500 tpd (180 ktpa).

The 25 - 30 tpd of gravity and flotation concentrates will be treated on site by regrinding and then cyanide leaching.

Overall, metallurgical recovery of gold is estimated to be 92%. Tailings disposal will be in two facilities, a small, lined dam for the cyanide process tailings and a larger dam for the flotation tailings. Water will be recirculated from both dams back to the plant, and there will be no positive discharge of water from either dam during operation.