V. A. French Geological Consultants Inc.
June 24, 1998
Mr. Bruce E. Costerd
President
Gallery Resources Limited
Suite 707, 626 West Pender Street
Vancouver, B.C.
V6B 1V9
Dear Mr. Costerd:
RE: Discovery Potential on the Okak Bay Project
This letter is an overview of the results of the geophysical surveys and diamond drilling on the Okak Bay project, to date, and how these results indicate a real potential for the discovery of economically important concentrations of base and precious metals. The recognition of this potential is principally based on the results of 1) the UTEM 4 (University of Toronto Electromagnetic) borehole probe survey completed to a depth of 4,915 feet, 2) the magnetotellurics survey completed last summer and 3) the intersection of the electrical anomaly(s) outlined by the 2 independent ground geophysical surveys, which coincides with and is contained within the 1.6 km diameter circular magnetic anomaly.
Probably of greatest importance is the intersection of 205 feet of low grade (uneconomical) nickel-copper mineralization and geochemically anomalous (weakly mineralized) gold-silver-cobalt mineralization. Although the metal values are well below economic thresholds, these base and precious metal contents are pervasive throughout the mineralized zone and the presence of 5 different minerals in the zone coupled with the width (or thickness) of the in-hole mineralization indicate that a significant mineralizing event was once operating in this area.
The polymetallic nature or 5 mineral assemblage defined by the assay results and the relatively wide intersection are suggestive of what is regarded by the industry as being a pregnant mineralizing system. The association of the 5 minerals occurring in drill core is not unique but is highly unusual in this geological environment. Deposits containing polymetallic mineralization can be the richest mines in the world, eg. the world class Buchans Mine, insular Newfoundland, contained greater than 20% total metal content and was Canada's richest polymetallic mine during its 50 year production life.
The exploration successes to date which include positive results from 4 totally independent geophysical surveys and the intersection of mineralization in the first hole drilled to the vertical depth of the mineralized zone demonstrate a potential for the discovery of significant concentrations of economic mineralization. The geophysical surveys include airborne magnetic (1995), ground magnetic (1996), deep penetrating magnetotelluric (1997) and borehole probe electromagnetic surveys (1997-1998) identifying coincident magnetic and electrical anomalies.
The following is an attempt to assess the potential based on 1) the results and scientific data obtained to date, 2) comparative with Voisey's Bay geology and mineralization, 3) quantitatively determining potential size based on dimensions indicated from the various geophysical surveys and 4) presenting probable economic values referencing estimates on size, mass and Voisey's Bay type grades.
The focus of exploration activities at the Okak Bay Project is a 1.6 kilometre (5250 feet) diameter circular magnetic anomaly outlined during an airborne survey conducted over the property in 1995. This magnetic anomaly which covers an approximate area of 450 acres or the equivalent of 80 city blocks contains a zone of electrical conductivity. This zone of coincident electrical conductivity has been outlined by both surface and borehole electromagnetic surveys conducted in 1997 and 1998.
The magnetotellurics surface survey in 1997 identified a zone of enhanced electrical conductivity within the magnetic anomaly and measuring 400 metres by 400 metres (1,312 feet square). The initial drill hole OK-M1 drilled into this electrical anomaly last fall intersected 205 feet (the height of a 20 storey building) of disseminated mineralization. This mineralization contained low grade enrichments in nickel, copper, silver, gold and cobalt. Because of the low grade mineralization which was below economic grades, further drilling was suspended and a down hole probe survey was completed in November, 1997. The results of this survey confirmed an off-hole (away from the hole) good quality conductor with an indicated width of 100 to 200 metres (330-660 feet).
The precise dimensions and direction of the conductive zone from the drill hole were not identified by the survey due to the technical specifications and surveying capabilities of the equipment employed. As a result a more technically advanced system was utilized during the first week of June to give more precise readings on the off hole anomaly. The preliminary results show the anomaly is located immediately west of Hole OK-M1 and that it has a vertical thickness of 260 metres (853 feet) or approximately the height of an 80 storey building. The off hole conductor appears to be an extension of the in hole mineralization and the electrical responses show a greater conductivity suggesting stronger mineralization. The survey also shows that the conductive zone has a strike or orientation approximately North indicating a rectangular or lense type geometry. Also the lower part of the conductor is much sharper than the upper part. This could suggest an accumulation of conductive metals in the bottom of the zone, which is consistent with gravitational settling heavy, metallic minerals such as nickel and copper in a large chamber; a very popular model used for explaining the deposition of economically important concentrations of nickel and copper rich ores.
The dimensions of the conductive zone outlined to date by the surface and borehole surveys including a length up to and possibly greater than 400 metres - 1,312 feet, a width up to 200 metres - 660 feet and a thickness up to or greater than 260 metres - 853 feet, demonstrate a potential for considerable tonnages. For example, a mineralized body measuring 1,312 ft in length x 660 ft in width x 853 ft in depth represents 738.63 million cubic feet or 27.36 million cubic yards. Based on a density factor of 2.1 tons per cubic yard this represents a real potential for 57.5 million tons of mineralized rock.
Voisey's Bay type grades ie. 3.5% nickel (70 lbs/ton), 2.0% copper (40 lbs/ton) and 0.20% cobalt (4 lbs/ton) and using June 3, 1998 prices (U.S.) for nicel $2.08/lb, copper $0.75/lb and cobalt $24.25/lb the Voisey's Bay type grades represent a gross metal value of $272.60 U.S. per ton ore. Therefore the potential at the Okak Bay zone, based on a mineral deposit containing 57.7 million tons of Voisey's Bay type mineralization could be for a deposit with a gross metal value of 15.7 billion U.S. dollars. (Note that the prices for nickel, copper and cobalt are cumulatively depressed approx. 25% and with a return to normal pricing levels the gross metal value would increase to 20.0 billion U.S. dollars.)
There are various scenarios re the potential size and grades, which could be contained within the Okak Bay target area. For example:
If the potentially mineralized area is only one-half the size (28.75 million tons) with Voisey's Bay grades it still represents 7.85 billion U.S. dollars of gross metal value, a value which can also be achieved by lowering the grades by 50% over the full extent of the potentially mineralized area, i.e. 57.5 million tons.
In fact, if the value of the mineralization is decreased substantially say down to 2 billion dollars U.S. which is one-eight of the assumed potential based on the dimensions indicated by the geophysical surveys it can still be economically viable. This viability is supported by its relative close proximity (60 miles) to the planned Voisey's Bay mill where the ore could possibly be processed under a royalty agreement. Also the potential gross metal value does not include any credits for the precious metals, gold and silver, mineralization which is continuous throughout the 205 feet of mineralization intersected in drill core. For example, assuming a gold content of 0.05 oz/ton ($14.65/ton) and silver content of 1 oz/ton ($5.19/ton) would add value of $19.84 U.S. per ton or an additional 1.14 billion dollars U.S. for 57.7 million tons.
In order to achieve an exploitable reserve status it is a requirement that the density or compactness of the mineralization would fit the criteria for underground mining. The top of the electrical conductor is 420 metres (1,380 feet) and well below feasible limits of developing an open pit mine. If an underground reserve is present then it is well within underground mining limits. (The Eastern Deeps Deposit at Voisey's Bay is at a depth of approximately 2,500 feet).
The Okak Bay project has withstood the test of three years of aggressive exploration work and stragieties employed by resource companies in the search for nickel-copper-cobalt rich ores. The intersection of 205 feet of consistently mineralized drill core at a depth of 1,605 to 1,810 ft in the first and only hole drilled into the mineralizaed zone strongly supports that the correct exploration techniques are being used by the company, particulary when there was absolutely no surface evidence for the large zone of subsurface, disseminated mineralization encountered in Hole OK-M1. More importantly it confirms the real potential for the discovery of Voisey's Bay type ores evidenced by the nickel-copper-cobalt-silver-gold mineralization contained over the entire 205 feet of mineralized drill core.
It is interesting to note that the geological features of the mineralized area occurring on the Okak Bay project, specifically mafic (iron rich) rocks, fault zones, alteration minerals, gangue (waste) minerals and main nickel-bearing pentlandite and copper-bearing chalcopyrite minerals observed in drill core are all typical of the Voisey's Bay Deposits. The intersection of 205 feet of mineralization in the first hole drilled to the depth at which the mineral bearing rocks are located should be viewed as an exploration success. It legitimatizes the investigations carried out to date and the recent results of the down hole survey rationalizes the need for further work to determine the extent and grade of the mineralization. The objective is to evaluate the potential for an economic deposit, which would be amenable to underground mining.
I believe that exploration developments to date demonstrate a real potential for discovery. Further diamond drilling appears to be justified and of course is an absolute necessity in determining an economic thresold.
Respectfully Submitted,
Victor A. French, M.Sc., P.Geo., F.G.A.C.
Exploration & Mining Consultant
Certificate of Qualifications
I, Victor French, of the Community of North River, in the Province of Newfoundland and Labrador, hereby certify that:
1. I am a Consulting Geologist with residence at the Conception Bay Highway, North River, Newfoundland and Labrador;
2. I am a graduate geologist holding a Bachelor of Science degree with a major in geology from Memorial University of Newfoundland (1982) and a Master of Science degree in geology from Acadia University (1985);
3. I am a Registered Professional Geoscientist, since March 8, 1990 with license (permit #207) to practice in Newfoundland and Labrador;
4. I am a Fellow of the Geological Association of Canada (Registration # 3709) since 1982;
5. I have practised my profession as a consulting geologist continuously since June, 1979 and prior thereto as a mine geologist (1965 - 1976) and junior geologist (1961 - 1964);
6. I am a member of the Association of Professional Engineers and Geoscientists of Newfoundland and Labrador, the Geological Association of Canada, the Newfoundland and Labrador Explorationists, the Canadian Institute of Mining and Metallurgy and the Prospectors and Developers Association of Canada;
7. I have no interest, either direct or indirect, nor do I expect to receive any interest in the properties or securities of Gallery Resources Limited;
8. I am the author of this report and the statements contained represent my professional observations and interpretations of the information available at the time of compiling this report.
Dated at Bay Roberts, Nfld this 24th day of June, 1998
Victor A. French, M.Sc., P.Geo., F.G.A.C.
Consulting Geologist
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