43-101 2008 Technical Report On The La Fortuna Project, Durango ...
43-101 2008 Technical Report On The La Fortuna Project, Durango ...
43-101 2008 Technical Report On The La Fortuna Project, Durango ...
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
TECHNICAL REPORT<br />
ON THE<br />
EL CASTILLO GOLD PROJECT,<br />
DURANGO, MEXICO<br />
FOR<br />
CASTLE GOLD CORPORATION.<br />
A.C.A. Howe International Limited<br />
Toronto, <strong>On</strong>tario<br />
Daniel C. Leroux, B.Sc., P.Geo<br />
Gordon Watts, P.Eng.<br />
W.D. Roy, M.A.Sc., P.Eng.<br />
<strong>Report</strong> #920<br />
Effective Date: July 31, <strong>2008</strong>
Effective Date: July 31, <strong>2008</strong><br />
<strong>Report</strong> Number: 920<br />
Client Reference:<br />
CASTLE GOLD CORPORATION.<br />
TECHNICAL REPORT ON THE EL CASTILLO GOLD<br />
PROJECT, DURANGO, MEXICO<br />
Authors:<br />
Daniel C. Leroux, B.Sc., P.Geo<br />
Vice President and Senior Geologist___________________________<br />
Gordon Watts, P.Eng.<br />
Associate Consulting Mining Engineer_________________________<br />
W.D. Roy, P.Eng.<br />
Associate Consulting Mining Engineer_______________________
SUMMARY<br />
Introduction<br />
At the request of Mr. Darren Koningen, Vice President Operations for Castle Gold Corporation (“Castle<br />
Gold”), A.C.A. Howe International Ltd, (“Howe”) has been retained to prepare an updated <strong>Technical</strong><br />
<strong>Report</strong> (“the <strong>Report</strong>”) which evaluates the mineral reserves and resources of the El Castillo Property<br />
located in <strong>Durango</strong>, Mexico (“the Property”) as a result of changes in gold prices, further exploration, the<br />
impact of the project going into production, and proposed increased production rates (subsequent to the<br />
2003 Howe report #850). This report incorporates the results of an updated NI <strong>43</strong>-<strong>101</strong> compliant mineral<br />
resource/ reserve estimate based on additional geoscientific and pre-production development work that has<br />
been completed at the El Castillo <strong>Project</strong> by Castle Gold.<br />
<strong>The</strong> new technical report is prepared according to the standards dictated by National Instrument <strong>43</strong>-<strong>101</strong><br />
and Form <strong>43</strong>-<strong>101</strong>F (Standards of Disclosure for Mineral <strong>Project</strong>s). Howe previously prepared two Pre-<br />
Feasibility <strong>Report</strong>s (Howe reports #845 and #850, dated September 2002 and January 2003 respectively)<br />
for the El Castillo project (“the Previous Howe <strong>Report</strong>s”) that was then known as the El Cairo project. In<br />
addition, and updated technical report was completed by Howe in 2006 (Howe report #897). Howe<br />
understands that Castle Gold will use this new report for reporting purposes.<br />
Property Location and History<br />
<strong>The</strong> El Castillo <strong>Project</strong> was a grass roots discovery that resulted from a regional exploration program<br />
initiated by Battle Mountain Gold in 1995 to explore for sub-one gram Au per tonne bulk tonnage targets.<br />
Stream sediment geochemical surveys conducted by Battle Mountain outlined a significant gold<br />
geochemical anomaly in the El Castillo area which led to a successful program of drilling that resulted in<br />
delineation of the El Castillo gold resource by Battle Mountain. Castle Gold acquired the Property in<br />
2002.<br />
<strong>The</strong> Property is located in the State of <strong>Durango</strong>, Mexico approximately 100 km north of the city of<br />
<strong>Durango</strong>. Access to the property is good with total driving time from <strong>Durango</strong> City varying between 1.5<br />
and 2.0 hours depending on traffic. <strong>The</strong> Property consists of four contiguous mining concessions totaling<br />
approximately 216.05 hectares (“Ha”). Castle Gold owns all four of these concessions outright. <strong>The</strong>re is<br />
a 2.0% Net Smelter Royalty on one of the concessions but that concession is located to the east of the<br />
known mineralized area and is not presently known to contain mineralization. Castle Gold also controls<br />
835 Ha of surface rights in the El Castillo area which is substantially larger than the area covered by<br />
Castle Gold’s mineral rights.<br />
Geology<br />
<strong>The</strong> Property lies within the Altiplano Subprovince of the Sierra Madre Occidental, a regionally extensive<br />
Eocene to Miocene volcanic field which extends southeast from the U.S-Mexico border into Central<br />
Mexico. <strong>The</strong> Sierra Madre Occidental is recognized as a gold-copper metallogenic province with<br />
potential for porphyry copper-gold mineralization and epithermal gold mineralization related to areas of<br />
Tertiary volcanic and subvolcanic intrusive activity. Gold mineralization on the Property is hosted by<br />
thinly-bedded volcaniclastic rocks of the Lower Volcanic Series and adjacent dacitic sills or dikes. <strong>The</strong><br />
mineralized zones have locally been oxidized to depths greater than 200 m below surface but an average<br />
depth is more in the order of 150 m. Mineralization occurs in a series of northwest-trending lenses up to<br />
150 m in length and 40 m in width.<br />
i
<strong>2008</strong> Howe Resource Reserve Estimate<br />
Revised mineral resources in the Measured + Indicated categories total 94 million tonnes with an average<br />
gold grade of 0.39g/tonne (1.18 million ounces). Inferred Resources total 4.5 million tonnes with an<br />
average gold grade of 0.38g/tonne (55,000 ounces). A cut-off grade of 0.15g/tonne Au was used to<br />
determine which blocks were to be included in the mineral resource. Refer to the following table.<br />
<strong>The</strong> 0.15 g/tonne Au cut-off was deemed to have economic potential for the purposes of open pit<br />
economic modeling. This cut-off is the same as the 0.15 g/tonne Au constraining interpretation cut-off in<br />
that it considers the possible overall operational cut-off grade. <strong>The</strong> 0.15 g/t Au cut-off was used to<br />
indicate which mineralization had the expectation of being economically viable at the internal operational<br />
cut-off.<br />
.<br />
ii
Castillo Remaining Mineral Resource Estimate as of October 2007<br />
Measured Indicated Meas + Ind Inferred<br />
Cut-off Tonnes Avg Tonnes Avg Tonnes Avg Tonnes Avg<br />
Grade Above Grade Above Grade Above Grade Above Grade<br />
(g/t) Cut-off (g/t) Ounces Cut-off (g/t) Ounces Cut-off (g/t) Ounces Cut-off (g/t) Ounces<br />
0.00 102,000,000 0.31 1,011,840 97,000,000 0.13 403,520 199,000,000 0.22 1,415,360 18,000,000 0.13 74,880<br />
0.05 93,000,000 0.33 982,080 67,000,000 0.18 385,920 160,000,000 0.27 1,368,000 10,000,000 0.23 73,600<br />
0.10 80,000,000 0.37 947,200 45,000,000 0.23 331,200 125,000,000 0.32 1,278,400 6,200,000 0.31 61,504<br />
0.15 65,400,000 0.<strong>43</strong> 899,904 28,900,000 0.30 277,440 94,300,000 0.39 1,177,344 4,500,000 0.38 54,720<br />
0.20 52,300,000 0.50 836,800 18,300,000 0.37 216,672 70,600,000 0.46 1,053,472 3,100,000 0.48 47,616<br />
0.25 41,900,000 0.57 764,256 11,800,000 0.45 169,920 53,700,000 0.54 934,176 2,300,000 0.58 42,688<br />
0.30 33,600,000 0.64 688,128 8,400,000 0.53 142,464 42,000,000 0.62 830,592 1,900,000 0.63 38,304<br />
0.35 27,100,000 0.71 615,712 6,100,000 0.61 119,072 33,200,000 0.69 734,784 1,800,000 0.65 37,440<br />
0.40 22,200,000 0.79 561,216 4,700,000 0.68 102,272 26,900,000 0.77 663,488 1,500,000 0.71 34,080<br />
0.45 18,300,000 0.87 509,472 3,900,000 0.74 92,352 22,200,000 0.85 601,824 1,300,000 0.74 30,784<br />
0.50 15,200,000 0.95 462,080 3,200,000 0.79 80,896 18,400,000 0.92 542,976 1,000,000 0.83 26,560<br />
0.60 11,000,000 1.11 390,720 2,300,000 0.89 65,504 13,300,000 1.07 456,224 840,000 0.88 23,654<br />
0.70 8,180,000 1.26 329,818 1,650,000 0.98 51,744 9,830,000 1.21 381,562 640,000 0.95 19,456<br />
0.80 6,270,000 1.42 284,909 1,150,000 1.09 40,112 7,420,000 1.37 325,021 580,000 0.97 18,003<br />
0.90 4,980,000 1.56 248,602 630,000 1.29 26,006 5,610,000 1.53 274,608 560,000 0.98 17,562<br />
1.00 4,040,000 1.71 221,069 490,000 1.39 21,795 4,530,000 1.67 242,864 220,000 1.07 7,533<br />
* Blocks under 0.15 g/tonne are not considered to be "Resources" and are included for information purposes only.<br />
Notes:<br />
• Base case is 0.15g/tonne Au;<br />
• Metal price used US$625/oz Au;<br />
• Assumed metal recovery based on previous metallurgical studies is 68%<br />
• Not all tonnage will be recovered in mining, nor will all metal be recovered in milling and processing<br />
iii
Howe <strong>2008</strong> Reserve Estimate<br />
Following the completion of the revised resource estimation, Howe completed a revised mineral reserve<br />
estimate for the El Castillo gold deposit.<br />
<strong>The</strong> overall procedure that was used to revise the mineral reserve estimate follows that used previously in<br />
the preceding 2006 Howe report (<strong>Report</strong> #897). Material changes including the use of revised unit costs<br />
and predicted gold price in the open pit mine planning process, and revision of the project’s capital and<br />
operating costs. <strong>The</strong> gold price is based primarily on the previous three years gold price, while the<br />
operating costs are based on Castle Gold’s current operating experience. <strong>Project</strong>ed capital costs are not<br />
large as El Castillo is now in production, and while an expansion to a production rate of 5 million tonnes<br />
of ore per year is forecast, most of the capital costs will be borne by outside contractors.<br />
<strong>The</strong> revised Measured and Indicated Mineral Resources for the El Castillo gold deposit are inclusive of<br />
those Mineral Resources modified to produce the revised Mineral Reserves. Inferred Mineral Resources<br />
are not included in the revised Mineral Reserves. Readers are reminded that mineral resources that are not<br />
mineral reserves do not have demonstrated economic viability.<br />
<strong>The</strong> revised mineral reserves have yet to be mined and remain in place as of October 2007.<br />
This study only addresses the excavation of the revised Measured and Indicated Mineral Resources. In<br />
accordance with NI <strong>43</strong>-<strong>101</strong>, Inferred Resources are included as waste when they occur within the open pit<br />
limits. <strong>The</strong> Howe <strong>2008</strong> geological block model described above was used for the pit optimization process<br />
with the Lerchs-Grossman optimization function within Microlynx mine planning software was used to<br />
determine the optimum pit shells for the following cost, revenue and mining parameters.<br />
Proven and Probable Mineral Reserves at the base case of $625 ($US per troy ounce – 3 year average)<br />
gold price totaled 46.8 million tonnes with an average gold grade of 0.50g/tonne Au (750,000 ounces).<br />
Inferred mineral resources occurring within the optimum pit outline totaled 100,000 tonnes with an<br />
average gold grade of 0.32g/tonne Au (1,000 ounces). This material would have to be mined and would<br />
be processed if the block grade was above the operating cut-off grade. However, this material is not<br />
considered to be a mineral reserve.<br />
Mineral reserves for this study were reported using a 0.15g/tonne Au operating cut-off grade. During the<br />
pit design process when one is determining whether a block will be mined and processed, an operational<br />
cut-off grade is used. This is the grade at which revenue exceeds mining and processing costs. For the<br />
base case, $625 gold price scenario, the operational cut-off grade was 0.22 grams Au per tonne.<br />
<strong>On</strong>ce the pit limit has been decided, it follows that everything within the pit must be mined. In other<br />
words, mining costs are sunk and the decision shifts to whether a mined block will be sent to the mill or to<br />
the waste pile. <strong>The</strong> processing cut-off grade is the grade at which revenue exceeds only the processing<br />
costs. For the base case, $625 gold price scenario, the processing cut-off grade was 0.15 grams per tonne.<br />
Blocks within the optimum pit with grades less than 0.15g/tonne Au would have to be mined, but would<br />
be considered as waste.<br />
<strong>The</strong> following tables are the undiluted reserves results of the pit optimization based on various gold prices<br />
from US$550, US$625 and US$700 per ounce While Howe has selected $625 as the “best estimate””<br />
long term gold price, it was considered necessary to follow industry practice and produce pits $75 above<br />
and below the base price to make sure that there were no impediments to lower or higher production pits<br />
should the forecast price scenario change.<br />
iv
Undiluted Reserves at $550 per Ounce Gold<br />
Overburden Tonnes 12,100,000<br />
Oxide Below 0.15 g/tonne* 11,100,000<br />
Subtotal, Waste Rock 23,200,000<br />
In-Pit Proven and Probable Reserves<br />
In-Pit Inferred Resources<br />
Cut-off Tonnes Average Cut-off Tonnes Average<br />
Grade Above Grade Grade Above Grade<br />
(g/tonne) Cut-off (g/tonne) Ounces (g/tonne) Cut-off (g/tonne) Ounces<br />
0.15 40,000,000 0.53 680,000 0.15 35,000 0.32 400<br />
Undiluted Reserves at $625 per Ounce Gold<br />
Overburden Tonnes 14,900,000<br />
Oxide Below 0.15 g/tonne* 13,300,000<br />
Subtotal, Waste Rock 28,200,000<br />
In-Pit Proven and Probable Reserves<br />
In-Pit Inferred Resources<br />
Cut-off Tonnes Average Cut-off Tonnes Average<br />
Grade Above Grade Grade Above Grade<br />
(g/tonne) Cut-off (g/tonne) Ounces (g/tonne) Cut-off (g/tonne) Ounces<br />
0.15 46,800,000 0.50 752,000 0.15 <strong>101</strong>,000 0.32 1,000<br />
Undiluted Reserves at $700 per Ounce Gold<br />
Overburden Tonnes 23,700,000<br />
Oxide Below 0.15 g/tonne* 19,600,000<br />
Subtotal, Waste Rock <strong>43</strong>,300,000<br />
In-Pit Proven and Probable Reserves<br />
In-Pit Inferred Resources<br />
Cut-off Tonnes Average Cut-off Tonnes Average<br />
Grade Above Grade Grade Above Grade<br />
(g/tonne) Cut-off (g/tonne) Ounces (g/tonne) Cut-off (g/tonne) Ounces<br />
0.15 58,400,000 0.46 870,000 0.15 131,000 0.30 1,300<br />
* This material must be mined but does not meet the processing cut-off.<br />
Mineral Processing and Metallurgical Testing<br />
Several metallurgical tests on mineralized oxidized material from the Property have been completed, both<br />
by Castle Gold and by independent groups between 2004 and 2006. <strong>The</strong> tests were designed to determine<br />
the leaching characteristics of the oxidized material and consisted of:<br />
• Bottle roll leach tests in 2004 and later column leach tests in 2006 by Kappes, Cassiday and<br />
Associates (“KCA”);<br />
• Two onsite bulk heap leach tests conducted by Castle Gold in 2005, followed by a residual<br />
analysis of the heaps conducted by Metcon Research (“Metcon”) in 2006.<br />
<strong>The</strong> data from the various tests have been reviewed and vetted by, D. Koningen, P.Eng, acting in the<br />
capacity of Castle Gold’s internal Qualified Person in matters of process engineering and metallurgy. Mr.<br />
Koningen is also a Director of Castle Gold. Presently Castle Gold is in the process of completing<br />
v
additional column and bottle roll tests designed to optimize leach performance and at the time of writing<br />
the results of these tests are pending.<br />
From the metallurgical testing completed to date the following conclusions are made:<br />
1. Ultimate gold recoveries from ROM ore material placed directly on the leach pad (no crushing)<br />
are in the 50-55% range;<br />
2. Crushing of material to
epresent an incremental increase in the project NCF of US$51.0 million when compared to the previous<br />
2006 Howe evaluation (A.C.A. Howe report 897). Since the mine is already in production and most of the<br />
investment capital has been sunk, the El Castillo project generates an infinite Internal Rate of Return.<br />
Likewise, the Payback Period is zero as Net Cash Flow is positive from Year <strong>On</strong>e on. <strong>The</strong> breakeven<br />
(after tax) gold price is approximately US$370/oz Au. <strong>The</strong> breakeven price includes recovery of all future<br />
capital investments and operating costs.<br />
<strong>The</strong> El Castillo <strong>Project</strong> contracts out a large amount of its operating costs including drilling, blasting,<br />
mining, truck haulage and crushing. Thus, the project will require very little capital to increase production<br />
to 5.0 million tonnes of ore per year. <strong>The</strong> breakeven gold price of $370 per ounce should be sufficiently<br />
low to protect El Castillo from a substantial drop in the price of gold. Thus Howe concludes the El<br />
Castillo <strong>Project</strong> is economically viable (criteria #1 that establishes that this is ore) and robust (under<br />
conservative operating scenarios).<br />
Conclusions<br />
• <strong>The</strong> Property contains a low-sulphidation epithermal gold system.<br />
• Castle Gold has carried out many of the recommendations given in the 2002 and 2003 Howe reports;<br />
principally column and bottle roll metallurgical testing, bulk leach testing, and core drilling for<br />
comparison with, and verification of, the Battle Mountain RC drilling assays.<br />
• <strong>The</strong> metallurgical testwork completed to date indicates that gold recoveries of between 68 and 72% are<br />
achievable by crushing 23-40% of the mine material to
Recommendations – Mining/Metallurgical<br />
• Castle Gold should continue to contract most of the mining/trucking operations to independent<br />
contractors.<br />
• Castle Gold should complete geotechnical evaluations to determine if a steeper pit wall angle can be<br />
utilized for mine design purposes (in order to reduce mine strip ratios).<br />
• Castle Gold should purchase and install a weight station in order to better control the amounts hauled<br />
and the costs incurred by mine contractors.<br />
• Castle Gold should continue to focus on opportunities to optimize the overall project economics by<br />
implementing various cost reduction and efficiency enhancing initiatives. <strong>The</strong>se activities should<br />
include:<br />
• Completion of plans to install a screening plant ahead of the crushing system in order to<br />
minimize the amount of material passing through the crushers (a contract operation)<br />
• Performing leach tests on numerous ore samples to better understand the variations in recoveries<br />
by rock/mineral types and optimal reagent additions;<br />
• Completing engineering evaluations of various project expansion scenarios in order to determine<br />
best combinations of capital costs and overall project cash flows;<br />
• Examining opportunities to “right size” present mining operations equipment fleet for maximum<br />
throughput and minimum operating costs;<br />
• Evaluating the possibility for use of ore transport conveyors versus trucking activities;<br />
• Assessing alternate future leach pad locations with respect to minimizing ore haulage distances.<br />
viii
TABLE OF CONTENTS<br />
1.0 INTRODUCTION .............................................................................................................................4<br />
1.1 General.........................................................................................................................................4<br />
1.2 Scope and Conduct ......................................................................................................................4<br />
1.3 Sources of Information ................................................................................................................5<br />
1.4 Disclaimer....................................................................................................................................5<br />
1.5 Units and Currency ......................................................................................................................6<br />
2.0 PROPERTY DESCRIPTION, LOCATION, ACCESSIBILITY, CLIMATE,<br />
PHYSIOGRAPHY, LOCAL RESOURCES AND INFRASTRUCTURE.............................................7<br />
2.1 PROPERTY DESCRIPTION AND LOCATION .......................................................................7<br />
2.1.1 Location................................................................................................................................... 7<br />
2.1.2 <strong>La</strong>nd Tenure ............................................................................................................................ 7<br />
2.1.3 Mexican Mining <strong>La</strong>w ............................................................................................................ 11<br />
2.2 ACCESSIBILITY, CLIMATE, PHYSIOGRAPHY, LOCAL RESOURCES AND<br />
INFRASTRUCTURE............................................................................................................12<br />
2.2.1 Accessibility .......................................................................................................................... 12<br />
2.2.2 Climate .................................................................................................................................. 12<br />
2.2.3 Physiography and Vegetation................................................................................................ 12<br />
2.2.4 Local Resources and Infrastructure....................................................................................... 12<br />
3.0 HISTORY.........................................................................................................................................15<br />
4.0 GEOLOGICAL SETTING.............................................................................................................16<br />
4.1 REGIONAL GEOLOGY...........................................................................................................16<br />
4.2 PROPERTY GEOLOGY...........................................................................................................17<br />
5.0 DEPOSIT TYPE..............................................................................................................................20<br />
6.0 MINERALIZATION.......................................................................................................................22<br />
7.0 EXPLORATION .............................................................................................................................25<br />
8.0 DRILLING.......................................................................................................................................26<br />
9.0 SAMPLING METHOD AND APPROACH .................................................................................27<br />
10.0 SAMPLE PREPARATION, ANALYSIS AND SECURITY.......................................................28<br />
10.1 SAMPLE PREPARATION AND ANALYTICAL PROCEDURES ON CORE SAMPLES...28<br />
11.0 DATA VERIFICATION.................................................................................................................29<br />
11.1 INTRODUCTION .....................................................................................................................29<br />
11.2 ANALYTICAL DATA CORROBORATION AND QUALITY ASSURANCE AND<br />
QUALITY CONTROL PROGRAM.....................................................................................29<br />
11.2.1 <strong>La</strong>boratories Used By Castle Gold for the Twin Drilling Program................................... 29<br />
11.2.2 PQ Hole Twinning Quality Assurance and Quality Control Program .............................. 29<br />
11.2.3 Howe 2002 Data Verification Sampling ........................................................................... 30<br />
12.0 ADJACENT PROPERTIES...........................................................................................................32<br />
13.0 MINERAL PROCESSING AND METALLURGICAL TESTING ...........................................33<br />
13.1 INTRODUCTION .....................................................................................................................33<br />
13.2 2004 KCA BOTTLE ROLL TESTS..........................................................................................33<br />
13.3 2005 CASTLE GOLD TEST HEAPS .......................................................................................34<br />
13.3.1 2006 Metcon Residual Analysis of the Heaps................................................................... 36<br />
13.4 2006 KCA COLUMN TESTS ...................................................................................................37<br />
13.5 CONCLUSIONS........................................................................................................................39<br />
14.0 MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES.......................................40<br />
14.1 Historical Mineral Resource Reserve Estimates........................................................................40<br />
14.2 <strong>2008</strong> Howe Resource and Reserve Estimate..............................................................................40<br />
14.2.1 Methods............................................................................................................................. 41<br />
1
14.2.2 Cut-off Grade .................................................................................................................... 41<br />
14.2.3 Results............................................................................................................................... 41<br />
14.2.4 Pit Optimization Parameters.............................................................................................. <strong>43</strong><br />
14.2.5 Results............................................................................................................................... <strong>43</strong><br />
14.2.6 Mine Plan and Schedule.................................................................................................... 46<br />
14.2.7 Comparison Between Howe 2003 and Howe <strong>2008</strong> Reserve Estimates ............................ 46<br />
15.0 OTHER RELEVANT DATA AND INFORMATION.................................................................48<br />
15.1 ENVIRONMENTAL CONSIDERATIONS .............................................................................48<br />
15.2 Environmental Permitting..........................................................................................................48<br />
15.2.1 Resolution on Environmental Impact ..................................................................................... 48<br />
15.2.2 Change of <strong>La</strong>nd Use ............................................................................................................... 49<br />
15.3 Closure and Rehabilitation Plans ...............................................................................................49<br />
16.0 ADDITIONAL REQUIREMENTS FOR TECHNICAL REPORTS ON DEVELOPMENT<br />
PROPERTIES AND PRODUCTION PROPERTIES ...........................................................................50<br />
16.1 EARLIER PROPOSED MINING PLANS................................................................................50<br />
16.1.1 Open Pit Parameters.......................................................................................................... 50<br />
16.2 FINANCIAL EVALUATION ...................................................................................................50<br />
16.2.1 Capital and Operating Cost Estimates............................................................................... 51<br />
16.2.2 Economic Evaluation ........................................................................................................ 60<br />
17.0 INTERPRETATIONS AND CONCLUSIONS.............................................................................63<br />
17.1 CONCLUSIONS........................................................................................................................63<br />
17.2 RECOMMENDATIONS...........................................................................................................63<br />
18.0 SOURCES OF INFORMATION.....................................................................................................65<br />
19.0 CERTIFICATES OF AUTHORS...................................................................................................67<br />
FIGURES<br />
Figure 1. El Castillo <strong>Project</strong> location map.....................................................................................................8<br />
Figure 2. Map showing mining concessions and surface leases....................................................................9<br />
Figure 3. Generalized geologic map of the El Castillo Property.................................................................18<br />
Figure 4. Cross-section through the El Castillo area...................................................................................19<br />
Figure 5. Diagram of the geologic environment for epithermal deposits....................................................20<br />
Figure 6. Coarse blank standard control chart.............................................................................................31<br />
Figure 7. Cumulative gold recovery versus leaching time (source: KCA; taken from Koningen, 2006). ..38<br />
PLATES<br />
Plate 1. Photograph of the El Castillo area, showing topography, vegetation and current open-pit bench<br />
development as of December 2007 (looking south)......................................................................14<br />
Plate 2. Mineralized thinly-bedded volcaniclastic rocks.............................................................................22<br />
Plate 3. Mineralized fractures in dacite porphyry. ......................................................................................23<br />
Plate 4. Chalcedonic silica cutting altered volcaniclastic rocks. .................................................................24<br />
Plate 5. Test pit #1.......................................................................................................................................34<br />
Plate 6. View of the El Castillo site facilities..............................................................................................39<br />
TABLES<br />
Table 1. Castle Gold concession titles for the El Castillo Property. .............................................................7<br />
Table 2. Surface rights under contract to Castle Gold.................................................................................10<br />
Table 3. Mining taxes in Mexico as of January 1, 2006.............................................................................11<br />
2
Table 4. Driving distances from <strong>Durango</strong> to the Property. ........................................................................12<br />
Table 5. Maximum precipitation in a 24 hour period (mm) for Primo de Verdad.....................................13<br />
Table 6. General stratigraphy of the El Castillo area. ................................................................................16<br />
Table 7. Repeat assays performed internally by ALS-Chemex...................................................................30<br />
Table 8. Data verification sample results from Howe’s 2002 site visit.......................................................31<br />
Table 9. Castle Gold test heap leach results and observations. ...................................................................35<br />
Table 10. Metcon gold-size fraction distribution of Heap 1 leached ore residue........................................36<br />
Table 11. Metcon gold-size fraction distribution of Heap 2 head ore and leached ore residue. .................36<br />
Table 12. Remaining Mineral Resources as of October 2007....................................................................42<br />
Table 13. Comparison of Howe 2003 and Howe <strong>2008</strong> Reserve Estimates................................................47<br />
Table 14. Ore – Waste Distribution and Average Gold Price – El Castillo ...............................................51<br />
Table 15. Operating Cost Summary (US$). ...............................................................................................53<br />
Table 16. Sensitivity Analysis....................................................................................................................56<br />
Table 17. Sensitivity Analysis – Graphical Representation ........................................................................57<br />
Table 18. <strong>Project</strong> Net Cash Flow at Selected Gold Prices .........................................................................57<br />
Table 19. Financial scenario at $625/oz Au ................................................................................................59<br />
Table 20. NPV differences at a 10% discount rate.....................................................................................60<br />
Table 21. Gold Price Chart (1995-<strong>2008</strong>).....................................................................................................60<br />
Table 22. Impact of Mine Schedule Optimization based on a 10% Discount Rate....................................61<br />
Table 23. US$ - Mexican Peso Exchange Rate Chart (1990-<strong>2008</strong>) ...........................................................62<br />
APPENDICES<br />
APPENDIX A US$625/oz Au Optimum Pit Shell Level Plans<br />
3
1.0 INTRODUCTION<br />
1.1 General<br />
At the request of Mr. Darren Koningen, (“Castle Gold”), A.C.A. Howe International Ltd, (“Howe”) has<br />
been retained to prepare a <strong>Technical</strong> <strong>Report</strong> (“the <strong>Report</strong>”) specific to the standards dictated by National<br />
Instrument <strong>43</strong>-<strong>101</strong> and Form <strong>43</strong>-<strong>101</strong>F (Standards of Disclosure for Mineral <strong>Project</strong>s) with respect to the El<br />
Castillo Property located in <strong>Durango</strong>, Mexico (“the Property”). Howe previously prepared a Pre-<br />
Feasibility <strong>Report</strong> (Howe reports #845 and #850, dated September 2002 and January 2003 respectively)<br />
for the El Castillo project that was then known as the El Cairo project. Castle Gold management renamed<br />
the project after a local prominent landmark. This updated report incorporates the results of an updated NI<br />
<strong>43</strong>-<strong>101</strong> compliant mineral resource/ reserve estimate based on additional geoscientific and pre-production<br />
development work that has been completed at the El Castillo <strong>Project</strong> subsequent to the 2003 Howe report<br />
(#850) by Castle Gold. Howe understands that Castle Gold will use this report for reporting purposes.<br />
Castle Gold was incorporated federally on August 28, 2007 in the province of <strong>On</strong>tario pursuant to an<br />
amalgamation agreement between Morgain Minerals Inc. (“Morgain”) and Aurogin Resources Ltd.<br />
(“Aurogin”) dated July 18, 2007. Upon completion of the amalgamation, Castle Gold acquired all of the<br />
assets and liabilities of Morgain and Aurogin respectively. <strong>The</strong> Company's principal place of business is<br />
80 Richmond Street, Suite 508, Toronto, <strong>On</strong>tario M5H 2A4, Canada. Castle Gold’s El Castillo <strong>Project</strong> is<br />
held by its wholly-owned subsidiary, Minera Real del Oro, S.A. de C.V. <strong>The</strong> Mexican subsidiary was<br />
incorporated on August 30, 1995 and is located at Negrete 1311-C, Col. Los Angeles, <strong>Durango</strong>, <strong>Durango</strong><br />
Mexico, CP 34070. In addition to the Property, Castle Gold also holds interests in the <strong>La</strong> <strong>Fortuna</strong> project,<br />
located in northern <strong>Durango</strong> Mexico, and the El Sastre Main Zone gold mine in Guatemala.<br />
Howe is an international geological and mining consulting firm that was incorporated in the province of<br />
<strong>On</strong>tario in 1966 and has continuously operated under a “Certificate of Authorization” to practice as<br />
Professional Engineers (<strong>On</strong>tario) since 1970 and as Professional Geoscientists (<strong>On</strong>tario) since 2006.<br />
Howe provides a wide range of geological and mining consulting services to the international mining<br />
industry, including geological evaluation and valuation reports on mineral properties. <strong>The</strong> firm’s services<br />
are provided through offices in Toronto, Canada and London, U.K.<br />
1.2 Scope and Conduct<br />
<strong>The</strong> <strong>Report</strong> was prepared by Mr. Daniel C. Leroux, B.Sc., P.Geo, Mr. Gordon Watts, P.Eng and Mr. W.D.<br />
Roy, M.A.Sc., P.Eng. Mr. Leroux has a Bachelors of Science degree in Geology and is a registered<br />
professional geoscientist with the Association of Professional Geoscientists of <strong>On</strong>tario (#0742) and the<br />
Association of Professional Engineers and Geoscientists of Saskatchewan (#10475). Mr. Leroux has a<br />
total of 18 years of direct experience with gold projects located in Canada, Africa, Central and South<br />
America, including managerial responsibilities for all various exploration stage gold projects from<br />
conceptual grassroots exploration projects to resource estimation and / or feasibility studies on advanced<br />
gold projects. Additional experience includes the completion of various National Policy 2A and NI <strong>43</strong>-<br />
<strong>101</strong> technical reports for gold projects worldwide.<br />
Mr. Watts is a P. Eng. with a Bachelor of Applied Science in Mining from the University of Toronto. Mr.<br />
Watts has over 36 years experience in mining exploration, mine operation, mine engineering, project<br />
evaluation, feasibility studies and financial evaluation.<br />
Mr. Roy has over 10 years of experience in the operations, engineering, and management of underground<br />
and open pit operations in Africa, South America and Canada. Mr. Roy has extensive experience in mine<br />
design, budgeting and cost control, due diligence, preparation of feasibility studies and technical<br />
qualifying reports.<br />
4
Castle Gold has accepted that the qualifications, expertise, experience, competence and professional<br />
reputation of Howe’s Principals and Associates are deemed appropriate and relevant for the preparation of<br />
the <strong>Report</strong>. Castle Gold has also accepted that Howe’s Principals and Associates are members of<br />
professional bodies that are appropriate and relevant for the preparation of this <strong>Report</strong>.<br />
Universal Trans-Mercator grid coordinates (“UTM”) are based on the NAD 27 datum. <strong>The</strong> Property is<br />
located in UTM zone 13.<br />
1.3 Sources of Information<br />
In preparing the <strong>Report</strong>, Howe reviewed available maps and cross-sections, company documentation and<br />
other public and private information as listed in the “Sources of Information” section at the end of this<br />
report. Howe has assumed that all of the information and technical documents reviewed and listed in the<br />
“Sources of Information” are accurate and complete in all material aspects. Howe has not been asked to<br />
verify mineral title, compliance with Mexican laws and regulations or the underlying inter-company<br />
agreements and title transfers. Though Howe has carefully reviewed the available information, Howe has<br />
not concluded any extensive independent investigation of the data.<br />
<strong>The</strong> volume of information available on the Property consists primarily of reports prepared by previous<br />
consultants and data prepared by previous property owner Battle Mountain Mining Company. Much of<br />
the historical and background information in the <strong>Report</strong> is from reports titled “Prefeasibility <strong>Report</strong>, El<br />
Cairo Gold <strong>Project</strong>, State of <strong>Durango</strong>, Mexico”, “Revised Prefeasibility <strong>Report</strong>, Higher Grade Scenario, El<br />
Cairo Gold <strong>Project</strong>, State of <strong>Durango</strong>, Mexico” , “<strong>Technical</strong> <strong>Report</strong> on the 2003 Diamond Drilling<br />
Program, El Cairo Gold <strong>Project</strong>, <strong>Durango</strong> State, Mexico” and “Prefeasibility <strong>Report</strong> El Castillo <strong>Project</strong>,<br />
<strong>Durango</strong>, Mexico” all prepared by Howe in 2002, 2003, 2004 and 2006 respectively, and; “Review of the<br />
El Cairo <strong>Project</strong>, <strong>Durango</strong>, Mexico”, “El Cairo Resource Estimate and Pit Optimization Study, <strong>Durango</strong>,<br />
Mexico” and “Updated El Cairo Resource Estimate and Pit Optimization Study, <strong>Durango</strong>, Mexico” all<br />
prepared by Resource Modeling Incorporated. All of these reports were prepared on behalf of Castle<br />
Gold’s predecessor Morgain.<br />
Mr. Leroux and Mr. Watts visited the El Castillo Gold <strong>Project</strong> on December 1, 2007. During this time<br />
they visited the current mining operations, reviewed the data available on-site and held discussions with<br />
Castle Gold management. Mr. Leroux and Mr. Watts were accompanied by Mr. Miguel Cardona – Chief<br />
Geologist and Mr. Pedro Delgado Ortiz Mine Manager for Castle Gold. In addition, Howe carried out<br />
discussions with Castle Gold’s management, in particular, Mr. Darren Koningen Vice-President -<br />
Operations. Howe’s extensive experience in the exploration and mining of gold deposits in Canada,<br />
Africa, and South America and prior investigations of other gold deposits throughout the world, was also<br />
drawn upon.<br />
<strong>The</strong> <strong>Report</strong> is based on information known to Howe as of March 1, <strong>2008</strong>.<br />
1.4 Disclaimer<br />
Castle Gold and its subsidiaries have warranted that full disclosure of all material information in its<br />
possession or control has been made to Howe. Castle Gold has agreed that neither it nor its associated<br />
companies will make any claim against Howe to recover any loss or damage suffered as a result of<br />
Howe’s reliance upon the information provided by Castle Gold or its proposed subsidiaries for use in the<br />
preparation of this <strong>Report</strong>. Castle Gold has also indemnified Howe against any claim arising out of the<br />
assignment to prepare this <strong>Report</strong>, except where the claim arises as a result of any proved willful<br />
misconduct or negligence on the part of Howe. This indemnity is also applied to any consequential<br />
extension of work through queries, questions, public hearings or additional work arising from Howe’s<br />
performance or engagement.<br />
5
Neither Howe nor the author of this <strong>Report</strong> (nor family members or associates) have any business<br />
relationship with Castle Gold or any associated company, nor with any company mentioned in this <strong>Report</strong>,<br />
which is likely to materially influence their impartiality or create a perception that the credibility of this<br />
<strong>Report</strong> could be compromised or biased in any way. <strong>The</strong> views expressed herein are genuinely held and<br />
deemed independent of Castle Gold.<br />
Moreover, neither Howe nor the authors of this <strong>Report</strong> (nor family members or associates) have any<br />
financial interest in the outcome of any transaction involving the Property other than the payment of<br />
normal professional fees for the work undertaken in the preparation of this <strong>Report</strong> (which is based upon<br />
hourly charge-out rates and reimbursement of expenses). <strong>The</strong> payment of such fees is not dependent upon<br />
the content or conclusions of either this <strong>Report</strong> or consequences of any proposed transaction.<br />
Castle Gold has reviewed draft copies of the <strong>Report</strong> for factual errors. Hence, the statement and opinions<br />
expressed in this document are given in good faith and in the belief that such statements and opinions are<br />
not false and misleading at the date of this <strong>Report</strong>.<br />
Howe’s opinion is provided solely for the purposes outlined in Section 1.1 of this <strong>Report</strong> and Howe<br />
consents to the use of the <strong>Report</strong> for this purpose. Howe reserves the right to, but will not be obligated to,<br />
revise this <strong>Report</strong> and conclusions thereto if additional information becomes known to Howe subsequent<br />
to the date of this report.<br />
1.5 Units and Currency<br />
All units of measurement used in this report are metric unless otherwise stated. Tonnages are reported as<br />
metric tonnes (“t”) and base metal values (copper, lead and zinc are reported in weight percent (“%”) or<br />
parts per million (“ppm”). Precious metals values (silver and gold) are recorded as grams per metric tonne<br />
(“g/t”). Other references to geochemical analysis are in ppm or parts per billion (“ppb”) as reported by the<br />
originating laboratories. Currency is expressed in US dollars unless stated otherwise. <strong>The</strong> exchange rate<br />
for the conversion of Mexican Pesos to US dollars is US$1 = 11 Pesos.<br />
6
2.0 PROPERTY DESCRIPTION, LOCATION, ACCESSIBILITY, CLIMATE, PHYSIOGRAPHY,<br />
LOCAL RESOURCES AND INFRASTRUCTURE<br />
2.1 PROPERTY DESCRIPTION AND LOCATION<br />
2.1.1 Location<br />
<strong>The</strong> Property is located in the State of <strong>Durango</strong>, Mexico approximately 100 km north of the city of <strong>Durango</strong><br />
at the approximate UTM coordinates of 2,751,115N and 547,460 (24 o 52’27” latitude and 104 o 31’48”<br />
longitude) (Figure 1). <strong>The</strong> elevation of the area containing the bulk of the known mineralization ranges<br />
from 1,720 m to 1,800 m above mean sea level.<br />
2.1.2 <strong>La</strong>nd Tenure<br />
<strong>The</strong> Property consists of four contiguous mining concessions totaling approximately 216.05 hectares (“Ha”)<br />
(Table 1 and Figure 2). <strong>The</strong> concessions are located in the municipality of San Juan del Rios in central<br />
<strong>Durango</strong>.<br />
Table 1. Castle Gold concession titles for the El Castillo Property.<br />
NAME OF TITLE AREA DATE OF EXPIRATION<br />
CONCESSION NUMBER (Ha) TITLE DATE<br />
OWNER<br />
El Cairo 220073 25.0000 5 June 2003 4 June 2053 Minera Real Del Oro S.A. de C.V.<br />
Justicia 220074 20.9000 5 June 2003 4 June 2053 Minera Real Del Oro S.A. de C.V.<br />
El Cairo 220075 95.1487 5 June 2003 4 June 2053 Minera Real Del Oro S.A. de C.V.<br />
El Oro 220076 75.0000 5 June 2003 4 June 2053 Minera Real Del Oro S.A. de C.V.<br />
TOTAL 216.0487<br />
2.1.2.1 Mineral Rights<br />
Castle Gold owns all four of these concessions outright. <strong>The</strong> smaller of the two El Cairo concessions (title<br />
number 220073) was acquired from the Mexican government in a lottery for the cost of entry in the lottery,<br />
which is minimal.<br />
<strong>The</strong> larger El Cairo concession (title number 220075) was acquired on 12 June 2004 from Explominerals<br />
S.A. de C.V. for a one-time payment of US$ 20,000, 500,000 shares in Castle Gold and a 2.0% Net Smelter<br />
Royalty. This concession is located to the east of the known mineralized area and is not presently known to<br />
contain mineralization.<br />
<strong>The</strong> El Oro and Justicia concessions were acquired on 5 November 2004 from five individuals: Eduardo<br />
Núñez Medina, Pedro Fraga Medina, Roberto Sitten Ayala, Rafael Fernando Gutiérrez Badilla and Luis<br />
Antonio Martínez Macias. Payments totaling US$255,150 were made to these individuals in 2002 and<br />
2003. A payment of US$201,750 was made upon signing followed by three payments of US$330,026.40<br />
on 30 March 2005, US$330,026.40 on 30 September 2005 and US$527,947.20 on 30 March 2006. Castle<br />
Gold reports that all payments have been made and that they now own all concessions outright, subject to<br />
the 2% NSR on the larger El Cairo concession (title number 220075).<br />
2.1.2.2 Surface Rights<br />
Castle Gold also controls 835 Ha of surface rights in the El Castillo area (Table 2) (Figure 2). This is<br />
substantially larger than the area covered by Castle Gold’s mineral rights and overlaps onto mineral rights<br />
controlled by Compñía Minera <strong>La</strong> Parreña S.A. de C.V., a subsidiary of Industrias Peñoles. At the present<br />
time, Castle Gold is planning to install mine infrastructure (at least one leach pad) on ground for which they<br />
control the surface rights but not the mineral rights.<br />
7
Figure 1. El Castillo <strong>Project</strong> location map.<br />
8
Figure 2. Map showing mining concessions and surface leases.<br />
9
Castle Gold is within their rights to do this since they control the surface but potential conflicts could arise<br />
at a later date if the owner of the mineral rights elects to conduct exploration in the area occupied by the<br />
leach pad.<br />
Table 2. Surface rights under contract to Castle Gold.<br />
SURFACE OWNER<br />
AREA UNDER<br />
LEASE<br />
(Ha)<br />
EFFECTIVE<br />
PERIOD<br />
DATE<br />
EFFECTIVE<br />
EXPIRATION<br />
DATE<br />
Ejido Atotonilco 108 15 Years 20 June 2005 19 June 2020<br />
Ejido Otillo Moñtano 200 15 Years 10 March 2005 9 March 2020<br />
Gerónimo Gandara Gandara 377 1 15 Years 23 March 2005 22 March 2020<br />
José Guadalupe Gallegos 150 15 Years 10 March 2005 9 March 2020<br />
TOTAL 835<br />
2.1.2.2.1 Ejido Atotonilco<br />
Castle Gold has leased 108 Ha from the Ejido Atotonilco on 20 June 2005 for a period of 15 years. Under<br />
the terms of the agreement, Castle Gold must pay a total of MX$500,000 (US$44,695). MX$250,000<br />
were paid on 14 June 2005 and MX$250,000 were paid on 20 June 2005.<br />
2.1.2.2.2 Ejido Otillo Moñtano<br />
Castle Gold leased 200 Ha from the Ejido Otillo Moñtano on 10 March 2005 for a period of 15 years.<br />
Under the terms of the agreement, Castle Gold paid a total ofMX$1,500,000 (US$134,085). MX$750,000<br />
were paid on 10 March 2005 and MX$750,000 was scheduled to be paid on 10 March 2006 but that<br />
payment has been deferred until Castle Gold receives title from the ejido.<br />
2.1.2.2.3 Gerónimo Gandara Gandara<br />
Castle Gold leased 377 Ha 1 from Señor Gandara on 23 February 2005 for a period of 15 years for annual<br />
payments of MX$1,300,000 (US$116,207). An initial payment of MX$4,000,000 (US$357,560) was<br />
made upon signing. This payment consists of advance payment for three years (MX$1,300,000 per year<br />
plus an additional MX$100,000 (US$8,939) applicable to the fourth, or <strong>2008</strong>, payment). <strong>On</strong> 1 March<br />
2006 a payment of MX$500,000 was made as partial advance payment of the fourth year payment (<strong>2008</strong>)<br />
with the balance of MX$700,000 (adjusted for inflation) due on 1 March <strong>2008</strong>. From 2009 through 2019,<br />
Castle Gold is required to make payments of MX$1,300,000 (adjusted for inflation) on 1 March of each<br />
year. In addition to these payments, Castle Gold paid MX$330,000 as part of a verbal agreement with Sr.<br />
Gandara for surface access prior to signing the present agreement. Total lease amount for the Gandara<br />
lease is approximately MX$19,830,000 (US$1,772,604). Castle Gold has the right to terminate the<br />
agreement at any time.<br />
2.1.2.2.4 José Guadalupe Gallegos<br />
Castle Gold leased 150 Ha from Señor Gallegos on 10 March 2005 for a period of 15 years for annual<br />
payments of MX$90,000. Castle Gold made four years advance payment in the form of MX$180,000<br />
(US$16,090) upon signing and MX$180,000 on 16 march 2005 as four years advance. Beginning in<br />
<strong>2008</strong>, Castle Gold must pay MX$90,000 (adjusted for inflation) per year until the term of the lease expires<br />
in 2019. Total lease amount for the Gallegos lease is approximately MX$13,500,000 (US$1,206,765).<br />
Castle Gold has the right to terminate the agreement at any time.<br />
1 <strong>The</strong> original lease agreement shows the Gerónimo Gandara Gandara lease to be 599 Ha in area. Howe was informed by Castle<br />
Gold’s predecessor company, Morgain that the area is, in fact, 377 Ha, and that all involved parties have a tacitly agreed to this<br />
(Chris Babcock per. comm.). <strong>The</strong> lease agreement between Morgain and Señor Gandara however has not been corrected to show<br />
this.<br />
10
2.1.2.3 Property Taxes<br />
<strong>The</strong> property taxes for the Property for 2007 are MX$3,932 or US$352. This amount will increase to<br />
MX$3,932 or US$352 in <strong>2008</strong>. Because of the small size of the concessions that comprise the El Castillo<br />
<strong>Project</strong>, there is no associated work commitment.<br />
2.1.3 Mexican Mining <strong>La</strong>w<br />
Mineral exploration and mining in Mexico is regulated by the Mining <strong>La</strong>w of 1992, which establishes that<br />
all minerals found in Mexican territory are owned by the Mexican nation, and that private parties may<br />
exploit such minerals (except oil and nuclear fuel minerals) through mining licenses, or concessions,<br />
granted by the Federal Government<br />
<strong>On</strong> April 29, 2005 the Mexican Congress published several amendments to the Mining <strong>La</strong>w of 1992.<br />
According to these amendments, the exploration and exploitation concessions were replaced by a single<br />
concession type, the mining concession, which gives the holder both exploration and exploitation rights,<br />
subject to the payment of relevant taxes. Old exploration and exploitation concessions were automatically<br />
transformed into mining concessions with a single term of 50 years from the date the concession was first<br />
registered at the Public Registry of Mines. Accordingly, exploration concessions that were originally<br />
issued for a term of 6 years now have a term of 50 years from the date the exploration concession was<br />
originally registered. Under the new amendments, the concession holder has all the rights previously<br />
granted for an exploitation concession under the old law.<br />
Concessions may be granted to (or acquired by, since they are freely transferable) Mexican individuals,<br />
local communities with collective ownership of the land known as ejidos and companies incorporated<br />
pursuant to Mexican law, with no foreign ownership restrictions for such companies. While the<br />
Constitution makes it possible for foreign individuals to hold mining concessions, the Mining <strong>La</strong>w does<br />
not allow it. This means that foreigners wishing to engage in mining in Mexico must establish a Mexican<br />
corporation for that purpose, or enter into joint ventures with Mexican individuals or corporations.<br />
Maintenance obligations which arise from a mining concession, and which must be kept current to avoid<br />
its cancellation are the performance of assessment work, the payment of mining taxes (Table 3) and the<br />
compliance with environmental laws. <strong>The</strong> Regulations of the Mining <strong>La</strong>w establish minimum amount of<br />
assessment work that must be performed during the exploration in the case of exploration concessions or<br />
exploration and/or exploitation work, in the case of exploitation concessions<br />
(http://www.smvv.com.mx/art3.htm). Because of the recent changes in the mining law, new payment<br />
schedules for assessment work are being developed and are not available for inclusion in this report.<br />
Table 3. Mining taxes in Mexico as of January 1, 2006.<br />
Years<br />
Payment per Hectare<br />
(Mx$)<br />
Payment per Hectare*<br />
(US$)<br />
1 - 2 4.42 0.40<br />
3 - 4 6.61 0.60<br />
5 - 6 13.68 1.24<br />
7 - 8 27.51 2.50<br />
9 – 10 55.01 4.99<br />
After 10 96.83 8.79<br />
*Based on an exchange rate of 1 Mexican peso = 0.09088 US dollars on<br />
March 1, <strong>2008</strong>.<br />
11
2.2 ACCESSIBILITY, CLIMATE, PHYSIOGRAPHY, LOCAL RESOURCES AND<br />
INFRASTRUCTURE<br />
2.2.1 Accessibility<br />
Access to the property is good with total driving time from <strong>Durango</strong> City varying between 1.5 and 2.0<br />
hours depending on traffic. Driving distance to the Property is 117 km (measured from the center of<br />
<strong>Durango</strong>). <strong>The</strong> first 111 km are paved and the final six km consist of well-maintained gravel road.<br />
Driving distances are shown in Table 4.<br />
Table 4. Driving distances from <strong>Durango</strong> to the Property.<br />
Distance Road Surface<br />
<strong>Durango</strong> to the Coneto Comonfort road<br />
(National Highway 45)<br />
100 km Paved<br />
Intersection of National Highway 45 and<br />
Coneto Comonfort road to Property access<br />
11 km Paved<br />
Well-maintained gravel access road 6 km Gravel<br />
2.2.2 Climate<br />
El Castillo is situated in a zone classified as semi-dry and receives an average annual rainfall of 550.5<br />
mm. <strong>The</strong> climate is temperate with an average annual temperature of 18º and maximum temperatures<br />
reach 35º C and minimum temperatures 2º C (CNEMSG, 1988). <strong>The</strong> region averages 17 frost events per<br />
year beginning in October and extending to April. Dominant wind direction is from northwest to<br />
southeast and the rainy season is from June through to August, minimal rainfall occurs from September to<br />
May.<br />
Table 5 provides rainfall information that will be useful during planning of the El Castillo heap leach<br />
facilities. Maximum rainfall (in millimeters) during a 24-hour period is broken down on a monthly basis<br />
for the period 1948-2000 for the climatological station at San Juan del Rio is only 15 km east of the El<br />
Cairo property at similar elevation and in a similar geographic setting.<br />
2.2.3 Physiography and Vegetation<br />
<strong>The</strong> area is characterized by large alluvial terraces dissected by small streams resulting in up to 300 m of<br />
relief in the area. <strong>The</strong> elevations near the village of Atotonilco the central valley is approximately 1,700<br />
m above mean sea level (“amsl”) while the top of the mesa in the vicinity of the El Castillo where the<br />
proposed pit and plant would be located is at an elevation of 1,800 m amsl.<br />
Vegetation consists of small trees, bushes and cacti (Plate 1).<br />
2.2.4 Local Resources and Infrastructure<br />
Power and water are available in the area. Castle Gold reports that a 400 Kva power line is present in<br />
Coneto Comonfort, some 16 km distant and a limited supply of water is available from a reservoir located<br />
2.5 km from the project site. <strong>The</strong> remainder of the water required for a mining operation will have to<br />
come from wells to be drilled in nearby valleys. Limited cellular phone service is available on the<br />
Property.<br />
<strong>The</strong> area covered by Castle Gold’s mineral rights is small. However, as discussed in Section 0, Castle<br />
Gold controls a large area of surface rights and this area is adequate for the development of mining<br />
facilities.<br />
12
Table 5. Maximum precipitation in a 24 hour period (mm) for Primo de Verdad.<br />
Year Jan. Feb. Mar. April May June July Aug. Sept. Oct. Nov. Dec. MAX<br />
1948 0.0 0.0 0.0 1.5 10.0 29.5 16.0 18.5 47.0 35.0 7.0 0.0 47.0<br />
1949 1.5 5.0 0.0 0.0 5.0 24.0 24.0 18.5 2.0 14.0 0.0 15.0 24.0<br />
1950 0.0 0.0 0.0 0.0 0.0 2.0 22.0 47.0 24.0 0.0 0.0 0.0 47.0<br />
1951 0.0 0.0 8.5 0.0 0.0 48.0 50.0 54.0 30.0 20.0 0.0 6.0 54.0<br />
1952 0.0 0.0 0.0 10.0 0.0 54.0 50.5 16.0 0.0 5.2 0.0 5.0 54.0<br />
1953 0.0 20.0 3.0 0.0 17.0 7.0 9.0 22.0 15.0 20.0 20.0 20.0 22.0<br />
1954 0.0 0.0 0.0 2.0 0.0 18.0 23.0 27.0 6.0 0.0 0.0 0.0 27.0<br />
1955 12.0 0.0 0.0 0.0 1.0 14.0 37.0 37.0 0.0 53.0 7.0 0.0 53.0<br />
1956 0.0 0.0 0.0 10.0 40.0 10.0 12.0 23.0 19.0 0.0 13.0 0.0 40.0<br />
1957 0.0 0.0 0.0 0.0 10.0 0.0 11.0 12.0 23.0 31.0 0.0 31.0<br />
1959 0.0 0.0 0.0 6.0 6.0 7.0 13.0 47.0 6.0 15.0 15.0 2.0 47.0<br />
1960 3.0 0.0 0.0 0.0 20.0 12.0 28.0 111.0 35.0 16.0 0.0 5.0 111.0<br />
1961 8.0 0.0 0.0 5.0 15.0 45.0 39.0 16.0 17.0 15.0 3.0 3.0 45.0<br />
1962 3.0 0.0 0.0 0.0 0.0 25.0 37.0 22.0 15.0 11.0 0.0 9.0 37.0<br />
1963 2.0 0.0 0.0 17.0 6.0 20.0 15.5 35.0 23.0 20.0 6.0 3.0 35.0<br />
1964 8.0 5.0 2.0 0.0 40.0 24.0 15.0 25.0 35.0 4.0 8.0 3.0 40.0<br />
1965 13.0 10.0 0.0 5.0 0.0 32.0 22.0 15.5 16.5 4.0 2.0 6.5 32.0<br />
1966 0.0 2.0 4.0 7.0 7.0 25.0 55.5 33.0 30.0 20.0 0.0 2.0 55.5<br />
1967 4.0 1.0 6.0 0.0 3.0 27.0 45.0 25.0 13.0 80.0 0.0 5.0 80.0<br />
1968 6.0 4.0 20.0 5.0 7.0 18.0 22.0 20.0 32.0 11.0 10.0 18.0 32.0<br />
1969 8.0 0.0 0.0 0.0 1.5 0.0 45.0 25.5 28.0 1.0 6.0 6.0 45.0<br />
1970 0.0 24.0 4.0 0.0 3.0 34.0 34.0 10.0 85.0 35.5 0.0 0.0 85.0<br />
1971 0.0 0.0 0.0 2.0 20.0 25.0 48.0 35.0 22.0 22.0 0.0 5.0 48.0<br />
1972 3.0 0.0 0.0 0.0 20.0 22.0 16.0 60.0 31.0 17.0 26.0 0.0 60.0<br />
1973 8.0 7.0 0.0 0.0 7.0 22.5 42.0 50.0 26.0 4.0 0.0 15.0 50.0<br />
1974 0.0 0.0 4.0 17.0 15.0 0.0 20.0 16.0 27.0 16.0 5.0 8.0 27.0<br />
1975 0.0 0.0 0.0 0.0 0.0 11.0 70.0 20.0 6.5 30.0 0.0 16.0 70.0<br />
1976 2.0 0.0 0.0 5.5 2.0 20.0 46.0 15.0 53.0 17.5 0.0 0.0 53.0<br />
1977 0.0 0.0 0.0 6.0 0.0 26.0 26.5 25.0 33.0 17.0 0.0 0.0 33.0<br />
1978 0.0 0.0 0.0 0.0 2.0 17.5 28.0 30.0 31.0 6.0 4.0 0.0 31.0<br />
1979 4.5 8.0 0.0 0.0 0.0 27.0 30.0 35.0 8.0 0.0 8.0 4.0 35.0<br />
1980 0.0 6.0 0.0 0.0 0.0 8.0 13.0 38.0 22.0 16.0 0.0 0.0 38.0<br />
1981 36.0 6.0 0.0 15.0 0.0 45.0 25.0 42.0 70.0 22.0 0.0 40.0 70.0<br />
1982 0.0 0.0 0.0 0.0 0.0 5.5 30.0 8.0 9.5 0.0 34.0 20.0 34.0<br />
1983 12.0 0.0 0.0 0.0 24.0 15.0 20.0 15.5 56.5 14.0 0.0 56.5<br />
1984 40.0 0.0 0.0 0.0 6.0 32.0 24.5 6.0 8.0 20.0 0.0 0.0 40.0<br />
1985 35.0 4.5 0.0 0.0 16.0 35.0 20.0 22.0 50.0 10.5 0.0 14.0 50.0<br />
1986 0.0 3.0 0.0 10.5 16.0 25.0 13.0 20.0 45.0 8.5 10.5 14.5 45.0<br />
1987 0.0 8.0 0.0 8.0 13.0 28.0 31.0 60.0 20.0 0.0 0.0 5.0 60.0<br />
1988 0.0 0.0 0.0 0.0 0.0 20.0 31.0 25.0 11.0 4.0 0.0 15.0 31.0<br />
1989 0.0 0.0 0.0 0.0 11.0 2.0 1.9 12.0 19.0 8.0 31.0 6.0 31.0<br />
1990 9.0 0.0 1.0 0.0 2.0 11.0 29.0 29.0 34.0 20.0 0.0 0.0 34.0<br />
1991 0.0 4.0 0.0 0.0 0.0 7.0 32.0 44.0 22.0 17.0 33.0 14.0 44.0<br />
1992 21.0 7.0 1.4 14.0 8.0 7.0 29.0 6.0 3.0 1.0 0.0 29.0<br />
1993 0.1 0.0 0.0 0.0 0.5 7.0 20.0 10.0 30.0 25.0 12.0 0.0 30.0<br />
1994 0.0 0.0 7.0 1.0 0.0 20.0 15.0 16.0 9.0 32.0 3.0 6.0 32.0<br />
1995 0.0 0.0 0.0 0.0 0.0 14.0 30.0 40.0 8.0 0.0 2.0 0.0 40.0<br />
1996 5.0 0.0 0.0 0.0 10.0 24.0 13.0 40.0 35.0 56.0 0.0 6.0 56.0<br />
1997 9.0 0.0 15.0 15.5 11.0 15.0 13.0 12.0 3.0 0.0 15.5<br />
1998 0.0 0.0 0.0 0.0 0.0 24.0 34.0 40.0 14.5 15.0 1.5 0.0 40.0<br />
1999 0.0 0.0 0.0 1.0 0.0 46.5 40.0 10.5 14.5 0.0 0.5 1.0 46.5<br />
2000 0.0 1.0 0.0 2.0 20.0 50.0 16.5 25.5 47.1 12.0 7.5 0.0 50.0<br />
2001 0.0 0.0 14.0 7.5 2.0 21.5 22.5 20.0 21.0 3.0 2.0 22.5<br />
MAX 40.0 24.0 20.0 17.0 40.0 54.0 70.0 111.0 85.0 80.0 34.0 40.0<br />
13
<strong>The</strong> village of Atotonilco, is located about 6 km from the Property and has a small supply of unskilled<br />
labor (± 150 inhabitants). <strong>The</strong> town of San Juan del Rio is located approximately 15 km from the<br />
Property and it has a slightly larger supply of unskilled labor (± 2,500 inhabitants) as well as a limited<br />
supply of housing. Some basic supplies are available in San Juan del Rio while most supplies and some<br />
contractors for construction and mining are available in <strong>Durango</strong>.<br />
<strong>Durango</strong> is a major regional population center with approximately 500,000 inhabitants. <strong>The</strong>re are daily<br />
flights to <strong>Durango</strong> from Mexico City and Mazatlán. Both Mexico City and Mazatlán have daily air<br />
connections to major cities in North America.<br />
Plate 1. Photograph of the El Castillo area, showing topography, vegetation and current open-pit bench<br />
development as of December 2007 (looking south).<br />
14
3.0 HISTORY<br />
<strong>The</strong> El Castillo <strong>Project</strong> is a grass roots discovery that resulted from a regional exploration program<br />
initiated by Battle Mountain Gold in 1995 to explore for sub-one gram Au per tonne bulk tonnage targets.<br />
Battle Mountain was taken over by Newmont in 2000 and Newmont decided that the El Castillo was too<br />
small to meet their corporate requirements. Newmont completed a modest program of site reclamation<br />
(replanting drill pads, and recontouring and replanting some of the drill roads) and turned the property<br />
back to the Government of Mexico.<br />
Initial regional work by Battle Mountain involved interpretation of satellite imagery, regional geophysical<br />
data and regional geological mapping. A number of areas were selected on the basis of the regional<br />
studies, one of which was the El Castillo project area. Subsequent stream sediment geochemical surveys<br />
outlined a significant gold geochemical anomaly in the El Castillo area which led to a successful program<br />
of drilling that resulted in delineation of the El Castillo gold resource by Battle Mountain.<br />
Battle Mountain completed 207 reverse-circulation (“RC”) holes and six diamond drillholes (twins of six<br />
RC holes) within the El Castillo project area. This drillhole data has provided the basis for Howe’s<br />
evaluation of the resource and reserve potential of the El Castillo deposit.<br />
Battle Mountain (Schumacher 1999) completed a resource estimate, scoping study, preliminary mine plan<br />
and reserve estimate that indicated the potential for a viable mining operation with similarities to Hecla’s<br />
<strong>La</strong> Choya deposit in northern Mexico.<br />
Castle Gold acquired the Property in 2002. Work completed by Castle Gold includes six twin diamond<br />
drillholes, air-track drilling, rock ship sampling and bulk metallurgical testing. This 2006 work will be<br />
described in the following sections of the report.<br />
15
4.0 GEOLOGICAL SETTING<br />
4.1 REGIONAL GEOLOGY<br />
<strong>The</strong> Property lies within the Altiplano Subprovince of the Sierra Madre Occidental (“SMO”) (Consejo de<br />
Recursos Minerales, 1993). <strong>The</strong> SMO is a regionally extensive Eocene to Miocene volcanic field, which<br />
extends southeast from the U.S-Mexico border to Central Mexico. <strong>The</strong> Altiplano Subprovince is on the<br />
east flank the SMO and is comprised of Jurassic to <strong>La</strong>te Tertiary sedimentary and volcanic rocks.<br />
<strong>The</strong> oldest rocks in the El Castillo region are <strong>La</strong>te Cretaceous siltstones, sandstones and limestones of the<br />
Indidura and Caracol formations (Table 6), which, crop out in the incised stream valleys at El Castillo.<br />
<strong>The</strong>se sedimentary rocks commonly occur as small windows in the younger volcanics and further east as<br />
prominent northwest-trending ranges. This sedimentary sequence is unconformably overlain by a thick<br />
package of Tertiary volcanic rocks, which characterizes the SMO. <strong>The</strong> package is comprised of an older<br />
andesite-dominated series and a younger pyroclastic-dominated rhyolite series. <strong>The</strong> traditional<br />
nomenclature refers to these as the “Serie Volcanica Inferior” (Lower Volcanic Series), and the “Serie<br />
Volcanica Superior” (Upper Volcanic Series) respectively.<br />
<strong>The</strong> Lower Series in the SMO reaches a thickness of 1,000 m and is dominated by Paleocene and Eocene<br />
andesitic lava and pyroclastic rocks with interbedded volcaniclastic strata. Extensive outcroppings of this<br />
andesite unit are located near San Lucas de Ocampo, approximately 20 km southwest of El Castillo. <strong>The</strong><br />
Lower Series is cut by calc-alkaline intrusives that typically occur as dacite-rhyodacite domes, sills and<br />
dykes. <strong>The</strong>se intrusive units are exposed in the road cuts at El Castillo and in a large dome field near the<br />
village of San Agustín. <strong>The</strong> Upper Series unconformably overlies the Lower Series and is up to 1,000 m<br />
thick. <strong>The</strong> Upper Series forms a regionally extensive cap throughout the SMO and is dominated by<br />
Oligocene and Early Miocene dacite-rhyolite pyroclastic strata. Precious metal deposits are abundant in<br />
the Lower Series, however, the Upper Series is mostly devoid of precious metal mineralization with the<br />
exception of the Cienaga Mine, operated by Peñoles, in northwestern <strong>Durango</strong>.<br />
Table 6. General stratigraphy of the El Castillo area.<br />
ERA PERIOD EPOCH ROCK TYPE FORMATION<br />
Alluvium<br />
RECENT<br />
QUATERNARY<br />
Volcanic agglomerate<br />
PLEISTOCENE Basalt Metates<br />
PLIOCENE<br />
Upper Series<br />
TERTIARY MIOCENE Rhyolite, ignimbrites<br />
Volcanics<br />
OLIGOCENE Rhyolite tuff<br />
Upper Series<br />
Volcanic<br />
EOCENE<br />
Andesite, porphyritic with Lower Series<br />
hornblende<br />
Volcanics<br />
CENOZIOC<br />
PALEOCENE<br />
Andesite<br />
Lower Series<br />
Volcanic<br />
MESOZOIC<br />
CRETACEOUS<br />
Siltstone, sandstone,<br />
limestone<br />
Indidura, Caracol<br />
<strong>The</strong> prominent structural trend in the region is northwest and is delineated by northwest-trending basin<br />
and range (horst and graben) topography with ranges of both sedimentary and volcanic rocks. <strong>The</strong> ranges<br />
16
commonly reach elevations of 2,500 m above mean sea level (amsl) and valleys vary from 1,500 m to<br />
1,800 m amsl. Northwest-trending range front faults, such as the Rodeo Fault, are common and east-west<br />
trending faults are found locally. <strong>The</strong> El Castillo <strong>Project</strong> is regionally associated with the intersection of<br />
the Rodeo Fault and a secondary east-west trending fault.<br />
<strong>The</strong> Sierra Madre Occidental is recognized as a gold-copper metallogenic province with potential for<br />
porphyry copper-gold mineralization and epithermal gold mineralization related to areas of Tertiary<br />
volcanic and subvolcanic intrusive activity.<br />
4.2 PROPERTY GEOLOGY<br />
<strong>The</strong> El Castillo property is underlain by massive to porphyritic andesitic rocks of the Tertiary Lower<br />
Series Volcanics. <strong>The</strong>se rocks have been intruded by dacite porphyry sills and dikes. <strong>The</strong> Lower Series<br />
Volcanics are unconformably overlain by felsic ignimbrites of the Upper Series Volcanics and Quaternary<br />
to recent rhyolite, conglomerate, and alluvium (Figure 3 and Figure 4).<br />
<strong>The</strong> rocks of the Lower Volcanic Series strike in a northwesterly direction and dip 40 to 75 degrees to the<br />
northeast in the immediate vicinity of the El Castillo <strong>Project</strong>.<br />
An orthogonal set of faults has been mapped on the Property; a northwest striking set related to the<br />
regional horst and graben basin and range structures and a northeast striking set. Complex offsetting<br />
relationships between the two fault sets suggest that they are contemporaneous.<br />
17
Figure 3. Generalized geologic map of the El Castillo Property.<br />
18
Figure 4. Cross-section through the El Castillo area.<br />
19
5.0 DEPOSIT TYPE<br />
El Castillo is an epithermal gold prospect. Epithermal deposits form in the shallow parts of magmarelated<br />
hydrothermal systems (Figure 5). <strong>The</strong>y are generally associated with volcanism and intrusions of<br />
calc-alkaline magmas, commonly in sub-aerial volcanic arcs. <strong>The</strong>re are two end-member styles of<br />
epithermal mineral deposits: low-sulphidation and high-sulphidation (Figure 5-1). Mineralization at El<br />
Castillo is somewhat enigmatic, partly due to the lack of detailed geologic study, but in general shares<br />
more characteristics with low-sulphidation type of epithermal mineralization than high-sulphidation<br />
mineralization (Cook and Simmons, 2000; White and Hedenquist, 1995).<br />
Figure 5. Diagram of the geologic environment for epithermal deposits.<br />
Sulphide mineralization is generally introduced along faults and fractures although mineralization can also<br />
be disseminated in permeable rock strata. Sulphide assemblages include electrum, native gold, native<br />
silver, argentite, pyrargyrite, proustite, chalcopyrite, sphalerite, galena, tetrahedrite and occasional<br />
telluride minerals. Common gangue minerals include quartz, chalcedony, adularia, calcite and amethyst.<br />
Vertical metal zonation is manifested with higher amounts of gold, silver, or gold and silver along with<br />
mercury, tellurium and antimony in the upper portions of the system, and higher lead, zinc and copper<br />
contents at deeper levels.<br />
Gold and silver grades in low-sulphidation epithermal systems can be very high, occasionally reaching<br />
gold grades on the order of tens-of-grams of gold per tonne and kilograms of silver per tonne. Lowsulphidation<br />
epithermal deposits typically average around 770,000 tonnes and average 7.5 grams per tonne<br />
(“g/t”) Au, 110 g/t Ag with minor Cu, Zn and Pb (Panteleyev, 1996). It should be noted that these grades<br />
and tonnages are representative of vein-type low-sulphidation deposits.<br />
20
At El Castillo, the presence of chalcedonic silica combined with the absence of mineral species<br />
characteristic of high-sulphidation mineralization such as enargite and alunite as well as characteristic<br />
alteration such as vuggy silica, support the low-sulphidation nature of the mineralization. Examples<br />
include Kinross’s Round Mountain deposit in the United States and Minefinders’ Dolores and Exmin<br />
Resources’ <strong>La</strong> Guitarra deposits in Mexico. It should be noted that mineralization on these or any<br />
other properties in this class of deposit are not necessarily indicative of the mineralization on the<br />
Property.<br />
21
6.0 MINERALIZATION<br />
Gold mineralization on the Property is hosted by thinly-bedded volcaniclastic rocks of the Lower Volcanic<br />
Series and adjacent dacitic sills or dikes. <strong>The</strong> mineralized zones have locally been oxidized to depths<br />
greater than 200 m below surface but an average depth is more in the order of 150 m.<br />
Mineralization occurs in a series of northwest-trending lenses up to 150 m in length and 40 m in width.<br />
This northwest trend probably reflects individual mineralized volcaniclastic units. While the trend of the<br />
individual mineralized bodies is to the northwest, the overall trend of ALL the mineralized bodies is to the<br />
northeast, suggesting a possible northeast-trending structural control such as a structure through which the<br />
mineralizing fluids gained access to the permissive host rocks.<br />
Mineralization in thinly-bedded volcaniclastic rocks is disseminated and occurs with earthy red hematite<br />
(Plate 2) or in narrow fractures with earthy red hematite (Plate 2). Quartz is rare although quartz veinlets<br />
are present locally.<br />
Plate 2. Mineralized thinly-bedded volcaniclastic rocks.<br />
Due to extensive oxidation, primary hydrothermal alteration is difficult to characterize. Silicification is<br />
rare, although some of the chalcedonic silica may have formed by replacement of volcaniclastic units.<br />
Argillic alteration is widespread but may be related to supergene processes. Strong potassic alteration in<br />
the form of biotite and potassium feldspar in fractures with some secondary copper minerals within<br />
intermediate intrusive rocks may suggest a porphyry copper environment at depth (Arturo Guerrerro,<br />
personal communication).<br />
22
Toward the center of the mineralized area, just below the alluvial cover, is an area with abundant<br />
chalcedonic silica. This silica occurs as veins and irregular masses and is occasionally mineralized,<br />
although it is more likely that mineralization will occur in the immediate, argillized wallrocks (Plate 4).<br />
Chalcedonic silica ranges in color from white through ochre and red to black and occasionally is cut by<br />
narrow brecciated intervals ranging in width from a few millimeters to a few centimetres. In at least one<br />
location, dark gray to black chalcedonic silica is intimately associated with chrysocolla.<br />
Plate 3. Mineralized fractures in dacite porphyry.<br />
23
Plate 4. Chalcedonic silica cutting altered volcaniclastic rocks.<br />
24
7.0 EXPLORATION<br />
In 2006, Castle Gold collected 413 rock chip samples on the Property. Castle Gold uses these rock chip<br />
samples to identify additional targets outside the main area as well as to understand controls on<br />
mineralization within the known area of mineralization.<br />
Castle Gold established an on-site sample preparation and laboratory facility in 2006 whereby all of the<br />
rock chip samples were analyzed for gold at this facility. During a previous site visit carried out by Howe<br />
in 2006 (Priesmeyer et al, 2006), Castle Gold had indicated that as of the date of Howe report 896, results<br />
obtained from this laboratory were intended for internal use only as a tool for short term mine planning<br />
purposes. As a result of this, and the fact that this facility was uncertified, none of the results from Castle<br />
Gold’s 2006 exploration work were presented in Howe’s report #896. As of the date of this new report,<br />
the majority of the resource which was drilled as part of the 2006 program has now been mined and<br />
therefore this data has also not been incorporated into the present resource estimations.<br />
Since 2006, there has been no systematic exploration work carried out by Castle Gold within the El<br />
Castillo permit area (i.e. trenching, pitting, drilling). However, as a result of increasing gold prices (which<br />
permit a reduction in cut-off grade for determining mineral resources), there are now a number of areas<br />
inside the in-pit minable reserves that have been considered as waste in the model due to the absence of<br />
sufficient drill data. Castle Gold should complete infill RC and/or core drilling in these areas in order to<br />
convert these areas into Measured-Indicated resources prior to completing revised reserve estimates.<br />
Furthermore, according to the existing resource database, the El Castillo deposit appears to have the<br />
potential to remain open to the west and south. It is recommended for Castle Gold to plan additional<br />
drilling in these areas with the intention of expanding the known resource.<br />
25
8.0 DRILLING<br />
No drilling has been carried out on the property since 2006. All previous drilling work and results have<br />
been previously disclosed in the following NI <strong>43</strong>-<strong>101</strong> technical reports:<br />
A. C. A. Howe International Limited (2002), Prefeasibility <strong>Report</strong>, El Cairo Gold <strong>Project</strong>, State of<br />
<strong>Durango</strong>, Mexico, for Castle Gold Minerals Limited, Toronto, Canada; Howe <strong>Report</strong> 845,<br />
available for public viewing on the TSX Sedar Filing website at http://www.sedar.com/.<br />
A. C. A. Howe International Limited (2003), Revised Prefeasibility <strong>Report</strong>, El Cairo Gold <strong>Project</strong>, State<br />
of <strong>Durango</strong>, Mexico, for Castle Gold Minerals Limited, Toronto, Canada; Howe <strong>Report</strong> 850,<br />
available for public viewing on the TSX Sedar Filing website at http://www.sedar.com/.<br />
A. C. A. Howe International Limited (2004), <strong>Technical</strong> <strong>Report</strong> on the 2003 Diamond Drill Program, El<br />
Cairo Gold <strong>Project</strong>, State of <strong>Durango</strong>, Mexico, for Castle Gold Minerals Limited, Toronto,<br />
Canada; Howe <strong>Report</strong> 861, 59 p.<br />
A. C. A. Howe International Limited (2006), Pre-Feasibility <strong>Report</strong> El Castillo <strong>Project</strong>, <strong>Durango</strong>,<br />
Mexico, for Castle Gold Minerals Limited, Toronto, Canada; Howe <strong>Report</strong> 897, 1<strong>43</strong> p.<br />
26
9.0 SAMPLING METHOD AND APPROACH<br />
<strong>The</strong> sampling methods and approaches used by Castle Gold have been previously disclosed in the<br />
following NI <strong>43</strong>-<strong>101</strong> technical reports:<br />
A. C. A. Howe International Limited (2002), Prefeasibility <strong>Report</strong>, El Cairo Gold <strong>Project</strong>, State of<br />
<strong>Durango</strong>, Mexico, for Castle Gold Minerals Limited, Toronto, Canada; Howe <strong>Report</strong> 845,<br />
available for public viewing on the TSX Sedar Filing website at http://www.sedar.com/.<br />
A. C. A. Howe International Limited (2003), Revised Prefeasibility <strong>Report</strong>, El Cairo Gold <strong>Project</strong>, State<br />
of <strong>Durango</strong>, Mexico, for Castle Gold Minerals Limited, Toronto, Canada; Howe <strong>Report</strong> 850,<br />
available for public viewing on the TSX Sedar Filing website at http://www.sedar.com/.<br />
A. C. A. Howe International Limited (2004), <strong>Technical</strong> <strong>Report</strong> on the 2003 Diamond Drill Program, El<br />
Cairo Gold <strong>Project</strong>, State of <strong>Durango</strong>, Mexico, for Castle Gold Minerals Limited, Toronto,<br />
Canada; Howe <strong>Report</strong> 861, 59 p.<br />
A. C. A. Howe International Limited (2006), Pre-Feasibility <strong>Report</strong> El Castillo <strong>Project</strong>, <strong>Durango</strong>,<br />
Mexico, for Castle Gold Minerals Limited, Toronto, Canada; Howe <strong>Report</strong> 897, 1<strong>43</strong> p.<br />
27
10.0 SAMPLE PREPARATION, ANALYSIS AND SECURITY<br />
10.1 SAMPLE PREPARATION AND ANALYTICAL PROCEDURES ON CORE SAMPLES<br />
Since the completion of the last NI <strong>43</strong>-<strong>101</strong> compliant technical report by Howe on the El Castillo Gold<br />
<strong>Project</strong>, there has been no material changes to the sample preparation, analysis and security procedures.<br />
<strong>The</strong> sample preparation, analysis and security procedures have been previously disclosed in the following<br />
NI <strong>43</strong>-<strong>101</strong> technical reports:<br />
A. C. A. Howe International Limited (2002), Prefeasibility <strong>Report</strong>, El Cairo Gold <strong>Project</strong>, State of<br />
<strong>Durango</strong>, Mexico, for Castle Gold Minerals Limited, Toronto, Canada; Howe <strong>Report</strong> 845,<br />
available for public viewing on the TSX Sedar Filing website at http://www.sedar.com/.<br />
A. C. A. Howe International Limited (2003), Revised Prefeasibility <strong>Report</strong>, El Cairo Gold <strong>Project</strong>, State<br />
of <strong>Durango</strong>, Mexico, for Castle Gold Minerals Limited, Toronto, Canada; Howe <strong>Report</strong> 850,<br />
available for public viewing on the TSX Sedar Filing website at http://www.sedar.com/.<br />
A. C. A. Howe International Limited (2004), <strong>Technical</strong> <strong>Report</strong> on the 2003 Diamond Drill Program, El<br />
Cairo Gold <strong>Project</strong>, State of <strong>Durango</strong>, Mexico, for Castle Gold Minerals Limited, Toronto,<br />
Canada; Howe <strong>Report</strong> 861, 59 p.<br />
A. C. A. Howe International Limited (2006), Pre-Feasibility <strong>Report</strong> El Castillo <strong>Project</strong>, <strong>Durango</strong>,<br />
Mexico, for Castle Gold Minerals Limited, Toronto, Canada; Howe <strong>Report</strong> 897, 1<strong>43</strong> p.<br />
28
11.0 DATA VERIFICATION<br />
11.1 INTRODUCTION<br />
A quality assurance and quality control program (“QA/QC”) covering the database management and<br />
sampling programs of Castle Gold’s hole twinning diamond drill program was administered and<br />
monitored on a number of levels throughout the program.<br />
A strict adherence to the data management procedures and geological administrative framework facilitated<br />
Castle Gold and Howe’s internal due diligence program. <strong>The</strong> aims of the review procedures of data<br />
collection, input, and ultimately data validation, seek to illustrate the quality of data handling achieved on<br />
the project. Where errors were identified in the database, Howe staff reviewed the erroneous data, verified<br />
the hardcopy records (i.e.; sample tag booklets, digital data files, etc.) and made the amendments if the<br />
data was incorrect.<br />
An analytical QA/QC program was not implemented by Castle Gold during this program since no local or<br />
commercial standard reference materials were available. However, Howe used blank material and<br />
initiated a particle size analysis study for monitoring ALS-Chemex’s sample preparation protocols.<br />
11.2 ANALYTICAL DATA CORROBORATION AND QUALITY ASSURANCE AND<br />
QUALITY CONTROL PROGRAM<br />
11.2.1 <strong>La</strong>boratories Used By Castle Gold for the Twin Drilling Program<br />
Samples collected during Castle Gold’s twin diamond drill program were submitted to the following<br />
laboratory:<br />
• ALS-Chemex <strong>La</strong>boratories (“ALS”), Hermosillo, Mexico (sample preparation);<br />
• ALS-Chemex <strong>La</strong>boratories (“ALS”), Vancouver, British Columbia (sample analysis).<br />
ALS-Chemex employs a procedure of internal submission of standards and blanks as well as carrying out<br />
repeat assays on approximately 10% of the client submitted samples. ALS provides an electronic QA/QC<br />
file with the results of their internal blanks and standards analyses. ALS-Chemex’s internal QA/QC was<br />
reviewed by Castle Gold and Howe staff upon reception in order to compare ALS-Chemex’s results to<br />
Castle Gold’s QA/QC blanks.<br />
Howe has not carried out an audit of the ALS-Chemex sample preparation laboratory in Hermosillo.<br />
11.2.2 PQ Hole Twinning Quality Assurance and Quality Control Program<br />
Castle Gold’s hole twinning diamond drill QA/QC program consisted of the following stages/steps:<br />
• Data acquisition and validation; and,<br />
• Sampling Quality Assurance and Quality Control.<br />
11.2.2.1 Data Acquisition and Validation<br />
<strong>The</strong> following steps were carried out during the data acquisition and validation of the lithological and<br />
collar and assay data:<br />
• For the core logs, all data was recorded on hardcopy core log sheets;<br />
• <strong>The</strong> hardcopy of the core logs was reviewed by Howe’s geologist in order to verify that the<br />
number and insertion sequence of blanks was correct, and;<br />
• <strong>The</strong> geological information for each core log was then drafted onto cross-sectional maps. <strong>The</strong><br />
lithology from the completed drillhole was then cross-referenced with the lithologies of the<br />
29
previous Battle Mountain drilled holes for correlation purposes. Where lithological discrepancies<br />
occur between the Castle Gold DDH and the Battle Mountain RC and/or core hole information,<br />
both the Battle Mountain hardcopy logs and Castle Gold’s core were reviewed and re-logged if<br />
necessary.<br />
<strong>The</strong> verified data from the core logs was then inputted manually or digitally into Microsoft® Excel files.<br />
11.2.2.2 Sampling Quality Assurance and Quality Control<br />
11.2.2.2.1Sampling Quality Assurance by ALS-Chemex - Diamond Drillhole Sample Repeat Assay<br />
As previously mentioned, ALS-Chemex provides gold fire assays with either Atomic Absorption<br />
Spectroscopy (“AAS”) or gravimetric finish. Routine gold assays are by 30 g fire assays and the repeat<br />
analyses have been carried out on pulps stored from the initial analyses. Two repeat assays were carried<br />
out by ALS-Chemex from Castle Gold’s twin diamond drill program (Table 7).<br />
Although only two repeat assay pairs were generated by ALS-Chemex, the original and subsequent gold<br />
assays show acceptable repeatability for gold data (Table 7 and 8).<br />
Table 7. Repeat assays performed internally by ALS-Chemex.<br />
SAMPLE NUMBER<br />
ORIGINAL FIRE ASSAY Au2 ASSAY Au3 ASSAY<br />
(g/t Au)<br />
(g/t Au) (g/t Au)<br />
50303 0.428 0.727 0.571<br />
50305 3.78 3.33 3.08<br />
Arithmetic Average 2.104 2.029 1.826<br />
11.2.2.2.2 Results for Assay Blanks<br />
A total of 27 blank samples consisting of a buff colored brick material were inserted into the twin drill h<br />
ole sample stream during sample collection. <strong>The</strong> blank sample material served as a measure for Castle<br />
Gold and Howe to monitor for possible sample contamination at ALS-Chemex’s sample preparation<br />
facility. Two coarse-grained clay-rich brick samples were submitted to ALS-Chemex for assay in order to<br />
determine if the material was suitable as blank material. Gold values for both samples were below the<br />
detection limit for gold (
Morgain Minerals Inc. El Cairo Gold <strong>Project</strong><br />
Coarse Blank Standard Control Chart (lower detection limit is 0.005 g/t Au)<br />
0.02<br />
0.015<br />
+/- 3 S.D.<br />
Assay (g/t A<br />
0.01<br />
Blanks<br />
0.005<br />
0<br />
50023<br />
50060<br />
50100<br />
50130<br />
50160<br />
50200<br />
50230<br />
50250<br />
50270<br />
50300<br />
50340<br />
50380<br />
50410<br />
50<strong>43</strong>0<br />
Sample Sequence<br />
Figure 6. Coarse blank standard control chart.<br />
Table 8. Data verification sample results from Howe’s 2002 site visit.<br />
SAMPLE<br />
NUMBER<br />
HOWE SAMPLE<br />
Au (g/t)<br />
BATTLE MOUNTAIN SAMPLE<br />
Au (g/t)<br />
1 1.710 1.823<br />
2 3.700 2.869<br />
3 5.790 7.594<br />
4 0.820 0.701<br />
5 0.199 0.286<br />
31
12.0 ADJACENT PROPERTIES<br />
<strong>The</strong>re are no adjacent properties of interest.<br />
32
13.0 MINERAL PROCESSING AND METALLURGICAL TESTING<br />
13.1 INTRODUCTION<br />
Several metallurgical tests on mineralized oxidized material from the Property have been completed, both<br />
by Castle Gold and by independent groups between 2004 and 2006. <strong>The</strong> tests were designed to determine<br />
the leaching characteristics of the oxidized material and consisted of:<br />
• Bottle roll leach tests in 2004 and later column leach tests in 2006 by Kappes, Cassiday and<br />
Associates (“KCA”);<br />
• Two onsite bulk heap leach tests conducted by Castle Gold in 2005, followed by a residual<br />
analysis of the heaps conducted by Metcon Research (“Metcon”) in 2006.<br />
<strong>The</strong> data from the various tests have been reviewed and vetted by, D. Koningen, P.Eng, acting in the<br />
capacity of Castle Gold’s internal Qualified Person (“QP”) in matters of process engineering and<br />
metallurgy. Mr. Koningen is also a Director of Castle Gold. Much of the information presented in this<br />
section is taken from Mr. Koningen’s 2006 summary review of the metallurgical test work completed to<br />
date on the Property (Koningen, 2006; in Appendix A).<br />
13.2 2004 KCA BOTTLE ROLL TESTS<br />
In early December 2003, 15 boxes of core samples from the El Castillo <strong>Project</strong> were shipped to KCA for<br />
cyanide bottle roll tests. All samples were split and pulverized to
13.3 2005 CASTLE GOLD TEST HEAPS<br />
In 2005 Castle Gold initiated the construction and leaching of two test heaps on the Property using<br />
material mechanically excavated from two pits. <strong>The</strong> oxidized and weathered material from the two pits<br />
were found to be fragmented to a size possibly amenable to direct leaching; with the majority of fragments<br />
being less than 2 inches in size. Pit 1 (Plate 5) is located near the east side of the mineralized area and Pit<br />
2 is located near the west side of the mineralized area. All ore used for the test heaps was supplied as runof-mine<br />
(“ROM”) material with no crushing in order to determine the feasibility of directly leaching<br />
material upon excavation.<br />
Heap 1 was constructed as a single 3 m lift containing 18,205 tonnes of low-grade material (averaging<br />
0.25 g/t Au) from Pit 1. Leaching commenced at the end of August 2005 and was completed in October<br />
2005. Heap 2 was constructed as a single 3 m lift containing 8,372 tonnes of high-grade material<br />
(averaging 1.78 g/t Au) from Pit 2. Leaching commenced in November 2005 and was completed in<br />
December 2005. <strong>The</strong> two leach pads and leached residue were observed and inspected during the 2006<br />
Howe site visit.<br />
Plate 5. Test pit #1.<br />
Gold recovery from the resulting gold-cyanide solutions collected from the two heaps was performed offsite<br />
by Metals Research Corporation. Following the completion of the leach cycles, extensive sampling of<br />
the heap residues was completed by Castle Gold under the direction and supervision of Tucson, Arizonabased<br />
Metcon. <strong>The</strong> results of Metcon’s analysis of the samples are presented in Section 13.3.1. <strong>The</strong> leach<br />
results and observations for the two heaps from Koningen (2006) are summarized in Table 9.<br />
34
Table 9. Castle Gold test heap leach results and observations.<br />
Heap 1 - Low Grade Ore<br />
<strong>The</strong> cyanide solution application rate was consistent<br />
at ~0.002 gpm/ft 2 .<br />
Leaching was performed for a period of 45 days.<br />
<strong>The</strong> decision to discontinue leaching was made<br />
based on the fact that the difference between the<br />
gold content in the barren and pregnant leach<br />
solutions at this time was extremely low (~0.03<br />
ppm). <strong>The</strong> data indicates that the vast majority of<br />
leaching was completed in the first 25 days.<br />
Dissolved copper levels in the leach solutions were<br />
extremely low (
<strong>The</strong> amount of gold reported recovered from heaps 1 and 2 were 325.50 ounces and 320.62 ounces of gold<br />
respectively. This gold was sold on the market in 2006 (Babcock, 2006, Northern Front, 2006).<br />
13.3.1 2006 Metcon Residual Analysis of the Heaps<br />
Following completion of the two test heaps Metcon was contracted by Castle Gold to carry out an analysis<br />
and reporting of gold distribution by size fraction; comparing head ore samples with leached ore residues<br />
for both heaps (no head sample was collected for Heap 1). Metcon’s summary report for this work<br />
(Iasillo, 2006) can be found in Appendix A as part of the Koningen (2006) report. <strong>The</strong> results of the<br />
analysis are summarized in Tables 10 and 11.<br />
Table 10. Metcon gold-size fraction distribution of Heap 1 leached ore residue.<br />
Nominal Opening<br />
(inches)<br />
Weight Distribution<br />
(%)<br />
Heap 1 (Low Grade Ore) Leached Ore Residue<br />
Assay<br />
(g/t)<br />
Gold<br />
Distribution<br />
(%)<br />
5.0 4.5 0.39 15.0<br />
-5 +1¾ 7.0 0.28 16.8<br />
+1¾ +¾ 11.2 0.17 16.6<br />
-¾ 77.3 0.08 51.6<br />
Totals 100 100<br />
Average Grade 0.12<br />
Table 11. Metcon gold-size fraction distribution of Heap 2 head ore and leached ore residue.<br />
Nominal Opening<br />
(inches)<br />
Weight Distribution<br />
(%)<br />
Heap 2 (High Grade Ore) Head Ore Sample<br />
Assay<br />
(g/t)<br />
Gold<br />
Distribution<br />
(%)<br />
5.0 10.0 1.<strong>43</strong> 8.0<br />
-5 +1¾ 19.6 1.39 15.3<br />
+1¾ +¾ 10.2 1.73 9.9<br />
-¾ 60.2 1.98 66.8<br />
Totals 100 100<br />
Average Grade 1.78<br />
Heap 2 (High Grade Ore) Leached Ore Residue<br />
5.0 6.8 1.99 16.0<br />
-5 +1¾ 19.0 1.34 30.3<br />
+1¾ +¾ 15.4 0.91 18.7<br />
-¾ 58.8 0.53 31.0<br />
Totals 100 100<br />
Average Grade 0.84<br />
13.3.1.1 Heap 1 Analysis<br />
For Heap 1, the calculated average gold grade is 0.12 g/t Au. Combining this with the carbon stripping<br />
records yielded a calculated head grade for Heap 1 of 0.25 g/t Au and an ultimate gold recovery of 51.7%.<br />
From Heap 1’s distribution of gold by size fraction, Koningen (2006) concluded that it is reasonable to<br />
expect that if all of the +¾” material were crushed to
material is relatively consistent across the particle size ranges). This would serve to increase the expected<br />
gold recovery for the low grade material to 68% (0.17 g/t Au recovered from a head grade of 0.25 g/t Au).<br />
In total, approximately 23% of the low grade material is +¾” and would need to be crushed under this<br />
scenario.<br />
13.3.1.2 Heap 2 Analysis<br />
For Heap 2, the average head grade is 1.78 g/t Au, and 0.84 g/t Au for the leached ore residue. This yields<br />
an ultimate gold recovery of 52.5%. It should be noted that the leached residue data, when combined with<br />
the carbon stripping records, yielded a calculated head grade of 1.77 g/t Au. This is in good agreement<br />
with the assayed head grade of 1.78 g/t Au.<br />
From Heap 2’s distribution of gold by size fraction, Koningen (2006) concluded that it is reasonable to<br />
expect that if all of the +¾” material were crushed to
value is also consistent with the discussion in Sections 13.3.1.1 and 13.3.1.2 and the estimated<br />
gold heap recoveries associated with crushing of the ore to
Plate 6. View of the El Castillo site facilities.<br />
13.5 CONCLUSIONS<br />
Based on the metallurgical testing completed in 2006, the following conclusions are made:<br />
1. Ultimate gold recoveries from ROM ore material placed directly on the leach pad (no crushing)<br />
are in the 50-55% range;<br />
2. Crushing of material to
14.0 MINERAL RESOURCE AND MINERAL RESERVE ESTIMATES<br />
14.1 HISTORICAL MINERAL RESOURCE RESERVE ESTIMATES<br />
Several mineral resource and reserve estimates have been produced for the Property.<br />
• <strong>The</strong> first estimate was completed by Battle Mountain in 1999 (Schumacher, 1999);<br />
• A second resource estimate was prepared by Howe in 2002 (Howe 2002) followed by two reserve<br />
statements (Howe, 2002 and 2003);<br />
• Two subsequent resource estimates were prepared by Arizona-based Resource Modeling<br />
Incorporated (RMI, 2004b and 2004c).<br />
<strong>The</strong> above mentioned historical mineral resource-reserve estimates have been previously disclosed in the<br />
following NI <strong>43</strong>-<strong>101</strong> technical reports:<br />
A. C. A. Howe International Limited (2002), Prefeasibility <strong>Report</strong>, El Cairo Gold <strong>Project</strong>, State of<br />
<strong>Durango</strong>, Mexico, for Castle Gold Minerals Limited, Toronto, Canada; Howe <strong>Report</strong> 845,<br />
available for public viewing on the TSX Sedar Filing website at http://www.sedar.com/.<br />
A. C. A. Howe International Limited (2003), Revised Prefeasibility <strong>Report</strong>, El Cairo Gold <strong>Project</strong>,<br />
State of <strong>Durango</strong>, Mexico, for Castle Gold Minerals Limited, Toronto, Canada; Howe <strong>Report</strong><br />
850, available for public viewing on the TSX Sedar Filing website at http://www.sedar.com/.<br />
A. C. A. Howe International Limited (2004), <strong>Technical</strong> <strong>Report</strong> on the 2003 Diamond Drill Program, El<br />
Cairo Gold <strong>Project</strong>, State of <strong>Durango</strong>, Mexico, for Castle Gold Minerals Limited, Toronto,<br />
Canada; Howe <strong>Report</strong> 861, 59 p.<br />
A. C. A. Howe International Limited (2006), Pre-Feasibility <strong>Report</strong> El Castillo <strong>Project</strong>, <strong>Durango</strong>,<br />
Mexico, for Castle Gold Minerals Limited, Toronto, Canada; Howe <strong>Report</strong> 897, 1<strong>43</strong> p.<br />
<strong>The</strong> Battle Mountain and Resource Modeling Incorporated (“RMI”) estimates are not NI <strong>43</strong>-<strong>101</strong>-<br />
compliant and are therefore treated herein by Howe as “historic estimates”. Prior to the completion of<br />
this report, the 2002 Howe resource estimate was considered the current estimate for the Property since<br />
the estimate is CIM-based and NI <strong>43</strong>-<strong>101</strong>-compliant and has not been superseded by a more recent NI <strong>43</strong>-<br />
<strong>101</strong>-compliant estimate. It should be noted that the authors of this report were not involved in the<br />
preparation of the 2002 Howe estimate.<br />
14.2 <strong>2008</strong> HOWE RESOURCE AND RESERVE ESTIMATE<br />
In <strong>2008</strong>, at the request of Castle Gold, Howe has revised the 2002 pre-feasibility study for an operational<br />
scenario which reviewed an increase annual production to 4,000,000 tpy at a higher average gold price<br />
compared to the 4,000,000 tpy scenario that was the operational criteria in the 2002 report.<br />
Howe’s methodology for the revised resource estimate remains the same (refer to Howe report No. 845,<br />
896) except for some adjustments made to the topographic data as well as account for material mined to<br />
date by Castle Gold during their pre-production stage of development work at El Castillo.<br />
40
14.2.1 Methods<br />
A shift of –500,000 metres east and –2,700,000 metres south was applied for ease in modeling. This had<br />
the same effect as trimming the left digit from the easting (ie: the “5”) and the left two digits from the<br />
northing.<br />
Up-to-date topographic contours were supplied in digital format (Autocad) in the file “Bancos Actuales -<br />
29102007-.dwg” (1 metre contour interval). Because those contours did not cover the entire block model,<br />
the surrounding contours (6 metre contour interval) were taken from the digital file “topo.dwg”. Collar<br />
coordinates were used to supplement the surrounding contours.<br />
A “top of oxide” surface was created from the uppermost oxide contact point in each drill hole. Similarly,<br />
a “bottom of oxide” surface was created at the bottom most oxide contact point.<br />
A block model was created with similar dimensions as the 2002 resource model (ACA Howe, 2006). No<br />
sub-blocking was used.<br />
Dimension Block Size (m) Number of Blocks Extents (m)<br />
East 10 1200 46,925-48,125<br />
North 10 1200 50,355-51,555<br />
Elevation 6 330 1,500-1,830<br />
Oxide and overburden geology was applied to the block model using the topographic, oxide upper contact<br />
and oxide lower contact surfaces.<br />
Gold grades were estimated for oxide blocks using ordinary kriging along with the parameters that were<br />
used for the 2002 resource estimate (ACA Howe, 2006).<br />
Category<br />
Measured<br />
(Category 1)<br />
Indicated<br />
(Category 2)<br />
Inferred<br />
(Category 3)<br />
Dip<br />
Dir. Strike Dip<br />
Dip<br />
Range<br />
Strike<br />
Range<br />
Across<br />
Dip<br />
Range<br />
Max #<br />
Per<br />
Hole<br />
Min<br />
Number<br />
of<br />
Samples<br />
Max<br />
Number<br />
of<br />
Samples Sill Nugget<br />
45 315 -45 120 65 6 2 4 8 1.73 0.10<br />
45 315 -45 250 135 6 2 2 3 1.73 0.10<br />
45 315 -45 250 135 12 1 1 1 1.73 0.10<br />
14.2.2 Cut-off Grade<br />
A cut-off grade of 0.15g/tonne Au was used to determine which blocks were to be included in the mineral<br />
resource. Meaning, blocks with a grade less than 0.15g/tonne Au were not included in the mineral<br />
resource.<br />
14.2.3 Results<br />
Mineral resources in the Measured + Indicated categories amounted to 94million tonnes with an average<br />
gold grade of 0.39g/tonne (Table 14-16). Inferred Resources totaled 4.5 million tonnes with an average<br />
gold grade of 0.38g/tonne. Mineral Resources at various cut-off grades are also shown in Table 12 below.<br />
41
Table 12. Remaining Mineral Resources as of October 2007<br />
Measured Indicated Meas + Ind Inferred<br />
Cut-off Tonnes Avg Tonnes Avg Tonnes Avg Tonnes Avg<br />
Grade Above Grade Above Grade Above Grade Above Grade<br />
(g/t) Cut-off (g/t) Ounces Cut-off (g/t) Ounces Cut-off (g/t) Ounces Cut-off (g/t) Ounces<br />
0.00 102,000,000 0.31 1,011,840 97,000,000 0.13 403,520 199,000,000 0.22 1,415,360 18,000,000 0.13 74,880<br />
0.05 93,000,000 0.33 982,080 67,000,000 0.18 385,920 160,000,000 0.27 1,368,000 10,000,000 0.23 73,600<br />
0.10 80,000,000 0.37 947,200 45,000,000 0.23 331,200 125,000,000 0.32 1,278,400 6,200,000 0.31 61,504<br />
0.15 65,400,000 0.<strong>43</strong> 899,904 28,900,000 0.30 277,440 94,300,000 0.39 1,177,344 4,500,000 0.38 54,720<br />
0.20 52,300,000 0.50 836,800 18,300,000 0.37 216,672 70,600,000 0.46 1,053,472 3,100,000 0.48 47,616<br />
0.25 41,900,000 0.57 764,256 11,800,000 0.45 169,920 53,700,000 0.54 934,176 2,300,000 0.58 42,688<br />
0.30 33,600,000 0.64 688,128 8,400,000 0.53 142,464 42,000,000 0.62 830,592 1,900,000 0.63 38,304<br />
0.35 27,100,000 0.71 615,712 6,100,000 0.61 119,072 33,200,000 0.69 734,784 1,800,000 0.65 37,440<br />
0.40 22,200,000 0.79 561,216 4,700,000 0.68 102,272 26,900,000 0.77 663,488 1,500,000 0.71 34,080<br />
0.45 18,300,000 0.87 509,472 3,900,000 0.74 92,352 22,200,000 0.85 601,824 1,300,000 0.74 30,784<br />
0.50 15,200,000 0.95 462,080 3,200,000 0.79 80,896 18,400,000 0.92 542,976 1,000,000 0.83 26,560<br />
0.60 11,000,000 1.11 390,720 2,300,000 0.89 65,504 13,300,000 1.07 456,224 840,000 0.88 23,654<br />
0.70 8,180,000 1.26 329,818 1,650,000 0.98 51,744 9,830,000 1.21 381,562 640,000 0.95 19,456<br />
0.80 6,270,000 1.42 284,909 1,150,000 1.09 40,112 7,420,000 1.37 325,021 580,000 0.97 18,003<br />
0.90 4,980,000 1.56 248,602 630,000 1.29 26,006 5,610,000 1.53 274,608 560,000 0.98 17,562<br />
1.00 4,040,000 1.71 221,069 490,000 1.39 21,795 4,530,000 1.67 242,864 220,000 1.07 7,533<br />
* Blocks under 0.15 g/tonne are not considered to be "Resources" and are included for information purposes only.<br />
Notes:<br />
• Base case is 0.15g/tonne Au;<br />
• Metal price used US$625/oz Au;<br />
• Assumed metal recovery based on previous metallurgical studies is 68%<br />
• Not all tonnage will be recovered in mining, nor will all metal be recovered in milling and processing<br />
42
14.2.4 Pit Optimization Parameters<br />
Optimum pit shells were calculated to estimate the property’s mineral reserves. <strong>The</strong> Lerchs-Grossman<br />
optimization function within Microlynx mine planning software was used to determine the optimum pit<br />
shells for the following cost, revenue and mining parameters.<br />
<strong>On</strong>ly Measured and Indicated resource blocks were used to determine the optimum pit. In other words,<br />
the Inferred Mineral Resource blocks were considered to be “waste” for the purpose of pit optimization.<br />
Practical pit design work was not carried out. In other words, haul roads and other practical<br />
considerations were not added to the various pit optimization runs.<br />
14.2.4.1 Revenue Considerations<br />
Gold Price ($US per troy ounce)<br />
$550-700 in $25 Steps<br />
Dilution 5 %<br />
Mining Recovery 100 %<br />
Processing Recovery 68%<br />
Smelter Return 99 %<br />
14.2.4.2 Operating Costs (Direct)<br />
Mining cost of $0.98 per tonne of ore or waste was used. Processing, <strong>La</strong>bour, Geology & Engineering,<br />
Site Construction and Miscellaneous costs were applied only to ore blocks. <strong>The</strong>se costs are based on<br />
Castle Gold’s actual operating costs and were subsequently modified in the financial analysis, but the<br />
differences were insignificant.<br />
(per tonne of ore)<br />
Mining (Ore or Waste Rock) $0.98<br />
Processing (Ore) $1.23<br />
<strong>La</strong>bour (Ore) $0.21<br />
Geology & Engineering $0.05<br />
Site Construction (Plant & Leach Pads) $0.31<br />
Miscellaneous $0.15<br />
14.2.4.3 Maximum Slopes<br />
Overall Pit Slope Angle 45 °<br />
14.2.5 Results<br />
Proven and Probable Mineral Reserves at the base case of $625 ($US per troy ounce) gold price totaled<br />
46.9 million tonnes with an average gold grade of 0.50g/tone Au (before dilution). Level sections through<br />
the resource model and the optimum pit outline are included in Appendix A (shown as the blue “ultimate”<br />
pit outline).<br />
Inferred mineral resources occurring within the optimum pit outline totaled 100,000 tonnes with an<br />
average gold grade of 0.32g/tone Au. This material would have to be mined and would be processed if the<br />
block grade was above the operating cut-off grade. However, this material is not considered to be a<br />
mineral reserve.<br />
<strong>43</strong>
Mineral reserves for this study were reported using a 0.15g/tonne Au operating cut-off grade. Blocks<br />
within the optimum pit with grades less than 0.15g/tonne Au would have to be mined, but would be<br />
considered as waste.<br />
14.2.5.1 Reserve Cut-off Grades<br />
<strong>The</strong>re are several different types of cut-off grades. During the pit design process when one is determining<br />
whether a block will be mined and processed, an operational cut-off grade is used. This is the grade at<br />
which revenue exceeds mining and processing costs. For the base case, $625 gold price scenario, the<br />
operational cut-off grade was 0.22 grams Au per tonne.<br />
<strong>On</strong>ce the pit limit has been decided, it follows that everything within the pit must be mined. In other<br />
words, mining costs are sunk and the decision shifts to whether a mined block will be sent to the mill or to<br />
the waste pile. <strong>The</strong> processing cut-off grade is the grade at which revenue exceeds only the processing<br />
costs. For the base case, $625 gold price scenario, the processing cut-off grade was 0.15 grams per tonne.<br />
<strong>The</strong> following tables are the undiluted reserves results of the pit optimization based on various gold prices:<br />
Undiluted Reserves at $550 per Ounce Gold<br />
Overburden Tonnes 12,100,000<br />
Oxide Below 0.15 g/tonne* 11,100,000<br />
Subtotal, Waste Rock 23,200,000<br />
In-Pit Proven and Probable Reserves<br />
In-Pit Inferred Resources<br />
Cut-off Tonnes Average Cut-off Tonnes Average<br />
Grade Above Grade Grade Above Grade<br />
(g/tonne) Cut-off (g/tonne) Ounces (g/tonne) Cut-off (g/tonne) Ounces<br />
0.15 40,000,000 0.53 680,000 0.15 35,000 0.32 400<br />
Undiluted Reserves at $575 per Ounce Gold<br />
Overburden Tonnes 12,800,000<br />
Oxide Below 0.15 g/tonne* 11,800,000<br />
Subtotal, Waste Rock 24,600,000<br />
In-Pit Proven and Probable Reserves<br />
In-Pit Inferred Resources<br />
Cut-off Tonnes Average Cut-off Tonnes Average<br />
Grade Above Grade Grade Above Grade<br />
(g/tonne) Cut-off (g/tonne) Ounces (g/tonne) Cut-off (g/tonne) Ounces<br />
0.15 42,400,000 0.52 707,000 0.15 41,000 0.32 400<br />
44
Undiluted Reserves at $600 per Ounce Gold<br />
Overburden Tonnes 13,500,000<br />
Oxide Below 0.15 g/tonne* 12,200,000<br />
Subtotal, Waste Rock 25,700,000<br />
In-Pit Proven and Probable Reserves<br />
In-Pit Inferred Resources<br />
Cut-off Tonnes Average Cut-off Tonnes Average<br />
Grade Above Grade Grade Above Grade<br />
(g/tonne) Cut-off (g/tonne) Ounces (g/tonne) Cut-off (g/tonne) Ounces<br />
0.15 44,300,000 0.51 725,000 0.15 63,000 0.33 700<br />
Undiluted Reserves at $625 per Ounce Gold<br />
Overburden Tonnes 14,900,000<br />
Oxide Below 0.15 g/tonne* 13,300,000<br />
Subtotal, Waste Rock 28,200,000<br />
In-Pit Proven and Probable Reserves<br />
In-Pit Inferred Resources<br />
Cut-off Tonnes Average Cut-off Tonnes Average<br />
Grade Above Grade Grade Above Grade<br />
(g/tonne) Cut-off (g/tonne) Ounces (g/tonne) Cut-off (g/tonne) Ounces<br />
0.15 46,800,000 0.50 752,000 0.15 <strong>101</strong>,000 0.32 1,000<br />
Undiluted Reserves at $650 per Ounce Gold<br />
Overburden Tonnes 15,600,000<br />
Oxide Below 0.15 g/tonne* 14,000,000<br />
Subtotal, Waste Rock 29,600,000<br />
In-Pit Proven and Probable Reserves<br />
In-Pit Inferred Resources<br />
Cut-off Tonnes Average Cut-off Tonnes Average<br />
Grade Above Grade Grade Above Grade<br />
(g/tonne) Cut-off (g/tonne) Ounces (g/tonne) Cut-off (g/tonne) Ounces<br />
0.15 49,500,000 0.49 774,000 0.15 108,000 0.31 1,100<br />
Undiluted Reserves at $675 per Ounce Gold<br />
Overburden Tonnes 22,400,000<br />
Oxide Below 0.15 g/tonne* 18,400,000<br />
Subtotal, Waste Rock 40,800,000<br />
In-Pit Proven and Probable Reserves<br />
In-Pit Inferred Resources<br />
Cut-off Tonnes Average Cut-off Tonnes Average<br />
Grade Above Grade Grade Above Grade<br />
(g/tonne) Cut-off (g/tonne) Ounces (g/tonne) Cut-off (g/tonne) Ounces<br />
0.15 56,600,000 0.47 852,000 0.15 122,000 0.30 1,200<br />
45
Undiluted Reserves at $700 per Ounce Gold<br />
Overburden Tonnes 23,700,000<br />
Oxide Below 0.15 g/tonne* 19,600,000<br />
Subtotal, Waste Rock <strong>43</strong>,300,000<br />
In-Pit Proven and Probable Reserves<br />
In-Pit Inferred Resources<br />
Cut-off Tonnes Average Cut-off Tonnes Average<br />
Grade Above Grade Grade Above Grade<br />
(g/tonne) Cut-off (g/tonne) Ounces (g/tonne) Cut-off (g/tonne) Ounces<br />
0.15 58,400,000 0.46 870,000 0.15 131,000 0.30 1,300<br />
* This material must be mined but does not meet the processing cut-off.<br />
14.2.6 Mine Plan and Schedule<br />
Mine plans and a mining schedule were developed for the $625 per ounce scenario (see Appendix A). A<br />
bias was introduced into the optimization process that outlined incremental pits within the $625 pit that<br />
could be mined at higher average grades. This resulted in higher grades being mined during the early<br />
years to repay capital costs, with progressively lower grades being mined in later years. While Howe has<br />
developed an optimized production schedule to show the potential of long term mine planning, Howe has<br />
used the average grade in developing the Castle Gold mine cash flow forecasts.<br />
<strong>The</strong> overall mine life based at a US$625/oz Au price is eleven years. Ore production ramps up to<br />
5,000,000 tonnes per year (diluted) by Year 3. Also in Year 3, recovered gold production is at its peak at<br />
52,000 ounces) and overburden (waste rock and below-cut-off-oxide) stripping reaches 3,100,000 tonnes<br />
per year.<br />
Level sections showing the resource model and the optimum pit outlines at Year 4, Year 7, Year 9 and<br />
Year 11 (end of mine life) are included in Appendix A<br />
14.2.7 Comparison between Howe 2003 and Howe <strong>2008</strong> Reserve Estimates<br />
Table 13 is a summary table comparing the results between the proven and probable reserve estimates<br />
obtained from the Howe 2003 and Howe <strong>2008</strong> reserve estimates based on various gold prices.<br />
46
Table 13. Comparison of Howe 2003 and Howe <strong>2008</strong> Reserve Estimates<br />
RESERVE<br />
ESTIMATE<br />
2003<br />
GOLD<br />
PRICE<br />
CUT-OFF PROVEN & PROBABLE RESERVES<br />
GRADE<br />
(g/t) TONNES (‘000) GRADE (g/t)<br />
MINEABLE OUNCES<br />
(‘000)<br />
Howe 2003 $325 0.27 17,656 0.88 497<br />
Howe 2003 $350 0.26 20,878 0.82 548<br />
Howe 2003 $375 0.25 24,238 0.77 597<br />
RESERVE<br />
ESTIMATE<br />
<strong>2008</strong><br />
GOLD<br />
PRICE<br />
CUT-OFF PROVEN & PROBABLE RESERVES<br />
GRADE<br />
(g/t) TONNES (‘000) GRADE (g/t)<br />
MINEABLE OUNCES<br />
(‘000)<br />
Howe <strong>2008</strong> $625 0.15 46,800 0.50 752<br />
2003 gold<br />
price<br />
Change in-pit tonnes from<br />
Howe 2003 to Howe <strong>2008</strong><br />
reserve estimate<br />
Change in average gold<br />
grade from Howe 2003 to<br />
Howe <strong>2008</strong> reserve estimate<br />
Change in mineable ounces<br />
from Howe 2003 to Howe<br />
<strong>2008</strong> reserve estimate<br />
$325 165% -<strong>43</strong>% 51%<br />
$350 124% -39% 37%<br />
$375 90% -35% 26%<br />
It is clear that the increase in gold price itself significantly increases the estimated mineable gold ounces<br />
and the amount of in-pit tonnes.<br />
47
15.0 OTHER RELEVANT DATA AND INFORMATION<br />
15.1 ENVIRONMENTAL CONSIDERATIONS<br />
Howe is not aware of any historic environmental permitting for the project area other that that required for<br />
Battle Mountain to receive permits for their drilling program. This environmental permit required Battle<br />
Mountain to submit for approval a reclamation plan relating to rehabilitation of drill pads and temporary<br />
drill roads.<br />
<strong>The</strong> environmental permitting process for a mining project follows a similar format in that the mining<br />
company must submit for approval to the appropriate government agencies an environmental impact<br />
statement and a detailed plan for environmental monitoring and protection of the environment during<br />
operations plus a plan for closure and reclamation of the proposed project site. <strong>The</strong> government agencies<br />
respond to the company with comments and amendments, which the company must then incorporate into<br />
their environmental statement.<br />
<strong>The</strong> final approved document, including the approved closure and rehabilitation plan, when signed off by<br />
the government agencies becomes the binding legal document relating to the project.<br />
15.2 ENVIRONMENTAL PERMITTING<br />
Castle Gold currently holds two permits:<br />
• a “Resolution on Environmental Impact” (or “Manifest on Environmental Impact”), and;<br />
• a “Change of <strong>La</strong>nd Use”<br />
15.2.1 Resolution on Environmental Impact<br />
• Under the Company’s current Resolution on Environmental Impact, Castle Gold has the right to<br />
carry out all work and activities related to the development, operation, maintenance and<br />
reclamation of the El Castillo <strong>Project</strong> over a total area of 108 Ha.<br />
• <strong>The</strong> Resolution allows for a 24 month period to complete any necessary preparatory and<br />
construction work, and 10 years for operations and maintenance. <strong>The</strong> permit can be renewed as<br />
long as the company fulfills all the necessary requirements under Mexican law.<br />
• Under the current Resolution, Castle Gold is permitted to construct an open pit to a depth of<br />
maximum depth of 70 m (or ten 6 m benches) and an initial area of 25 Ha and a 8,000 ton per<br />
month production rate. <strong>The</strong> area may be increased by 5 Ha per year to a maximum of 54.5 Ha.<br />
• Under the Resolution, the leach pad may have a capacity of 10 million tons across an area of 33<br />
Ha. This area may be increased by 8 Ha per year.<br />
• <strong>The</strong> two planned waste dump areas will be approximately 14 Ha (6.6 million tons) and 2.74 Ha<br />
(1.23 million tons) in area.<br />
Any changes to the operations approved under the current Resolution will require further approval of the<br />
Sectretaría de Ambiente y Recursos Naturales (SEMARNAT), the Secretary of the Environment and<br />
Natural Resources. An environmental impact assessment for any proposed changes must be submitted to<br />
SEMARNAT for evaluation and approval before an amended Resolution on Environmental Impact is<br />
issued and the proposed changes allowed to proceed.<br />
48
15.2.2 Change of <strong>La</strong>nd Use<br />
<strong>The</strong> Company’s Change of <strong>La</strong>nd Use permit has a term of 15 years. Application for the permit required a<br />
payment to provide “environmental compensation for the change of land use”. <strong>The</strong> criteria used for<br />
determining such payment for affected forestry lands are based on information contained in the Official<br />
Federation Diary, dated September 28, 2005.<br />
• <strong>The</strong> Company’s permit covers an area of 108 Ha that is classified as semi-arid land. According to<br />
the Official Federation Diary, semi-arid lands are compensated at an approximate ratio of 3:1.<br />
Castle Gold was required to pay compensation for an area equivalent to 356 Ha.<br />
• Cost calculations are based on a cost of approximately P$0.57 per Ha (according with costs<br />
published by the government in April, 2006). Castle Gold was therefore required to pay a<br />
compensation of P$2,031,664.90. This payment was made in 2007.<br />
15.3 CLOSURE AND REHABILITATION PLANS<br />
As per the requirement of the Change of <strong>La</strong>nd Use permit, Castle Gold has submitted a reclamation plan<br />
to SEMARNAT under which Castle Gold will reclaim or rehabilitate the following:<br />
• Solution pads: fresh water will be added to the circuit for several days until cyanide<br />
concentrations are 10 ppm, then hydrogen peroxide is added until all cyanide has been destroyed.<br />
• Solution ponds: after evaporation of existing barren solution, they will be filled with neutralized<br />
material from the pad and covered with fertile soil.<br />
• Plant and Workshops: all installations will be removed from its foundations and disposed as fill in<br />
the solution ponds.<br />
• <strong>La</strong>nd restoration: all areas will be levelled and filled, then covered with fertile soil and reforested.<br />
Implementation of reforestation activities in the impacted surfaces through terraces, infiltration<br />
ditches, considering local vegetation.<br />
<strong>The</strong> reclamation plan activities are estimated to cost P$160,000.<br />
49
16.0 ADDITIONAL REQUIREMENTS FOR TECHNICAL REPORTS ON DEVELOPMENT<br />
PROPERTIES AND PRODUCTION PROPERTIES<br />
16.1 EARLIER PROPOSED MINING PLANS<br />
Howe’s 2002 report proposed mining by standard open pit mining methods. This plan was for four<br />
million tonnes of ore to be mined annually. Howe (2002) believed that much of the rock to be mined was<br />
sufficiently weathered and that blasting would not be required. <strong>The</strong> recent Howe site visit noted<br />
significant amounts of chalcedonic silica which could require blasting to remove. A mining contractor<br />
was to assume most mining costs with the price per tonne to include amounts for equipment purchase and<br />
certain administrative costs such as payroll, purchasing and warehousing. Castle Gold would provide<br />
survey and grade control, including geology and sampling.<br />
In 2003, Howe proposed a revised operation with an annual production rate of one million tpy. This<br />
significantly smaller operation reduced the required mine equipment (primarily vehicles for supervisory<br />
staff and site maintenance) by 75%. Infrastructure costs were to be reduced with the purchase of the<br />
1,000,000 tpy heap leach plant located at the San Francisco mine north of Hermosillo in Sonora, Mexico<br />
from Geomaque Explorations Ltd. <strong>The</strong> plant had sufficient capacity to be expanded to 3,500,000 tpy with<br />
minimal additional capital investment. <strong>The</strong> availability of this plant at the present time is unknown.<br />
Water is available from local wells and in sufficient quantities to support a heap leaching operation at El<br />
Castillo.<br />
16.1.1 Open Pit Parameters<br />
For purposes of the 2002 and 2003 Howe studies, an open pit design incorporating an overall pit slope of<br />
45 o , a main ramp with an 8% grade, and a road allowance of 24 m, and bench height of 6 m was used for<br />
Whittle pit optimization purposes (see Table 14-14). <strong>The</strong>se same parameters were used for the current<br />
study. Several optimum pit shells and production schedules were generated for several different gold<br />
prices (US$550, US$575, US$600, US$625, US$650, US$675 and US$700/oz Au) and cost scenarios.<br />
Tonnages of ore and waste in each pit were calculated from the optimized pit shells. <strong>The</strong> base case gold<br />
price is $625 and is based on three year moving average. <strong>The</strong> three year moving average gold price is<br />
commonly used within the mining industry to estimate long term gold prices.<br />
16.2 FINANCIAL EVALUATION<br />
<strong>The</strong> following financial evaluation examines the economic viability and robustness of the El Castillo<br />
project under recent gold prices and capital and operating costs estimates, as well as a revised proposed<br />
production rate of approximately 5.0 million tpy.<br />
This evaluation applies the recent gold prices and new costs and production rate to develop a new<br />
optimized pit and mining schedule. Howe developed optimum pits for gold prices ranging from $550 to<br />
$700 and an optimized mine schedule for the $625 case. While the optimized mining schedule calls for<br />
the mine to produce on a fairly aggressive schedule, the optimum plan appears feasible and Howe<br />
recommends that Castle Gold acquire the necessary software and expertise to develop its own block<br />
model, pit designs and optimized mining schedules. Note that in this report only the average grade, not<br />
optimized grade schedules, are used unless otherwise noted. In particular, the Base Case is based on the<br />
average mine grade, not the optimized grade schedule. Table 14 on the following page illustrates the<br />
distribution of Ore and Waste as well as the average gold grade at each of the gold prices.<br />
50
16.2.1 Capital and Operating Cost Estimates<br />
For this financial evaluation, Howe has relied on operating cost estimates provided by Castle Gold that are<br />
based in part on recent contractor quotes for hauling, drilling, and blasting, as well as company experience<br />
operating in Mexico. While the El Castillo Mine is now in production, and the capital to bring it into<br />
production has been spent, Howe has allowed for a total of $4.5 million in sustaining capital over the next<br />
nine years of mining operations.. <strong>The</strong> operating costs are summarized in Table 15. Howe has carefully<br />
reviewed the cost estimates provided by Castle Gold and deems them to be reasonable.<br />
Table 14. Ore – Waste Distribution and Average Gold Price – El Castillo<br />
This financial evaluation has been carried out in constant Year <strong>2008</strong> U.S. dollars. This eliminates the<br />
need to make assumptions with regards to inflation. <strong>The</strong> use of constant dollars could understate the<br />
current year dollar amount of taxable income, which therefore could understate taxes payable if a slidingscale<br />
tax rate was involved. Based on current federal tax rates in Mexico this is a moot point as the<br />
projected tax rate for the life of this project is constant at 28%.<br />
16.2.1.1 Gold Recovery<br />
All financial scenarios assume a 68% gold recovery during heap leap operations. While the median<br />
projected recovery level is 70% (68-72%) for crushed ore based on metallurgical testing completed to date<br />
(see Section 13), Howe has lowered the gold recovery to 68% to reflect the fact that a portion of the ore<br />
from the mine will be delivered to the leach pad uncrushed (ROM ore).<br />
51
Operating experience has indicated that much of the higher grade material presently being crushed (up to<br />
70%) is already below the required final size range. Castle Gold management has indicated that it intends<br />
to introduce a screening plant ahead of the crusher. This should ensure that only about 30% of the<br />
material will actually go through the crusher; drastically reducing the crushing costs and allowing for a<br />
greater proportion of ROM ore to be sent to screening and crushing thereby increasing the overall heap<br />
leach recoveries. <strong>The</strong> scenarios do not account for any agglomeration of El Castillo ROM material.<br />
Operating experience from the mine indicates that the material mined to date would not have benefited<br />
from agglomerating.<br />
16.2.1.2 Metal Prices<br />
Recently gold prices have exceeded the US$1,000/ounce threshold. When Howe first began this project<br />
(January <strong>2008</strong>) the average 3 year gold price (London Daily Fixing) was US$578/oz. At the current time<br />
(June 27, <strong>2008</strong>) the average trailing three year gold price is US$652/oz. In addition the June 27, <strong>2008</strong><br />
London Gold price Second Fixing was US$919.50 per oz. Howe has used a gold price of $712 in <strong>2008</strong>,<br />
$697 in 2009 and $625 per ounce for the remainder of the mine life. <strong>The</strong>se prices are based on a National<br />
Bank compilation of the forecasts of 35 major institutions in November 2007.<br />
16.2.1.3 Mine Dilution<br />
Howe has added 5% dilution at zero grade to the gold grades in the cash flow calculations.<br />
52
Table 15. Operating Cost Summary (US$).<br />
1,500,000 Tonnes Ore per Year 5,000,000 Tonnes Ore per Year<br />
Ore and Waste Mined (tonnes)<br />
Ore 1,500,000 5,000,000<br />
Waste (assume W:O 1.5:1.0) 2,250,000 7,500,000<br />
Total 3,750,000 12,500,000<br />
Details of Payments Amount $/t ore % Amount $/t ore %<br />
Ore/Waste Mining $3,860,000 $2.57 <strong>43</strong>.5% $12,250,000 $2.45 55.1%<br />
Mining/Geological Engineering & Misc. $200,000 $0.13 2.3% $200,000 $0.04 0.9%<br />
Screening and Crushing $1,110,000 $0.74 12.5% $1,750,000 $0.35 7.9%<br />
Plant/Processing Misc. (incl.<br />
Reagents) $1,310,000 $0.88 14.8% $4,400,000 $0.88 19.8%<br />
<strong>La</strong>bour $1,000,000 $0.67 11.3% $1,000,000 $0.20 4.7%<br />
<strong>Durango</strong> Office Expenses $310,000 $0.21 3.5% $288,000 $0.06 1.3%<br />
Site Construction (Plant and Ponds) $730,000 $0.49 8.2% $1550,000 $0.31 7.0%<br />
Miscellaneous Costs $350,000 $0.23 3.9% $700,000 $0.15 3.4%<br />
Total $8,870,000 $5.92 100%<br />
$22,138,000<br />
$4.45 100.0%<br />
Mining Cost per tonne moved $1.03 $0.98<br />
Notes:<br />
1) <strong>The</strong> mining cost has been reduced from $1.03 to $0.98to reflect new larger scale contracts being negotiated with the mining contractors<br />
2) <strong>The</strong> Plant Process costs is based on experience to date<br />
3) Screening and Crushing assumes that 40% of the material will be crushed after the screening system is installed.<br />
53
16.2.1.4 Mexican Taxation<br />
16.2.1.4.1 Federal Corporate Tax<br />
Corporate taxable income is subject to federal corporate tax at a rate of 28% for <strong>2008</strong> and subsequent<br />
years. <strong>The</strong> income tax laws recognize the effects of inflation on the following items and transactions:<br />
depreciation of fixed assets, costs of sales of fixed assets, sales of capital stock (shares), monetary gains<br />
and losses, and tax loss carried forward. In addition, mandatory Profit Sharing (see below) is now<br />
deductible when calculating taxable income.<br />
Taxable income is computed in accordance with generally accepted accounting principles. Depreciation<br />
of tangible fixed assets and amortization of intangible assets is made with the straight-line method.<br />
Howe has assumed that all new capital has been depreciated over 10 years using the straight line method.<br />
No opening tax pools have been assumed. Business losses may be carried forward for 10 years and as<br />
noted above are subject to adjustment for inflation.<br />
16.2.1.4.2 Net Assets Minimum Tax<br />
<strong>The</strong> Net Assets Minimum Tax was eliminated in Mexico starting January <strong>2008</strong>. <strong>The</strong> federal government<br />
has replaced this tax with a new IETU flat minimum tax. <strong>The</strong> tax is calculated as 16.5% of the company's<br />
monthly profits. <strong>The</strong> tax is not paid in additional to the federal corporate tax (ISR - see section 16.2.4.1).<br />
At the end of each month the company calculates the taxes owing using both the ISR and IETU protocols.<br />
<strong>The</strong> higher of the two calculated values is then paid for that month.<br />
<strong>The</strong> main difference in the calculation procedures for the ISR and IETU taxes is that tax losses from<br />
previous years cannot be carried forward for the calculation of the new IETU. <strong>The</strong> IETU can be deducted<br />
or credited by the parent company in Canada.<br />
16.2.1.4.3 Value Added Tax (IVA)<br />
<strong>The</strong> 15% IVA is payable on any supply of goods and services including imports. <strong>The</strong> IVA payable can be<br />
reduced by IVA collected by the taxpayer in the course of its annual business operations.<br />
16.2.1.4.4 State Tax<br />
State taxes are based on salaries paid in the state during the tax year. <strong>The</strong> tax rate for State of <strong>Durango</strong> is<br />
1.375%.<br />
16.2.1.4.5 Other Payroll Taxes<br />
<strong>The</strong> company must pay a 15% Social Insurance Tax and a 5% Housing Contribution Tax based on annual<br />
payroll.<br />
16.2.1.4.6 Mining Tax<br />
During the period of exploitation, the mining lands tax is approximately $10 per hectare in year 1, and<br />
increases approximately 10% per year thereafter.<br />
For the purposes of this financial evaluation, it has been assumed that payroll related tax costs are<br />
included in the operating costs (i.e. State Tax, Social Insurance Tax and Housing Contribution Tax). It<br />
has also been assumed that IVA payable on contract mining services is included in the contract mining<br />
costs.<br />
16.2.1.4.7 Profit Sharing<br />
<strong>The</strong> company is required to pay a 10% profit sharing tax to its employees. Profit sharing is calculated in<br />
the same manner as Corporate Tax but is calculated before Corporate Tax and is deductible when<br />
calculating the Corporate tax. <strong>On</strong> the other hand, Corporate Tax is not be deducted when calculating<br />
Profit Sharing. Castle Gold has advised Howe that it will not be required to pay Profit Sharing Tax as it<br />
54
will be operating the mine indirectly through the use of a separate services company. All employees will<br />
be employed by the services company and any profits will flow directly to Castle Gold and will not incur<br />
Profit Sharing Tax.<br />
16.2.1.4.8 Financial Results<br />
<strong>The</strong> Base Case ($625 Gold)<br />
<strong>The</strong> Base Case scenario produces 488,000 ounces of gold, while mining 46.9 million tonnes of ore and<br />
28.2 million tonnes of waste at an overall cash cost of $3.58 per tonne of ore, or US$370 per ounce of<br />
recovered gold and a total of $4.6 million in capital costs over the mine life. <strong>The</strong> Base Case produces a<br />
Net Cash Flow of $95 million after all operating and capital costs, and corporate taxes are deducted. <strong>The</strong><br />
overall waste to ore ratio is 0.6:1.0.<br />
Sensitivity<br />
Howe has tested the sensitivity of the El Castillo project to changes in Gold Price and Operating and<br />
Capital Costs. As one would expect, the project is most sensitive to the price of gold followed by changes<br />
in the operating costs. Since El Castillo is an operating mine with most of its capital already sunk, the<br />
impact of changes in capital costs is quite small. Howe tested the Base Case for sensitivity by varying the<br />
prices and costs by changes of ± 30%. Tables 16, 17, and 18 illustrate the Sensitivity of the El Castillo<br />
project.<br />
55
Table 16. Sensitivity Analysis<br />
Sensitivity of Net Present Values (US$ millions) to changes in Gold Price, and<br />
Operating and Capital Costs - Discounted at 0%, 5%, 7.5% and 10%<br />
Gold Price Operating Cost Capital Cost<br />
Change $/oz 0.0% 5.0% 7.5% 10.0% $/t ore 0.0% 5.0% 7.5% 10.0% $millions 0.0% 5.0% 7.5% 10.0%<br />
-30% $<strong>43</strong>8 28.8 20.5 17.5 15.1 $2.51 131.4 97.9 85.5 75.3 $3.19 96.2 71.4 62.3 54.7<br />
-25% $469 39.8 28.8 24.8 21.5 $2.69 125.3 93.3 81.5 71.7 $3.41 96.0 71.2 62.1 54.5<br />
-20% $500 50.9 37.2 32.1 28.0 $2.87 119.3 88.7 77.5 68.1 $3.64 95.8 71.1 62.0 54.4<br />
-15% $531 61.9 45.5 39.4 34.4 $3.05 113.2 84.2 73.4 64.5 $3.87 95.6 70.9 61.8 54.2<br />
-10% $563 73.0 53.8 46.7 40.9 $3.23 107.2 79.6 69.4 60.9 $4.10 95.5 70.7 61.6 54.1<br />
-5% $594 84.0 62.1 54.0 47.3 $3.41 <strong>101</strong>.1 75.0 65.3 57.4 $4.32 95.3 70.6 61.5 53.9<br />
- $625 95.1 70.4 61.3 53.8 $3.58 95.1 70.4 61.3 53.8 $4.55 95.1 70.4 61.3 53.8<br />
+5% $656 106.1 78.7 68.6 60.2 $3.76 89.0 65.8 57.3 50.2 $4.78 94.9 70.2 61.1 53.6<br />
+10% $688 117.2 87.0 75.9 66.7 $3.94 83.0 61.2 53.2 46.6 $5.01 94.7 70.1 61.0 53.5<br />
+15% $719 128.2 95.3 83.2 73.1 $4.12 76.9 56.7 49.2 <strong>43</strong>.0 $5.23 94.5 69.9 60.8 53.3<br />
+20% $750 139.3 103.7 90.5 79.6 $4.30 70.9 52.1 45.2 39.5 $5.46 94.3 69.7 60.6 53.1<br />
+25% $781 150.3 112.0 97.8 86.0 $4.48 64.8 47.5 41.1 35.9 $5.69 94.1 69.5 60.5 53.0<br />
+30% $813 161.4 120.3 105.1 92.5 $4.66 58.8 42.9 37.1 32.3 $5.92 93.9 69.3 60.3 52.8<br />
56
Table 17. Sensitivity Analysis – Graphical Representation<br />
Table 18. <strong>Project</strong> Net Cash Flow at Selected Gold Prices<br />
57
Table 19. Financial scenario at $625/oz Au<br />
59
16.2.2 Economic Evaluation<br />
<strong>The</strong> Base Case financial scenario at a conservative gold price of US$625 per ounce (Table 19) shows the<br />
El Castillo <strong>Project</strong> to be NPV positive and economically viable. At a gold price of US$625, the El<br />
Castillo project creates an after tax Net Cash Flow of US$95.0 million with a Net Present Value of $70.4<br />
million at a discount rate of 5%, $61.3 million at 7.5% and $53.8 million at 10% discount rate. <strong>The</strong><br />
breakeven (after tax) long term gold price is approximately US$ 370/oz Au. <strong>The</strong> breakeven price includes<br />
recovery of capital and operating costs. For comparison purposes, Table 20 summarizes the NPV<br />
differences at a 10% discount rate and variable gold prices between the 2006 Howe report and the current<br />
report (Table 21).<br />
Table 20. NPV differences at a 10% discount rate.<br />
Gold Price (US$) NPV (10%) % Difference with Howe<br />
<strong>2008</strong> US$625 Base Case<br />
Scenario<br />
450* 12,350,000* 335<br />
500* 19,065,000* 182<br />
550* 25,783,000* 108<br />
600* 32,500,000* 65<br />
* Data from Howe 2006 <strong>Report</strong> #897<br />
Table 21. Gold Price Chart (1995-<strong>2008</strong>)<br />
60
<strong>The</strong> El Castillo <strong>Project</strong> contracts out a large amount of its operating costs including drilling, blasting,<br />
mining, truck haulage and crushing. Thus, the project will require very little capital to increase production<br />
to 4.8 million tonnes of ore per year. <strong>The</strong> breakeven gold price of $370 per ounce should be sufficiently<br />
low to protect El Castillo from a substantial drop in the price of gold. Thus Howe concludes the El<br />
Castillo <strong>Project</strong> is economically viable and robust under conservative operating scenarios.<br />
In the current evaluation, Howe has created an “Optimum Pit” for each of the gold prices from $550 to<br />
$700 per ounce of gold. In addition, Howe has optimized the mine production schedule to maximize the<br />
present value of the El Castillo project for the US$625/ounce Base Case. Thus, the present value of the<br />
Net Cash Flow for the $625 case discounted at 10% increases from $53.8 million to $64.3 million. This is<br />
done by mining the highest gold grades as early in the mining schedule as reasonably feasible. While<br />
Howe has not created optimized production schedules for each of the other optimum pits, using the grade<br />
schedule from the $625 case, Howe has created a pseudo-optimized production schedule for each of the<br />
other gold price cases. Table 22 illustrates the impact of optimizing the mine schedule on each of the<br />
other optimum pits using the 10% discount rate.<br />
<strong>The</strong> Exchange rate for the Mexican Peso and the US Dollar has been relatively stable for the last few years<br />
as compared to other Resource Exporters such as Canada, Australia, South Africa and Brazil, all of whom<br />
have experienced rapid increases in their exchange rates against the US dollar.<br />
Table 22. Impact of Mine Schedule Optimization based on a 10% Discount Rate<br />
61
Table 23. US$ - Mexican Peso Exchange Rate Chart (1990-<strong>2008</strong>)<br />
62
17.0 INTERPRETATIONS AND CONCLUSIONS<br />
17.1 CONCLUSIONS<br />
• <strong>The</strong> Property contains a low-sulphidation epithermal gold system.<br />
• Castle Gold has carried out many of the recommendations given in the 2002 and 2003 Howe reports;<br />
principally column and bottle roll metallurgical testing, bulk leach testing, and core drilling for<br />
comparison with, and verification of, the Battle Mountain RC drilling assays.<br />
• <strong>The</strong> metallurgical test work completed to date indicates that gold recoveries of between 68 and 72%<br />
are achievable, but would require crushing of 23-40% of ROM material to
• Castle Gold should complete geotechnical evaluations to determine if a steeper pit wall angle can be<br />
utilized for mine design purposes (in order to reduce mine strip ratios)<br />
• Castle Gold should purchase and install a weight station in order to better control the amounts hauled<br />
and the costs incurred by mine contractors<br />
• Castle Gold should continue to focus on opportunities to optimize the overall project economics.<br />
<strong>The</strong>se activities should include:<br />
• Completion of plans to install a screening plant ahead of the crushing system in order to<br />
minimize the amount of material passing through the crushers<br />
• Performing leach tests on numerous ore samples to better understand the variations in recoveries<br />
by rock/mineral types and optimal reagent additions;<br />
• Completing engineering evaluations of various project expansion scenarios in order to determine<br />
best combinations of capital costs and overall project cash flows;<br />
• Examining opportunities to “right size” present mining operations equipment fleet for maximum<br />
throughput and minimum operating costs;<br />
• Evaluating possibility for use of ore transport conveyors versus trucking activities;<br />
• Assessing alternate future leach pad locations with respect to minimizing ore haulage distances.<br />
64
18.0 SOURCES OF INFORMATION<br />
A. C. A. Howe International Limited (2002), Prefeasibility <strong>Report</strong>, El Cairo Gold <strong>Project</strong>, State of<br />
<strong>Durango</strong>, Mexico, for Castle Gold Minerals Limited, Toronto, Canada; Howe <strong>Report</strong> 845,<br />
available for public viewing on the TSX Sedar Filing website at http://www.sedar.com/.<br />
A. C. A. Howe International Limited (2003), Revised Prefeasibility <strong>Report</strong>, El Cairo Gold <strong>Project</strong>, State<br />
of <strong>Durango</strong>, Mexico, for Castle Gold Minerals Limited, Toronto, Canada; Howe <strong>Report</strong> 850,<br />
available for public viewing on the TSX Sedar Filing website at http://www.sedar.com/.<br />
A. C. A. Howe International Limited (2004), <strong>Technical</strong> <strong>Report</strong> on the 2003 Diamond Drill Program, El<br />
Cairo Gold <strong>Project</strong>, State of <strong>Durango</strong>, Mexico, for Castle Gold Minerals Limited, Toronto,<br />
Canada; Howe <strong>Report</strong> 861, 59 p.<br />
A. C. A. Howe International Limited (2006), Pre-Feasibility <strong>Report</strong> El Castillo <strong>Project</strong>, <strong>Durango</strong>,<br />
Mexico, for Castle Gold Minerals Limited, Toronto, Canada; Howe <strong>Report</strong> 897, 1<strong>43</strong> p<br />
Analytical Solutions Ltd, 2004, A Comparison of Reverse Circulation and Diamond Drill Core Assays<br />
for the El Cairo <strong>Project</strong>, <strong>Durango</strong>, Mexico prepared on behalf of Castle Gold Minerals Inc., 12 p.<br />
Babcock, C., 2006, Letter of sale release to Metals Research Corporation on March 6, 2006.<br />
Canadian Institute of Mining, Metallurgy and Petroleum, 2000, CIM Standards on Mineral Resources<br />
and Reserves, Definitions and Guidelines, 18 p.<br />
Cook D. R. and Simmons S. F., 2000, Characteristics and Genesis of Epithermal Gold Deposits: Society<br />
of Economic Geologists, Reviews in Economic Geology, v. 13, p.221-244.<br />
Consejo de Recursos Minerals, 1993. Monografia geologico-minera del estado de <strong>Durango</strong> 204p.<br />
Cormier, A., 1998, Metallurgical Summary of El Cairo Tests: in-house report for Battle Mountain Gold,<br />
8p.<br />
Iasillo, E., 2006, Letter <strong>Report</strong> to Castle Gold Minerals on Gold Recovery of Heaps 1 and 2: Metcon<br />
Research.<br />
Kappes, Cassiday and Associates, 2002, EL Cairo, Mexico, <strong>Project</strong> Review and Recommendations:<br />
<strong>Report</strong> prepared on behalf of A.C.A. Howe International Limited, Kappes, Cassiday &<br />
Associates, August 5, 2002, 10 p.<br />
Kappes, Cassiday and Associates, 2006a, Drill core leach test – interim data from Kappes, Cassiday &<br />
Associates.<br />
Kappes, Cassiday and Associates, 2006b, Bottle roll leach tests, a letter report from Kappes, Cassiday &<br />
Associates dated March, 24, 2006 (author: Manning, T.).<br />
Koningen, D. 2006, Castillo Metallurgical Review: in-house report for Castle Gold Minerals Inc., 21p.<br />
Long, S. D. 1998. Practical Quality Control Procedures in Mineral Inventory Estimation: Exploration<br />
Mining Geology, Vol. 7, Nos. 1 and 2, pp. 117-127.<br />
Minera Real del Oro, 2006, Sample Preparation Procedure for Column Tests: Summary <strong>Report</strong> by<br />
Mineral Real Del Oro staff.<br />
Northern Front LLC, 2006, Letter dated March 23, 2006 to Chris Babcock, President of Mineral Real<br />
Del Oro, S.A. de C.V.<br />
65
Panteleyev, A., 1996, Epithermal Au-Ag: Low Sulphidation, in Selected British Columbia Mineral<br />
Deposit Profiles, Volume 2 - Metallic Deposits, Lefebure, D.V. and Hõy, T, eds., British<br />
Columbia Ministry of Employment and Investment, Open File 1996-13, pp 41-44.<br />
White, N. C. and Hedenquist, J. W., 1995, Epithermal Gold Deposits: Styles, Characteristics and<br />
Exploration: SEG Newsletter, Number 23, 6 p.<br />
66
19.0 CERTIFICATES OF AUTHORS<br />
DANIEL C. LEROUX<br />
37 Pittmann Cres,<br />
Ajax, <strong>On</strong>tario, L1S 3G4<br />
Telephone: +1-905-686-3786<br />
Email: dclerouxpgeo@yahoo.ca<br />
CERTIFICATE of AUTHOR<br />
I, Daniel C. Leroux, B.Sc., P.Geo. (ON, SASK), do hereby certify that:<br />
1. I have been employed since 2007 as Vice President, from 2005 to 2007 as a Senior<br />
Consulting Geologist, from 1999 to 2004 as an associate consulting geologist and from<br />
1993 to 1999 as <strong>Project</strong> Geologist with the firm of A.C.A. Howe International Limited,<br />
Mining and Geological Consultants located at 365 Bay St., Suite 501, Toronto, <strong>On</strong>tario,<br />
Canada. M5H 2V1.<br />
2. I graduated with a Bachelor of Science, Geology degree from <strong>La</strong>urentian University in<br />
1993.<br />
3. I am a Professional Geoscientist (P.Geo.) registered with the Association of Professional<br />
Geoscientists of Saskatchewan (APEGS, No. 10475) and with the Association of<br />
Professional Geoscientists of <strong>On</strong>tario (APGO, No. 742), a member of the Canadian<br />
Institute of Mining and Metallurgy and of the Society of Economic Geologists.<br />
4. I have a total of 18 years of direct experience with gold projects located in Canada, Africa<br />
and South America, including managerial responsibilities for all various exploration stage<br />
gold projects from conceptual grassroots exploration projects to resource estimation and /<br />
or feasibility studies on advanced gold projects. Additional experience includes the<br />
completion of various National Policy 2A and NI <strong>43</strong>-<strong>101</strong> technical reports for gold<br />
projects worldwide.<br />
5. I have read the definition of “qualified person” set out in National Instrument <strong>43</strong>-<strong>101</strong> (“NI<br />
<strong>43</strong>-<strong>101</strong>”) and certify that by reason of my education, affiliation with a professional<br />
association (as defined in NI <strong>43</strong>-<strong>101</strong>) and past relevant work experience, I fulfill the<br />
requirements to be a “qualified person” for the purposes of NI <strong>43</strong>-<strong>101</strong>.<br />
6. I am responsible for all sections of the technical report and share responsibility for<br />
Section 16 and the portions of the summary, conclusions and recommendations that are<br />
based on those sections of the technical report titled: “<strong>Technical</strong> <strong>Report</strong> on the El Castillo<br />
Gold <strong>Project</strong>, <strong>Durango</strong> State, Mexico for Castle Gold Corporation dated July 31, <strong>2008</strong><br />
(the “<strong>Technical</strong> <strong>Report</strong>”). I visited the property on December 1, 2007.<br />
7. I have not had prior involvement with the issuer, nor with the property that is the subject<br />
of the <strong>Technical</strong> <strong>Report</strong><br />
8. I am not aware of any material fact or material change with respect to the subject matter<br />
of the <strong>Technical</strong> <strong>Report</strong> that is not reflected in the <strong>Technical</strong> <strong>Report</strong>, the omission to<br />
disclose which makes the <strong>Technical</strong> <strong>Report</strong> misleading.
9. To the best of my knowledge, information and belief, the <strong>Technical</strong> <strong>Report</strong> contains all<br />
scientific and technical information that is required to be disclosed to make the <strong>Technical</strong><br />
<strong>Report</strong> not misleading.<br />
10. I am independent of the issuer applying all of the tests in section 1.5 of National<br />
Instrument <strong>43</strong>-<strong>101</strong>.<br />
11. I have read National Instrument <strong>43</strong>-<strong>101</strong> and Form <strong>43</strong>-<strong>101</strong>F1, and the <strong>Technical</strong> <strong>Report</strong><br />
has been prepared in compliance with that instrument and form.<br />
12. I consent to the filing of the <strong>Technical</strong> <strong>Report</strong> with any stock exchange and other<br />
regulatory authority and any publication by them, including electronic publication in the<br />
public company files on their websites accessible by the public, of the <strong>Technical</strong> <strong>Report</strong>.<br />
DATED this 31st Day of July, <strong>2008</strong>.<br />
(Signed and sealed)<br />
Daniel C. Leroux, B.Sc., P. Geo.<br />
68
W.DOUGLAS ROY<br />
35 Colbeck Street<br />
Halifax, Nova Scotia, PC<br />
CERTIFICATE of AUTHOR<br />
I, W. Douglas Roy, M.A.Sc., P.Eng. do hereby certify that:<br />
1. I am an associate mining engineer with the firm of A.C.A. Howe International Limited,<br />
Mining and Geological Consultants located at 330 Bay St., Suite 830, Toronto, <strong>On</strong>tario,<br />
Canada, M5H 2S6.<br />
2. I obtained a Bachelor of Engineering degree from Dalhousie University in 1997 and a<br />
Master of Science Applied degree from Dalhousie University in 2000.<br />
3. I am a Professional Engineer licensed to practice with Professional Engineers of Nova<br />
Scotia.<br />
4. I have practiced my profession continuously since graduation for 10 years.<br />
5. I have read the definition of “qualified person” set out in National Instrument <strong>43</strong>-<strong>101</strong> (“NI<br />
<strong>43</strong>-<strong>101</strong>”) and certify that by reason of my education, affiliation with a professional<br />
association (as defined in NI <strong>43</strong>-<strong>101</strong>) and past relevant work experience, I fulfill the<br />
requirements to be a “qualified person” for the purposes of NI <strong>43</strong>-<strong>101</strong>.<br />
6. I share responsibility for Section 16 of the technical report titled: “<strong>Technical</strong> <strong>Report</strong> on<br />
the El Castillo Gold <strong>Project</strong>, <strong>Durango</strong>, Mexico for Castle Gold Corporation dated July 31,<br />
<strong>2008</strong> (the “<strong>Technical</strong> <strong>Report</strong>”) I have not visited the El Castillo property.<br />
7. I have not had prior involvement with the issuer, nor with the property that is the subject<br />
of the <strong>Technical</strong> <strong>Report</strong>.<br />
8. I am not aware of any material fact or material change with respect to the subject matter<br />
of the <strong>Technical</strong> <strong>Report</strong> that is not reflected in the <strong>Technical</strong> <strong>Report</strong>, the omission to<br />
disclose which makes the <strong>Technical</strong> <strong>Report</strong> misleading.<br />
9. To the best of my knowledge, information and belief, the <strong>Technical</strong> <strong>Report</strong> contains all<br />
scientific and technical information that is required to be disclosed to make the <strong>Technical</strong><br />
<strong>Report</strong> not misleading.<br />
10. I am independent of the issuer applying all of the tests in section 1.5 of National<br />
Instrument <strong>43</strong>-<strong>101</strong>.<br />
11. I have read National Instrument <strong>43</strong>-<strong>101</strong> and Form <strong>43</strong>-<strong>101</strong>F1, and the <strong>Technical</strong> <strong>Report</strong><br />
has been prepared in compliance with that instrument and form.<br />
12. I consent to the filing of the <strong>Technical</strong> <strong>Report</strong> with any stock exchange and other<br />
regulatory authority and any publication by them, including electronic publication in the<br />
public company files on their websites accessible by the public, of the <strong>Technical</strong> <strong>Report</strong>.<br />
DATED this 31st Day of July, <strong>2008</strong>.<br />
(Signed and sealed)<br />
W. Douglas Roy, M.A.Sc., P. Eng.<br />
69
CERTIFICATE OF AUTHOR<br />
dated July 31, <strong>2008</strong><br />
I, Gordon Watts, do hereby certify that:<br />
1. I reside at 347 Berkeley Street, Toronto, <strong>On</strong>tario, Canada, M5A 2X6<br />
2. I am a graduate from the University of Toronto, Toronto, <strong>On</strong>tario with a B.A.Sc. Degree in<br />
Mining Engineering (1966), and I have practised my profession continuously since 1969.<br />
3. I am a member of the Association of Professional Engineers <strong>On</strong>tario (Membership Number<br />
49149016).<br />
4. I am a Senior Associate Mineral Economist with ACA Howe A.C.A. Howe International Limited,<br />
Mining and Geological Consultants located at:<br />
330 Bay St., Suite 830,<br />
Toronto, <strong>On</strong>tario,<br />
Canada.<br />
M5H 2S6<br />
A firm of consulting geologists and engineers, which has been authorized to practice professional<br />
engineering by Professional Engineers <strong>On</strong>tario since 1971, and professional geoscience by the<br />
Association of Professional Geoscientists of <strong>On</strong>tario.<br />
5. I am a qualified person for the purpose of NI <strong>43</strong>-<strong>101</strong>. I have worked as a professional engineer<br />
for over 42 years since graduation. My relevant experience for the purpose of this <strong>Technical</strong><br />
<strong>Report</strong> is:<br />
• <strong>The</strong> preparation of over 250 financial models during the past 28 years;<br />
• Skilled in tax modelling, risk analysis and Monte Carlo simulations;<br />
• Constructed numerous mining cash flows models for mining consulting companies e.g. ACA<br />
Howe ; Watts, Griffis and McOuat; Scott Wilson Roscoe Postle Associate;; MPH; Derry<br />
Michener Booth and Wahl; and<br />
• Prepared reports on mineral properties throughout Canada, the United States of America and<br />
internationally.<br />
6. I have visited the mining properties.<br />
7. I was solely responsible for Parts of Section 16 and 17 of <strong>The</strong> <strong>Technical</strong> <strong>Report</strong> <strong>On</strong> <strong>The</strong> El<br />
Castillo Gold <strong>Project</strong>, <strong>Durango</strong>, Mexico For Castle Gold Corporation.<br />
8. I have no personal knowledge as of the date of this certificate of any material fact or change,<br />
which is not reflected in this report.<br />
9. Neither I, nor any affiliated entity of mine, is at present, under an agreement, arrangement or<br />
understanding or expects to become, an insider, associate, affiliated entity or employee of Castle<br />
Gold, or any associated or affiliated entities.<br />
70
10. Neither I, nor any affiliated entity of mine own, directly or indirectly, nor expect to receive, any<br />
interest in the properties or securities of Castle Gold Corporation, or any associated or affiliated<br />
companies.<br />
11. Neither I, nor any affiliated entity of mine, have earned the majority of our income during the<br />
preceding three years from Castle Gold Corporation, or any associated or affiliated companies.<br />
12. I have read NI <strong>43</strong>-<strong>101</strong> and Form <strong>43</strong>-<strong>101</strong>F1 and have prepared the technical report in compliance<br />
with NI <strong>43</strong>-<strong>101</strong> and Form <strong>43</strong>-<strong>101</strong>F1; and have prepared the report in conformity with generally<br />
accepted Canadian mining industry practice, and as of the date of the certificate, to the best of my<br />
knowledge, information and belief, the technical report contains all scientific and technical<br />
information that is required to be disclosed to make the technical report not misleading.<br />
Gordon Watts, B.A.Sc., P.Eng.<br />
July 31, <strong>2008</strong><br />
71
Appendix A<br />
Pit Optimization Level Plan Maps
Ultimate Pit Limit (Blue) - Yr 11<br />
Year 7 (Green)<br />
Year 9 (Magenta)<br />
Year 4 (Red)