As we move into 2001, I am delighted to announce that your Company has passed another major milestone with the successful completion of the Scoping Study for the Prairie Creek Project. This study forms the blueprint for the future development of the mine at Prairie Creek and lays out the development options for a successful and profitable mining operation. We will be working over the next season to convert this Study to a full bankable feasibility study and at the same time we are now confident enough in the development to move ahead positively on applications for final permits to operate a mine.

The Study has taken six months to complete and includes metallurgical testwork, mill re-design, alternative mining methods, inclusion of paste backfill in the mine design, capital and operating cost estimates, a review of smelter terms and conditions for the Prairie Creek concentrates and other operating parameters. It was prepared in house using independent consultants and contractors at a cost of approximately $400,000 and demonstrates that a 1500 tonne per day mining operation can be established at Prairie Creek producing in the order of 95 million pounds of saleable zinc annually over at least 18 years (based on the current known resource of 11.8 million tonnes grading 10.1% Pb, 12.5% Zn, 0.4% Cu and 161 gpt Ag estimated by MRDI a wholly owned subsidiary of AMEC E&C Services Limited in 1998.)

The base case indicates a break-even cash cost of production of US 34.5 cents per pound of saleable zinc after by-product credits, but before financing and taxation. The operation will take advantage of the existing mine and mill infrastructure put in place by the Hunt Brothers in 1982, at a cost of CDN$67 million, but never operated. The replacement cost of this mine and mill is estimated at $100 million in today’s dollars. Indicated capital costs for the new operation range from CDN$40.5 million to CDN$21.7 million depending on the final configuration of the operation and the construction of an all weather, or winter only, access road.

The base case financial model indicates that the operation at a capital cost of CDN$40.5 million would have a pre-tax and financing IRR of 45.6% and an NPV (at 10% discounted cash flow) of CDN$97.2 million dollars over the first ten years of a minimum 18 year mine life. The study used long term metal prices of US$0.90 per lb – Cu, US$0.50 per lb – Zn, US$0.25 per lb – Pb and US$5.50 per ounce Ag. The Canadian dollar was kept constant at US$0.66. On this basis, for every cent the Zn price is over the break-even production cost of US 34.5 cents per pound; pre tax and financing cash flow increases by around US$0.64 million per annum.

It should be noted that the Economic Assessment in the Scoping Study is preliminary and partially based on Resources that are considered too speculative to be categorized as Reserves in accordance with National Instrument 43-101. In addition, the Scoping Study is preliminary in nature and despite the existing underground development in the ore body and the on-site mill; the assumptions made within the Scoping Study and its subsequent results may not be attained. It is for this reason that the Company has put forward a development program designed to lead to a full bankable feasibility study and obtaining of the applicable permits, prior to final development taking place.

The comprehensive study examined a number of different development and production scenarios to come up with what we consider to be the most likely case for early development of the operation. We looked mostly at improvements to the existing mill to allow it to treat more ore and at ways of mechanizing underground to improve operating efficiency. Metallurgical testwork gave us a lead to gravity separation of the ore before grinding and flotation. Prairie Creek ore is very high grade and as a consequence, the valuable portions of the ore are heavier and easily separated from the lighter waste or gangue minerals. We have harnessed this fact into a simple plant change that will allow us to reject at least 40% of all the material fed to the mill, while losing very little of the valuable sulphide minerals.

Spiral concentrators have been used for generations to separate minerals of differing densities. Modern spirals simply do this better without the use of chemicals. It is our intention to use spirals to complete a gravity separation of the ore and waste minerals prior to fine grinding and flotation. The ore will be crushed to minus 5 mm and then lightly ground to minus 1mm. At this point the mineral will be slurried and fed to spiral concentrators which will carry out rejection of the waste totalling 40% of the total tonnage fed to the mill using gravity. This means that the existing grinding mill and flotation plant, originally built to treat 1000 tonnes per day can be easily and cheaply expanded to treat at least 1500 tonnes per day.

The gravity plant is cheap to install, simple to run and relatively easily automated. A two bay extension will be added to one end of the existing mill to accommodate the spirals and additional thickening and filtration capacity, plus a paste backfill plant. Another advantage of the spiral plant is that in addition to rejecting most of the waste material, because that waste material is hard, it also reduces the grinding horsepower required in the mill; a second benefit to this operation that relies on diesel generation for it’s power. Additionally, the concentration process, as it’s name suggests, increases the grade of mineralisation fed to the flotation section significantly, resulting in better recoveries and decreased reagent usage. All these things help to improve the economics of the operation as a whole.

Increasing throughput to the mill also means that we need increased filtration capacity to dry the concentrate and this will be achieved by increasing the capacity of the existing new Larox filters already on site. In addition a new small copper concentrate filter will be added to the circuit, to handle this concentrate separately. This machine will be left over from the proposed pilot plant program which we plan to run this year. Other major changes to the mill will be the introduction of two additional small regrind mills to ensure concentrate quality and a number of additional float cells to ensure capture of as much of the zinc as possible, as it is this zinc that forms the backbone of the operation.

Finally, any increase in throughput in the mill produces a similar increase in tailings and inert gravity rejects. The current tailings pond, while engineered to withstand the worst possible case, “a Probable Maximum Flood”, has a limited storage capacity. As a consequence, the Company intends to place the majority of tailings produced at this operation underground by the use of paste or cemented backfill. This means that the gravel from the gravity process and the finely ground rock waste from the operation is dried to around 12 to 16% moisture and then mixed with up to 3-5% cement before being pumped underground back to the working areas from where it came. This will minimise the use of the tailings impoundment for storage of tailings solids and therefore minimise potential risks to the downstream environment. With this change the tailings impoundment becomes essentially a process water settling and reclaim pond, which also reduces the fresh water requirements for the operation on a per tonne basis.

Mining underground will also embrace advances in technology brought about since the Hunt Brothers first constructed the mine and mill at Prairie Creek. Alimak stoping, shorthole open stoping and cut and fill stoping will take advantage of modern mining equipment and the ability of the mill to reject unwanted waste early in the process. Major cost items in the North will always be labour and power and both of these concerns are addressed by increasing mechanization of the mining process.

The future of the project is in successfully lowering the costs underground and proving up the milling and tailings disposal proposals. With this in mind, the Company is proposing to install a small air portable pilot plant within the existing mill building to mimic the gravity, flotation, filtration and tailings disposal processes. This program is expected to take place this summer, subject to obtaining the necessary permits. In addition we would like to carry out additional drilling to increase confidence in the resource to be mined in the early part of the operation and to outline additional amounts of thicker underlying Stratabound ore. This can be carried out from surface, using the two Super 38 rigs we currently own; or, if funds permit, from an underground decline, that would allow us to access vein material below the existing 5km of workings and get a better intersection angle for underground delineation drilling.

Discussions with concentrate sales professionals and preliminary discussions with smelters indicate that the Prairie Creek concentrates will be readily saleable, subject to the payment of penalties for high impurity levels, including mercury in the vein zinc and copper concentrate. Cash flows for the base case have been prepared taking into account these penalties. A number of upside scenarios exist for the operation including reduction of penalty levels in the concentrate and further mechanization at the mine to reduce cost. All these alternatives will be examined further during the feasibility study process and do not form part of the base case.

In order to ensure that we had not overlooked any obvious fatal flaws in our mine and mill design, we invited Micon International of Toronto to examine the Study. They confirmed that the Company has incorporated all of the elements necessary for a scoping study and that the assumptions made within are considered reasonable for a study of this nature. We know that we have a significant amount of work to advance this study to full bankable feasibility; however, with such a positive result to our Scoping Study and the long mine life from the existing resource, we expect to have more good news as the work progresses.

As you know, the Nahanni Butte Dene Band of the Deh Cho First Nations signed the Prairie Creek Development Cooperation agreement with the Company in 1996.

The Agreement provides for the First Nations to purchase a partnership position in the project, as well as employment and contracting opportunities for First Nations businesses. The Company is committed to continuing to work closely with the Deh Cho First Nations on the development of the property and to realize the aims of the Agreement. As we move forward, we hope to build on this relationship and ensure that our First Nations partners are kept fully informed of our progress on the project and our intentions for the future.

The development of the project through the operation of a pilot plant and surface and underground exploration drilling this year, is dependent on permits to be issued by the Mackenzie Valley Land and Water Board, for which applications will be submitted in the near future. Timely receipt of these permits will allow the orderly execution of the work necessary to finalise the Feasibility Study and subsequent permitting and construction of the revised mine and mill design.

At the same time, your Company also continues to work on the re-permitting of the operation as a whole, which was fully permitted for operation in 1982, but never operated. These permits have now lapsed and it is expected that a full permit application will be made to Mackenzie Valley Land and Water Board for an operating permit and water license this year. In the light of the earlier permits and the extensive database of environmental background studies, it is expected that a permit could be forth coming by late 2002. With a completed feasibility study by the end of 2001 and the final permits in hand, then operations could commence early in 2003.

All in all, an exciting and challenging period for the Company and one which has benefited from the enthusiasm and dedication of our staff. We know we will carry forward this level of energy and achievement in to the new year and look forward to further development of the project. Based on our work to date, we are confident that a mine at Prairie Creek could have a long and profitable lifespan, with current resources giving a mine life in excess of 18 years. When combined with the exploration potential for the area, this could lead to the development of a significant, long term, mining operation and a major profit centre for the Company, the Nahanni Butte Dene Band, the Deh Cho First Nations and Northwest Territories.

Additional information on the Scoping study is included in a separate section on this web site; but if you have any other queries on your company or our progress to date, please do not hesitate to contact our Chairman, John MacPherson or myself on the Company’s toll free number, 1-866-688-2001. Looking forward to another successful year.

Yours sincerely,

Malcolm J.A. Swallow
President and CEO

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President's Message - July 2000