Jonesville Coal Project, Alaska, USA

In December 2008 the Company acquired a 100% interest in the Jonesville Coal Project, located approximately 100 kilometres northeast of Anchorage, USA. The project comprises two leases covering 1,450 acres.

The project includes the historic Evan Jones Coal Mine, which is readily accessible from several minor roads that extend from the sealed Glenn Highway which itself passes several kilometres south of the project. A fully operational rail line services the town of Palmer, located some 20 kilometres southwest of the project and provides a rail connection to the port of Seward approximately 300 kilometres further south.

The port of Seward is fully equipped with coal loading facilities, and is currently being used to export coal to Asia and the Pacific Rim region. A second, recently constructed, port is located approximately 100 kilometres southwest of the project by road at Port Mackenzie. This port is also fully equipped with coal loading facilities and provides berthing facilities for Panamax sized vessels.

History

Approximately 5.5 million tonnes of high quality thermal coal were produced from the Evan Jones Coal Mine between 1920 and 1968, from a combination of open pit and underground mining, predominantly in the northern area of the current leases. Mining was suspended in 1968 when the mines’ main customers, military and civilian power plants in Anchorage, switched from coal to natural gas.

Limited exploration work was conducted between 1990 and 1997 and again in 2004. Drilling during these periods confirmed the presence of extensive, thick, high quality coal resources south of the historically mined area however no further mining was undertaken.

Geology

Coal-bearing rocks in the Jonesville area belong to the Paleocene to Eocene aged Chickaloon Formation, which is 1,000 to 1,500 metres thick. The main coal measures occur in the upper 500 metres of this formation. At the Jonesville project these coal measures are found from surface through to around 800 metres depth.

There are twelve coal seams of thickness greater than one metre at the Jonesville Coal Project. Of these, seams #3 and #5 both reach a maximum thickness of 7 metres, with seam #5 averaging 6 metres thickness and seam #3 averaging 4 metres thickness. The thickness of seven other coal seams averages greater than 1.5 metres, with seams #7b, #6 and the lower Shaw bed locally exhibiting thicknesses of 6 metres, 3 metres and 3 metres respectively.

Coal Quality

Coal at the Jonesville Coal Project is an excellent quality high volatile B bituminous rank. It has excellent steam or thermal combustion qualities and has been used in the past for power generation. Its heat content averages 10,400-13,400 Btu/lb. One of the coal’s key attributes is its low sulfur content (0.3-0.4%), making it valuable as a compliance coal.

Historically coal from the project has needed to be washed due to inherent clastic and middling partings.

JORC Compliant Resources

The Jonesville Coal Project hosts JORC compliant measured, indicated and inferred resources of 130.7Mt of coal. The breakdown of these resources by classification is presented in Table 1:

Table 1. JORC Code compliant resources at the Jonesville Coal Project.

The Company intends reassessing previous work and conducting further exploration prior to issuing a revised resource/reserve statement.

It is noted that from a mining and ore reserve perspective approximately 50% of the coal resources are hosted by seams that dip at greater than 20º. Special mining methodologies may need to be utilized in order to economically recover these resources.

The Company also has the right to reprocess tailings from the historic Evan Jones Coal Mine. It has been estimated previously that around 500,000 tonnes of clean coal could be recovered from tailings reprocessing within this area. The Company will conduct its own evaluation to determine whether this may be a viable opportunity to generate some cash flow in the short term.

Potential Markets

The high volatile B bituminous coal at the Jonesville Coal Project is an excellent thermal compliance grade coal and has been sold previously on this basis. Its low sulfur content makes it environmentally compliant and therefore attractive to many coal importation countries in the Pacific Rim.

The close proximity of Alaska to Pacific Rim countries that are heavily dependent on the importation of thermal coal, including South Korea, Japan, Taiwan and China, may make the potentially lower transportation costs from Alaska to these proximal countries attractive to buyers.

Leases and Permits

The Company has acquired two adjacent leases at the Jonesville Coal Project covering 1,450 acres. These leases give the Company the exclusive right to mine and explore for coal on these leases, as well as to reprocess coal tailings from the historic Evan Jones Coal Mine operation.

All permits are in place to conduct an extensive exploration drilling programme on the project. Permits are also in place to construct a box-cut and develop a trial underground mining operation. The recovery of up to 17,000 tons of coal from this trial mining operation has been approved. Permits are also in place to commence tailings reprocessing. Additional permits would be required to commence commercial scale mining.